1. The following three questions have been referred by the Appellate Tribunal under s. 26(1) of the G. T. Act, 1958 :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the gift of immovable property belonging to a Hindu undivided family, made by the karta, was void and not liable to gift-ta
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was entitled to spouse allowance under section 5(1)(viii) of the Gift-tax Ac
3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the penalty levied under section 17(1)(a) of the Gift-tax Ac
2. The assessee is an HUF. The kartas gifted a half share in immovable properties to his wife. He gifted also movables valued at Rs. 20,000. the GTO brought to tax the value of the properties gifted to the wife amounting in all to Rs, 3,52,000, and did not grant the exemption claimed by the assessee under s. 5(1)(viii) of the Act. The AAC, on appeal, cancelled the assessment of immovable properties, relying on a decision of the Supreme Court in Ammathayee alias Permumalakkat v. Kumaresan alias Balakrishnan, : 1SCR353 and another decision of the Punjab High Court in CGT v. Tej Nath . In the view of the AAC, the gift of immovable property being wholly void, there could be no assessment to gift-tax. As far as the movable property was concerned, he held that the assessee would be eligible for the exemption under s. 5(1)(viii) and relied for this purpose on a decision of the Andhra Pradesh High Court in Jana veera Bhyadrayya v. CGT : 59ITR176(AP) . The department took the matter on appeal to the Tribunal. The Tribunal took the view that the gift to the wife being wholly void, there could be no gift-tax on the gift. On the question of exemption under s. 5(1)(viii), the Tribunal agreed with the AAC.
3. There was also a levy of penalty under s. 17(1)(a) for the non-submission of the return under the G. T. Act within the time allowed under the law. The penalty levied was Rs. 27,000. The penalty was cancelled by the AAC and, since the order of the AAC was upheld by the Tribunal, the cancellation of the penalty was also upheld. the order of the Tribunal has given rise to the questions extracted already.
4. As far as the third question is concerned, it is clearly dependent on the liability to gift-tax. the Supreme court in Ammathayee alias Perumalakkal v. Kumaresan alias Balakrishnan, : 1SCR353 , has pointed out as follows (head note) :
'So far as movable ancestral property is concerned, a gift out of affection may be made to a wife, to a daughter and even to a son, provided the gift is within reasonable limits. A gift, for example, of the whole or almost the whole of the ancestral movable property cannot be upheld as a gift through affection; But, so far as immovable ancestral property is concerned, the power of gift is much more circumscribed than in the case of movable ancestral property. A Hindu father or any other managing member has power to make a gift of ancestral immovable property within reasonable limits for 'pious purposes'. What is generally understood by 'pious purposes' is gift for charitable and/or religious purpose. It also includes cases where a Hindu father makes a gift within reasonable limits of immovable ancestral property to his daughter in fulfilment of an antenumtial promise made on the occasion of the settlement of the terms of her marriage, and the same can also be done by the mother in case the father is dead.
But the gift made to wife by her husband of ancestral immovable property, out of affection, cannot be upheld, even where the husband is carrying out his father's wishes, for no such gift is permitted under Hindu law in so far as immovable ancestral property is concerned. Even the father-in-law, if he had desired to make a gift at the time of the marriage of his daughter-in-law, would not be competent to do so in so far as immovable ancestral property is concerned.'
5. Bearing in mind these principles laid down by the Supreme Court, it would be clear that in the present cases the gift of immovable property made to the wife by the karta could not have been upheld. Such a gift would be wholly void. The first question is answered in the affirmative and in favour of the assessee.
6. As far as the movable property is concerned, the authorities are clear to show that it is valid if confined on to a reasonable limit. in the present case, there is a finding, which has not been challenged, that the gift was within reasonable limits. The opening sentence extracted from the passage in Ammathayee's case, : 1SCR353 , is clear to the effect that a gift out of affection could be made to the wife. Hence the validity of the gift by itself would not be open to question, on the facts of this case. The contention for the Commissioner, however, is that the word 'spouse' occurring in s. 5(1)(viii) would not be applicable in to an HUF and that with reference to this aspect the Tribunal, merely relying on the decision of the Andhra Pradesh High court in Jana Veera Bhandrayya v. CGT : 59ITR176(AP) , has wrongly held that the exemption under s. 5(1)(viii) is applicable.
