1. This is a reference under s. 26(1) of the G.T. Act, 1958, (referred to hereinafter as 'the said Act'), made at the instance of the Commissioners of Gift-tax. The questions referred to us for determination in this reference are s follows :
'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in coming to the conclusion that in the instant case the properties in question were owned by the husband and wife as tenants-in-common ?
(2) Whether, on the facts, and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assessment made on the body of individuals is bad in law ?'
2. The facts giving rise to this reference are as follows :
The respondents-assesses to this reference are Aleixo P. Velho and Smt. B. G. Velho, his wife, who have been taxed as a body of individuals. The relevant assessment year for the purpose of gift-tax is 1964-65. Aleixo and his wife, Smt. B. C. Velho, married under the Portuguese Civil Code and as a body of individuals made gift of immovable properties of Rs. 5,12,411 and of movable properties of Rs. 9,00,000 in the relevant previous year. The question which arose was whether in the gift-tax assessment proceedings the entire gift was to be assessed in the hands of the body of individuals or whether it had to be assessed in the hands of the body of individuals or whether it had to be separately assessed in equal shares in the hands of the two spouses constituting the body of individuals. Both the GTO and the AAC took the view that the gifts were made on behalf of the communion, that is, the body of individuals, and a single assessment had to be made on the said body of individuals in that status. Before the Income-tax Appellate Tribunal, to whom an appeal was preferred by the assessee, it was contended that the two spouses, constituting the body of individuals under the Portuguese Civil Code, had each a distinct and separate share in the property of that body of individuals and that, in law, they were co-tenants and not joint tenants thereof. This contention of the assessee was upheld by the Tribunal, and it is from that decision of the Tribunal that the present reference has been made.
3. Section 3 of the said Act imposes a charge of gift-tax in respect of gifts, if any, made by a person during the previous year (other than gift made before April 1, 1957). Clause (xviii) of s. 2 of the said Act gives an extensive definition of the term 'person' and lays down that it includes a Hindu undivided family or a company or an association or a body of individuals or persons, whether incorporated or not.
4. In our view, the controversy before us is practically carved by the decisions which we propose to deal with presently. In CGT v. R. Valsala Amma : 82ITR828(SC) , the assessee and her sister received under the will of their mother, inter alia, a cinema theatre building with machinery and another building called 'police quarters'. Each one of them had a half share in the properties. They gifted these buildings to their brother by means of a single gift deed, and the question was whether the assessee and her sister should be assessed in respect of the gift as individuals or as an association or body of individuals. It was held that, in law, each one of them had half right in the property and made the gift as tenants-in-common. Each one must be held to have made a gift of her share of the property, thought the gift was made through one single document. It was further held that the said Act does not change the general law relating to the rights in property. It merely seeks to tax the gift of property owned by a person. In view of this decision, it is clear that the gift must be treated as a single gift made by a body of individuals can be upheld only if it is found that the assessees - husband and wife - were joint tenants of the property gifted; and, on the other hand, if it is found that, in law, each one of them, as a tenant-in-common, had a half share in the properties which they gifted, the gift cannot be treated as a gift made by a body of individuals, but the husband and wife must be held to have made a gift only of their respective shares in the properties which were gifted.
5. The question as to what was the nature and interest of the assessees - husband and wife - in respect of the properties gifted has to be considered in the light of the provisions of the Portuguese Civil Code. The admitted fact is that they were married under the said Portuguese Civil Code. As per the law and custom of Goa, the said Code as admittedly applicable to both of them. Fortunately, it is not necessary to set out the relevant provisions of the said Code here, because the said provisions have been considered by a Division Bench of this court in CIT v. Purushotam Gangadhar Bhende : 106ITR932(Bom) . In that decision all the relevant provisions of the said Code have been duly considered. It has been pointed out that art. 1108 of the said Code lays down that marriage as per the custom of the court consists, in communion between the consorts, of all their estates, present and future, not excluded by law. The Division Bench observed that in the case before the Division Bench art. 1117 of the said Code was a very important article. The Division Bench held that the said article enacts in unequivocal terms that 'the dominion and possession' of the common estate vest in both the consorts during the subsistence of the matrimony, though the management of the estate of the couple belongs to the husband. The same article, however, provides that the wife may manage the estate of the couple by consent of the husband, or during his absence or his suffering from some impediment. The word 'dominion' has its derivation from the term 'dominium', which is a term of Roman law often retained in the legal use, and means 'lordship' or 'ownership'. The Division Bench went on to consider arts. 1118 and 1119 of the said Code and held that the said articles showed that the wife had certain interest both in the movable as well as the immovable properties of the communion. Reference has been made by the Division Bench to art. 1123, and it has been held that the said articles lay down that on partition between the consorts or their heirs, the property is to be decided equally and each spouse is to pay what he or she owes to the common estate; and the next article numbered 1124 provides that the wife is to be given credit for what is due to her prior to the payment of the credits of the husband, and in case the common estate is insufficient for payment of her entire claim, the husband is liable to pay the same out of his own estate, except in the case of a debt not imputable to him. It has been held by the Division Bench that on a careful consideration of all the relevant provisions of the said Portuguese Civil as well as art. 10 of the Commercial Code, the following legal propositions emerge :
'(i) During the subsistence of a marriage celebrated as per the custom of Goa, the ownership and possession of 'the common estate', immovable as well as movable, vests in both the husband as well as the wife. This is laid down in express terms in art. 1117. Articles 1118 and 1119 as well as 1166 are also consistent with that legal position;
(ii) Proposition No. 1 applies to the corpus as well as the income of all communion property, immovable as well as movable. The unique para. (proviso) to art. 1109 lays down that even the income of property excluded from the communion is communion property. A fortiori the income from the property;
(iii) Under arts. 1117 and 1189, the husband has only a right of management, but even that rights is not an absolute right so as to amount to 'ownership' of the income, in view of the provisions of arts. 1118, 1119, 1191 and 1219. Moreover, under the very arts. 1117 and 1189, even the wife can be in management in certain contingencies, there right being similarly fettered under the provisions of art. 1193;
(iv) In the corpus as well as the income of communion property, immovable as well as movable, the husband and the wife each have, during the subsistence of a marriage celebrated as per the custom of Goa, a fixed and certain half share which can be ascertained on the termination of the communion by divorce, separation or death (arts. 1121 to 1124, 1203, 1204, 1210, 1216, 1220 and 1226.). What is most important in this connection is that it is an admitted position that on the death of one, of the spouses, communion property does not devolve by survivorship, but the half share of the deceased spouse goes by succession to his or her own heirs or legatees by virtue of arts. 1122 and 1123. There is consistent reference to the half share of each of the consorts throughout the different articles dealing with various situations (vide arts. 1112 to 1114 of the Portuguese Civil Code and art. 10 of the Commercial Code dealing with the incidence of debts, and Portuguese Civil Code, art. 1118, dealing with the disposal of the movable property as well as arts. 1120, 1123, 1220, 1463 and 1471)'.
6. In view of the aforesaid decision, it must be held that when the husband and wife, who have been assessed as a body of individuals in this case, made the aforesaid gift, each of them gifted only his and her respective half share in the said properties, and hence no assessment could be made on them on the footing of their having made the gifts as a body of individuals. It must further be held that the gifts will have to be assessed separately and in equal shares in the hands of the said two spouses.
7. In the result, the questions referred to us are answered as follows :
Question No. 1 : In the affirmative.
Question No. 2 : In the affirmative.
8. It is clarified that both the aforesaid questions are answered in favour of the assessees. The Commissioners to pay to the assessees the costs of the reference.