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Gift-tax Officer Vs. Smt. Anam Saraswati - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1984)7ITD221(Hyd.)
AppellantGift-tax Officer
RespondentSmt. Anam Saraswati
Excerpt:
.....act and not an unilateral act as in the case of transaction by which property is impressed with joint family character. (ii) the assessee has also made it clear in her letter to the karta of the huf that he shall have no power of disposition over the shares. (in) even if it is admitted as a gift, the value of the gift will be 'nil' inasmuch as the karta of the huf has not been given power of disposition over the shares. (iv) the full bench of the madras high court has decided in the case of cgt v. p. rangaswamy naidu [1970] 76 itr 315 that apart from a gift by definition being a bilateral transaction between the donor and the donee, the blending of property with the huf property does not result in increase in the value of huf property. (v) in pushpa devi v. cit [1977] 109 itr 730, the.....
Judgment:
1. This appeal is directed against the order of the AAC dated 30-9-1982 passed in Appeal No. GT. VSP. 2 of 1979-80. The assessment year involved in this appeal is 1971-72.

2. According to the facts of this case, the assessee is one of the directors of India Fruits (P.) Ltd. Kadiyam. She has transferred 100 shares of the India Fruits (P.) Ltd., Kadiyam, in favour of Shri A.V.Reddy, HUF II, on 21-11-1970, i.e., the relevant for the assessment year 1971-72. The HUF consisted of the assessee and her husband, Shri A.V. Reddy, as members. There is no other coparceners other than Shri A.V. Reddy who can claim partition of HUF properties, so the transfer of 100 shares to HUF made by the assessee should be treated as gift to her husband Under Section 4(2) of the Gift-tax Act, 1958 ('the Act') according to the GTO.3. Before the GTO it was contended that there should have been no gift by reason of her merely transferring the shares to the name of the karta of the HUF of which she is a member and has categorically stated that the karta of the HUF has no power of disposition over the shares and interest in them will cease on any question arising regarding their disposition and, hence, requested not to take shares so transferred for gift-tax liability. However, the GTO refused to accept this contention and transfer of shares was treated as valid gift.

4. On appeal, the learned counsel appearing for the assessee made the following statements : (i) The Supreme Court held in the case of Goli Eswaraiah v. CIT [1970] 76 ITR 675, that disposition to attract gift-tax must be a bilateral or a multilateral act and not an unilateral act as in the case of transaction by which property is impressed with joint family character.

(ii) The assessee has also made it clear in her letter to the karta of the HUF that he shall have no power of disposition over the shares.

(in) Even if it is admitted as a gift, the value of the gift will be 'nil' inasmuch as the karta of the HUF has not been given power of disposition over the shares.

(iv) The Full Bench of the Madras High Court has decided in the case of CGT v. P. Rangaswamy Naidu [1970] 76 ITR 315 that apart from a gift by definition being a bilateral transaction between the donor and the donee, the blending of property with the HUF property does not result in increase in the value of HUF property.

(v) In Pushpa Devi v. CIT [1977] 109 ITR 730, the Supreme Court held that only coparceners who have a right to demand partition of the joint family property can blend their separate or self-acquired property into the joint family property and that a female member of the family, not having this right to demand partition of the joint family property cannot blend her separate property with the joint family property. In other words, any blending made by her will become void in law as she is disabled to do so.

(vi) In view of her letter dated 21-11-1970 her throwing 100 shares to the hotchpot of the HUF II is as void in law and so the property continues to be remained as hers.

(vii) The provisions of Section 4(1)(d) makes it clear that when a person absolutely entitled to property causes the same to be vested in whatever manner in himself or in any other person jointly, the transaction will be deemed to be a gift only if the other person makes an appropriation for his own benefit and even in such an event only to the extent of the amount of appropriation. There has been no appropriation at any time of the property in the shares of the assessee by her husband. The transaction cannot, therefore, be even deemed to be a gift.

5. On considering the facts in the light of the legal aspects, the AAC held that there is no valid gift made by the assessee to the HUF II consisting of her husband and herself. Accordingly, he cancelled the assessment made by the GTO.6. Aggrieved, the department filed the present appeal before the Tribunal challenging the order passed by the AAC. Before us it was submitted that the order of the AAC cancelling the gift-tax assessment for the assessment year 1971-72 is erroneous in law and on fact. It was further submitted that the AAC erred in holding that there was no valid gift made by the assessee in favour of the HUF, consisting of herself and her husband. By relying upon the order of the GTO, the learned departmental representative submitted that the order Of the AAC be reversed and that of the GTO restored.

7. On the other hand, the learned counsel appearing for the assessee while relying upon the order passed by the AAC submitted that the amendment to Section 4 by inserting Sub-section 2 by the Finance (No.2) Act, came into effect from 1-4-1972 and the gift was made prior to the amendment, i.e., on 21-11-1970. Inasmuch as the transaction took place prior to the amendment, it is not a gift on that date and, hence, it was considered as a deemed gift. Therefore, according to the learned counsel appearing for the assessee, Section 4(2) was not in the statute book at the time of making the assessment. Thus, according to the learned counsel appearing for the assessee, there is no provision in the statute book to follow for this assessment year. It was further submitted that where Section 64(2) of the Income-tax Act, 1961 ('the 1961 Act') is made applicable, as done by the ITO in the case of the assessee, there can be no gift whatsoever. Further, a gift has to clearly portray the intention of the donor to relinquish all rights over the property gifted and a declaration to this effect should be made by the donor and recorded as such as evidence, which is absent in this case. Accordingly, it was submitted that transfer of shares cannot be considered as a gift.

