1. In this reference under section 26(1) of the Gift-tax Act, 1958 (hereinafter referred to as 'the Act'), the following question has been referred to the High Court by the Tribunal :
'Whether on the facts and in the circumstances of the case, and having regard to annexure 'A', there was any taxable gift under section 2(xii), section 2(xxiv) or section 4(c) of the Gift-tax Act in respect of her agreeing not to claim a share in the partial partition of the 1,320 ordinary shares of Indian Dyestuff Industries Ltd. ?'
The facts giving rise to this reference are as follows :
The assessee is an individual. The assessment year is 1961-62, the relevant previous year being the financial year 1960-61. The assessee, her husband, Hariprasad, and their five sons formed a Hindu undivided family. This family owned, inter alia, 1,320 shares (ordinary) in a company called Indian Dyestuff Industries Ltd. On July 29, 1960, a deed of partial partition was drawn up between all the seven members of the family. The partial partition was confined to the said 1,320 shares. At the date of this partial partition, out of the five sons, one son, Harshad, had attained majority and the other four sons, viz., Udayan, Vijay, Piyush and Pundrik, were minors and the assessee and her husband, Hariprasad, represented the interest of the minors in the said partial partition. Before the partition by metes and bounds was carried out under the said deed of partial partition, the assessee had agreed not to claim any share on the partial partition as regards the said 1,320 shares and in the deed of partial partition drawn up in this connection, the assessee declared that she had agreed that on this partial partition she did not want any allotment of the said shares and accordingly the said 1,320 shares were allotted the remaining six coparceners equally, i.e., 220 shares to the husband of the assessee and each of the five sons of the assessee. The shares coming to each of the four minor sons were accepted by the assessee and her husband acting as guardians of the said minor sons. On August 4, 1960, the assessee, through her Chartered Accountant, M/s. C. C. Choksi & Co., addressed a letter to the gift-tax Officer stating that the assessee had made a gift to the tune of Rs. 1,65,000, on July 29, 1960, and that this gift was liable to gift-tax. It was further stated in that letter that she desired to make advance payment of tax within 15 days so as to get the benefit of the provisions of section 18 of the Act and the letter called upon the Gift-tax Officer to send her a challan for the tax payable by her in connection with giving up or abandonment of her right in connection with her 1/7th share in the said 1,320 shares. Immediately after addressing this letter on August 4, 1960, the assessee pleaded before the Gift-tax Officer that her forgoing of her share in the property divided on July 29, 1960, did not involve the making of any gift and that she was not liable to gift-tax notwithstanding the aforesaid letter to the Gift-tax Officer.
2. The Gift-tax Officer on these facts held that the surrender or abandonment of the right to receive her share in the Hindu undivided family assets at the time of the partial partition amounted to a gift within the meaning of section 4(c) of the Gift-tax Act and he assessed her to gift-tax accordingly. The assessee then appealed to the appellate Assistant commissioner and he held that the assessment by the Gift-tax Officer was proper. On further appeal to the Tribunal, it was contended on behalf of the assessee before the Tribunal that the question as to whether she did not make a it had to be considered independently of the statements contained in the letter of August 4, 1960. It was further contended on her behalf at that stage that at the time when she abandoned her right to claim her share on partition she did not have any interest in the said shares and hence there could be no gift of the same to anybody. It was also contended that the abandonment or non-enforcement of her right could not be brought under section 4(c) of the Act; and, lastly, it was contended that, even if the act of the assessee was deemed to come within the scope of section 4(c), it would not amount to a gift, because the release, surrender, or abandonment, if any, could not be said to be lacing in bona fides. The Tribunal held that not withstanding the letter of August 4, 1960, the assessee as entitled to contend that she was not liable to gift-tax in respect of this particular action of hers. It was also held by the Tribunal that the assessee had no interest in the shares till the point of partition and that she had not attempted to transfer any interest in favour of any person, as she did not hold any property or any interest in the property, which could be gifted away by her. It was also held by the Tribunal that abandonment or non-enforcement of her right to claim a share did not fall within the first part of the definition of 'gift' in section 2(xii) of the Act; and further that there was no question of release, discharge, surrender, etc., of any debt or contract covered by section 4(c). It was also held by the Tribunal that the assessee could not be said to possess any actionable claim as defined in section 3 of the Transfer of Property Act. The Tribunal further held that the option of the assessee to claim a share on partition was to mature into an interest in property only at the end of the successful exercise of option and as the assessee did not hold any interest in the property, the question of its release, surrender or abandonment did not arise. It was further held in the alternative by the Tribunal that even if the assessee could be said to hold some interest in the property, her decision not to exercise her option to claim a share on partition was perfectly bon fide and the question of levying gift-tax did not arise to any extent whatsoever. Thereafter, at the instance of the Commissioner, the above question has been referred to the High Court.
