M/S. Chand Mal Gauri Shankar Vs. Commissioner of Gift-tax - Court Judgment

Excerpt:
gift-tax act, 1958 - section 26(1)--trust deed--validity--hindu undivided family--whether taxable gift involved under section 2(xii) and 2(xxiv)(a) of act when karta created a trust in favor of beneficiaries--members--valid trust deed--amount to transfer--reference answered in affirmative. - - looking at it from this point of view it is seen that not only the author but also the members as well as the three beneficiaries have returned the income fro these properties based on the trust deed which shows their factual assent to the transfer f the property, of the huf to the trust. it is also seen that the property has been shown as trust property in the estate duty assessment of the two ladies as well as the wealth-tax assessment of lakshmi narain while the trust itself has been assessed separately. 4. the extracted portion of the tribunal's order, so far as it relates to the income-tax proceedings, clearly shows that the trust-deed was a valid one and that being the position there was a transfer in terms of section 2(xii) read with section 2(xxiv)(a) of the act.orderarijit pasayat, c. j.1. at the instance of assessed, following question has been referred for opinion of this court under section 26(1) of the gift-tax act, 1958 (in short act) by the income-tax appellate tribunal delhi bench-d, new delhi (in short 'tribunal'):-'whether on the facts and in the circumstances of the case, the tribunal was correct in holding that there was a taxable gift involved u/s. 2(xii) and 2(xxiv)(a) of the gift tax act when the deceased karta of the family created a trust dated 30.6.64 in favor of the four beneficiaries who were members of the huf?'the dispute relates to the assessment year 1996-67.2. factual background in a nutshell is as follow:m/s. chandmal gauri shankar (hereinafter referred to as the assessed) was a hindu undivided family (in short h.u.f.). gift-tax officer issued noticed by him that assessed had gifted three properties to a trust for the benefit of its members during the assessment year in question. such transfers were made on 15th july 1965 for the value of rs.75,000/-. assessed did not file any return and accordingly notice under section 15(4) of the act was issued on 23rd march 1979. return declaring 'nil' gift was filed. it was claimed that benefit under section 5(1)(xi) was available to the notice. gift-tax officer did not accept the stand and held that the total amount of rs.75,000/- was a taxable gift and after allowing exemption under section 5(ii) of the act, sum of rs.65,000/- was brought to tax. matter was carried in appeal before the appellate assistant commissioner (in short aac). said authority was of the view that provisions of section 5(1)(xi) have no application to the facts of the case as the gift in question cannot be said to be one made in contemplation of death. he also held that section 5(1)(xi) applies only to moveable properties and not the immoveable properties. that being the position appeal was dismissed. matter was carried in further appeal before the tribunal. it was held by the tribunal that the provisions of section 2(xxiv)(a) read with section 2(xii) of the act had no application to the facts of the case. tribunal noticed that the validity of the trust-deed and its legal effects have been examined by it, in respect of the income-tax assessment of the assessed family for the assessment year 1966-67 in ita no.4447 of 1971-72 and by judgment dated 20th july, 1973, it was inter alias held as follows:'we are, thereforee, of the opinion that the question in this case be decided not by considering whether the trust deed was void or voidable but by considering whether the trust deed has been assented to by all the members of the family by their having elected to abide by it. looking at it from this point of view it is seen that not only the author but also the members as well as the three beneficiaries have returned the income fro these properties based on the trust deed which shows their factual assent to the transfer f the property, of the huf to the trust. it is also seen that the property has been shown as trust property in the estate duty assessment of the two ladies as well as the wealth-tax assessment of lakshmi narain while the trust itself has been assessed separately. the only major coparcener other than the author was laxmi narain whose assessment shows that he has assented to the transfer of the immovable properties belonging to the huf. it has not been shown by the department that the minor coparcener who was aged 12 years at the time of the trust has repudiated the trust on becoming a major. even otherwise the creation of the trust is to the benefit of the then minor coparcener and he could be assumed to have elected to abide by it as the limitation for repudiating it is over. we are, thereforee, of the opinion that the trust deed is not void because the members of the family have assented to it and that, thereforee, the assessing authorities were not justified in ignoring the trust deed and considering the property as that of the huf.'in view of the aforesaid observations made by it in income-tax proceedings, tribunal held that the transaction in question squarely falls within the definition of transfer of property under section 2(xxiv)(a) of the act which includes the creation of a trust in property. it was noted that the assessed's stand was not that there was any consideration for the creation of the trust and thereforee, it followed that the transfer of existing immoveable property made voluntarily and without consideration. that being the position, it was held that the transaction amounted to gift as defined under section 2(xii) of the act, as the trust did not purport to effect partition of the property amongst the beneficiaries. it was held that the provisions of section 2(xii) and section 2(xxiv)(a) had application to the facts of the case. on being moved for reference, the question as set out above, has been referred for opinion of this court.3. we have heard learned counsel for the revenue. there is no appearance on behalf of the assessed inspire of notice.learned counsel for the revenue submitted that, in view of the conclusion arrived at in the income-tax proceedings tribunal was justified in its conclusion.4. the extracted portion of the tribunal's order, so far as it relates to the income-tax proceedings, clearly shows that the trust-deed was a valid one and that being the position there was a transfer in terms of section 2(xii) read with section 2(xxiv)(a) of the act. in the above background, the question referred is answered in the affirmative, in favor of the revenue and against the assessed.reference is accordingly disposed of.