8. We have heard the rival submissions made by the parties. The fact remains that the assessee, one of the directors of India Fruits (P.) Ltd., Kadiyam, transferred 100 shares of the India Fruits (P.) Ltd., Kadiyam, in favour of Shri A.V. Reddy, HUF II on 21-11-1970 relevant for the assessment year 1971-72. The HUF consisted of the assessee and her husband, Shri A.V. Reddy, as members. In her letter dated 21-11-1970 the assessee has stated as under : I am enclosing a transfer from covering 100 equity shares in India Fruit (P.) Ltd., which are my separate property. I request you to hold these shares hereafter as karta of the joint Hindu family consisting of yourself and me so, however, that at no time any interest is created in these shares in any other person either by partition, settlement, testamentary or non testamentary succession or inheritance. You shall have no power of disposition over these shares and your interest in the property shall cease and the property shall become my absolute property immediately on any question arising regarding disposition of the property in the shares at any time.

According to the assessee, she filed her wealth-tax return before the WTO, on 25-9-1971 for the assessment year 1971-72. In that return, the wealth returned by her with regard to India Fruits (P.) Ltd.'s share was 300 shares (30 shares sub-divided into 10 each) as against 40 shares held by her in the assessment year 1970-71. It was explained to the WTO that she had thrown the 100 shares into the HUF II hotchpot in which she was a member. The WTO has accepted the transaction and has completed her wealth-tax assessment on that basis. The same thing continued in subsequent years also until Section 64(2) was made applicable to this blending in the assessment year 1972-73 and, consequently, the 100 shares were taxed in her hands both in the income-tax as well as wealth-tax. Section 64(2) was, therefore, made applicable to the blending of her individual property with the HUF II property. Accordingly, it was evident that the assessee has already intimated the blending done by her by throwing 100 shares into the HUF II hotchpot to the office in his capacity as WTO and he accepted it in the full knowledge of the facts. It was, therefore, submitted that the later change in his opinion will not amount to failure on the part of the assessee to submit the return of taxable gift concerning the same property merely because the ITO has changed his mind.

9. The Madras High Court in the case of CGT v. P. Rangaswami Naidu [1970] 76 ITR 315 held that apart from gift by definition being a bilateral transaction between the donor and the donee, the blending of property with the HUF property does not result in increase in the value of the HUF property. Hence, Clause (d) of Section 2(xxiv) of the Act is wholly inapplicable in a case of blending.

10. In Goli Eswariah v. CGT [1970] 76 ITR 675, the Supreme Court held that the act by which a member throws his separate property into the common stock is an unilateral act and that there is no question of either rejecting or accepting it and that in such a case there is no donor or donee and so there is no gift. Accordingly, after this decision of the Supreme Court, there can be no doubt that there is no liability to gift-tax in a case where a member of the HUF has thrown his self-acquired property into the common stock of joint family property.

11. We have also seen that a female member of the HUF cannot blend her separate property with joint family property. In such a case the transaction becomes ineffective according to the judgment of the Supreme Court in the case of Pushpa Devi v. CIT [1977] 109 ITR 730.

12. Our attention was also drawn to the fact that when Section 64(2) is made applicable as done by the ITO in the case of the assessee there pan be no gift whatsoever, even according to the decision of the Supreme Court cited above. Section 122 of the Transfer of Property Act, 1882 defines gift as under : 'Gift' is the transfer of certain existing moveable or immoveable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee and accepted by or on behalf of the donee.

For the purpose of finding out whether there existed a valid gift or not, the intention of the donor to relinquish such rights over the property gifted is an essential decisive factor. Here the assessee has not relinquished all her rights over shares thrown by her into the joint family hotchpot. In fact in her letter dated 21-11-1970 she has clearly requested the karta of the joint family to hold these shares hereafter as karta of the joint Hindu family consisting of the karta and the assessee and also stated that he has no power of disposition over these shares and his interest in the property shall cease and the property shall become her absolute property immediately on any question arising regarding disposition of the property in the shares at any time. This letter clearly shows that the HUF has no right to dispose of the property or create any interest by way of partition, settlement, will, etc., provisions of Section 4(1)(d) makes it clear that where a person absolutely entitled to property causes the same to be vested in whatever manner in himself or in any other person jointly, the transaction will be deemed to be a gift only if the other person makes an appropriation for his own benefit and even in such an event only to the extent of the amount of appropriation. According to the assessee, there has been no appropriation at any time of property in the shares of the appellant by her husband.

13. Pushpa Devi's case (supra) is an authority for the proposition that only coparceners who have a right to demand partition of the joint family property can blend their separate or self-acquired property into the joint family property and that a female member of the family, not having this right to demand partition of the joint family property, cannot blend her separate property with the joint family property. In other words, the blending made by her will become void in law as she is disabled to do so. In Pushpa Devi's case (supra), the joint Hindu family consisted of not only her husband but also other coparceners who have a right to share in property. But in the present case the blending which the assessee had sought to make was with the HUF consisting of only herself and her husband. Hence, it was submitted that there are no coparceners in this HUF. In Smt. Valluri Janakamma v. CGT [1967] 66 ITR 255 the Andhra Pradesh High Court held that an invalid gift is not a gift. It was also brought to our notice that for the assessment year 1982-83, 100 shares were sold for Rs. 3,45,000 and kept in a fixed deposit which was included in the hands of the assessee for capital gain purposes. We have also noted that the GTO proceeded Under Section 4(2) and Section 4(2) was introduced by the Finance (No. 2) Act, 1971, with effect from 1-4-1972 by an amendment to the Act. Accordingly, on considering the facts and the legal position on the subject, we hold that the order passed by the AAC is in order. Accordingly, we are not inclined to interfere with the order passed by the first appellate authority which is confirmed.


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