Skip to content


Laxmibai Narayana Rao Nerlekar Vs. Commissioner of Gift-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberTax Referred Case No. 3 of 1966
Judge
Reported in[1967]65ITR19(KAR); [1967]65ITR19(Karn)
ActsGift Tax Act 1958 - Sections 2, 4 and 26(1)
AppellantLaxmibai Narayana Rao Nerlekar
RespondentCommissioner of Gift-tax
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateS.R. Rajsekhara Murthy, Adv.
Excerpt:
- adverse possession: [k. ramanna, j] suit property fell to share of defendant in partition suit revenue records disclosing possession of suit property in favour of plaintiff - no document or deed produced to prove source of title - no evidence produced to show why name of plaintiff entered into revenue record or how she became owner held, mere entry in revenue record will not confer any title to plaintiff or he cannot be termed as owner of suit property, unless title to suit property by adverse possession, is proved. limitation act (36 of 1963)articles 64 & 65 :[k. ramanna,j] adverse possession - suit property fell to share of defendant in partition suit revenue records disclosing possession of suit property in favour of plaintiff - no document or deed produced to prove source of.....narayana pai, j.1. this is a reference under section 26(1) of the gift-tax act, 1958, made by the bombay bench 'b' of the income-tax appellate tribunal, at the instance of the assessee. the assessee, since deceased, one n. b. nerlekar, had owned several properties which were his self-acquired property. on 30th august, 1961, he executed a registered instrument of partition to which himself, his wife and five children were parties; n. b. nerlekar himself was party no. 1. the properties were set out in two schedules 'a' and 'b'. the 'a' schedule properties he retained for himself and partitioned only 'b' schedule properties among himself, his wife and children under the instrument. the opening paragraphs (ii) and (iii) of the deed contain the following recitals : '(ii) properties mentioned.....
Judgment:

Narayana Pai, J.

1. This is a reference under section 26(1) of the Gift-tax Act, 1958, made by the Bombay Bench 'B' of the Income-tax Appellate Tribunal, at the instance of the assessee. The assessee, since deceased, one N. B. Nerlekar, had owned several properties which were his self-acquired property. On 30th August, 1961, he executed a registered instrument of partition to which himself, his wife and five children were parties; N. B. Nerlekar himself was party No. 1. The properties were set out in two schedules 'A' and 'B'. The 'A' schedule properties he retained for himself and partitioned only 'B' schedule properties among himself, his wife and children under the instrument. The opening paragraphs (II) and (III) of the deed contain the following recitals :

'(II) Properties mentioned in schedule 'A' and 'B' annexed at pages 10 and 11 to this instrument are initially the self acquisition of No. 1, i.e., Sri Narayan Balakrishna Nerlekar. The joint family had no nucleus or ancestral property with the aid of which the properties in schedule 'A' and 'B' could have been acquired by No. 1. They are in fact acquired by No. 1 from time to time by his talent, industry and exertions, without the aid of any joint family property. This position of things is true and accepted by all other executants.

(III) That being so, No. 1 is desirous of making a family arrangement, so that every one would live in peace and be able to look after his or her own affairs and live happily and in amity. With this view, No. 1 has voluntarily thrown properties in schedule 'B' into the common stock with the intention of abandoning all separate claims upon them, though they were his exclusive self-acquired properties. Those properties as are set out in schedule 'B' having been thrown into the common stock have become joint family properties and are subject to all the incidents of joint family property under Hindu Law. No. 1 has, however, retained schedule 'A' properties as his self-acquired properties and thus of his exclusive ownership. Properties in schedule 'B' only have thus become divisible amongst the members of the joint family of executants Nos. 1 to 7 as joint family properties by the clear intention of No. 1 to waive his separate rights in them.'

2. For the assessment year 1962-63, the Gift-tax Officer considered that the process evidenced by the above document amounted to a gift by the assessee, N. B. Nerlekar, to the family and imposed gift-tax to the entire extent of the value of the properties in 'B' schedule of the deed of partition.

