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The Commissioner of Gift Tax, Madras Vs. P. Rangasami Naidu - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 272 of 1964 and 10 of 1966 (Ref. 75 of 1964 and 5 of 1966) and Writ Petn. Nos. 1833 an
Judge
Reported inAIR1970Mad441; [1970]76ITR315(Mad)
ActsGift Tax Act, 1958 - Sections 2, 3 and 4
AppellantThe Commissioner of Gift Tax, Madras
RespondentP. Rangasami Naidu
Appellant AdvocateV. Balasubramaniam and ;J. Jayaraman, Advs. in T.C. No. 272/64, ;K. Srinivasan, Adv. in T.C. No. 10/66, ;S. Narayanaswami ;and T.V. Ramanathan, Advs. in W.P. Nos. 1833 and 1834/65, ;S. Swaminathan and
Respondent AdvocateV. Balasubramaniam and ;J. Jayaraman, Advs. in T.C. No. 10/66 and ;K. Srinivasan, Adv. in T.C. No 272/64
Cases ReferredPotts Executors v. Commr. of Inland Revenue
Excerpt:
gift tax act (xviii of 1958). section 2(xii) and (xxiv) and section 4 - hindu father impressing his separate property with character of joint family property - whether gift coming within meaning of section 2(xii) of act. ; the question for decision is, whether there is a gift within the meaning of the gift tax act (xviii of 1958), when a member of the hindu undivided family, viz., the father, by his unilateral act converts his separate or self-acquired property into joint family property, that is in figurative language, when he throws his self-acquisition into the hotchpot of the joint family and impresses the same with the character of joint family property. ; held, in interpreting the provisions of the act in relation to a transaction under the personal law of hindus, the first.....1. these cases, two references under section 26(1) of the gift tax act, 1958 and petitions under article 226 of the constitution by different parties, raise an important and difficult question of law. the question is, whether there is a gift within the meaning of the act, when a member of hindu undivided family the father in these cases, by his unilateral act converts his separate or self-acquired property into joint family property, that is in figurative language, when he throws his self acquisition into the common hotchpot of the joint family and impresses the same with the character of joint family property. as conflicting views on the question are found expressed in different high courts, the matter has been placed before a full bench.2. in t. c. 272 of 1964 the reference has been.....
Judgment:
1. These cases, two references under Section 26(1) of the Gift Tax Act, 1958 and petitions under Article 226 of the Constitution by different parties, raise an important and difficult question of law. The question is, whether there is a gift within the meaning of the Act, when a member of Hindu undivided family the father in these cases, by his unilateral act converts his separate or self-acquired property into joint family property, that is in figurative language, when he throws his self acquisition into the common hotchpot of the joint family and impresses the same with the character of joint family property. As conflicting views on the question are found expressed in different High Courts, the matter has been placed before a Full Bench.

2. In T. C. 272 of 1964 the reference has been obtained by the Commissioner of Gift Tax, Madras. The assessee in that case who had four sons, two of them minors, by a deed dated 21-5-1958, drawn in the form of an affidavit, made a declaration the relevant portion of which runs:

"The properties inherited and acquired by me from my professional earnings are in my possession. The properties inherited by me and income derived therefrom have been small and the other properties were acquired from my own earnings ......... I therefore hereby express my intention and declare that myself and my aforesaid four sons do constitute a joint Hindu family from this 21st day of May 1958, and that all properties consisting of moveables, immoveables, bank deposits, shares, mortgage-debt, pronote debt standing either solely in my name or solely in the name of Sri R. Rangarajan or jointly in my name and that of my son Sri R. Rangarajan or in the name of my wife Srimathi R. Kamalammal, are the undivided joint family properties of my undivided family and I impress on and invest with all the said properties, the character of joint Hindu family property."

There is no dispute that all moveable and immoveable properties which were thus impressed with the character of joint family properties were the self acquisitions of the assessee the total value of the properties corning to Rs. 1,67,525.

The Gift Tax Officer was of the view that the declaration made by the assessee amounted to a transfer of property by an individual to the Hindu undivided family, a different entity, and it was, therefore, a gift liable to be taxed under the Gift Tax Act, The Gift Tax Officer relied, for this view, on Sections 2(iv)(d) and 4(a) of the Act. As the assessee himself was a member of the joint family, the subject-matter of the gift was valued at 4/5th of the total value of the properties and gift tax was levied thereon. The contention of the assessee that there was no transfer of property or any gift, was overruled. The appeal by the assessee to the Appellate Assistant Commissioner failed. The Tribunal to which the matter was taken up in second appeal by the assessee, after referring to Section 2(xxiv) and Sub-clauses (a) and (d) of Section 4, held, that in the present state of law, the assessee was entitled to claim that there was no transaction, no transfer and so no gift, but only an unequivocal declaration which he was entitled to make under Hindu law. In that view, the assessee's appeal was accepted.

3. In T. C. 10 of 1966, the assessee executed a declaration deed on 17-7-1957, throwing into the hotchpot of the joint family consisting of himself his wife and five children his self acquisitions, assets and Investments in India, with effect from 1-4-1958. The assets which vested in the joint family on the declaration, were valued at Rs. 1,32,780 and, deducting the value of 1/7th share as that of the assessee in the properties, the Gift Tax Officer determined the value of gift at Rs. 1,08,911 and levied gift tax on the amount. The Appellate Assistant Commissioner, on appeal by the assessee, accepted the contention of the assessee that no transfer of property was involved when a Hindu father converted his self acquisition into joint family property. The Revenue appealed to the Tribunal against the decision of the Appellate Assistant Commissioner and the Tribunal, following the decision of the Andhra Pradesh High Court in Commissioner of Gift Tax, Andhra Pradesh v. Satyanarayanamurthi, allowed the appeal and con- firmed the assessment of the Gift Tax Officer. The Tribunal on the application of the assessee, has referred the question of law.

4. The petitioners in W. P. 1833 and 1834 of 1965 came up to this Court earlier for the issue of writs of mandamus or any other appropriate writ, when they were called upon to make returns under the Gift Tax Act. The declarations made by the assessees in these cases are straight and simple. The assessee in each case, after setting out his exclusive right to the assets in question stated-

"I hereby declare that from this day onwards all the aforesaid properties have become the properties of the Hindu undivided family consisting of myself and my sons. All the aforesaid wealth and properties have been entered into the accounts of the Hindu undivided family consisting of myself and my sons."

This court dismissed the petitions for mandamus observing that the petitioners were at liberty to file writs of certiorari or seek other remedy in the event of the Gift Tax Officer making assessment on the petitioners. On the assessments having been made by the Gift Tax Officer, the petitioners have preferred the writs for certiorari.

5. In W. P., 1108 of 1968. It is admitted that on 7-6-1957, the assessee had thrown his self acquired properties into the hotchpot of his Hindu undivided family. The Gift Tax Officer has expressed the view that the transaction would fall within the scope of the extended definition of the words 'transfer of property' in Section 2(xxiv)(d) of the Gift Tax Act, and that he intended taking the value of the properties converted into joint family property as a gift to the family. On this, the assessee has approached this court for the issue of a writ of prohibition.

6. In all these cases, it is common ground, that by an unilateral act of declaration on the part of each assessee, his self acquisitions were impressed with the character of the joint family property and became the property of the Hindu undivided family. The charging section under the Gift Tax Act (hereinafter referred to as the Act) is Section 3, which provides that, subject to the other provisions in the Act, there shall be charged for every assessment year commencing on and from the 1st April 1958, a tax in respect of the gifts, if any, made by a person during the previous year, at the rate or rates specified in the schedule to the Act. Gifts made under a will or in contemplation of death have been excluded from the purview of the Act, as they are made subject to estate duty.

Definitions of certain terms in the Act are given in Section 2 and they apply unless the context otherwise requires, Gift is defined in Section 2(xii) thus:

"'Gift' means the transfer by the person to another of any existing moveable or immoveable 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".