3. In order to appreciate the rival contentions in this reference, it is necessary to deal with the relevant provisions of the Act. Under section 2(xii) of the Act, '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. Under section 2(xxii) of the Act, 'property' includes any interest in property, movable or immovable. It is clear that shares are movable property since they are not immovable property; and under the General Clauses Act, every property which is not immovable property is movable property. Section 2(xxiv) of the Act defines 'transfer of property' to mean any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes the creation of a trust in property, the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property; 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 donee of the power; and 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.
Under section 4 of the Act, certain transfers of property are deemed to be gifts for the purposes of the Act. Section 4(c) of the Act provides as follows :
'4. For the purposes of this Act, -......... (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 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;.....'
4. In the instant case, we are concerned with a partition between the coparceners, which was partial as to the property. This is not a case of a partial partition where only one or more coparceners separated from the rest of the coparceners. As regards the question of intention, in Raghavamma v. Chenchamma, at page 151, in paragraph 31 of the report, Subba Rao J. (as he then was), delivering the judgment of the Supreme Court, has observed :
'We agree with the learned judge in so far as he held that there should be an intimation, indication or expression of the intention to become divided and that what form that manifestation should take would depend upon the circumstances of each case. But if the learned judge meant that the said declaration without it being brought to the knowledge of the other members of the family in one way or other constitutes a severance in status, we find it difficult to accept it. In our view, it is implicit in the expression 'declaration' that it should be top the knowledge of the person affected thereby. An uncommunicated declaration is not better than a mere formation or harbouring of an intention to separate. It becomes effective as a declaration only after its communication to the person or persons who would be affected thereby.'
5. In the instant case, as the learned Advocate-General on behalf of the revenue has emphasized, there is material on record to show that the intention to have a partial partition was communicated by the husband of the assessee to her. The deed of partial partition mentions in the recital as follows :
AND WHEREAS the said Hariprasad D. Vasa decided to effect a partial partition of 1,320 ordinary shares in Indian Dyestuff Industries Ltd., belonging to the said Hindu undivided family described in the schedules hereto and the said Harshad H. Vasa and Mrs. Taramati H. Vasa have agreed to making of partial partition of the said 1,320 shares (the said family continuing to remain joint and the rest of the family properties continuing to remain joint).
AND WHEREAS the said Mrs. Taramati H. Vasa has agreed not to claim any share on such partial partition of the said 1,320 shares and accordingly the said shares have been agreed to be partitioned between the other parties hereto.'
In clause 1 the assessee has declared as follows :
'Mrs. Taramati declares that she has agreed that on this partial partition she does not want any allotment and that accordingly the said 1,320 (one thousand three hundred and twenty) shares should be partitioned amongst the said six coparceners equally.'
6. Thus, the decision to have a partial partition of these 1,320 shares was first taken by the husband of the assessee and that decision, according to the recitals in the partition deed, was communicated by her husband to the assessee; and it is contended that from that moment onwards, there was a notional partition as distinguished from partition by mets and bounds between the different members of the family as regards this particular property, viz., 1,320 shares. The question still remains as to whether even on a notional partition of this kind, the assessee had any right under the Hindu law, because it is only if she had any right prior to the actual partition by metes and bounds that she can be said to have given up any such right conferred by law on her.