3. Upon appeal, the Appellate Assistant Commissioner took a different view. He held that the process evidenced by the document in question was a process whereby, in the first instance, the assessee impressed his self-acquired properties with the character of joint family property and later partitioned it between himself and children after effecting a division or disruption of status between them and that neither the first nor the second stage involved any transfer of property, much less, therefore, a transfer by way of gift attracting liability to gift-tax.

4. The department appealed to the Appellate Tribunal. The Tribunal disagreed with the first appellate authority and agreed with the original assessing authority on the question as to the nature of the process to which the assessee had subjected the properties in 'B' schedule of the partition deed. The opinion of the Tribunal as summarised by itself in paragraph 8 of its statement of the case is as follows :

'The Tribunal observed that the terms 'transfer' and 'gift' have been defined in the Gift-tax Act and those transactions should not, therefore, be judged with reference to the provisions of the Transfer of Property Act or the Hindu Law for finding out whether the transaction, in question, amounted to a gift under those Acts. The Tribunal further observed that, for a gift, there should be acceptance by the done, whether under other Acts or under the Gift-tax Act. Under section 2(xviii) of the Gift-tax Act, a person includes a Hindu undivided family and, therefore, under the Gift-tax Act, a done could be a Hindu undivided family also. The Tribunal further held, that the act of throwing self-acquired property into the common hatch-pot was with the intention of diminishing directly the value of his own right in the property that was transferred and to increase to the corresponding extent the value of the property of the acquirers, i.e., the Hindu undivided family and it was, therefore, a 'transfer' within the meaning of section 2(xxiv)(d). As it was a voluntary transfer and without consideration, the Tribunal held that, in the circumstances, there was a gift by the assessee in favour of the Hindu undivided family.'

5. The above opinion is that of the Judicial Member of the Tribunal. The Accountant Member agreed with the proposition that the process was a transfer within the meaning of section 2(xxiv)(d) of the department that the situation would attract the provisions of section 4(d) also.

6. On the above facts, the Tribunal has referred the following question to this court :

'Whether, on the facts and in the circumstances of the case, the act of throwing the self-acquired property of the assessee into the common hatch-pot of the Hindu undivided family of which he was the karta, with the intention of abandoning his rights in that property and then dividing it unequally between his wife and sons amounted to a gift within the meaning of the term 'gift' as defined in the Gift-tax Act

7. The general approach made by the Tribunal to the question on the footing that the matter is governed primarily by the definitions given in the Act is correct. But, it will not be, in our opinion, right to start with the presumption that the definitions in a special Act necessarily exclude the ideas or principles of the general law, whether personal or statutory, governing situations dealt with by the Special Act. In the absence of a clearly ascertainable intention expressed in unambiguous language to depart from or to displace the ideas or principles of the general law in regard to situations specially dealt with by special Act, it would be wrong to deprive oneself of the guidance available in the general law while dealing with special statutes. Although special statutes pick out certain situations for special treatment, they do not operate in a vacuum but generally build or construct a special scheme on the basis of an existing legal system, departing therefrom or modifying its operation to the extent necessary from the point of view of the object of specialisation. The proper and more accurate approach would therefore be to see whether and, if so, to what extent, the application of the principles of the general law is modified or departed from by the special statute.

8. The obvious purpose of the Gift-tax Act is to impose tax on gift. Under the ordinary law, a gift is transfer of certain existing movable or immovable property made voluntarily and without consideration by one person called the donor to another called the done and accepted by or on behalf of the done vide section 122 of the Transfer of Property Act. The Gift-tax Act defines a gift in clause (xii) of section 2 as follows :

''Gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer of any property deemed to be a gift under section 4'.