Section 2(xviii) provides that 'person' includes a Hindu undivided family or a company or an association or a body of individuals or persons, whether incorporated or not. The Act defines 'donor' as meaning any person who makes a gift and 'donee' as any person who acquires any property under a sift, and, where a gift is made to a trustee for the benefit of another person, includes both the trustee and the beneficiary. The principal definition of sift conforms to the definition of 'gift' under Section 122 of the Transfer of Property Act that it is a transfer of existing moveable or immoveable property, made voluntarily and without consideration by one person called the donor to another called the donee.

An essential element, of 'gift' defined under the Act, as under the general law, is the absence of any consideration. The main definition of 'gift' in the Act emphasises that the consideration which will vitiate a transfer as a gift is the consideration in money or money's worth. The material part of Section 4 of the Act which contains the deemed gifts we have to refer, runs as follows:

"4. 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; ...... (d) where a person absolutely entitled to property causes or has caused the same to be vested in whatever manner in himself and any 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."

7. While the Act extends the definition of 'gift' by deeming to be gifts certain transfers specified in Section 4 which prima facie are not gifts, further coverage under the definition of 'gift' is achieved by defining 'transfer of property' to include also what ordinarily may not, be considered transfers of property. Section 2(xxiv) defines 'transfer of property' thus:--

" '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, easements, 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 donee 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."

8. It is the interpretation of this definition of 'transfer of property' with reference to the event that is sought to be charged in these cases that gives difficulty.

9. In Dilworth v. Commr. for Land and Income-tax, 1899 AC 99 (PC) Lord Watson said:--

"The word 'include' is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. But the word 'include' is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the' purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to 'mean and include', and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions."

10. That Parliament here intended not to Restrict the scope of the expression 'transfer of property' by using the words "means and includes" is apparent from the words used in the main part of the definition and what it meant to include. In the sub-clause. In Craies on Statute Law, 6th Edn., at page 212, it is pointed out that, when the definition contains the words 'mean and include', it inevitably raises a doubt as to interpretation. The doubt, if any, is resolved by the contents of the inclusive clauses, like charge, licence and power, which are far from transfers of property, and the words 'without limiting the generality of the foregoing'. The phrase 'without limiting the generality of the foregoing' brings out clearly that the definition is not intended to be restricted. The effect of the phrase is that the different classes which are included under the sub-clauses do not, by any implication, limit the generality of the words used in the main part of the definition. But this is not to widen the scope of the sub-clauses themselves. As by the sub-clauses Parliament seeks to include within the definition of transfer of property, dealings with property which are not covered by the wider definition of transfer of property, the special clauses should not be given any wider meaning than what they literally carry. Subjects which are made transfers of property by fiction cannot under any rule of statutory Interpretation be given a liberal coverage. The scope of the fiction cannot be enlarged by interpretation beyond its purpose.

11. From the definition it is manifest, leaving out for the present the deemed gifts under 4, that the essential elements that have to be present for a 'gift' under the Act liable to the levy of gift tax are: (a) a transfer of property falling under one or other provisions of Section 2(xxiv); (b) the transfer must be by one person to another, the word 'person' including a Hindu undivided family or a company or an association or a body of individuals or persons, whether incorporated or not; (c) the property transferred must be existing moveable or immoveable property, the term 'property' including under Section 2(xxiv) any interest in property; (d) the transfer must be made voluntarily; (e) the transfer must be without consideration in money or money's worth.

There is no question that when the father in a Hindu undivided family impresses his self acquisition with the character of joint family property, the last two elements are present. The conversion of self acquisition into joint family property is admittedly voluntary and without consideration in money or money's worth. Also the Hindu undivided family which becomes the owner of the erstwhile separate property of the father is a 'person' under the Act. The question is whether in the process there is 'transfer of property' by one person to another, by the father to the undivided family. The real problem that calls for solution is whether an unilateral act lay which a Hindu coparcener throws his self acquisition into the common hotchpot of his joint family and impresses the same with the character of joint family property, could be considered a transfer falling within the meaning of 'transfer of property' in Section 2(xxiv).

In support of the argument that such conversion is transfer of property, the Revenue rests principally on the main part of the definition of 'transfer of property' in Section 2(xxiv) and on Sub-clauses (b) and (d) of Section 2(xxiv), particularly Sub-clause (d). Alternatively, the Revenue relies on the deemed gifts found In Sub-clauses (a) and (d) of Section 4. Having regard to the peculiar doctrines of Hindu law involved in the matter, it is not surprising that the attempt to fit them into modern legal concepts and language of statutes borrowed from jurisdictions where the prevalent system of jurisprudence has little relation to the personal law of Hindus, has led to divergence of judicial opinion. The definition of 'transfer of property' under Section 2(xxiv) is taken practically word for word from Section 4 of the Gift Duty , Assessment Act, 1041-42 of the Commonwealth of Australia, Section 2(xxiv) being identical with and a verbatim reproduction of Section 4(f) of the Australian Gift Duty Assessment Act.

12. In order to determine whether there is any transfer of property when a Hindu father throws his self acquisition into the hotchpot of joint family property or as it is commonly called, in blending, we consider it necessary first, to examine the true nature of the process by which the character of the property is changed or transformed from the holding of the individual to that of the Hindu joint family.

In Mallesappa v. Mallappa, , the Supreme Court

observed:--

"The rule of blending postulates that a coparcener who is interested in the coparcenary property and who owns separate property of his own may by deliberate and intentional conduct treat his separate property as forming part of the coparcenary property. If it appears that property which is separately acquired has been deliberately and voluntarily thrown by the owner into the joint stock with the clear intention of abandoning his claim on, the said property and with the object of assimilating it to the joint family property, then the said property becomes a part of the joint family estate; in other words, the separate property of a coparcener loses its separate character by reason of the owner's conduct and gets thrown into the common stock of which it becomes a part."

In a recent case C. Narayana Raju v. Chamaraju, , the Supreme Court laid down-

"it is a well-established doctrine of Hindu law that property which , was originally self-acquired may become joint property if it has been voluntarily thrown by the coparcener into joint stock with the intention of abandoning all separate claims upon it ....... The important point to keep in mind is that the separate property of a Hindu coparcener ceases to be his separate property and acquires the characteristics of his joint family or ancestral property, not by mere act of physical mixing with his joint family or ancestral property, but by his own volition and intention, by his waiving or surrendering his special right in it as a separate property. A man's intention can be discovered only from his words or from his acts and conduct. When his intention with regard to his separate property is not expressed in words, we must seek for it in his acts and conduct. 'But it is the Intention that we must seek in every case, the acts and conduct being no more than evidence of the intention'." (Emphasis (here in ' ') is ours).

Reference may also be made to Subramania v. Commr. of Income-tax, wherein this court observed:--

"The assessee and his son undoubtedly constitute members of a joint Hindu family. They might have started with no ancestral nucleus or other 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 bring 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."

These principles were applied by the Andhra Pradesh High Court in Sadasiva Vithal v. Rattin, 1957-2 Andh WR 16 = (AIR 1958 Andh Pra 145). Decisions thus establish that the two essential requisites for the conversion are: (1) the existence of a coparcenary and (2) the deliberate intention formed by the coparcener owning separate property to treat the same as joint family property. This intention may manifest itself in any form, such as by a statement in a deposition, an affidavit, execution of a document as a declaratory deed, or by course of conduct. What transforms the separate property into joint family property is not the outward act or the conduct or the public declaration of the coparcener owning the separate property but his intention to so treat it the intention of the coparcener who owns the separate property to waive and surrender his special rights in the property as separate property. The outward acts are merely evidence of the intention and by themselves they do not change the character of the property.

As pointed out in Mayne's Hindu Law, 11th Edn., at page 349, separate property does not cease to be as such and become joint family property by any physical act, but the acquirer's own volition and intention to surrender his exclusive right. In bringing out the metamorphosis in the character of the property with all its incidents under the personal law, the acceptance or consent of the other members of the joint family to it, has no place. They cannot resist the blending by a coparcener of his separate property with the joint family property.