7. In Raoji Bhikhaji v. Anant Laxman, a Division bench of the Bombay High Court held that under the Hindu law a mother's right to share in her husband's estate, on partition of the estate between the sons, accrued only when a partition is actually made. In that case a Hindu died leaving a widow and two sons. One of the two sons died subsequently, leaving a son, who brought the suit for partition and possession of his share in his grand-father's estate. The trial court held that the widow was entitled to a one-third share and passed a preliminary decree. Before, however, a final decree could be passed, the widow died and the Division Bench held that the share which the widow would have taken, if an actual partition had been effected, was never severed from the estate and consequently remained an integral part of the estate available for division amongst the heirs of her husband. Thus, even though there was a preliminary decree for partition, because of the fact that partition by metes and bounds had not been had not been severed from the estate of the propositus, the Division bench came to the conclusion that the widow had not become entitled to any share and hence, on her death, the property which she would have gift in the partition by metes and bounds had taken place, still remained a part of the estate of the propositus; and hence the plaintiff and the defendant would each get one-half share in the estate of the propositions. We may point out that the Calcutta High Court had earlier taken the same view in Sheo Dayal v. Judoonath and there the Calcutta high court had pointed out that the mother or the grand-mother an never be recognized as the owner of such a share until the division had been actually made. She has no pre-existing vested right in the estate, except the right of maintenance. She may acquire property on partition and that is one of the recognized modes of acquiring the property under the Hindu law; but the partition in her case is the sole cause of her right to the property. It follows, therefore, that the effect cannot precede the cause.
8. This decision of the Bombay High Court in Raoji Bhikhaji's case and also the earlier decision of the Calcutta High Court in Sheo Dayal's case were both approved by the Privy Council in Pratapmull v. Dhanbati Bibi. In that case, the appellants before the Privy Council, who carried on business as money-lenders, lent money to a father and son, who constituted a joint Hindu family governed by the Mitakshara law, on the security of the joint family property. A suit brought by the appellants on the mortgages was settled on terms embodied in a consent decree. About a year before that decree the son had instituted a partition suit, in which a preliminary decree was made declaring that his mother, who was one of the defendants in that suit was entitled in severalty as a Hindu wife under the Mitakshara school of Hindu law to a one-their share of the property. No actual division of the property was in at carried out. In the suit by the appellants claiming, inter alia, a declaration that the mortgages and the decree in the mortgage suit were binding on the wife, it was held by the Privy Council that under the Mitakshara law when the family estate is divided a wife or mother is entitled to a share, but is not recognized as the owner of such share until the division of the property is actually made, as she has no per-existing right in the estate except a right of a maintenance. Inasmuch, therefore, as the preliminary decree in the partition suit was not carried out, and no actual division of the joint family property was made, thaw wife did not become the owner of the share maintain therein, and at the date of the decree in the mortgage suit had no right or title in or to the mortgaged property or any interest therein entitling her to redeem. The decree in the mortgage suit was valid and enforceable and the appellants' suit for a declaration that it was binding on the wife was maintainable; and at page 45 of the report Sir Lancelot Sanderson, stating the opinion of the Privy Council, has observed :
'In their Lordships' opinion, the above-mentioned decisions (Sheo Dayal's case, Beti Kunwar v. Janki Kunwar, and Raoji Bhikhaji's case) correctly represent the Mitakshara law on the matter now under consideration, for it is not suggested that there is any difference in this respect between the rights of a wife and those of a mother or grand-mother.'
9. In view of this decision of the Privy Council, it is clear that unless and until actual partition takes place, the mother or the grand-mother had no actual right in the property and until the actual stage of partition but metes and bounds, she has merely a right of maintenance.
