Civil Appeal No 11 ISNT of 1975
WITH Civil Appeal Nos 1226  1227NT of 1975
From the Judgment and Order dated 1891974 and 111074 of the Andhra Pradesh and Calcutta High Court
In case referred No 15 of 1973 and matter No 7 10 of 1970 respec tively BB Ahuja Ms A Subhashini KC Dua for the Appel lant in CA No 1118 of 1975
159 Harish N Salve Vivek Gambhir and Preveen Kumar for the Appellant in CA No 1226 27 of 1975
A Subba Rao for the Respondent in CA No 1118 of 1975
BB Ahuja KC Dua and Miss A Subhashini for the Re spondent in CA Nos
1226 27 of 1975
1226  1227NT1975 on a certificate under Sec
291 of the  Act by the assessee raise a question as to the proper construction of the proviso to Sec
41a of the Act which provides for exemption respecting transferred assets which would other wise be includible in the wealth of the assessee under sec
41a of the Act
The condition for the grant of the exemption under the proviso is that the transfer of the asset is either charge able to gift tax or is not chargeable under sec
5 of the 
The particular point for consideration is whether on the language of the proviso the exemption is attracted only to such gifts as were chargeable to tax for any assessment year commencing after the 31st day of March 1964 as understood by the Revenue or whether the gifts even made earlier would attract the benefit of the exemption as claimed by the assessees
There appears a divergence of judicial opinion on the point in the High Courts
In CWT vs Smt
Sarala Debi Birla  T Saraswathi Achi vs CIT  CWT vs Seth Nand Lal Ganeriwala  MG Kollankulam vs CIT Malti Harseey vs CWT and CWT vs Rasesh N Mafatlal several High Courts have construed the provision in the manner suggested by the Revenue
CWT vs Hashmatunnisa Begum has taken the opposite view extending a wider benefit of the exemption
The opinion of the Calcutta High Court in 1011TR 488 which is representative of the view in favour of Revenue is under appeal in CA 1226 and 1227 of 1985 and the opinion of the Andhra Pradesh High Court in which is favour able to the assessee is under appeal 160 No CA 1118 of 1975 preferred by the Revenue
In CA 1118 of 1975 the assessee Smt
Hashmatunnisa Begam the legal representative of the late Nawab Zabeer Yar Jung Bahadur claimed in respect of the assessment year 1967 68 that the value of the immovable properties gifted by the late Nawab to his wives before 14
1964 should not be included in the net wealth of the Nawab as on the valua tion dated 3191966
The Nawab under three deeds of gift one dated 2551962 in favour of Smt
Hashmatunnisa Begum his first wife and two other deeds dated 1781962 and 2641962 in favour of Smt
Fareed Jehan Begum his second wife gifted in their favour certain lands and buildings of a total value of Rs 196950
The gifts were chargeable to gift tax and were accordingly assessed to gift tax in the assessment year 1963 64
On behalf of the estate of the Nawab who later dies on 16121968 it was claimed in the proceedings for assessment to wealth for the Assessment Year 1967 68
That though the gifts were otherwise includible as belonging to the Nawab under sec
4Iai as the trans fers made to the spouses otherwise than for adequate consid eration however as the gifts were chargeable to gifttax the proviso to sec
4Ia was attracted and that the assets so transferred were not includible in the net wealth of the Nawab for any assessment year commencing after the 3 1st day of March 1964
The Wealth tax Officer rejected this claim
The Appellate Asst
Commissioner in the assessee s appeal confirmed the assessment
In the assessee s further appeal before the Appellate Tribunal the Tribunal on a particular construction of the proviso allowed the appeal and held that the assets transferred which had attracted gift tax were not includible in the net wealth of the Nawab for the assessment year 1964 65 onwards
At the instance of the Revenue the following question of law was referred to the High Court for its opinion Whether on the facts and in the circum stances of the case the assessee was entitled to exclude under the proviso to section 41a of  the value of the assets gifted to his wives in the Wealth tax assessment for the assessment year 1967 68 The High Court agreed with the construction placed on the proviso by the Tribunal and answered the question in the affirmative and against the revenue
The revenue has come up in appeal by special leave
In CA 1226 and 1227 of 1975 the assessment years concerned are 1964 65 and 1965 66 corresponding to the valuation dates 161 313
1964 and 3131965
On 7101959 Smt
Sarladevi Birla the assessee made a gift of RslO0011 to her minor daughter Smt
Manju Rani Birla
The assets so transferred were included in the assessee s wealth for the two assess ment years 1964 65 and 1965 66 under sec