In Kisansing v. Vishnu, , Bavdekar, J. points out that the transaction by such a Hindu father throws his self-acquired property into the hotchpot and makes a division of the same between his sons, cannot possibly be 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 gift. But even the principal part of the definition of 'transfer of property" in the Gift Tax Act is very comprehensive, leave alone the extended meaning to 'transfer of property' provided by the inclusive clauses. Under the main part of the definition, 'transfer of property' takes in any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property. The word 'transfer' is derived from the Latin trans meaning 'across' and ferre meaning 'bear' and conveys in the context, the idea that to transfer is, to make over the legal title, right or ownership to another.

For the Revenue reliance is placed particularly upon the word "disposition". "Disposition" is a word of wide import, and as pointed out in Carter v. Carter, 1896-1 Ch 62 at p. 67 the words 'dispose' and 'disposition' where not limited by context, are sufficient to extend to all acts by which a new interest, legal or equitable, in the property is effectively created. 'Disposition' has its root in Latin "dispositio" 'arrangement' from disponere -- to arrange, dis-apart, and ponere to place, to cut in different places (Webster's New 20th Century Dictionary), It is difficult to conceive any type of transaction by which property is made to pass from one person to another or ownership in property changes hands, not falling within that word. But, under the definition of 'gift', 'disposition' "of property even in its, most extended sense has to be by one person to another, for the definition of 'gift' requires that the transfer must be 'by one; person to another'. It is an essential limb of the definition of gift. Every 'gift' under the Act (we are now not on the deemed gifts), has to satisfy all the requirements of Section 2(xii); only where the context permits, the special meanings of some of the expressions used in the definition of 'gift' have to be read into the! definition, these expressions alone get amplified in their coverage. The rest of the definition of 'gift' stands. The definition contemplates a bilateral transaction, between the donor and donee.

13. It is urged for the Revenue that as in blending property that belonged to the individual coparcener as his separate property is made over to another person, the undivided Hindu family, it can well be said that there is a disposition or transfer of property by one person to another. There are two obstacles in the way of accepting this argument. First, the change in the character of the property is brought about wholly by the intention of the owner, and, as it will be seen presently, merely by self abnegation on the part of the owner not to exercise his special powers over the property. There is no place in the scheme for the exercise of any volition on the part of the coparceners to accept or reject the change in the character of the property. In our view. It would be a strained application and misuse of language to call a change brought about under what Viscount Simonds referred to as the esoteric, doctrines of Hindu undivided family, a transfer or disposition of property as even widely defined under the Act.

The second obstacle is the peculiar features of the position and status of a coparcener particularly the father in a Mitakshara undivided family, his right in and over the properties, and the emergence, creation, enjoyment and division of rights and interests therein which bear little resemblance in relation to the common law concept acquisition of rights, transfers and dispositions of property grounded generally on Anglo Saxon jurisprudence. By mere birth a male gets interested in the common fund and births diminish the interests of the existing members in the common fund, by increasing the number of claimants. Deaths enlarge the beneficial interests of the survivors, by diminishing the number who have a claim on the common fund. In interpreting the provisions of the Act in relation to a transaction under the personal law of Hindus, the first principle of taxation law to be observed is that its language is not to be strained to an unnatural use in order to enlarge its scope. When the validity of a transaction and its recognition by Courts have to be judged under the personal law, we have to look to the principles of that law to ascertain the true character of the transaction and the juristic concept involved therein.

14. Now to the second obstacle referred to above, notwithstanding the fact that for the purpose of the Act the individual coparcener who may be karta of the family arid undivided Hindu family are different persons, the dichotomy has to break when we consider the rights of the individual coparcener in the family property. The father might have determined to treat his self acquisitions as property of the undivided Hindu family; but he is a member of that family; he is the Karta of the family and the father's position in the family is unique. The father can, to pay off his personal debt not contracted for immoral purposes, alienate family property; also by incurring such debt lay the family estate open to be taken In execution proceedings upon a decree for payment of that debt. Only he cannot claim to have till disruption a specific share in the property. His interest in his erstwhile separate property would extend to the whole of the property even as of the other coparceners, for the interest of every coparcener extends over the whole of the joint family property.

In words which have become classic, Lord Westbury, referred to the mode in which the joint family property is to be enjoyed, said in Appovier v. Ramasubbu Iyer, (1866) 11 Moo Ind App 75 at p. 89--

"According to the true notion of an undivided family in Hindoo law, no individual member of the family, whilst it remains undivided, can predicate of the joint and undivided property, that he, that particular member, has a Certain definite share".

In Katama Nachiar v. Rajah of Sivaganga, (1861-63) 9 Moo. Ind. App. 539 at p. 611, Turner, L. J. referred to the property as 'the common property of a united family' and observed-

"There is a community of interest and unity of possession between all the (coparceners) members of the family, and upon the death of any one of them the others may well take by survivorship that in which they had during the deceased's lifetime a common interest and a common possession".

Examining the position in relation to the Ceylon Estate Duty Ordinance No. 8 of 1919, on the death of a son leaving his father, the sole surviving coparcener, and only other female members of the Mitakshara undivided Hindu family who were entitled to maintenance, out of the joint family properties. Lord Simonds ob served in Attorney General of Ceylon v. Ar. Arunachala Chettiar, 1957 AC 513 at P. 537-- " '

"To say that in such circumstances a coparcener has a 'share' of the property which 'passes' on his death is in their Lordships' opinion a clear misuse of language. Nor does it help to say that the property is 'vested' in or 'owned' by (if 'vest' and 'own' are legitimate words to use) the coparceners for the time being rather than by all the members of the undivided family".

In the view of the Judicial Committee, it would be misuse of language to say that the son had a half share in the joint family property. It is well established that the interests of a coparcener in the undivided Hindu' family is not a definite quantifiable interest; its value is shifting, and varying, liable to be diminished by birth of a coparcener or augmented by death of the coparcener. These are aspects that have to be borne in mind when considering whether blending of separate property would amount to a gift within the meaning of the definition under the Act.

15. The question whether an event like the one under consideration, to use a natural term, would amount to a transfer of property under Section 16(3)(a)(iv) of the Income-tax Act, came up for consi- deration before this Court in M. K. Stremann v. Commr. of I. T. Madras, . In that case, a Hindu father impressed his self

acquired property with the character of joint family property and effected a partition between himself and his minor sons. Posing as the problem for decision whether there was a transfer of assets within the meaning of Section 16(3)(a)(iv) when the father, the assessee, pooled his self acquired properties with the ancestral joint family property for subsequent division between the members of the coparcenary, Rajagopalan, J. observed:

"Where the self acquired properties of a coparcener in this case the coparcener was the father of the other coparceners and the Karta of the coparcenary are pooled with joint family property and partitioned, there are three distinct stages. First the self acquired property of the coparcener is impressed with the character of the joint family property of the coparcenary. The next stage is the disruption of the coparcenary. The members thereafter become divided in status. The next stage after that is the actual division between the divided members of what had been the property of the joint family ...... Obviously no question of transfer of assets can arise when all that happens is separation , in status, though the result of such severance in status is that the property hitherto held by the coparcenery if held thereafter by the separated members as tenants-in-common. Subsequent partition between the divided members of the family does not amount either to a transfer of assets from that body of the tenants-in-common to each of such tenants-in-common. We, therefore, come back to the question was there a transfer to the coparcenary from the coparcener, that is, in this case was there a transfer from the assessee of his self acquired properties to the coparcenery of which he was the karta ?'

Severance in status with the resulting change in the nature of the ownership of the property is one of the incidents of coparcenery ........ 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 coparcenery 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 coparceners on a division in status between them and becoming thereafter the property held in severally by the divided members, and the property of a coparcener ceasing to be his and becoming the property of the co-parcenery 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 coparcenery 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 coparcenery property does not itself amount to a transfer. No transfer need precede the change. No transfer ensues either".