9. Except to the extent it includes certain transactions which are deemed to be gifts under section 4 to which we shall presently refer, there is prima facie no difference between the concept of a gift under the general law and the concept of a gift under the Gift-tax Act. An attempt was made on behalf of the department to make out that there is some slight difference by pointing out that the words 'donor' and 'done' are not used in the definition and that an acceptance of the gift by the done is not mentioned as one of the essential elements of a gift. But the answer to this is contained in clauses (viii) and (ix) of the same section which defines a donor and a done as follows :

'(viii) 'done' means any person who acquires any property under a gift, and where a gift is made to trustee for the benefit of another person, includes both the trustee and the beneficiary;

(ix) 'donor' means any person who makes a gift'.

10. Two other definitions, to which we might refer even at this stage, are that of 'property'in clause (xxii) which is defined as including any interest in property, and that of 'person' in clause (xviii) which is defined as including a Hindu undivided family.

11. So far, therefore, there is no difference between the general law and the special law. According to both, a gift is a transfer of property by one living person to another living person without any consideration. The essence of the matter is that what makes a transfer of property a gift is the absence of consideration. From the point of view of the general law, existence of consideration, however inadequate, removes a transfer from the category of gifts; but the Gift-tax Act includes within the definition of gift certain transfers with inadequate or pretended consideration which are described in section 4 which reads as follows :

'4. Gifts to include certain transfers. - For the purposes of this Act, -

(a) 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 made by the transferor;

(b) where property is transferred for a consideration which, having regard to the circumstances of the case, has not passed or is not intended to pass either in full or in part from the transferee, to the transferor, the amount of the consideration which has not passed or is not intended to pass shall be deemed to be a gift made by the transferor;

(c) where there is a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge, surrender, forfeiture or a abandonment, to the extent to which it has not been found to the satisfaction of the Gift-tax Officer to have been bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment;

(d) where a person absolutely entitled to property causes or has caused the same to be vested in whatever manner in himself and other person jointly without adequate consideration and such other person makes an appropriation from or out of the said property, the amount of the appropriation used for the benefit of the person making the appropriation or for the benefit of any other person shall be deemed to be a gift made in his favour by the person who causes or has caused the property to be so vested.'

12. The only fiction created for the purpose of the Gift-tax Act involving a departure from the general law is a fiction which determines certain transfers with consideration to be gifts.

13. The next question is whether the Gift-tax Act creates any further fiction which dispenses with the idea of a transfer altogether or deems something which is not a transfer to be a transfer. For this we have to look into the definition of 'transfer of property' contained in clause (xxiv) of section 2, which reads as follows :

''Transfer of property' means any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes :-

(a) the creation of a trust in property;

(b) the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property;

(c) the exercise of a power of appointment of property vested in any person, not the owner of the property, to determine its disposition in favour of any person other than the done of the power; and

(d) any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person.'

15. Even here, the transactions mentioned in sub-clauses (a), (b) and (c) indubitably involve a transfer of property known to the ordinary law. Sub-clause (a) read with the definition of 'done' in clause (viii) indicates one of the special purposes of the Act, viz., that a transfer to be a gift for the purpose of the Gift-tax Act need not necessarily be a transfer directly in favour of the done; it is enough if the person to be called the done gets the benefit of the donation. Sub-clause (b) merely emphasises the idea already expressed in the definition of the term 'property' in clause (xxii) as including any interest in property. Sub-clause (c) states the converse of the position dealt with in sub-clause (a) by indicating that a transfer need not necessarily be by the owner of property but may also be effected by another person exercising the power of appointment conferred upon him by the owner.

16. The only question is whether sub-clause (d) of clause (xxiv) of section 2 refers to a transaction which is not a transfer.