4Iaii of the 
The claim of the assessee that the proviso to sec
4Ia operated to exclude the asset from the net wealth of the assessee as the transfer was chargeable to gift tax was not accepted by the Wealth tax Officer who completed the assessment including the transferred asset in the assessee s net wealth
The assessee s appeal before the Appellate Asst
Commissioner was unsuccessful
However the Appellate Tribunal accepted the contention of the assessee and by its appellate order dated 1151970 allowed the assessee s appeal holding that on a true con struction of the proviso so long as the gift was chargeable to or exempt under sec
5 from gift tax to that extent sec
4Ia ceased to have operation and the statutory fiction embodied in it was not attracted and that as at the relevant time the gift was chargeable to gift tax
The exemption was to operate from the assessment year commencing after 3131964
At the instance of the revenue the Appellate Tribunal referred the following question of law for the opinion of the High court Whether on the facts and in the circumstances of the case and on a proper interpretation of section 41a of the as amended by the Wealth tax Amendment Act Act 46 of 1964 the sum of Rs 100011 gifted by the assessee to her minor daughter could be included in computing her net wealth The High Court of Calcutta in reversal of the view taken by the Tribunal answered the question in the affirmative and against the assessee
The assessee has come up in appeal by certificate
We have heard Shri BB Ahuja learned counsel for the revenue and Shri Harish Salve and Shri Subba Rao for the assessees
The controversy generated on the point leading to the divergence of the judicial opinion on the point is at tributable to the somewhat inelegant and inappropriate phraseology of the provision
To appreciate the relevant contentions it is necessary to notice the words of the proviso 162 Provided that where the transfer of such assets or any part thereof is either charge able to gift tax under the 18 of 1958 or is not chargeable under Section 5 of that Act for any assessment year commencing after the 3 1st day of March 1964 but before the 1st day of April 1972 the value of such assets or part thereof as the case may be shall not be included in comput ing the net wealth of the individual The words but before the 1st day April 1972 was later introduced by the Financee No with effect from 14
This was introduced by the amending Act of 1964 but given effect to from 141965 by the notification
Under the various clauses of Sec
41a certain transfers of assets made by an individual in favour or for the benefit of the spouse or a minor child not being a married daughter of such individual are required to be ignored and the trans ferred assets included in the wealth of the assessee as belonging to him
Section 41a aims at foiling an indi vidual s attempt to avoid or reducing the incidence to wealth tax by transferring the assets to or for the benefit of the spouse or the minor child of the individual by re quiring the inclusion of such transferred assets in comput ing the net wealth of the individual
However the proviso makes the provision inoperative where and in so far as the transferred asset is either chargeable to gift tax under or is exempt under sec
5 of the 
The controversy surrounds the question whether the expression for any assessment year commencing after 31st day of March 1964 occurring in the proviso should be read with the first part and as referring to the eligibility of the gifts for exemption with reference to the point of time at which the gifts were made or whether that expression does not condition the identity of the eligible gifts but only signifies the starting point for the exemp tion from wealth tax
Assessees contend that the date of the gift is immaterial and as long as the transfer is chargeable to gifttax or is exempt under sec
5 whatever may be the year in which the gift was made the exemption from gift tax must commences for any assessment year commencing after the 31st day of March 1964
If the expression for any assessment year commencing after the 31st day of March 1964 is intended to qualify and determine the gifts the subject matters of which are eligible for exemption then the literal construction would be that the gifts made earlier to that period 163 though chargeable to gift tax would not attract the benefit of exemption
But the assessees say that the clause must be read as part of the second part of the proviso which contem plates the exemption
So read the clause would qualify the commencement of the benefit of the exemption and not the point of time when the Gift is required to be made to be eligible for the exemption from wealth tax