But in Keshavlal Lallubhai Patel v. Commissioner of Income-tax, the Gujarat High Court was inclined to the view that a transfer of property takes place when a member of a joint family throws his separate property into the hotchpot of the joint family. According to the learned Judges, the transfer is by operation of law. That again was a case where the question was whether there was a transfer, direct or indirect, effected by an individual coparcener to his wife or minor child within the meaning of Section 16(3)(a)(iii)(iv) of the Income-tax Act. The learned Judges observed-

"The assessee, while throwing the property into the hotchpot, has effected a change of ownership of the property. The same may be said to be transferred from the assessee, the individual to the Hindu undivided family".

In that case, it was held that the transfer was to the undivided family as an assessable Unit, that there was no transfer, direct or indirect, within the meaning of Section 16(3)(a) of the Income-tax Act, to the wife or minor child who may be a member of the Hindu undivided family and that a subsequent transfer as a result of partition could not be regarded as a transfer by the individual to his wife, or minor child.

M. K. Stremann's case, and Keshavlal Lallubhai

Patel's case, were taken up in appeal to the Supreme Court by the Revenue. In Commissioner of Income-tax v. Keshavlal Lallubhai Patel, the appeal from the decision of the Gujarat High Court, observing that on the question whether the act of throwing self acquired property into the hotchpot is a transfer of property or not there is some difference of opinion, the Supreme Court proceeded in the view that it was unnecessary to settle the controversy for that case. Holding that a partition of joint Hindu family property would not be a transfer, the case was decided against the Revenue. In the appeal against the decision of this Court. Commr. of I. T. v. M. K. Stremann, in which judgment was pronounced on the

same day, the Supreme Court followed their decision in the case from Gujarat High Court. The question now in issue was not decided.

16. In support of his contention that where a coparcener converts his self-acquired property into joint family property there is a transfer of property within the definition of gift in Section 2(xii) read with the main part of Section 2(xxiv). Mr. V. Balasubramaniam, learned counsel for the Revenue, referred to the decisions In Sirdar Indra Singh v. Commr. of I. T. 11 ITR 16 = (AIR 1943 Pat 169) and Thayalambal v. Krishna Pattar 32 Ind. Cas. 955 = (AIR 1917 Mad 706). In the former case. Manohar Lall, J. has expressed the view that the property of an individual cannot become the property of a Joint Hindu family by mere expression of intention unless the property is transferred to the joint Hindu family by some means recognised by law, for instance, if it is moveable property then it should be handed over to the joint family and its subsequent possession or enjoyment should be shown to be on behalf of the joint Hindu family, or if it is immovable then it must be transferred by a registered document if its value is more than Rs. 100. Similar view has been expressed by Srini-Vasa Aiyangar, J. in 32 Ind. Cas. 955 = (AIR 1917 Mad 706) but obiter.

The correctness of the view of Srinivasa Iyengar, J. was doubted in Ramaswami Nayakar v. Raju Padayachi, 51 Mad LJ 167 = (AIR 1926 Mad 963). Rajagopalan, J., has considered these decisions in M. K. Stremann's case, . The learned Judge expressed his

respectful dissent from the view taken in 11 ITR 16 = (AIR 1943 Pat 169).

Learned counsel for the Revenue referred us to the decision of the Judicial Committee in Hurpurshad v. Sheo Dyal, (1876) 3 Ind. App. 259 at p. 377 (PC), where blending has been referred to as a transfer. It is observed there:--

"......the declaration in those documents of the wish of Gouree Shankar, acted upon as it was by him and by the other members of the family in his lifetime, and coupled with the tabular statement, was evidence sufficient to prove an alienation inter vivos which in Gouree Shankar's lifetime transferred the property to the family, to be held by them as joint family property".

But it is further observed:

"He clearly meant, by entering his own name as one of the sharers, to express his wish, and intention that the estates should be held jointly during his own life as well as after his death".

In that case the question whether there was a transfer in the sense we are here called upon to decide was not present. It was immaterial for the purposes of that case how the change was brought about. The case arose under the Oudh Proclamation of 1858, the Hindu Wills Act 1 of 1869 and under the Sunnad and Summary Settlements made by the Government with a member of an undivided Hindu family. The contention raised was about the factum and validity of the conversion of property acquired under the settlements into the property of the joint family, not the manner in which the charge was brought about.

17. While examining the true character of blending under the Gift Tax Act, the Andhra Pradesh High Court in expressed its inclination to agree with the view of the Gujarat - High Court in Keshavalal Lallubhai Patel's case, in preference to that of this Court in M. K. Stremann's case . The

learned Judges, however, considered it unnecessary to express any final opinion on this aspect of the matter, in the view that the conversion of separate property into joint family property would fall under the definition of "transfer" found in Section 2(xxiv)(d) of the Gift Tax Act. In Laxmibai Narayana Rao Nerlekar v. Commr. of Gift Tax, (1967) 65 ITR 19 (Mys) the Mysore High Court holds that blending or throwing the self-acquired property into the common hotchpot of the Hindu undivided family does not involve any transfer of property or interest in the property.

In a recent decision G. V. Krishna Rao V. First Addl. Gift Tax Officer. 70 ITR 812 = (AIR 1970 Andh Pra 126) the Andhra Pradesh High Court differing from the aforesaid decision of the Mysore High Court, has reaffirmed the view of the Court in .

The question whether blending or throwing self acquired property into the hotchpot of the joint family would be a transfer under the principal part of the definition or the extended definition under Section 2(xxiv)(d) has been the subject of consideration by a Full Bench of the Gujarat High Court in Dr. A. R. Shukla v. Commr. of Gift Tax, (1969) 74 ITR 167 (Guj). Having regard to the language of the enactment and the relevant principles of Hindu law, the Full Bench concluded, that there is no 'gift' within the meaning of Section 2(xii) of the Gift Tax Act, when an individual coparcener impresses his separate property with the character of joint family property. In P. K. Subramania Iyer v. Commr. of Gift Tax, 67 ITR 612 = (AIR 1968 Ker 190) the Kerala High Court examined the character of the transaction under Section 2(xxiv)(d) and concluded that, when a coparcener of a Hindu undivided family throws his self acquisition into the hotchpot of his joint family, he does not enter into any transaction, and unilateral act or conduct of the coparcener does not amount to a 'gift' within the meaning of Section 2(xii) read with Section 2(xxiv)(d) of the Act.

In the High Courts of Andhra Pradesh, Mysore and Kerala, the question has been considered principally from the extended definition of 'transfer of property' found in Section 2(xxiv)(d). Before us, as in Gujarat High Court, the Revenue concentrates its claim as much on the main part of the definition of 'transfer' as on the extended definitions and deemed gifts. Having carefully considered the matter, we are of the opinion, that the conversion of separate property into joint family property by blending or throwing it in the hotchpot of the joint family does not involve any transfer of property under the main part of the definition in Section 2(xxiv), We are in entire agreement with the reasoning of the learned Judges of this Court in M. K. Stremann's ease, . May be, the question arose then for consideration, under Section 16(3)(a) of the Income-tax Act, and the word 'transfer' there has been used in the strict sense and not in the popular sense of including every 'means by which another property may be passed from one person to another'. But the reasoning of the learned Judges in M. K. Stremann's case, is general, and

shows that the elements which would constitute transfer or disposition even as popularly understood are wanting in the conversion of self acquired property into joint family property.