10. We may also mention at this stage that, as pointed out by the Nagpur High Court in Mt. Bhiwra v. Mt. Renuka, the share which is allotted to the wife or the mother on partition is not a share in the true sense but only a provision for maintenance. She gets no ownership in it until it is actually handed over to her and she is placed in a position to maintain herself out of it. In that case, the Nagpur High Court also pointed out that the shares of the male members of the family are neither diminished nor enlarged by the existence or non-existence of these particular females. Their true share is the one they would have obtained if there had been no females to consider. It is true their enjoyment of this share to the full extent is postponed so long as the ladies are entitled to maintenance, but the property set apart for this purpose falls for division among the family as it existed on the date of severance as soon as the females pass out of the picture for this reason or that. When that occurs this portion of the property is re-divided and each member then gets the full extent of the share he would have obtained if there had been no ladies to consider. There it is also points out by the Nagpur High Court that the severance of title does not affect the severance of the mother's share in the same way as it does to a male coparcener. Even a preliminary decree for partition does not have that effect. Her rights do not vest until the property has actually been divided.
11. In Sri Gopal v. Mt. Janak Dulari, a Full Bench of the Allahabad High Court has pointed out, following the decision in Pratapmull's case, that even though a mother is entitled to a share on partition, no right to such a share is conferred upon her by a mere severance of the joint status of the family. She becomes entitled to a share only when the members of the joint family divide the family estate between themselves by meters and bounds. Thus, both prior to the decision of the Privy Council in the case referred to above and after that decision there has been a consensus of opinion amongst the different High Courts as to the position under the Mitakshara Hindu law regarding the right of a Hindu wife or mother or grand-mother, when a partition has been effected between her husband and the sons or between the sons or the grandsons of the lady concerned. Therefore, it is clear in the light of this legal position that prior to the actual partition by metes and bounds as evidenced and arrived out by the deed of partial partition, the assessee had no right to demand a partition; nor had she any right in the particular property which was proposed to be partitioned. It is also clear that if any share had been allotted to her, she would have got it in lieu of her right to maintenance.
12. However, on behalf of the revenue, the learned Advocate-General has relied upon two Full bench decisions of the Bombay High Court. The first in point of time is the decision in Sakarchand Satidas v. Narayan Savla. There the Full Bench has held that under Hindu law the share of the alienee of joint family property is to be determined at the date of the alienation and not at the time when the alienee asks for an equatable partition of the property. This principle regarding the right of the alienee of joint family property was considered by the second Full Bench in Parappa Ningappa v. Mallappa Kallappa) and there the Full Bench held that under Hindu law, in a suit by a son for partition and separate possession of his share after setting aside the alienation of join family property made by his father, the mother, who is a party, is entitled to a share, if the court comes to the conclusion that the alienation is not for a purpose binding upon the family consisting of the father, mother and sons. As the opening paragraph of the judgment of Chagla C.J. points out at page 412 of the report, this Full Bench in Parappa's case was constituted to decide the vexed question of the interest that an alienee takes in the joint family property unauthorizedly alienated by the father; and at page 418 of the report, Chagla C.J. has dealt with an argument which was advanced before the Full Bench on the strength of the Privy Council decision in Pratapmull's case, and he has observed :
'What the Privy Council laid down was that according to Mitakshara law the wife, mother or grandmother is entitled to a share when there is a partition by division of the family estate between copareners, but she cannot be recognised as the owner of such share until the partition is actually made as she has no pre-existing right in the estate except a right of maintenance and further that there is nothing in the Mitakshara law from which it can be inferred that upon a mere severance of the joint status of the family, any of the above-mentioned females can claim a share. Now, the legal fiction that we have introduced is not the severance of the joint status of the family. If that was the legal fiction, undoubtedly it could not be said that the wife would have a share. But the legal fiction we have introduced and which must be given effect to is that there must be a notional partition, a partition must be effected, and the question that has got to be considered is who are the sharers on such a partition being effected. To that question that answer is obvious. It a partition was effected at the date of the alienation, undoubtedly the wife or the mother would have share in the joint family property.'
