1997 (7) TMI 58 - HC - Income Tax

Renovation expenses on ancestral property deemed gift under Gift-tax Act

The High Court held that renovation expenses incurred by the assessee on a jointly owned ancestral house constituted a deemed gift to his brothers under ... Deemed Gift, Co-ownership Issues:Whether renovation expenses incurred on a jointly owned ancestral house can be considered a deemed gift to co-owners under the Gift-tax Act.Analysis:The case involved a dispute over renovation expenses incurred on an ancestral house jointly owned by the assessee and his two brothers. The Revenue contended that the renovation expenses, borne by the assessee for the 2/3rd share of the property owned by his brothers, should be treated as a deemed gift. The Gift-tax Officer initially deemed Rs. 40,520 as a gift to the brothers. However, the Appellate Assistant Commissioner overturned this decision, stating that no gift occurred as per the provisions of the Gift-tax Act, except possibly under clause (d) of section 4.The Appellate Assistant Commissioner's decision was challenged by the Revenue before the Income-tax Tribunal. The assessee argued that the property was ancestral and not divided, making it joint family property. The Tribunal accepted this argument, ruling that no gift was made by the assessee to his brothers. The Tribunal's decision was based on the interpretation of the term 'gift' under section 2(xii) of the Gift-tax Act, which defines gift as a transfer made voluntarily without consideration.The judgment delved into the legislative intent behind the Gift-tax Act amendments, particularly section 37 of the Finance (No. 2) Act, 1971. These amendments aimed to prevent individuals from avoiding gift-tax liability by converting separate property into joint family property. Section 4(2) of the Gift-tax Act was emphasized, stating that if an individual converts separate property into family property, a deemed gift is created in favor of the family members as if a partition had taken place immediately after the conversion.Ultimately, the High Court ruled in favor of the Revenue, holding that the renovation expenses incurred by the assessee on the jointly owned ancestral house constituted a deemed gift to his brothers. The Court highlighted the legislative intent to prevent tax avoidance through property conversions. Therefore, the amount of Rs. 40,520 was deemed assessable to gift-tax, overturning the Tribunal's decision.In conclusion, the judgment clarified the application of the Gift-tax Act to situations involving jointly owned ancestral property and emphasized the importance of legislative amendments to prevent tax avoidance schemes. The decision underscored the legal implications of property conversions and deemed gifts under the Act, ensuring compliance with tax liabilities in such scenarios.