18. It is now firmly established that a partition in joint Hindu family is not a transfer of property. Before us, there has been no contention, that, for the purpose of the Gift Tax Act a partition of joint family property would be a transfer. Under the Gift Tax Act in Commr. of Gift Tax v. Getti Chettiar, (1966) 60 ITR 454 (Mad) a Division Bench of this Court to which one of us was a party, held that partition between members of a Hindu joint family does not involve any 'transfer of property from one member to the other or others'. On partition, coparcenery property ceases to be the property of joint family and comes to be held in severalty by the divided members. In blending, it is the converse that happens; the separate property of the coparcener becomes the property of the joint family. Both events are incidents of the coparcenery system. They have no parallel in any other system of jurisprudence. If the juridical basis for the view that no transfer is involved in a partition is the acknowledged existence of antecedent title, partition being really a process in and by which joint enjoyment is transformed into enjoyment by members of the family in severalty, a similar juridical base may be seen with reference to the doctrine of blending whereunder a mere intention of the owner of the separate property turns it into joint family property.

As observed by the Supreme Court in Puttrangamma v. Ranganna, , the decisive factor in producing severance in status is the particular state or condition of mind. Any declaration is merely manifestation of the intention already formed which brings about the severance and the manifestation may vary according to circumstances. Even so, Hindu law, as developed, permits a coparcener without any speech or visible act to convert his separate property into joint family property.

The observation of the Supreme Court in that the

separate property ceases to be as such and acquires the character of joint family property by his own volition and intention, by his waiving or surrendering his special right in it as separate property and similar observations in other judgments are significant. The reference to special right and waiver of the same with reference to property acquired by an individual and held by him as his separate property, has to be related to the vestige of interest which the son has in the property acquired by his father, the birth right of the son which Hindu law recognised even in the separate property of the father.

Quoting texts, Mayne sums up the son's position with regard to his father's separate property thus:--

"The result, therefore, is that while the son had a right by birth both in his father's and-in his grandfather's property, a distinction under a special text makes the right of the son and the father equal in the property of the grandfather ......... But in the case of father's property, the ownership of the son is unequal, for the father has an independent power over it or a. predominant interest. The son's right by birth does not therefore extend to his enforcing a partition or interdicting an alienation of his father's property. The right however remains a real birth right, though dormant and enables the son to succeed to the property by survivorship or as a apratibandhadaya". (Mayne's Hindu Law, 11th Edn., p. 336) With the father having absolute power of disposition inter vivos or testamentary in respect of his self acquisition and with no power in the son to interdict any alienation or disposition or call for partition, the son's interest is next to nothing. But the right is real. It lies dormant. It is this dormant right which the undivided sons have in their father's property that entitles them to take the self acquired property of the father as coparceners to the exclusion of a divided son. Juridically it must be this dormant birth right, that enables the father at his pleasure without formalities to deny to himself his independent power or predominant interests and look upon the property as the property of the family.

19. Mr. V. Balasubramaniam, learned counsel for the revenue, referred to the decision of this Court in Viravan Chettiar v. Srinivasachari, ILR 44 Mad 499 = (AIR 1921 Mad 168) (FB) where a Full Bench had to consider the question whether in a suit by a son for the recovery of money which was the self acquired property of the deceased father a succession certificate must be produced before a decree could be given in his favour. When expressing the opinion that the self acquired property over which the father has absolute powers of disposal and over which his coparceners have no power of control, formed part of his 'effects' so as to attract the provisions of Section 4 of the Succession Certificate Act, the Full Bench proceeded in the view that an undivided Hindu son acquires the self acquired property of his deceased father by inheritance and not by survivorship.

Some of the observations in the Full Bench case have been the subject of comment in later decisions. The question the Full Bench in ILR 44 Mad 499 = (AIR 1921 Mad 168) was called upon to consider was the applicability of the Succession Certificate Act to a debt due to the father and the observations of the Full Bench made in that context to which our attention is drawn cannot help the Revenue here. Kumaraswami Sastri, J. in the Full Bench decision, refers to the imperfect right the son has in his father's self acquired property, -that is, the dormant birth right and it is with the existence of that right we are concerned here. The dormant birth right of the son in his father's separate property has been repeatedly affirmed.

In Balwant Singh v. Rani Kishori, (1898) ILR 20 All 267 (PC) the Privy Council considered the relevant texts of Hindu Law and reconciling apparently conflicting texts, concluded that a father being a member of an undivided family subject to the Mitakshara can exercise full power of disposition at his own discretion over immoveables which he has himself acquired as distinguished from ancestral property, and observed that old texts of Hindu law and commentaries are apt to mingle religious and moral considerations, not being positive laws, with rules intended for positive laws. Lord Hobhouse delivering the judgment, deferred to Sections 4 and 5 in Chapter I of the Mitakshara as belonging to the latter class and approved the view taken in Mudungopala v. Rambuksh, (1866) 6 WR 71 (Cal) that Sections 4 and 5 are the texts that should govern.

Section 5 in Chapter I of Mitakshara which their Lordships of the Judicial Committee held as a positive rule of Hindu law, runs:

"Although he (the son) has a right by birth in his father's and in his grandfather's property, still, since he is dependent on his father in regard to the paternal estate, and since the father has a predominant interest, as it was acquired by himself, the son must acquiesce in the father's disposal of his own acquired property but since both have indiscriminately a right in the grandfather's estate, the son has a power of interdiction if the father be dissipating the property".

In (1866) 6 WR 71 (Cal) the learned Judges attempted to reconcile the conflicting texts by regarding the right of the son in the self acquired property of his father as an imperfect right incapable of being enforced, at law. The injunction in Section 1 of Chapter I of Mitakshara against the father making an alienation without convening all his sons even with reference to the property acquired by the father himself, since they who are born, and they who are yet unbegotten, and they who are still in the womb, require the 'means of support', was regarded as a prohibition and not an absence of power to do the prohibited act In Arunachala v. Muruganatha, , the

Supreme Court has referred with approval to the reconciliation of the conflicting texts found in (1898) ILR 20 All 267 and (1866) 6 WR 71 (Cal).

20, Referring to Mayne's view quoted above, the Supreme Court observes that 'it is undoubtedly' true that according to Mitakshara 'the son has a right by birth both in his father's and grandfather's estate, but a distinction is made in this respect by the Mitakshara itself, the son having equal rights with his father in his grand-father's property in the hands of his father, "while in the self acquired property of the father his rights are unequal by reason of the father having an independent power over or predominant interest in the same" The Supreme Court proceeding said-

"A Mitakshara father can make a partition of both the ancestral and self acquired property in his hands any time he likes even without the concurrence of his sons; but if he chooses to make a partition, he has got to make it in accordance with the direction laid down in the law. Even the extent of inequality, which is permissible, as between the eldest and the Younger sons, is indicated in the text. Nothing depends upon his own favour or discretion. When, however, he makes a gift which is only an act of bounty, he is unfettered in the exercise of his discretion by any rule or dictate of law".

21. Their Lordships draw a significant distinction between a gift by the father as an act of bounty and a partition by him of his separate property among his sons, when Hindu law governs. In Mullah's Hindu Law, 13th Edn. at page 247, after referring to the unqualified right of the father to deal with his self acquired property as he pleases, it is said-

"It would not be strictly accurate, therefore, to say that the undivided male issue does not take' any interest by birth in the separate or self acquired-property of the father. It would be more appropriate to say that when the separate or self acquired property of a Hindu father passes to his sons, living as members of a joint family, they take it as unobstructed heritage......."

