The gift-tax payable by the donee cannot be treated as consideration and allowed as a permissible deduction under the Gift-tax Act, 1958.

K.S. Puttaswamy, J.—In this reference made under section 26(1) of the Gift-tax Act, 1958 (Central Act 18 of 1958) (the Act), the Income Tax Appellate Tribunal, Bangalore Bench, Bangalore (Tribunal), at the instance of the Revenue, has referred the following question of law for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the gift-tax payable, which was agreed to be paid by the donee, has to be deducted, as a consideration within the meaning of section 4(1)(a) of the Gift-tax Act, 1958 ?" In order to appreciate the question referred to us, it is necessary to notice the facts that are not in dispute.

2. Under a deed of settlement dated March 31, 1973 (annexure-A), the assessee settled her half share in a valuable immovable property, a hotel complex known as "Tourist Hotel" bearing Door Nos. 21, 21/1, 21/2 and 21/3, situated on Race Course Road, Bangalore-9, in favour of one Venkatesha Madi of Bangalore, her foster son, with a condition that he shall pay a sum of Rs. 25,000 to one Smt. R. Ahalya and the gift-tax payable by her under the Act and the same was accepted by him with those conditions.

3. In her return filed under the Act before the Gift-tax Officer, Assessment-5, Circle-I, Bangalore, for the assessment year 1973-74, relevant to the previous year ending on March 31, 1973, the assessee claimed that the value of the property gifted by her was Rs. 2,00,000 and the gift-tax payable by the donee should be allowed as a permissible deduction under the Act. On March 5, 1974, the Gift-tax Officer completed the assessment, determined the value of the property at Rs. 2,75,000 and rejected the claim of the assessee to allow the gift-tax payable by the donee as a permissible deduction under the Act with which claim only we are concerned in this reference. Aggrieved by the order made by the Gift-tax Officer, the assessee filed an appeal in Appeal No. GRA. 2174-75 before the Appellate Assistant Commissioner of Gift-tax, Bangalore, who by his order dated August 12, 1976, dismissed the same (annexure-C). Aggrieved by the said orders of the Appellate Assistant Commissioner and the Gift-tax Officer, the assessee filed a second appeal before the Tribunal in Appeal No. G.T.A. 26/Bang./1976-77 which on December 14, 1977, has allowed the same in so far as it related to deduction of gift-tax payable by the donee. Hence, this reference.

4. Sri K. Srinivasan, learned senior standing counsel for the Income Tax Department, assisted by Sri H. Raghavendra Rao, junior standing counsel for the Income Tax Department, appeared for the Revenue. Sri S. P. Bhat, learned advocate, appeared for the assessee. Sri Srinivasan has urged for answering the question in favour of the Revenue on the ground that gift-tax payable by the donee on the plain language of section 4(1)(a) of the Act was neither consideration nor a permissible deduction at all.

5. Sri Bhat, in supporting the view propounded by the Tribunal as sound and correct, has urged for answering the question in favour of the assessee.

6. Earlier, we have noticed that while the assessee valued the property gifted by her at Rs. 2,00,000, the Gift-tax Officer valued the same at Rs. 2,75,000 with which the Appellate Assistant Commissioner concurred. As we apprehend, the Tribunal does not appear to disturb the same. We, however, do no not consider it necessary to examine the same.

7. On the claim made by the assessee to deduct the gift-tax payable by the donee as a deduction, the Gift-tax Officer expressed thus :

"2. Deduction of gift-tax liability. -The claim for deduction of gift-tax payable from the total value of the gift is not admissible because there is no provision in the Gift-tax Act for the deduction of such a liability. It makes no difference as to whether any mention is made in the gift deed creating a charge on the settled property in respect of the gift-tax payable. Even without any such spe