17. The argument on behalf of the department was that the inclusive definition given in the clause gives an extended idea of transfer. We might at once point out that such suggestion need not necessarily lead to the conclusion that the basic idea of transfer itself is dispensed with or that any transaction which is not a transfer is fictional regarded as amounting to a transfer. It will be seen that the main body of the definition takes in every mode whereby property or interest in property is transferred; the transactions mentioned in sub-clauses (a), (b), (c) and (d) are said to be included in the definition without limiting the generality of the main definition, which means that what is described in sub-clause (a), (b), (c) and (d) is already within the ambit of the generality of the main definition and not that but for their separate enumeration they would not fall within the said ambit. The only extension of the idea of transfer which can be postulated is that it need not necessarily be by the owner himself as the donor or directly to the done alone so long as the property or some interest in property passes from the owner to the done without any consideration moving from the done to the donor; it does not matter how and by adopting what mode or means such transference is effected.

18. It would follow from the foregoing that even the transaction described in sub-clause (d) of clause (xxiv) involves a transfer, and that if guidance can be had from sub-clauses (a) and (c), the only extension of the idea of transfer which can be read into it would be the inter position of a third person between the donor and the done, serving as a conduit pipe through which property or interest in property passes from the donor to the done.

19. That such is the correct view also receives support from the discussion of the principle contained in a ruling of the High Court of Australia in Grimwade v. Federal Commissioner of Taxation. In that case, one Grimwade, who held all but five shares described as class 'A' shares in a company which alone had the right of voting and the right to receive dividends in contrast to class 'B' shares whose holders, in the event of winding up, were entitled to be paid only 2 1/2 per cent. of the capital value, was party to a resolution of the company whereby 17 s. 6d. out of the paid up value of one pound in each share were to be returned to every shareholder. The gift-tax authorities under the Australian Gift Duty Assessment Act took the view that the resolution of the company was a transaction whereby Grimwade aforesaid diminished the value of his own property, viz., 'A' class shares and increased the value of the property of 'D' class shareholders and held that the gift duty payable on the amount of the net benefit received by the shareholders other than Grimwade himself. That view was upheld by Williams J. but reversed on appeal. The matter was examined in the light of clause (f) of section 4 of the Australian Act which is, word for word, the same as clause (xxiv) (d) of section 2 of the Indian Act. One of the views which led to the allowance of the appeal was that a transaction required at least two persons taking part in it and that the mere act of voting by Grimwade in support of the resolution cannot strictly be regarded as a transaction at all. But the more important statement of principle indicating the nature of the transactions covered by or coming within the scope of the relevant clause is that one made by Latham C.J. at pages 215 and 216 of the report. As the said statement is full and clear, we copy the same below :

'Paragraph (f) applies to any transaction entered into with the specified intent. It is evidently intended to include within the scope of the Act transactions which do not consist in an actual transfer of property from a donor to a done. Such latter transactions are dispositions of property within the meaning of other parts of the definition. Paragraph (f) is intended to cover cases of transactions entered into with the intent to diminish the value, not of some property which is transferred to another person, but of the donor's own property in glob and to increase the value of the property in glob of another person. A transfer of property by A, not directly to another person C, but through an intermediary B, where it was the intention of A that C should obtain the property without giving consideration would be a transaction falling within paragraph (f). A similar result would be attained by contractual arrangements whereby C obtained a benefit without becoming the owner of any property that had belonged to A. Thus if B for some valuable consideration moving from A made a contract with A that he (B) would pay Pounds 1,100 to C without receiving any consideration from C, the intent of A would be diminish the value of his own property by giving consideration to B and by that means to increase the value of C's property by Pounds 1,000, which sum would be paid to C by B. It was suggested in comment upon this illustration that in such a case B would be the person who made a gift to C, because, as between B and C, there would be no consideration for the payment of the Pounds 1,000. The reason why B was content to make such a gift to C would be immaterial in determining whether or not there was a gift to C. But this circumstance would leave unchanged the fact that A had entered into a transaction with B the result of which was to diminish the value of A's property and increase the value of C's property without any consideration being given by C, Such a transaction would therefore (it would seem) fall within paragraph (f).