According to Mitakshara, the right of one person in and to the property of another is 'daya'. It is of two kinds: apratibandha and sapratibandha. In the former case one person acquires rights in another's property even while the other is alive by reason of relationship. In the latter case the existence of the owner is an obstruction. In Lakshminarasamma v. Rama Brahamam, , referring to the true character of the interest which the son had in his father's self acquired property, Rajamannar, C. J. observed-

"According to the Mitakshara, the son has a right by birth in every kind of property. This must always be borne in mind, Mr. Mayne evidently overlooked this in his argument in Jagampet case Venkayamma v. Venkataramanayamma, ILR (1902) 25 Mad 678 (PC) when he cited the instance of sons taking the self acquired property of the father as instance of obstructed heritage. (In Jagampet case Lord Lindley in delivering the judgment apparently found the instance not satisfactory, for his Lordship observed: 'but it may be that where sons succeed the inheritance as to them is unobstructed'). The description is extremely misleading, because it is neither heritage, nor is it obstructed. The misconceptions prevailing in this branch of the Hindu law are mostly due to the mistake of equating the rights by birth (Jehmandiva swata) with equal ownership (sadrisam swamyam). Though it is true that the son has a right by birth in all kinds of property belonging to the father, the amplitude of his ownership dif fers according to the nature of the property ....... In property variedly described as paithamaha, pithamahopatha, kramagatha, all the epithets connoting the same species of property, the son has an equal right with the father. In property described as swarjitha or swyamopatha, the son's ownership is dormant and subordinate to the father's. But it is certainly not notional. It is as real as the right of junior members to an impartible estate, which is the property of the joint family. Shibprasad Singh v. Prayagkumari Debee. ILR 59 Cal 1399 = (AIR 1932 PC 216), though the father in the one case and the holder for the time being in the other case have absolute power of disposition and though there is no right of partition."

Earlier, the eminent Chief Justice pointed out that the acquisition of a right by birth by a son, son's son; and son's son's son in the property of the father, grandfather and great-grandfather could not correctly be described as inheritance. In the case of inheritance properly speaking, if there happened to be two or more coheirs, the share is ascertained and defined at the time of the death of the propositus. In Venkateswara Pattar v. Manakyammal, 69 Mad LJ 410 at p. 416 = (AIR 1935 Mad 775 at p. 778 referring to the succession of the son, the widow and other heirs and re-united parcener, Varadachariar, J. observed-

"It is obvious that the principles of succession are different as amongst these three groups, in the first, it is by survivorship (even in respect of the father's self acquired property, according to the scheme of the Mitakshara)".

In our view, it is this birth right Imperfect and subordinate to the special powers and predominant interest of the father that comes into play and makes the interest of the son real and an interest in praesenti, when the father chooses to waive his rights. At his pleasure and without reference to his son if the father abandons or determines once for all not to exercise his independent power over the property, the son's interest therein becomes real and full-fledged coparcenary right. There is no vesting of rights here by the father on the son, but what is dormant springs to life but irrevocably at the pleasure of the father, what Narayana Pai, J. in (1967) 65 ILR 19 (Mys) referred to Pitruprasada.

From the nature of things, all that happens when separate property is converted into the property of joint family is a mental resolution by the father to the effect, a resolve not to exercise his special rights over the property. There is only sell abnegation or denial to himself of his powers. There is no passing of property from the father to the son in this process to make it a transfer of property by the father, however widely the word "transfer" is used. In the acquisition of full coparcenary rights by the son, what is nascent becomes active under the doctrines of Hindu law. True, the father's intention has to manifest itself. But, as it is the intention that matters, no formality" is required and the mode in which the intention is manifested cannot alter the true nature of the process.

The blending by a coparcener of his separate property may manifest itself "either by bringing his self acquired property into the joint family account, or by bringing joint family property into his separate account" -- Rajanikanta v. Jagamohan Pal. AIR 1923 PC 57. In the latter case, the manifested act is a disposition from the family to the individual; but the result is the same. The change can be brought about by the father without any negotiation consent, co operation or bilateral dealings with other members of the family. The discussion leads us to the ponclusion that when a Mitakshara father determines upon treating his self acquired property as the property of the family in whatever form he manifests the intention, there is no transfer or disposition of the property under the main part of the definition of 'transfer of property' in Section 2(xxiv) of the Act.

22. Before examining the contention of the Revenue that the event which converts self acquired property into joint family property would fall as a transfer under the extended definition found in Section 2(xxiv)(d), we shall dispose of the claim of the Revenue to bring it under Section 2(xxiv)(b) and Sub-clauses (a) and (d) of Section 4. We are clearly of the view that Sub-clauses (a) and (d) of Section 4 have absolutely no relevancy. They deal with transactions where there is some consideration. Only the consideration is not adequate. Consideration, inadequacy of which will attract Sub-clauses (a) and (d) of Section 4, necessarily, in the, context excludes natural love and affection. Adeauacy or otherwise of consideration can only be in terms of pecuniary value, money or money's worth. The adjective "adequate" emphasises and brings out this connotation of the word "consideration". Section 4(a) expressly refers to transfers of property and we have held that there is no transfer in the blending, leave alone total absence of consideration.

As regards Section 4(d), here again consideration has to pass, but the consideration is not adequate. Taking it that in the process of, blending a person absolutely entitled to property causes or has caused the same to be vested, in whatever manner in himself and any other person jointly, the further requirement, for a transaction to fall under Section 4(d) is, that the other person should make an appropriation from land out of the property gifted. There is no question here of the other person, the Hindu undivided family, appropriating from and out of the property thrown into the family stock, any part of it for itself. The essential elements are wholly wanting for applying Section 4(d). Also the sub-clause contemplates cases where, property vests in the owner and the other person jointly. When separate property is converted into joint family property, the property vests in the family, as an entity by itself. It will be inaccurate application of the language to say thereafter that the father owns the property jointly with the family. The fiction that the family is a person under the Act has to be maintained and fully worked out. The mind cannot be allowed to boggle midway. We have, therefore, no hesitation in overruling the applicability of Sub-clauses (a) and (d) of Section 4. There is no discussion, in the decisions of the Andhra Pradesh High Court cited above for their view that in blending there is a transfer which falls within Section 4(d).

23. Equally, in blending there is no transfer falling under Section 2(xxiv)(b) which takes in as transfer of property the grant or creation of any lease, mortgage, charge, easement, licence, power, partner ship or interest in property. Manifestly the rights contemplated in this clause are grant or creation of right in the property of the owner limiting the owner's general rights over the property, creation of rights in the nature of jure in re aliena. If at all there is a transfer, it is a transfer of the entire property to the joint family as an entirety and not an interest in the pro perty. No residuary interest is retained by the father as personal property when he throws the property into the hotchpot of the family.

24. We shall now take up for consideration the claim of the Revenue based upon Section 2(xxiv)(d). After denning 'transfer of property' in wide terms Section 2(xxiv) seeks to include as transfers of property what really are not transfers of property and by, Sub-clause (d) as we read it are brought under the definition of 'transfer' transactions where property as such does not pass from one person to another. Sub-clause (d) makes liable to duty as gift 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. For this sub-clause to apply, the following conditions must be satisfied: (1) a transaction must be entered into; (2) the transaction must be entered into with a specified intent; and (3) the intent must be to diminish directly or indirectly the value of property of the person who enters into the transaction and increase the value of property of any other person.

25. The first requirement is that a transaction must have been "entered into" In the matter. As pointed out earlier. Section 2(xxiv) defines only the 'transfer of property' provided for under Section 2(xii) while denning 'gift'. A requirement of the definition" of gift is that the transfer must be by one person to another. It necessarily follows that the transfer of property however defined in Section 2(xxiv) is by one person to another and has to be a communicative action. For a transaction to amount to a gift, it is not sufficient for the transaction to satisfy the definition of transfer of property in Section 2(xxiv); it must also satisfy the requirement of Section 2(xii) that it is a transfer by one person to another, a bilateral dealing. The relevant words used in Section 2(xxiv)(d) are "transactions entered into by any person".

No doubt, the term 'transaction' as pointed out in the Oxford Dictionary of Current English, in the realm of law bears the sense of 'any act affecting the legal rights........' Standing by itself in its wider use, the term is not confined to a dealing with property between two persons inter vivos. But generally as pointed out by Garth, C.J. in Gujjulal v. Fatehlal, (1881) ILR 6 Cal 171, a transaction 'in the ordinary sense of the word is, some business or dealing which had been carried on or transacted between two or more persons". The relevant meanings found in Webster's dictionary are: Act, a communicative action or activity involving two persons or two things reciprocally affecting or influencing each other". If the word 'transaction' has stood by itself, there will be considerable force in the argument of learned counsel for the Revenue, that formation of the intention to blend would be an act and so a transaction. But first the transaction has to conform to the definition of 'gift' requiring a transfer by one person to another. Secondly, while in the context of its user and the definition or gift, the term 'transaction' itself would have been sufficient to indicate that the transaction referred to is not a unilateral act. Parliament has made the position clear and removed ambiguity by the use of the words 'entered into by any person'. Then we speak of a transaction as entered into by any per son, it can only be with some other person.