The learned Judges of the High Court of Andhra Pradesh in the course of the Judgment under appeal in CA 1118 of 1975 observed   
The words for any assess ment year commencing after the 31st day of March 1964  are referrable to the assessment to be made under the 
They render the provisions of section 41a inoperative irrespective of the fact whether the transferred asset was chargeable to gift tax or not chargeable to gift tax
The proviso specifies the period of exemption upto 31st March 1964
Irrespective of the year of the gifts when the assets were gifted they will not be included in the computation of the net wealth of the individual till the assessment year 1964 65
We are therefore of the view that the intention of Parliament was to exempt transfers made under clauses i to iv of section 41a from being computed in the net wealth of the individual upto the wealth tax assessment year commencing after 3 1st day of March 1964    7
Sri Ahuja submitted that the words for any assess ment year commencing after the 31st day of 1964 could in the context only refer to the gift and gift tax assess ments
The proviso he said which was introduced by way of an amendment was brought into force with effect from 141965 by a notification which specified the commencement of the operation of the proviso and that quite obviously it would be redundant to read the clause under consideration as again referring to the commencement of the operation of the proviso
While the clause under consideration related to and qualified the Gift tax assessments the commencement of the exemption of the subjectmatter of the Gifts for purposes of wealth tax was controlled and determined by the commence ment of the operation of the proviso which by notification was specified as 141965
Sri Ahuja submitted that the proviso was intended to effectuate the legislative policy that in respect of certain gifts made in favour of a spouse or a minor child during a specified period the assets transferred under the Gifts would have the benefit of exemption from the 164 operation of Section 41a
This was because the legisla ture took into consideration that from 141964 onwards there was a sharp ascent in the rates of gift tax and that the assets which constituted the subject matter of such gifts attracting such high rates of gift tax should not also be included in the net wealth of the donor for wealth tax purposes which would otherwise be the consequence under Section 41a of the Act
As the proviso originally stood gifts chargeable to gift tax for any assessment year com mencing after 3 1st March 1964 attracted the benefit of exemption
The outer limit for the period of such eligible gifts was later fixed by the amendment made by Finance No  wef 141972 which introduced the words but before the 1st day of April 1972 
Accordingly Sri Ahuja contends that only that class of gifts that were chargeable to gift tax for any assessment year 1964 65 or thereafter but subject to the limit fixed by the 1971 amendment which would otherwise fall under Section 41a were eligible for the benefit of the exemption
According to Sri Ahuja the plain words of the proviso leave no room for doubt and where the enactment is clear and admits of only one meaning and does not admit of two or more meanings it would be the plain meaning that should be given effect to
When the meaning is plain says counsel no resort could be had to any rules of construction which would denude the provision of its plain and ordinary meaning
Sri Harish Salve presenting the case of the assessees sought to point out the intrinsic anomaly of the cases between a gift made say on 3 1st of March 1963 and one made the very next day ie 1st of April 1963 on the other to show that while in the first case even for the assessment year 1965 66 the transferred asset is includible in the wealth of the assessee in the latter case it is exempt for all time to come thereafter
Learned counsel pointed out that the criterion of higher rates of Gift tax as a justifi cation supporting the classification also fails in view of the fact that under the proviso it is not only the gifts chargeable to tax but also those exempt under sec
5 that attract the exemption with the result that between two gifts which are both exempt under sec
5 of the  one is for ever exempt from wealth tax in the hands of the donor while the other is includible in his wealth for purposes of wealth tax depending solely on the criterion of the date of gift whether the gift was made prior to 31st March 1963 or thereafter
Here the criterion of classification of gifts on the basis of the exigibility for higher rates of tax says Sri Salve collapses and the cut off date determining the difference in consequences in the two different class of cases become wholly arbitrary