Judgment:
ORDER

Arijit Pasayat, C. J.

1. At the instance of assessed, following question has been referred for opinion of this Court under Section 26(1) of the Gift-tax Act, 1958 (in short Act) by the Income-tax Appellate Tribunal Delhi Bench-D, New Delhi (in short 'Tribunal'):-

'Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that there was a taxable gift involved u/s. 2(xii) and 2(xxiv)(a) of the gift Tax Act when the deceased Karta of the family created a trust dated 30.6.64 in favor of the four beneficiaries who were members of the HUF?'

The dispute relates to the assessment year 1996-67.

2. Factual background in a nutshell is as follow:

M/s. Chandmal Gauri Shankar (hereinafter referred to as the assessed) was a Hindu Undivided Family (in short H.U.F.). Gift-tax Officer issued noticed by him that assessed had gifted three properties to a trust for the benefit of its members during the assessment year in question. Such transfers were made on 15th July 1965 for the value of Rs.75,000/-. assessed did not file any return and accordingly notice under Section 15(4) of the Act was issued on 23rd March 1979. Return declaring 'nil' gift was filed. It was claimed that benefit under Section 5(1)(xi) was available to the notice. Gift-tax Officer did not accept the stand and held that the total amount of Rs.75,000/- was a taxable gift and after allowing exemption under Section 5(ii) of the Act, sum of Rs.65,000/- was brought to tax. Matter was carried in appeal before the Appellate Assistant Commissioner (in short AAC). Said authority was of the view that provisions of Section 5(1)(xi) have no application to the facts of the case as the gift in question cannot be said to be one made in contemplation of death. He also held that Section 5(1)(xi) applies only to moveable properties and not the immoveable properties. That being the position appeal was dismissed. Matter was carried in further appeal before the Tribunal. It was held by the Tribunal that the provisions of Section 2(xxiv)(a) read with Section 2(xii) of the Act had no application to the facts of the case. Tribunal noticed that the validity of the trust-deed and its legal effects have been examined by it, in respect of the income-tax assessment of the assessed family for the assessment year 1966-67 in ITA No.4447 of 1971-72 and by judgment dated 20th July, 1973, it was inter alias held as follows:

'We are, thereforee, of the opinion that the question in this case be decided not by considering whether the trust deed was void or voidable but by considering whether the trust deed has been assented to by all the members of the family by their having elected to abide by it. Looking at it from this point of view it is seen that not only the author but also the members as well as the three beneficiaries have returned the income fro these properties based on the trust deed which shows their factual assent to the transfer f the property, of the HUF to the Trust. It is also seen that the property has been shown as trust property in the estate duty assessment of the two ladies as well as the wealth-tax assessment of Lakshmi Narain while the Trust itself has been assessed separately. The only major coparcener other than the author was Laxmi Narain whose assessment shows that he has assented to the transfer of the immovable properties belonging to the HUF. It has not been shown by the Department that the minor coparcener who was aged 12 years at the time of the Trust has repudiated the trust on becoming a major. Even otherwise the creation of the trust is to the benefit of the then minor coparcener and he could be assumed to have elected to abide by it as the limitation for repudiating it is over. We are, thereforee, of the opinion that the trust deed is not void because the members of the family have assented to it and that, thereforee, the assessing authorities were not justified in ignoring the trust deed and considering the property as that of the HUF.'

In view of the aforesaid observations made by it in income-tax proceedings, Tribunal held that the transaction in question squarely falls within the definition of transfer of property under Section 2(xxiv)(a) of the Act which includes the creation of a trust in property. It was noted that the assessed's stand was not that there was any consideration for the creation of the trust and thereforee, it followed that the transfer of existing immoveable property made voluntarily and without consideration. That being the position, it was held that the transaction amounted to gift as defined under Section 2(xii) of the Act, as the trust did not purport to effect partition of the property amongst the beneficiaries. It was held that the provisions of Section 2(xii) and Section 2(xxiv)(a) had application to the facts of the case. On being moved for reference, the question as set out above, has been referred for opinion of this court.

3. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessed inspire of notice.

Learned counsel for the Revenue submitted that, in view of the conclusion arrived at in the income-tax proceedings Tribunal was justified in its conclusion.

4. The extracted portion of the Tribunal's order, so far as it relates to the income-tax proceedings, clearly shows that the trust-deed was a valid one and that being the position there was a transfer in terms of Section 2(xii) read with Section 2(xxiv)(a) of the Act. In the above background, the question referred is answered in the affirmative, in favor of the Revenue and against the assessed.

Reference is accordingly disposed of.