The phrase "entered into" cannot be regarded as a superfluity and we find the High Court of Australia interpreting the identical language in the Australian Gift Duty Assessment Act, 1941-42 in the same way. Section 4 of the Australian Act reads-

"Disposition of property" means any conveyance, transfer, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes-- (f) 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 property of any other person."

While Sub-clause (d) of Section 2(xxiv) of our Act corresponds to Section 4(f) of the Australian Act, Sub-clauses (a), (b) and (c) of Section 2(xxiv) of our Act correspond to Sub-clauses (b), (c) and (e) of Section 4 of the Australian Act.

In Grimwade v. Federation Commr. of Taxation, (1949) 78 CLR 199 at p. 219, by a series of allotment to Grimwade of shares in a company, where there were two classes of .1 shares, A shares and B shares, for all of which he himself paid the money, a position was reached when Grimwade held 9997 out of 10002 .1 A shares and his three, sons and the executor of the estate of his 4th son, in all held 180, 760 .1.B shares. Only holders of A shares had voting and undivided rights and Grimwade, holder of the A shares, voted in favour of special resolutions of the company whereby the capital of the Company was by steps reduced, and 17 sh. 6 d. out of each pound of the capital which had been entirely provided by Grimwade was repaid to the shareholder's. By the manipulations, the holders of 180, 760 B shares received a large benefit at the rate of 17 sh. 6 d. per share.

On the Commissioner assessing to gift duty what was computed as the amount of net benefit received by the shareholders other than Grimwade, the question for consideration before the High Court was whether Grimwade had entered into a transaction when he voted for the resolutions reducing the capital. Latham C. J. with whom Webb J. concurred, in answering the question in the negative, said:--

"There may be a 'transaction' with respect to the casting of a vote .......

The Commissioner (Federation Commission of Taxation) did not allege that there was any agreement between En. N. Grimwade and his sons as to voting for the resolutions. But when a shareholder makes up his mind to vote in a peculiar way and casts his vote accordingly he cannot be said to be 'entering into a transaction.' A transaction by a person must be a transaction with some other person. In the circumstances mentioned there is no transaction with any person. If a preference shareholder in a company voted in favour of reducing the rate of dividend upon preference shares in order to allow the company to pay some dividends to ordinary shareholders it would be an unreal description of what took place to say that that fact showed that the preference shareholder had 'entered into a transaction' ....... It was suggested

"that even to abstain from voting against a resolution beneficial to a class of shareholders amounted to entering into a transaction within para (f). All these contentions interpret the words 'enter into a transaction' as if they had the same meaning as 'do an act or abstain from doing an act'. Such an interpretation gives no real effect to the words 'enter' and 'transaction'."

In Gorton v. Commr. of Taxation, (1964-65) 113 CLR 604, also a case of manipulation in shares, the majority of Judges expressed the view that Section 4 (f) of the Australian Act is framed to cover cases where the result of transfer of value is achieved by transactions involving modifications 'pursuant to an agreed plan' of the rights of different classes of shareholders. It is manifest therefore that no 'transaction' is entered into, according to the true meaning of the words, where a Hindu father declares his intention to treat his separate property as the property of the undivided Hindu family for in this process of conversion, the other members of the family have absolutely no voice and without any reference to them or consulting them the father can bring about the conversion.

In the Supreme Court observed-

"When instructions are given that the self acquired property is to be treated as joint family property, in our opinion, at that moment the property assumes the character of joint family property. On execution, the deed becomes evidence of a pre-existing fact, i.e., of throwing the self acquired property into the hotchpot."

We find that the Guiarat High Court In (1969) 74 ITR 167 (Guj) and the Kerala High Court in 67 ITR 612 = (AIR 1968 Ker 190), have taken the same view.

26. Then there is the second condition to be fulfilled for a transaction to fall under Section 2(xxiv)(d) that the transaction must be entered into with intent, to diminish directly or indirectly the value of the donor's property, and to increase the value of the property of any other person. In Grimwade's case, (1949) 78 CLR 219, Latham C. J. observed-

"Paragraph (f) of the definition of 'disposition of property' requires that a transaction should be entered into by a person with intent to diminish the value of his own property and to increase the value of the property of some other person. This intent must be a real intent." The learned Judge referred to the decision of the Judicial Committee in Finch V. Commr. of Stamp Duties, 1929 AC 427 at p. 430, a case from New Zealand. Under the New Zealand Death Duties Act, 1921, the estate of a deceased person shall be deemed to include any pro perty comprised in any gift within the meaning of Part IV of the Act made by the deceased within three years before his death. Definitions of 'gift' and 'disposition of property' are similar to the Australian Act, Section 39(f) of the New Zealand Death Duties Act corresponds to Section 2(xxiv)(d) of our Act and Section 4(f) of the Australian Act. Only, instead of the value of one own's property, the words 'the value of his own estate and to increase the value of the estate of any other person' are used in the New Zealand Death Duties Act, 1921. As the New Zealand Act deals with death duties, the word 'estate' has been used instead of the word 'property'.

In Finch's case, 1929 AC 427 at P. 430, a husband and wife, with their children, lived together in a house which belonged to the wife; each had separate income. The husband paid to a builder with whom he had made contract, about . 2000 for improvements and repairs to the house. A few months later the husband died. It was found that there was no reason to believe that the deceased would not enjoy the normal span of life or that he would necessarily predecease his wife, and that the transaction was not entered into with intent to diminish the value of the husband's estate, but that the object was simply to improve the family home in accordance with their means and station in life. On the findings, the Judicial Committee held, reversing the judgment of the court of Appeal, that the payments to the builder did not constitute a gift to the wife of the deceased so as to be deemed to be part of the husband's estate for the purpose of Death Duties Act Their Lordships observed:--

"On the facts found here it seems to their Lordships quite plain that the payments to the builder were not referable to any intention of making a gift or improving the value of the estate of the wife, but were referable to the desire of the husband to improve the home in which he was living and in which his children were being brought up, and did not constitute either in intention or in fact, a gift to the wife; they were merely a provision made by him for his own enjoyment and benefit and for the proper maintenance of his home and his children."

27. Here, when a father throws his separate property into the family hotchpot his intention may be religious and sentimental. It may be in recognition of the moral precepts enjoined by the Hindu law or with sordid intent, some ulterior intention far removed from the intent specified in the sub-clause. A member of a joint family may possess property which yields no income for the time being. He may convert it into joint family property with the intention of making his adult sons work on the land to make it productive to benefit himself in the bargain. The intention in such cases is not to diminish the value of his own property and to increase the value of the property of any other person directly or indirectly. It may be said for the Revenue that the end-result shows the true intention, but there is no assertion even on the part of the Revenue in these cases that the transactions were entered into with the requisite intent.

28. There is another and a really difficult hurdle in the way of the Revenue for bringing the blending under Section 2(xxiv)(d). Sub-clause (d) is intended to cover cases of transactions entered into with intent to diminish the donor's own property and increase the value of property of any other person. Now Section 2(xxiv), main part and the inclusive definitions in Sub-clauses (a) to (c) together cover all types of conceivable transactions by which property is transferred from one person to another or interest is created in one's own property in favour of another. The last sub-clause, Sub-clause (d), is obviously made to go further. In our view, it is intended to take in by definition as transfers, transactions which do not involve any "kind of disposition of property, transactions whereunder without change in the quantum of property, held at either end, by some process a change in value is intended. Sub-clause (d) provides for cases where, without any change in the vesting of ownership in property or any interest in property, the value of property held by one person diminishes and the value of property held by another person increases. The donor's property remains where it was: no interest is carved and moved or passed out therefrom, but the effect intended bv the transaction is to diminish the value of property, not necessarily of an item of property, in the hands of the donor, and increases the Value of property of any other person.

