The Commissioner of Gift Tax, Kerala v. Dr. George Kuruvilla

J 7:! **A** **THE COMMISSIONER OF GIFr-TAX, KERALA** _v._ **DR. GEORGE KURUVILLA** _April_ 24, 1970 **B** ### c **E** **f** **G** **H** [J.C. SHAH, K. S. HEGDE AND A. N. GROVER, **JJ.]** _Gift-•ax Act,_ (18 o/1958) _s._ 5(1) (tiv)-Gift _of_ _Ho.1pitt1/_ _building_ _h.v_ _medical practitioner to his son who later joins donor's_ _profession-Gift_ _**describ;td**_ _**as**_ _**for love and**_ _**affection-Whether**_ _**exenzp; under s.**_ **5(l)(xiV).** The assessee-a medical practioner, by a detd gifted a hospital building and land appurtenent thereto his son. The gift-deed recited that the **gift** **was** **made** **"out** **of** **love** **anci** **affection··. The** **asses.set.:** **clai'lled** **ex.emp-** tion from gift-tax liability under s. _5_ ( 1) (xiv) of the Gift Tax Act 1958 on the ground that a few months after the gift his son had graduated in **medicine** **and** **had** **joined** **"he** **assessee's** **profession.** **No** **·evidence** **was** placed before the taxing autho•ities that the gi'ft was made io the course of carrying on the business of tk douor. the Gift-tax Officer rejected the **claim,** **and** **thl!** **order** **was** **affirmed** **by** **the** **Appellate Commissioner.** **The** Appellate Tribunal held that the assessee was exempt from liability to pay Gift-tax. On reference, the High Court upheld the Tribunal's order. In appeal by the Revenue. this Court. HELD ; The assessee wa, not entitled to the exemption under s. _5_ (I) (xiv) of the Act. The donor is exempt under s. 5( I )(xiv) from liability **o pay** **tax** **only** **if** **the gift** **is** **in** **the course** **of** **carrying on a business. pro-** **ession or \location** **and** **is** **made** _**hona**_ _**flde**_ **for** **the** **purpose** **of** **such business,** # **l** profe~sion **or vocation.** **The clause does not enact** **that** **a gift made** **by** **a** **person** **carrying** **on** **any** **business** **is** **exempt** **from** **tax,** **nor** **does** **it** **prc-vide** that a gift is exempt from tax because the -propcrcy is used by the donor. Without deciding whether the test of "commercial expedience" is strictly appropriate to a claim for eremption under s. 511)(xiv1 of the Gift Tax **Act-there** **was** **no** **evide:icc on the record** **in** **this case to provi: that the** gift was "in the course oi carryin~ on the business" ol the donor, and "for the purpose of the husiness". [375 G-H; 376 Al C1v11 .. APPELLATE JURISDICTION: . Civil Appeal No. 764 of 1967.' . Appeal from the judgment and order dated April 2, 1965 of the Kerala High Court in I.T.R. Case No. 26 of 1964. _B,_ _Sen,_ _S._ _K._ _Aiyar_ and _B._ D .. _Sharma._ for the appellant. - The respondent did not appear. The Judgment of the Court was delivered by Shllh, **J.** By our order dated January 1, 1969, we directed the Income-tax Appellate Tribunal to ~ubmit a supplementary statement of the case together with a copy of the deed of gift ##### dated February 3, 1960 executed by the respondent. The Tri L12SupCl/70-to 374 SUPREME COURT REPORTS (19 71 J 1 S.C.R. bunal has submitted the supplementary statement of tle case together with a copy of the deed of gift exe.cuted by the respondent on February 3, 1960. The respondent is a medical practitioner. By the deed dated February 3, 1960 he has given to his son Thomas four iteos of property : ( 1) one-fifth share in cardamom estate valued at Rs. 3,030.80; (2) 1.38 cents of garden land valued at Rs. 4,500; (3) G. K. Hospital Building erected on the garden land valued at Jls. 17,250; and ( 4) Othi rights valued at Rs. 6,000. B ## c D E F H ; In response to a notice under s. 13 (2) of the GMt Tax Act 18 of 1958 the assessee filed a return for the assessment year .1960-61 disclosing taxable gifts of property valued at Rs. 27,251. But he claimed exemption in respect of item No. (2), i.e. the -garden land. In the course of the hearing the respondent claimed that the G.K. Hospital Building item No. (3) was also exempt from liability to gift-tax because of s. 5(1) (xiv) of the·Gift-tax Act. It was t;,e case of the respondent that his son Thomas had graduated in the medical science at an examination held _in December 1959 and