Paragraph (f) refers only to the intent of the person who diminishes the value of his own property, and does not in its own terms require that the transaction should actually produce the effect of diminishing the value of the donor's property and increasing the value of another person's property. But section 11 of the Assessment Act and section 4 of the Gift Duty Act show that, in order that a disposition of property falling within the description of paragraph (f) should be a gift resulting in a liability to duty, the transaction must have the effect of diminishing the value of the donor's property and increasing the value of the done's property, because otherwise it would be impossible to ascertain the value of the property taken under the gift and, therefore, no duty would be payable in respect of the transaction. Thus paragraph (f) is aimed at transactions which are entered into with a particular intent and which produce the effect referred to in the description of that intent. If they are entered into without consideration they are gifts the value of which is assessed by the benefit (in the form of increase in value of his property) received by the person, who, for the purposes of the Act, is in the position of a done. It is not necessary, in order that paragraph (f) should apply, that property should pass from the donor himself directly or indirectly to the done as long as there are to be found in the transaction the intent and the effect specified.'

20. It will be seen from the above extract that the transaction in question also involves a transfer, although the said transfer is not made directly to the done; it postulates two ideas, viz., the intention of the donor to diminish the value of his own property and to increase the value of the property of the done, and the securing of that result by a transfer of property, not to the done, but to a third party, subject to terms intended to secure the enjoyment of the intended benefit by the done.

21. We are therefore clearly of the opinion that even sub-clause (d) of clause (xxiv) of section 2 does not depart from the general law that gift is a transfer of property or interest in property without consideration and that it does not create any fiction whereby a transaction, which is not a transfer, is to be regarded as a transfer.

22. Now in the case before us, there is, first, an act or declaration of an intention on the part of the assessee, Nerlekar, impressing his self-acquired property with the character of joint family property which may, in terms known to Hindu law, be described either as blending or as throwing property into common stock and, secondly, partition of such joint family property among the members of the family. The question is whether either of these processes-blending or partition-involved a transfer of property by Nerlekar.

23. The matter has to be considered both on principle as well as on authority. We shall first refer to a few authorities.

24. The Bombay High Court in Kisan singh v. Vishnu and the Andhra Pradesh High Court in D. Sadasiva Vittal v. Bolla Rattain dealt with cases involving a consideration of the principles of the general Hindu law. In the former, the question was whether a transaction by which a Hindu father divided his self-acquired property between his sons, was one which had to be effected by a registered instrument. In the latter, the question was whether a house, an agreement for the sale of which was sought to be specifically enforced, was separate property of the father or joint family property of himself and his sons. In the former, Bavdekar J., delivering the judgment of the court, stated the conclusions as follows :

'We, therefore, regard the transaction by which a father makes a division of his self-acquired property between his sons as a transaction by which he, in the first instance, effects a severance of status between his sons; in the second instance, he notionally throws into the hatch-pot his self-acquired property and then divides it between his sons, whether equally or in equally in accordance with his pleasure.

In that view of the case, the transaction cannot be possibly regarded as one of the five transactions mentioned in the 'Transfer of Property Act, which require registration, namely, sale, mortgage, exchange, lease for more than one year, or a gift.'

25. In the latter case, Umamaheswaram J. delivering the judgment of the court, quoted with approval the following passage from the judgment of a Bench of the Madras High Court reported as Subramania Iyer v. Commissioner of Income-tax

'Under the Hindu law there is no necessity for joint family property to exist in order that there may be a joint family. The assessee and his son undoubtedly constitute members of a joint Hindu family. They might have started with no ancestral nucleus or either joint family property, but there was nothing to prevent the assessee from impressing upon any self-acquired property belonging to him the character of joint family property. No formalities are necessary in order to this about and the only question is one of intention on the part of the owner of the separate property to abandon his separate rights and invest it with the character of joint family property.'

