Bhupatiraju Narasimha Raju Vs. the Commissioner of Gift Tax, Andhra Pradesh, Hyderabad - Court Judgment

Krishna Rao, J.

1. These two cases, which have been referred to us under Section 26(1) of the Gift Tax Act, (18 of 1958), relate to three settlement deeds dated 20-5-1957, 11-10-1957 and 20-1-1959 executed by Sri Bhupatiraju Venkata Narasimha Raju hereafter mentioned as the assessee. By the first settlement deed, he gave absolutely, out of paternal affection 11 items of land of the total extent of Ac. 17-68 cents, stated to be his immoveable property to his first three unmarried minor daughters, Kausalya, Krishnaveni and Prabhavathi, represented by their mother Appallanarasaiah as guardian. By the second settlement deed he similarly gave 7 items of land of the total extent of Ac. 7-28 (which appears to be a mistake for Ac. 6-79 cents) described as being in his possession and enjoyment as of right, to his three minor sons, Venkata Appalaraju. Satyanarayana Raju and Sriharibabu, represented by their mother Appalanarasiah as guardian. By the third settlement deed, he similarly gave 4 items of land of the total estent of Ac. 7-46 cents, described as belonging to him by virtue of a partition with his father and brothers, to his fourth unmarried minor daughter, Aruna Udaya Lakshmi, represented by her mother Appalanarasiah as guardian.

All the documents recite that possession of the properties concerned was delivered on the very day of execution. The first two gifts formed the subject matter of the Gift Tax Officer's assessment order dated 15-3-60 for the assessment year 1958-59. He valued the entire property covered by the first settlement deed as a taxable gift. With regard to the second settlement deed, which was in favour of the sons, it was contended on behalf of the assessee that the lands were his ancestral property, in which the donees were entitled to shares. The Gift Tax Officer found that three items of the total extent of Ac. 1-10 cents were the assessee's self acquired property and the remaining four items of the total extent of Ac. 5-39 cents were the assessee S family property. He treated and valued the gift as one of Ac. 2-75 cents of land, comprising the assessee's self acquired property of Ac. 1-40 cents and the assessee's one-fourth share of Ac. 1-35 cents in the family property. The third settlement deed formed the subject matter of the Gift Tax Officer's assessment order dated 26-4-60 for the assessment year 1939-60. It was contended on behalf of the assessee firstly, that each of his three sons were entitled to a share in the property concerned and that as they had not joined in executing the deed, the gift was only of the assessee's one-fourth share; and secondly, that the gift was not liable to tax being for the minor daughter's maintenance and education. The Gift Tax Officer rejected both these contentions and valued the entire property conveyed as taxable gift.

2. The assessee preferred appeals to the Appellate Assistant Commissioner of Gift-Tax against both these orders. The Appellate Assistant Commissioner found that the assessee had erroneously declared his status to be an individual, that he was in fact the Karta of Hindu undivided family, that all the property in his hands was the property of the undivided family in which his share could not be predicated before a partition. He held that the gift to his undivided sons amounted to a family arrangement of the nature of a partial partition. As regards the gifts to the unmarried daughters, since they continued to be members of the undivided family, he held that the properties continued to be family properties; and that the gifts which could only materialise either at a partition in the family or upon the marriage of the daughters also amounted to a family arrangement. In this view, he found that there was no taxable gift and allowed both the appeals.

3. The Gift-Tax Officer appealed to the Appellate Tribunal, challenging the view that the deeds were mere family arrangements or family settlements. The Tribunal recognised that under the Hindu Law, a father's power to make gifts of ancestral property is restricted. But it held that the Gift-Tax did not envisage an enquiry about the validity or otherwise of a gift and that if a transaction of gift was completed in all respects, it was taxable under the Act. It said:

'The Gift-Tax Act nowhere takes regard of the fact whether a certain gift which is made and which is complete in itself is valid or invalid in law. It is beyond its purview. Whenever a gift is made, it must attract the provisions of the Gift Tax Act unless it is exempted from its operation under any of its specific provisions. Whenever a transfer is effected which comes within the definition of the word 'gift' as given in the Gift Tax Act, it must attract the tax. We are not concerned as to whether the donor has any right to transfer or alienate the property which is the subject matter of a gift. It is not for the Revenue authorities to go into this matter, as that would mean launching an enquiry which is beyond the scope of the Act itself. Such being the position of law, the Appellate Assistant Commissioner has erred in holding that the transactions in question were, in effect family settlements.'

In this view of the law, the Tribunal set aside the orders of the Appellate Assistant Commissioner, remanded both the cases for fresh disposal and directed the Appellate Assistant Commissioner to decide the cases on the merits of the other grounds of appeal taken by the assessee. Upon the applications of the assessee it referred the following question of law in respect of the first two settlement deeds.

'Whether the settlements in question made by the assessee are gifts liable to tax under the Gift Tax Act?'

Similarly in respect of the third settlement deed, it referred the question:

'Whether the settlement in question made by the assessee was a gift liable to tax under the Gift-tax Act.'?

