Levy of tax on gift of agricultural lands.

Jagadisan, J:-

The question raised is whether the Gift-tax Act, 1958 (Act XVIII of 1958) enacted by the Parliament is within its legislative competence in so far as the Act purports to levy a tax on gifts of agricultural lands.

The petitioner executed a settlement deed on 8th April, 1957, in favour of his niece, Manonmani Ammal, and thereby gifted an extent of 20 acres, 28 cents of agricultural lands. He also made a gift under an instrument dated 7th April, 1957, of an extent of 114 acres, 38 cents. of agricultural lands in favour of his two sisters Gajalakshmi and Savitri. The Gift-tax Officer, Cuddalore, called upon the petitioner by notice dated 4th December, 1958, to furnish a return in the prescribed form of all gifts made by him for the year ending 31st March, 1958. The Officer exercised his jurisdiction under the provisions of the Gift-tax Act, 1958. The petitioner submitted a return and disclosed the two settlement deeds referred to above. By order dated 7th April, 1960, the Officer assessed the petitioner to gift-tax of Rs. 8,520 valuing the agricultural lands at Rs. 1,54,000. On such assessment the petitioner was called upon to pay the tax on or before 15th May, 1960. In this petition the petitioner prays for the issue of a writ of certiorari under Article 226 of the Constitution to quash the order of assessment to tax.

The Gift-tax Act, 1958, is impugned on the ground that the topic of agricultural lands falls within the exclusive competence of the State Legislature, that the said topic is outside the purview of the powers of the Parliament and that a tax on agricultural lands which is no doubt permissible under the Act cannot be levied by the Parliament but only by the State Legislature. The short point that arises for consideration is whether the Parliament is competent to legislate imposing tax on gifts or transfers of agricultural lands.

We shall first examine the scope and ambit of the Gift-tax Act. In substance the design of the Apt is to levy and collect tax on gifts. Gift is defined as the transfer by one person to another of any existing movable or immovable property made voluntarily without consideration in money or money's worth. The charging section, section 3 provides that:

“There shall be charged for every financial year commencing on and from the 1st day of April, 1958, a tax (hereinafter referred to as gift-tax) in respect of the gifts, if any, made by a person during the previous year (other than gifts made before the 1st day of April, 1957) at the rate or rates specified in the Schedule.”

The rate of tax prescribed by the Schedule ranges between 4 per cent to 40 per cent. Section 4 enacts that where property is transferred otherwise than for adequate consideration the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift under the Act. This is a deeming provision, subjecting a transaction , which is not a gift either under the definition of that term under that Gift-tax Act or under its definition under the Transfer of Property Act, to charge. Section 4 comprises various transactions covered by the clauses mentioned therein which are deemed to be gifts chargeable to tax. Such creation of a statutory fiction is not unknown or unfamiliar, particularly in taxing enactments. Section 5 of the Act is the exemption provision. One exemption is, that, gift tax shall not be charged in respect of gifts made by any person of immovable property, situated outside the territories to which the Act extends or of movable property outside the said territories unless the person is a citizen of India. The determination of value for the purpose of levy of the tax has to be estimated by the Gift-tax Officer on the basis of the market value of the subject-matter of the gift on the date of the gift. If however the value of the property gifted cannot be estimated in terms of its value in open market, if it has no market far sale, th