Shri Salve submitted that a construction which promotes its constitutionality has to be pre 165 ferred to the one which if accepted would expose the provision to the vice of discrimination and unconstitution ality
The essential basis of Sri Salve s suggested construc tion rests on the requirement that the words for any as sessment year commencing after the 31st day of March 1964 should not be read as part of the first part of the proviso relating to gift tax assessments but as part of the second part denoting the commencement of the operation of exemption from wealth tax
This we are afraid will imboggle itself in the quagmire of irreconcilable constructional contradictions
The amendment introducing the proviso was brought about by an amending Act of 1964 but the date of the commencement of its operation was left to be fixed by a Notification
The effect of the Notification issued bringing the proviso into effect from 141965 would be wholly ignored by the con struction suggested by Sri Salve
Secondly the introduction of the words but before the 1st day of April 1972 would if the construction suggested by Sri Salve is accepted operate to take away the benefit of the exemption after 141972 and the exemption confined only to the assessment years between 1964 65 and 1972 73
On a reading of the plain words of the proviso the clause for any assessment year commencing after 31st day of March 1964 can only be read as relating to gift tax assessments and not to the wealth tax assessments
But Sri Salve contends that this literal construc tion would expose the provision to an attack on its consti tutionality on the ground that it brings about a discrimina tion between two classes of assessees on nothing more than an arbitrary cut off date
The cases of gifts exempted under sec
5 he says illustrate the point as according to Sri Salve there could be no rational basis for discriminating between a gift exempted under sec
5 made on 3131963 on the one hand and 141963 on the other
One of the pillars of statutory interpretation viz the literalrule demands that if the meaning of the Statuto ry Interpretation is plain and the Courts must apply regard less of the result
The very concept of interpretation connotes the introduction of elements which are necessarily extrinsic to the words in the statue
Though the words interpretation and construction are used interchangeably the idea is somewhat different
Dr Patrick Devlin says 166   
A better word I think would be construction because construction although one often used it alternatively with interpre tation suggests that something more is being got out in the elucidation of the subject matter than can be got by strict interpreta tion of the words used
In the very full sense of the word construction  the judges have set themselves in this branch of the law to try to frame the law as they would like to have it   
See Samples of Law Making Oxford University Press p70 71 A statute says Max Radin is neither a literary text nor a divine revelation
Its effect is therefore neither an expression laid on immutable emotional over tones nor a permanent creation of infallible wisdom
It is a statement of situation or rather a group of possible events within a situation and as such it is essentially ambiguous
 See Statutory Interpretation 43 Har
LR 863 868
The observations of Lord Russel of Killowen in Attorney General vs Carlton Bank though an early pronouncement is refreshing from its broad common sense I see no reason why special canons of construction should be applied to any Act of Parliament and I know of no authority for saying that a Taxing Act is to be construed differently from any other Act
The duty of the Court is in my opinion in all cases the same whether the Act to be construed relates to taxation or to any other subject namely to give effect to the intention of the Legisla ture as that intention is to be gathered from the language employed having regard to the context in connection with which it is em ployed  
Courts have to give effect to what the Legislature has said
 The rule of construction that if the statutory provision is susceptible or admits of two reasonably possible views then the one which would promote its constitutionality should be preferred on the ground that the legislature is presumed not to have intended an excess of its own jurisdic tion is subject to the further rule that it applies only where two views are reasonably possible on the statutory language
If the words of the statute on a proper construc tion can be read only in a particular way then it cannot be read in another way by a court of construction anxious to avoid its unconstitutionality