4. It will be seen that the appellate tribunal, which is the final court of fact, did not enter at all into the facts necessary for determining the legal effect of the settlement deeds, such as whether the assessee executed all the settlement deeds only as a karta and what was the total extent of the family properties, a reasonable portion of which he had the power to make gifts in accordance with the principles laid down in Suramma v. Mallappa, : [1964]4SCR497 . The provisions of Section 26 of the Gift-tax Act (hereinafter referred to as the Act) are similar to those of Section 33 of the Income-tax Act (XI of 1922) the scope of which was explained in Commr. of Income-tax v. Scindia Steam Navigation Co. Ltd., : [1961]42ITR589(SC) . Even the assessee's applications under Section 26(1) have not been placed before us and we are not in a position to determine what were the questions raised by him before the Appellate Tribunal. In the absence of necessary facts, it is possible to answer the questions referred to us only without entering into the legal effect of the settlement deeds. Thus the limbs of the questions are: (1) whether the transactions under the settlement deeds are gifts within the meaning of the Act, irrespective of their legal effect, and (2) whether the assessee is liable to be taxed under the Act in respect of the said transactions, irrespective of their legal effect.

5. The first limb of the questions presents little difficulty. The provisions of the Act, which may be usefully read are:

Section 2: In this Act, unless the context otherwise requires -

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(xii) 'gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer of any property deemed to be a gift under Section 4;

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(xxii) 'Property' includes any interest inproperty movable or immovable;* * * * * * *

(xxiv) '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 -

* * * * * * *

(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.'

Clauses (xii) and (xxiv) of Section 2 were construed by their Lordships, Chandra Reddy, C. J. and Kumarayya, J. in Commr. of Gift Tax v. Satyanarayanamurthy : AIR1965AP95 and it was held that the definition of 'transfer of property' in the Act is of wider import than that contained in the Transfer of Property Act. Unlike the Transfer of Property Act, the definition of 'Gift' in Section 2 Clause (xii) does not require acceptance by the donee. The definition of 'transfer of property' in Clause (xxiv) extends the ordinary meaning of that expression, which is limited to the passing of one person's interest in property to another person. The mode of transfer is not stipulated nor the consequences of non-acceptance by the donee or non-compliance with the modes of transfer required by the general law. As observed by Viscount Haldane in connection with the construction of Income-tax Act In Minister of Finance v. Smith, 1927 AC 193 'the question Is never more than one of the words used.' Broadly speaking it would appear that where a person of his own free will diverts any interest in property to another person and mere is no corresponding quid pro quo for the transaction there is a gift within the meaning of the Act.

6. The learned counsel for the assessee has relied on Basaviah Gowder v. Commr. of GiftTax Madras, : [1963]49ITR817(Mad) where a Division Bench of the Madras High Court expressed the view that a gift which is void under the personal law of the assessee is not a gift within the meaning of the Act. With great respect to the learned Judges we are unable to agree with that view, as such a construction is not waranted by the language of the Act.

7. It is far from the case of the assessee here that the settlement deeds were not intended to take effect. Delivery of possession of the properties concerned to the transferees is also admitted. Further the assessee's intention was manifestly to diminish the value of his own property and increase the value of the properties of his sons and daughters. The only consideration for his executing them was his paternal affection. There can be no doubt that irrespective of their legal effect, the transactions under the settlement deeds were gifts within the meaning of the Act.

8. Turning to the second limb, the assessee's liability is created by the charging Section 8 which is in the following terms:

'Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the 1st day of April 1958, a tax hereinafter referred to as gift tax in respect of the gifts, if any, made by person during previous year (other than gifts made before the 1st day of April 1957) at the rate or rates specified in the schedule.'

The schedule specifies the rates of gift tax on successive slabs in terms of money of the value of all taxable gifts'. Section 6 lays down how the value of gifts is determined and reads thus:

'Value of gifts, how determined. (1) The value of any property other than cash transferred by way of gift shall subject to the provisions of Sub-sections (2) and (3) be estimated to be the price which within the opinion of the Gift Tax Officer it would fetch if sold in the open market on the date on which the gift was made.

(2) Where a person makes a gift which is not revocable for a specified period, the value of the property gifted shall be the capatalised value of the income from the property gifted during the period for which the gift is not revocable.

(3) Where the value of any property cannot be estimated under Sub-section (1) because it is not saleable in the open market, the value shall be determined in the prescribed manner.' The expression 'by way of' used in Section 6(1) would mean 'within intention of' (Oxford Concise Dictionary) or 'in character of' (Chambers Twentieth Century Dictionary). Thus under Subsection (1) of Section 6, where there is a gift within the meaning of the Act, the market value 'of any property other than cash transferred' is the criterion for assessing the gift tax. The expression 'properly transferred' looks as an accomplished fact and this must naturally depend on the legal effect of the transfer. The special provision in Sub-section (2) of Section 6 in respect of a gift which is not revocable for a specified period' also necessarily implies that the legal effect of the gift has to be determined by the gift-tax authorities. In our opinion, the Appellate Tribunal erred in holding that the legaleffect of a gift within the meaning of the Actis beyond the purview of the Act. An assessee'sliability to tax under a gift within the meaningof the Act depends on the legal effect of the giftwhich has to be determined. The questions areanswered accordingly. No order as to costs.Advocate's fee Rs. 300 one set.