1. In this reference under Section 26(1) of the G.T. Act, the following question has been referred to :
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that either as an onerous gift or as an obligation arising out of contract for discharging the loan of Rs. 1,75,000, the market value of the property gifted should be deducted by Rs. 1,75,000 '
2. By a gift deed dated March 25, 1971, the assessee gifted to his son, daughters, grandchildren, sons-in-law and daughters-in-law, totalling in all 23 persons, 14.80 acres. Seven of these persons, who were all majors, were required to discharge debts contracted on promissory notes amounting to Rs. 1,75,000. The assessee, in his gift-tax return claimed that this sum of Rs. 1,75,000 should, be deducted from the value of the lands gifted and that the balance alone should be assessed to gift-tax. The GTO was of the view that this sum did not constitute a charge on the property gifted and that since the gift was not made subject to the discharge of the liability of Rs. 1,75,000 and since the creditors could not also proceed against the properties for the satisfaction of the debts, the gifted properties would have to be valued independently of the said debit. He valued the gifted properties at Rs. 6,66,000 and levied tax accordingly. There was an appeal and the AAC held that the donees had accepted the gift subject to the discharge of the debts and that being an onerous gift subject to the repayment of the loan of Rs. 1,75,000 by the major donees, the assessee was entitled to deduct the loan from the value of the gifted property. The Revenue appealed to the Tribunal and the Tribunal held that since the seven donees had agreed to accept the gift subject to the condition of discharging thedebts, there was an obligation arising out of contract and annexed to the ownership of the property to discharge the debts either as onerous gift or as an obligation arising out of contract for discharging the loan of Rs. 1,75,000 and that, therefore, the AAC was right in his view that a sum of Rs. 1,75,000 was liable to be deducted. It is this order of the Tribunal that has given rise to the present reference by the CGT.
3. In the document dated March 25, 1971, as mentioned, there are 23 persons referred to as the donees. It is only the donees, who had attained majority, namely, Nos. 3, 7, 10, 13, 16, 20 and 23, that were required to discharge the debts contracted by the donor to the extent of Rs. 1,75,000. There is a description of the persons from whom the amounts had been borrowed on the strength of promissory notes executed by the donor. The following is the material clause in the gift deed :
4. In substance, the meaning of the clause is that the donor wanted to make provisions for the respective donees, that he had borrowed certain monies from different parties amounting to Rs. 1,75,000 and that these liabilities have to be discharged by the specified donees It is also mentioned that the respective donees who were to discharge the debts had accepted the settlement on the basis of their having to discharge the sum of Rs. 1,75,000.
5. The question is whether the property gifted is to be valued by taking into account the obligation to discharge Rs. 1,75,000 or whether the properties could be valued without taking into account the debts amounting to Rs. 1,75,000. Section 3 of the G.T. Act provides for charging to tax gifts made by a person during the previous year at the rates specified in the Schedule to the Act. The expression 'gift' is defined in Section 2(xii) as meaning ' transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth ' Section 6 of the Act provides that the value of any property other than cash transferred by way of gift, shall be estimated to be the price which, in the opinion of the GTO, it would fetch if sold in the open market on the date on which the gift was made. Therefore, we have to find out the price which the property, if sold in the open market, would fetch. This problem has to be considered in the light of the specified donees having to discharge the debts amounting to Rs. 1,75,000, as the discharge of the liability is part of the transaction of gift.
6. The learned counsel for the Revenue contended that the gift has to be taken in two parts--viz., (I) a gift of specified property to 23 donees, and (2) a direction that a few of them have to discharge the liabilities to the extent of Rs. 1,75,000. We have already extracted the relevant portions of the document, and the proper construction of the document, in our opinion, would be that this is a composite gift subject to the discharge of the liabilities in the case of a few donees, and without any condition in the case of others. The donor could have drawn up two instruments, one covering the properties gifted in favour of persons, who were not to discharge the liability and the other covering the properties in favour of persons who were to, or who had agreed to, discharge the liabilities. The fact that all of them have been put together in a composite document does not mean that the effect would be different from a case where there is a gift in favour of certain persons subject to their having to discharge thedebts or liabilities. Under the Mahomedan law, there is no prohibition of a gift subject to a condition like this. In fact, there are instances of gifts considered to be valid under the Mahomedan law where the income from the property, for instance, has to be made over to the donor either for some time or for life. In Ali Jan v. Phaguni : AIR1950Pat300 , a gift of land was made to the donee, who was not related within the prohibited degrees, subject to the condition that the donee should maintain the donor for his life. This gift was held to be valid. Similarly, a gift made with reference to the whole of the property of the donor on the condition that the donee would pay all the debts of the donor has been considered to be valid in Krishna Behari v. Mt. Ahmadi ILR  Luc 199 ; AIR 1935 Oudh 432. In Tavakalbhai v. Imtiyaj Begam ILR  41 Bom 372 ; 39 IC 96, there was a gift of property to a son with the condition that the son should pay out of the income thereof Rs. 40 every year to a third party during his life and divide the remaining income equally between the son and another third party during the lifetime of the latter third party. It was held that both the gift and the condition were valid and that the donee was bound to pay Rs. 40 per annum to the third party and divide the remaining income equally between himself and the other person indicated above. Thus, the document itself cannot be said to suffer from any invalidity merely because it associated certain liabilities with the gift.
7. The value of the property gifted has to be determined in the present case. The G.T. Act deals with two kinds of gifts, viz., (1) where the transfer is wholly without consideration (this would be a gift even under the general law), and (2) where the transfer is for inadequate consideration. In the second case, there is a gift, by statutory fiction, to the extent of the inadequacy of the consideration. In the present case, the gift to the seven donees cannot be dissociated from their obligation to discharge the liabilities. In such a case, the gift would be without consideration to the extent of the value over and above Rs. 1,75,000. It appears to us that this case falls under the second category described above. In such a case, only the net value after adjusting the consideration would constitute the gift.
8. Even if the gift is considered as falling under the first category, the terms of the document cannot be ignored. It is a clear case of conditional or onerous gift, and the value of the gifted property is what it would fetch in the market subject to this condition. Mr. Jayaraman, learned counsel for the Commissioner, contended that the assessment is on the donor and that what the donee could realise cannot be the criterion. This argument runs counter to Section 6 and does not give effect to a part of the gift deed. The tax cannot be levied by choosing to ignore a part of the document and by valuing the properties shutting one's eyes to the deed and its terms. Therefore, considered from any angle, the conclusion drawn by the AAC and affirmed by the Tribunal does not suffer from any legal infirmity. We would add that the Tribunal appears to conceive a fiduciary or contractual obligation. It may be contractual in the sense that there was an acceptance of the condition. But this is clearly a case of a conditional gift and the value of the property has to be arrived at on this basis. The result is that the question is answered in the affirmative and in favour of the assessee. The assessee will be entitled to his costs. Counsel's fee Rs. 500.