In a case as here 167 a reference arises under Act  the question of the consti tutionality of the Act  cannot be examined and pronounced upon
In State of Punjab vs Prem Sukhdas  this Court made the point clear   
This amounts to nothing short of legislation
We think that the view is an impossible one
The principle that where a provision is capable of one of two interpretations the interpretation which validates rather than one which may invalidate a provision applies only where two views are possible
It cannot be pushed so far as to alter the meanings of the clear words used in an enactment and to in effect repeal statu tory provisions by making them useless without holding them to be void p 410 Emphasis Supplied Even in regard to constitutionality of the classifica tion it is not possible to rule out arguments as to the validity of classification as wholly unstateable
In a taxing measure the legislature enjoys a wider latitude and its dispensations are based on an interaction of diverse economic social and policy considerations
Further if the proviso is bad for discrimination it would follow that the converse situation brought about by the later amendment a discrimination as between gifts made as between the 31st of March 1972 and on 1st April 1972 might also become bad
It is true that we are required to notice the provision as it stood at the relevant time
We however should not be understood to have pronounced on the question of constitutionality
That is the task of the Court in judicial review but the rule of preference of a particular construction amongst the alternatives in order to avoid unconstitutionality is unavailable here
Accordingly while Civil Appeal No 1226 and 1227 of 1975 preferred by the assessee are dismissed CA No 1118 of 1975 of the revenue is allowed and in reversal of the order dated 1891974 of the Andhra Pradesh High Court the ques tion referred is answered in the negative and in favour of the revenue
In the circumstances the parties are left to bear and pay their own costs in these appeals
NPV CA Nos
1226  122775 are dismissed CA No 111875 is allowed


Summary:
The appellant a contractor entered into a contract with the respondent for the construction of a building
The contract consisted of two phases
The date of commencement of both the phases was March 10 1979 the date of comple tion of Phase I was June 9 1980 and that of Phase II was November 9 1980
Dispute arose about the handing over of the site
The appellant s case was that the site was not handed over as stipulated and consequently the work could not either be commenced or completed as stipulated
The respondent asserted that the appellant had abandoned the work and committed a breach of contract
This was negated by the appellant
As the contract provided for settlement of disputes by an arbitrator the appellant filed a suit for the appoint ment of an arbitrator
The matter came up in appeal to this Court and one of its former Judges was appointed as an arbitrator
The Arbi trator entered upon the reference examined the documents heard the parties considered the evidence and made an award after inspecting the sites
The respondent aggrieved by the award filed a petition and contested the same
It was contended that the arbitrator had travelled beyond his jurisdiction in awarding a sum of Rs2 lakhs as escalation cost and charges in respect of claim I Disposing of the Civil Miscellaneous Petition the Court HELD 1
It is well settled that an award can only be set aside under section 30 of the  if the Arbitrator has misconducted himself or the proceeding
121C D 116 2
Adjudicating upon a matter which is not the subject matter of adjudication is a legal misconduct for the Arbitrator
121D 3
Escalation is a normal incident arising out of gap of time in this inflationary age in performing any contract
121F In the instant case the dispute that was referred to the arbitrator was as to who was responsible for the delay what are the repercussions of the delay in completion of the building and how to apportion the consequences of the responsibility
After discussing the evidence and the sub mission of the parties to the contract the arbitrator found that it was evident that there was escalation and therefore he came to the conclusion that it was reasonable to allow 20 of the compensation under claim I he accord ingly allowed the same
This was a matter which was within the jurisdiction of the arbitrator and the arbitrator had not misconducted himself in awarding the amount as he has done
121D E G H 122A 4
Once It was found that the arbitrator had jurisdic tion to find that there was delay In execution of the con tract due to the conduct of the respondent the respondent was liable for the consequences of the delay namely in crease in prices
122C D