26. Under the Indian Income-tax Act of 1922, the question arose whether transactions of the type mentioned above (viz., a father impressing his self-acquired property with the character of joint family property and dividing the same between his wife and children) would amount to direct of indirect transfer of assets by the father to his wife and children within the meaning of section 16(3) (a) (iv). Two cases which dealt directly with this question are M. K. Stremann v. Commissioner of Income-tax decided by the Madras High Court, and Keshavlal Lallubhai Patel v. Commissioner of Income-tax decided by the Gujarat High Court.

27. The Madras High Court accepted the statement of law in the Bombay ruling cited above as correct and made the following observations about the true legal position :

'Severance in status with the resulting change in the nature of the ownership of the property is one of the incidents of a coparcenary. The property held by the coparcenary vests in the separated members as tenants-in-common after the severance in status. That result can be brought about by the unilateral exercise of the volition of the separating member or members of the family. At that point of time, the property, which had up to then been impressed with the character of joint family or coparcenary property, becomes impressed with the character of property held in severalty by the tenants-in-common. The change does not itself constitute a transfer. Nor even does it result from any transfer of assets.

Similarly, when the separate property of a coparcener ceases to be his separate property and becomes impressed with the character of coparcenary property there is no transfer of that property from the coparcener to the coparcenary. It becomes joint family property because the coparcener, who owned it up to then as his separate property, has by the exercise of his volition impressed it with the character of joint family or coparcenary property, to be held by him thereafter along with the other members of the joint family. It is by his unilateral action that the property has become joint family property.

Coparcenary property ceasing to be joint family property of the coparcener on a division in status between them and becoming thereafter the property held in severalty by the divided members, and the property of a coparcener ceasing to be his and becoming the property of the coparcenary of which he continues to be a member, are both incidents of a coparcenary governed by the Mitakshara school. Either can be brought about by the unilateral action of the coparcener concerned. Neither transaction amounts to a transfer of property from one juristic entity to another. A transfer is essentially a contract, a bilateral transaction. The transaction by which a property ceases to be the property of a coparcener and becomes impressed with the character of coparcenary property does not itself amount to a transfer. No transfer need precede the change. No transfer ensues either.'

28. 'The Gujarat High Court, however, though that though a partition may not involve a transfer at all, a blending might involve a transfer by operation of law. At page 275 of 44 I. T. R., there are the following observations :

'We are inclined to accept the view urged before us by the learned Advocate-General that by reason of operation of law, a transfer of property takes place when a member of a joint family throws his separate property into the hatch-pot of the joint family. The real question which we have to consider is whether there has been a transfer of assets directly or indirectly by the assessee to his wife and minor son. The assessee, while throwing the property into the hatch-pot, has effected a charge of ownership of the property. The same may be said to be transferred from the assessee, the individual, to the Hindu undivided family.'

29. As, however, in both the cases the question was whether there was a transfer to the wife or minor children for the purpose of section 16(3) (a) (iv) of the Income-tax Act, 1922, the decision in both the cases was against the revenue.

30. The decisions in both the cases were taken on appeal to the Supreme Court and were decided on the same day, the 9th day of November, 1964. The judgment in the Gujarat case is reported in ([1965] 55 I. T. R. 637) and that in the Madras case at page 62 of [1965] 56 I. T. R. Their Lordships of the Supreme Court, taking the definite view that a partition in a Mitakshara family does not involve a transfer and that, therefore, in the case before them there were no transfers in favour of the wife or the minor children of the assessee, left the question open whether a blending or throwing into common stock did not involve a transfer.

31. This very question with reference to the Gift-tax Act did arise in a reference made to this court in T. R. C. No. 8 of 1965. But because there had been a blending followed by an unregistered partition deed in 1954 before the Gift-tax Act had come into force and the question raised arose out of a registered partition deed of 1957, it became unnecessary for this court to do anything more than accept as correct the opinion of the Tribunal in that case that the allotments of shares in 1957 did not amount to gifts. However, this court referred with approval to the principles stated by the Bombay High Court in Kisan singh v. Vishnu and by the Andhra Pradesh High Court in D. Sadasiva Vittal v. Bolla Rattain , already referred to above.