13. Thus, it is clear that the these two Full bench decisions, one in Sakarchand Satidas v. Narayan Savla, and the other in Parappa Ningappa v. Mallappa Kallappa, the Bombay High court was dealing, firstly, with the quantum of the interest which an alienee would get when a joint family property has been alienated by one of the coparceners. In Sakarchand Satidas v. Narayan Savla it was held by the Full Bench that the share which the alienee gets is not a share like the share of a coparcener but it is a determinate share and the share is determined as that equivalent to that of the share of the alienor at the date of the alienation. In Parappa Ningappa v. Mallappa Kallappa a further fiction was pressed into service, viz., that an actual partition by metes and bounds having taken place on the date of the alienation must be presumed and thus there are two different legal fictions, one regarding the share of the alienee, and, secondly, in determining that share, provision being made for the shares which the wife or the mother of the grand-mother would have taken if a partition had been effected by metes and bounds as of the date of the alienation. Thus, neither of these two Full Bench decisions affect in any manner the legal position which energes from the decision of the Bombay High Court in Raoji Bhikhaji's case and as approved by the Privy Council in Pratapmull's case.
14. It was contended on behalf of the revenue before us that at the time when the assessee agreed not to lim any share in the 1,320 shares on such partial partition, she had 1/7th share at that moment of time a and by agreeing not to claim her 1/7th shares she has surrendered or renounced her 1/7th share in the property because this was a determinate and existing right. This submission of the learned Advocate-General is based on the Full Bench decision in Parappa's case but that Full bench decision cannot help the revenue in the instant case because, until actual partition by meters and bounds takes place, the assessee had no right to any particular share in the property and by agreeing not to claim any share that the time of partial partition, she was not giving up her right to be maintained out of the joint family properties. Until the partition by metes and bounds actually took place, she had not interest in the property but had merely a right to be maintained out of the entire joint family properties. By agreeing not to claim and share at the time of this partial partition, she was not giving up her right to be maintained out of the rest of the joint family properties. It is true that these 1,320 shares were existing movable property but she had no right in that existing property prior to actual partition by metes and bounds. At page 413 of the report in Parappa's case, Chagla C.J. has referred to the right of the wife to get a share on partition by metes and bounds as an inchoate right and indicated that, although it may be true that a Hindu wife has no interest in joint family property and she has no right to challenge the alienation, it is equally true that on a partition between her husband and her sons she is entitled to a share equal to that of her son. It is clear from the legal position that we have examined above that unless the actual partition by metes and bounds takes place, she has merely a right of maintenance and no right to claim a share and no right to get a share prior to the actual moment of partition by metes and bounds.
15. Since it is clear that she had no right prior to the actual partition by metes and bounds, it cannot be said that she had any interest in this particular property, viz., 1,320 shares, which constituted movable property. It is, therefore, clear that since she had no existing interest in the movable property, there could not be any transfer of property by the assessee to her husband or sons when she agree not to claim any share on the partial partition of these 1,320 shares. Since she had no interest in this particular property, there cannot be any disposition, conveyance, assignment, settlement or other alienation of property within the meaning of section 2(xxiv) of the Act; and as she had no interest in this particular piece of property, it cannot be said that by agreeing not to claim any share on this partial partition, she was diminishing directly or indirectly the value of her own property and to increase the value of the property to any other person within the meaning of section 2(xxiv)(d) of the Act. Since she had no interest in property, it cannot be said that there was any release, discharge, surrender or abandonment of any actionable claim or any interest in property within the meaning of cession 4(c) of the Act. It is, therefore, clear that there was no gift by the assessee within the meaning of section 2(xii) or within the meaning of section 4(c) of the Act. In connection with section 4(c), we may also point out that the Tribunal has found as a party, her decision not to exercise her option to share on partition was a perfectly bona fide one and, therefore, the question of levying tax under section 4(c) does not arise in the instant case. Thus, as regards the alternative case, under section 4(c), the Tribunal has found as a matter of fact that the agreement not to claim share was a perfectly bona fide transaction.
We, therefore, answer the question referred to us as follows :
'There was no taxable gift in the instant case under section 2(xii), nor was there any transfer of property within the meaning of section 2(xxiv); agreement not to claim a share on the partial partition of 1,320 shares in question.'
16. We, therefore, answer the question in the negative and in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.