7. The judgment of the Andhra pradesh High Court has been subsequently considered in another decision in Vadrevu Venkappa Rao v. CGT : 95ITR313(AP) , which is published as an appendix to the decision of the High Court of Punjab and Haryana in CGT v. Hari Chand . It brings out the principle clearly. in the second Andhra Pradesh case, the learned judges were concerned with the assessment in the status of an HUF. the assessee contended that the gift made by an HUF to the wife of the karta should have been exempted from tax under s. 5(1)(viii). The Tribunal took the view that the return having been filed by the assessee in his status as and HUF, the provisions of s. 5(1)(viii) would not be applicable. this aspect of the legal position came to be considered by the Andhra Pradesh High Court in the light of its earlier decision. The learned judges, in Vadrevu Vesnkappa Rao v. CGT : 95ITR313(AP) , at p. 314 observed :
'Member of a Hindu joint family have individual rights in the joint family. They can partition the property, they can agree to gift of joint family property being made. If the coparceners have a right to partition in the joint family property, or incure debts or make their share of the property liable, they could also individually gift joint family property to their spouses. In the return which the assessee made, he has no doubt stated that he is a member of a Hindu undivided family. In fact, it is so. the gift is from the joint family property made by him. The validity or otherwise of the transfer, vis-a-vis, Hindu law is not what is being considered now, but whether in fact the gift made by him has been made as an individual, i.e., whether it is a gift inter vivos. This would depend on the construction of the deed with which he conveyed the property.'
8. After referring to the observations of the learned judges in Jana Veera Bhandrayya v. CGT : 59ITR176(AP) , to the effect (p. 316) :
'The controversy relates to the capacity in which the made the gift. It cannot be postulated that the made the gift as the manager of the family, since the words of the document made it abundantly clear that in his capacity as the husband he made the gift. If that were so, there is no reason why this gift should be excluded from the ambit of clause (viii) of section 5(1) of the Act'.
the learned judges, who decided the case in Vadrevu Venkappa Rao v. CGT : 95ITR313(AP) , observed (p. 316) :
'We are in respectful agreement with these observations. We cannot also find any merit in the contention that the question itself is so posed as to indicate that the gift was made by the Hindu undivided family in favour of the wife. The question definitely postulates whether the fit made by the assessee, who is a karta of the joint family, of joint family property is exempt under section 5(1)(viii). The fact that he happens to be the manages of the joint family cannot make the gift a gift by the Hindu joint family.'
9. It is unnecessary for our present purpose to consider the question whether the coparceners in a joint family can individually gift joint family or undivided property to the 'spouse' even without effecting any division. The principle of the judgment in Jana Veera Bhadrayya v. CGT : 59ITR176(AP) , has been brought out and explained by the learned judges of the High Court of Andhra Pradesh in Vadrevu Venkappa Rao v. CGT : 95ITR313(AP) , and the passage from the earlier judgment has been quoted and followed in the later case. Both these authorities clearly show that it is necessary to find out the capacity in which the karta transferred the property in favour of the wife. If the capacity was that of an individual, then the exemption would apply. If the capacity was that of a kartas of a joint family, then, on account of the impossibility of a joint family having nay spouse, the question of the applicability of s. 5(1)(viii) would not arise in the assessment of the joint family. It has also been explained in the judgment in Vadrevu Venkappa Rao v. CGT : 95ITR313(AP) , that even in the assessment of gift-tax in the hands of a joint family, this question of the capacity in which the property was figted can be gone into. It is this aspect that has not been gone into by the Tribunal in the present case. In the absence of a finding on the capacity of the donor, it is not possible for us to answer the second question that has been referred to us in the present case. We have, therefore, to return the reference unanswered as for as the second question is concerned. The Tribunal will go into the question as to the capacity in which the kartas made the gift in favour of the donee in the present case in the light of all the facts and the evidence that may be available before it.
10. As far as the third question is concerned, as explained earlier, it is consequential to the assessment being found valid. In the view that the Tribunal took, the assessment itself was held to be bad, because, as far as the immovable property was concerned, there was no valid gift, and as far as the movable property was concerned, the assessee was held to be eligible for the exemption under s. 5(1)(viii). Now, that the matter is again to the considered in the light of all the facts, as far as the exemption under s. 5(1)(viii) of the Act is concerned, it is necessary for the Tribunal to go into the question of penalty in the light of all the facts. the Tribunal will examine the question, whether the penalty provision would be attracted in such a case, even assuming that the exemption claimed by the assessee under s. 5(1)(viii) cannot be granted. The result is that the third question also will have to be decided by the Tribunal and the reference on the third question is, therefore, returned unanswered. There will be no order as to costs.