32. The only case in which a blending was regarded as a gift within the meaning of section 2(xxiv)(d) of the Gift-tax Act and therefore liable to gift-tax is case of Commissioner of Gift-tax v. Satyanarayanamurthy. In the said case, Chandra Reddy C.J. of the Andhra High Court appearing to prefer the view of the Gujarat High Court in Keshavlal Lallubhai's case, to the view of the Madras High Court stated in Stremann's case, and stated his conclusions in the following terms :

'Although we are more inclined to agree with the law as stated by the Gujarat High Court, we do not think it necessary to express any final opinion on this aspect of the matter as this reference can be disposed of on the interpretation of clause (xxiv) (d) of section 2 of the Act.

This definition is of wider import than that contained in the Transfer of Property Act. The only requirement of this clause is that the transaction, which seeks to accomplish certain results, should have the effect of diminishing directly or indirectly the value of his own property and to enhance the value of the property of any other person. Incontestably, by the declaration made by Shri Malakondiah by the conversion of his self-acquired properties into joint family properties, there was a decrease in the value of the property of Sri Malakondiah and it enhanced the value of the property of the joint family. That joint Hindu family answers the description of any other person is seen by clause (xviii) of section 2 which says that a person includes a Hindu undivided family or a company or an association or a body of individuals or persons, whether incorporated or not. Since the conversion in this case has the effect of diminishing the value of the declarant's property and raising the value of the property of the joint Hindu family, it falls within the purview of clause (d). The transfer contemplated by this clause is a transfer as a result of which the income accrues to the joint family from the properties, the subject-matter of the declaration. There can be little doubt that by this transaction the owner of the property had divested himself of it and vested it completely in the joint Hindu family. He has thus effected a change of ownership of the property. If it is a transfer of property within the terms of clause (xxiv) (d), it is a gift as envisaged in clause (xii) and section 4(a).'

33. (NOTE : Section 4(a) appears to be a misprint for section 4(d).)

34. We might at once say, with respect, that the incidental observation that the matter would fall under section 4(d) is difficult of acceptance. Even assuming, without conceding, that blending may be regarded as an act of a person absolutely entitled to property whereby he causes it to be vested in himself and others jointly, a partition being not a transaction involving any transfer but a readjustment of pre-existing rights can never be regarded as amounting to an appropriation from out of the said property. Further, the preliminary act of the absolute owner referred to in the clause is referred to as a transaction with consideration, though inadequate. A blending is not an act done with any consideration in terms of money or money's worth at all. In any view of the matter, section 4(d) is wholly inapplicable to the situation, nor has any attempt been made before us on behalf of the department to invoke the said provision.

35. Regarding section 2(xxiv)(d), we have already expressed our view that it does contemplate a transaction involving a transfer of property. Even when his Lordship states that the definition of a transfer in section 2(xxiv)(d) is of wider import than that contained in the Transfer of Property Act, his Lordship does not indicate that it would include a transaction which is not a transfer at all, nor is any reference made to the previous decision of the same High Court already referred to by us, viz., Sadasiva Vittal v. Bolla Rattain.

36. What remains to consider now is the question of principle whether an act of blending or of throwing self-acquired property into common stock involves, according to the ordinary principles of Hindu law and of the Transfer of Property Act, a transfer of property or any interest in property.

37. So far as a partition is concerned, it is well established that it does not involve any transfer of property, the two decisions of the Supreme Court already referred to by us fully supporting the said proposition. The basis of that view is the fundamental doctrine of the Hindu law applying to Mitakshara coparcenary, viz., the right by birth of a coparcener in what is called ancestral property or kramagatha property. Because a person acquires a right in such property by the very fact of his birth, he acquires nothing new when a partition takes place, nor can any coparcener be said to make a transfer of any interest to him. He already had a joint interest in the property or an interest jointly with others acquired from the moment of his birth or, more accurately, conception, and what a partition does is to convert the old undivided joint right of the entire family consisting of all coparcener into separate individual rights of the several coparcener; it is a change in the nature of title and not the transfer of a title by one to another nor the acquisition of a new title by that other.