The, language of the sub-clause does not suggest that in the transaction even an interest in property of one person as such, passes to another person. The use of the expressions 'his own property' and 'the property of any other person' with reference to diminishing and increasing, brings out this feature of the transaction sought to be caught in the net of taxation. It is significant that the word 'interest' in property is carefully avoided in this sub-clause. A diminution in the value of property is not the same thing as deprivation of property. A man may hold on to his property and by market fluctuations its value may go down or go up. Such changes in value could certainly be deliberately brought about. Words in fiscal statutes must be given their proper meaning.

We find the Australian High Court taking similar view in Gorton's case, (1964-65) 113 CLR 604, 622. It was observed:--

"By the ultimate paragraph (f) --transactions which do not involve a disposition of property are also included within the meaning of that term. In other words, transactions which are not in any sense dispositions of property are deemed by para (f) to fall within the meaning of that expression."

The principal question in that case was whether there was a gift within the meaning of the Australian Gift Duty Assessment Act, when a widow of a considerable wealth wishing inter alia to reduce her liability to income-tax and taking advice, becomes director with her two nephews in two proprietary companies. Through a series of resolutions in the two companies in relation to the shares, she saw to it that in return for the expenditure of .100 each nephew became entitled to 10 shares of a total value far in excess of the amounts expended by them. The events took place according to a pre-determined plan and the end-result was as intended by the widow.

In holding that the transactions did not fall within the definition of 'disposition of property' in Section 4(f) of the Australian Gift Duty Assessment Act, the majority of the Judges observed:--

"That the result of the steps which were taken in relation to the shares of each company was to diminish the value of the deceased's 15,000 shares is not open to question and it is immaterial to enquire whether this diminution occurred when her shares -- the only shares which had then been issued -- were converted into cumulative preference shares or whether it occurred upon the allotment of ten ordinary shares to her nephew. But it is, we think, impossible to say that the value of either nephew's property was increased as a result of the transactions. The effect of each transaction was that in return for the expenditure of 100 each nephew became entitled to ten shares of a total value far in excess of the amounts expended by them. But it cannot be said that the effect of the transaction was to increase the value of their property; its effect was to vest in each of them, in the return for an expenditure of 100 each, ten shares which at the moment of acquisition ' were of great value. There was no moment ' of time when any change in the value of the shares in the 'hands' of the nephews took place."

The court emphasised that after the shares had become the property to the nephew, there was no change in their value. They acquired property for amounts which represented a mere fraction of their value, while what the defi nition requires is an increase in the value of property in their hands.

On the same reasoning. In blending there is no increase in the value of the property previously held by the undivided family, only property of another person is added to its asset. In (1967) 65 ITR 19 (Mys). the Mysore High Court, following certain observations in Grimwade's case, (1949) 78 CLR 199 at p. 215, is of the view that the transaction described in Sub-clause (d) of Clause (xxiv) involves a transfer the only extension of the idea of transfer which can be read into it being the interposition of a third person between the donor and the donee, serving as a conduit pipe through which property or interest in property passes from the donor to the donee. No doubt, it was said in Grimwade's case (1949) 78 CLR 199 at p. 215, that 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). But clearly the effect of such transaction would be to diminish the property of A and not only the value of the property of A, and increase the property of B and not just increase the value of property already held by C. There is change in values at both ends, but that is consequential to a disposition of property. Such a transaction may well fall under other provisions.

Any way there is no intermediary here in blending. On all hands, on one side there is the father and the other party is the undivided family. In Gorton's case, (1964-65) 113 CLR 604 at p. 623, the learned Judges expressed the view that the aforesaid illustration was not the type of transaction which paragraph (f) would take in and observed:--

"Of course, it may well be that such a transaction would be caught by the earlier paragraph of the definition as a payment made by B on behalf of A to C. The emphasis on paragraph (f) is, however, as Williams J. pointed out, upon transactions having the intended effect of transferring value from the property of one person to the property of another and, no doubt, it was framed to cover cases where this result is achieved by 'transactions' involving the modification, pursuant to an agreed plan, of the rights of different classes of shareholders."

29. To illustrate in the abstract what will fall within the clause, would be difficult It is easy to say whether a particular transaction falls within the clause or not. Illustrations in the abstract are likely to confuse and mislead, and we refrain from giving instance of a transaction that would fall directly under Sub-clause (d). Grimwade's case, (1949) 78 CLR 199 would have been an illustration falling under, the clause if there had been an agreement between Grimwade and his sons as to the voting in favour of the resolution. If there had been an agreed plan, it would have been held that the transaction fell under Section 4, para graph (f). In the case of Hindu Jaw blending, though there is no transfer of property as defined under Section 2 (xxiv), specified property of one person, that is the separate property of the father, vests when he so intends, in the family and thereafter he could no more claim it as his separate property. When the effect of the transaction is to denude the individual owner of his property may be a part of his property, and add to the property of another person, Sub-clause (d) can have no application.

30. Learned counsel for the Revenue refers to the observations in Grimwade's case, (1949) 78 CLR 199 that paragraph (f) is intended to cover cases of transactions entered into with intent to diminish the value, not of some property which is transferred to another person, but of the donor's property in globo and to increase the value of the property, in globo of another person. We are unable to see how this observation will help the Revenue, The observation was made when discussing whether paragraph (f) 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 donee. Learned Judges point out that such latter transactions are dispositions of property within the meaning of other parts of the definition. The question in the context of the subject now under consideration is not, whether the value of the donor's property in globo, meaning thereby his estate is diminished and the value of property of another person increased in globo meaning thereby the latter's estate, but whether the diminution has not been brought about by the donor parting with some property in the transaction and the other party acquiring property thereby taking the transaction-out of the sub-clause.

We cannot fall in with the suggestion for generalising the definition and hold that, if as a result of a transaction one person is worse off and another person better off than they would have been if the transaction had not occurred, and if the same is entered into with intent to produce the result the requirement of Section 2(d) is satisfied. It is said that in substance and reality the assets of the family go up in value by blending, while the father's asset is diminished.

Parliament, to cast the net of taxation as widely as possible, has been liberal in its definitions and if the subject sought to be taxed does not fall within the definitions, it only means that Parliament did not intend to tax that subject. The question is not whether the substance of the transaction is within the spirit and intendment of the Act, but whether the transaction can be Said to fall fairly within the definition. Sub-clause (d) is a class by itself and its applicability must be considered independently on its terms. In our opinion, Sub-clause (d) of Section 2(xxiv) is wholly inapplicable to a case of blending. As pointed out by Lord Normand in Potts Executors v. Commr. of Inland Revenue, (1950) 32 Tax Cas 211, the court is not entitled to say that for the purposes of taxation the actual transaction is to be disregarded as 'machinery' and that the substance or equivalent financial results are the relevant considerations. In a fiscal statute, the court cannot assume any intention or governing purpose except to take such tax as the statute imposes. The court has only to address itself to the question whether or not the words of the statute have reached the alleged subject of taxation.

31. It follows that, when a Hindu father impresses the separate property with the character of joint family property, there is no Rift within the meaning of Section 2(xii) of the Gift Tax Act. The references under Section 26(1) are answered accordingly in favour of the assesses. In W. P. Nos. 1833 and 1834 of 1965, the orders of assessment are quashed and the writ petitions are allowed. Even so, W. P. No. 1108 of 1968 is allowed; a writ of prohibition will issue thereunder as prayed for. Having regard to the circumstances for the reference to the Full Bench there will be no order as to costs.


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