had joined the respondent's profession as a House-Surgeon in July 1960, and on that account the gifts in . respect of items _(_ 2) & ( 3) were exempt from liability to tax. The Gift-tax· Officer rejected the .claim. The Appellate Assistant Commissioner confirmed tHe order of the Gift-tax Officer. The ·Appellate Tribunal held that the respondent was entitled to exemption in respect of items (2) and (3). At the instance of the Commissioner of Gift Tax, the Tribunal referred the following question to the High Court of Kerala for <>pinion: At the instance of the Commissioner of Gift Tax, the Tribunal referred the following question to the High Court of Kerala for "Whether on the facts and in the circumstances of the case, the. as~essee was entitled to the exemption in respect of G.K. Hospital and the adjoining land of 1.38 cents under s. _5_ (I )(xiv) of the Gift Tax Act ?" The High Court answered the question in the affirmative. The Commissioner of Gift Tax, Kerala, has appealed to this Court. Section _5_ of the Gift Tax Act provides for exemption in respect of certain gifts : insofar as it is relevant it provTdes : " ( 1) Gift-tax shall not be charged under this Act in respect of gifts made by any person . (xiv) in the course of carrying on a business, pro fession or vocation, to the extent to which the gift is proved to the satisfaction of the Gift-tax Officer to have A B ## c D #### • E F G H COMMR, OF GIFT TAX _v._ G. KURUVILLA _(Shah,_ J.) 375 been made _bona_ _fide_ for the purpose of such business, profession or vocation." The respondent practises the profession of medicine. A few months aftert the deed of gift his sor. Thomas also qualified to be a medical practitioner. But there is nothing in the deed of gift which even remotely suggests that the gift wa.,; made by the respondent in the course of his · profession and _bona_ _fide_ for the purpose of carrying on his profession as a practitioner in medicine. The recitals in the deed are clear : it is r.ecited in the deed that the gift was made 'out of love and affection". There was no evidence before the taxing authorities that the gift was made to the donee Thomas in the course of carrying on the business by the donor or for the purpose of such business, profession or vocation. The Tribunal observed in · paragraph· 7 of the judgement : "There is no finding that the assessee has ceased to carry on his professiol) as a doctor, Therefore it will be clear that the gift had been. mac!e in the course of the carrying on the profession. Now the next condition is that it should have bee11 made for the purpose of the pro fession. It is not the case of the Department thaf the gift property had been used for any purpose other than .;.vhat it had been put to while it was with the donor. The High Court observed : "We feel it difficult to resist the conclusion that in the background and circumstances, the gift could well be regarded as having been made for the better ordering of the business of the assessee. . . . . it would be enough to show that the gift was made on gfounds of commercial expediency and in order to directly or indirectly facilitate the carrying on of the business, profession or vocation " We are unable to agree with the views so expressed. The donor is exempt under s. 5(l)(xiv) from liability to pay tax only if the gift is in the course of carrying on a business, profession or vocation and is made _bona fide_ for the purpose of such business, profession or vocation. The clause does not enact that a gift mad.e by a person carrying on any business is exempt from tax, nor does it provide that a gift is exempt from tax merely because the property is used for the purpose for which it was used by the donor .. Without deciding whether the test of "commercial expediency" is strictly appropriate to the claim ##### _I_ 376 .SUPREME COURT REPORTS [1971 J l S.C.R. for exemption under s. 5 (1) (xiv), we are of the view that chc;e is no evidence on the record to prove that the gift to Thomas was "in the course of carrying on the business" of the donor, _and "for the purpose of the business". The appeal is allowed and the oroer passed by the ! Ii,;h Court is set aside. The Commissioner of Gift Tax will "et; his costs in this Court and the High Court. Appeal allowed. A B