38. If so, the act of blending would appear to be the converse of the process of partition known to Hindu Mitakshara law. According to the strict theory of Mitakshara law, the right by birth of a Hindu appertains not merely to what is called ancestral property - all property acquired by his father from his (father's) father - but to the property of the father also. What we now call father's self-acquired property was also therefore, according to Mitakshara, subject to the son's right by birth. There was, however, one difference, viz., whereas the right by birth in respect of ancestral property was a right which was not to any extent dependent upon the father's pleasure, the right by birth in respect of the father's self-acquired property was considered to be subject to father's pleasure, technically called pitru prasada. The theory of pitru prasada is also the reason for the rule that whereas division of ancestral property should be equal, division of father's self-acquired property might be unequal according to the pleasure of the father.

39. It would appear that in very ancient Hindu law where there was hardly any self-acquired property, all property being regarded as property generally acquired for and the benefit of the entire family, the theory of pitru prasada was applicable or applied only to movable like ornaments, articles of dress, precious stones, etc. But with the growth of society, the difference became identified with the source of acquisition, all ancestral property, whether movable or immovable, being freed from the theory of pitru prasada, and all property movable and immovable acquired by father being placed within the scope of the theory of pitru prasada.

40. It would follow, therefore, that even in the case of father's self-acquired property, throwing the same into common stock, or blending it with other undoubted joint family properties, would be an act of pitru prasada and not creation of a new right in the son or transference of a new right by the father to the son. It was only removal of a limitation placed on the exercise of a right recognised as always existing from birth.

41. There is nothing incongruous or illogical in this theory, because Hindu law has always recognised what may be compendiously described as a qualified ownership meaning that the law recognises and enforces certain restrictions in the exercise of the right of ownership by a single individual in the interest of or for the benefit of the others, also recognised as having a right of ownership in respect of the property. The exercise of the right by a manager or karta of a joint family is only one of the examples of such a right. The ownership of a woman like the widow or daughter is another example; though we are used to the idea of describing widows or daughters as limited heirs or limited heirs or limited owners, they are the sole owners and represent the estate fully, the only difference between them and the absolute owners known to English law being that the enjoyment or disposal of property by them is subject to certain limitations conceived in the interest of other persons whom the law recognises as persons whom the law recognises as persons interested in the property.

42. Another aspect of the matter which should be borne in mind is that blending need not necessarily be the result of a single act or single declaration of intention by a person. It may be brought about by a continuous course of conduct, commencing either with the act of acquisition itself or at a subsequent point of time by way of enjoyment or mode of enjoyment. The foundation or the principal governing factors is the postulate that the son has or acquires a right by birth even in respect of father's self acquired property, the mode or manner of enjoyment being determined by the operation of the doctrine of pitru prasada.

43. We are therefore of the opinion that the considerations applicable to the process of partition in a Mitakshara family apply with equal force to the process whereby a single acquire blends his property with joint family property or throws it into common stock, in either event impressing the same with the character of full joint family ownership.

44. In the result, we hold that a belonging or throwing into common stock does not involve any transfer of property or interest in property in the same way as a partition does not involve any such transfer.

45. We therefore answer the question referred to us as follows :

'On the facts and in the circumstances of the case, the act of throwing the self-acquired property of the assessee (N. B. Nerlekar) into the common hatch-pot of the Hindu undivided family, of which he was the karta, with the intention of abandoning his rights in that property and then dividing it unequally between his wife and sons did not amount to a gift within the meaning of the term 'gift' as defined in the Gift-tax Act.'

46. The assessee will have the costs of this reference. Advocate's fee Rs. 250.

47. Question answered in the negative.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //