Deemed gift-tax on conversion of individual property applied, but statutory exemption remained available for the wife's deemed share.

Conversion of individual property into joint family property was held to attract gift-tax for assessment year 1973-74 because the law in force on the first day of that assessment year applied, and section 4(2) operated on the transaction within the relevant previous year. The amendment created a deeming gift without any contrary indication excluding such transfers from its scope. However, the portion deemed to be gifted to the wife also qualified for exemption under section 5(1)(viii), because the statutory exemption attached to the deemed gift could not be denied merely due to the deeming fiction.

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Issues: (i) Whether the assessee's conversion of individual property into joint family property attracted gift-tax under section 4(2) of the Gift-tax Act, 1958, for the assessment year 1973-74. (ii) Whether the assessee was entitled to exemption under section 5(1)(viii) of the Gift-tax Act, 1958 in respect of the portion deemed to have been gifted to his wife.

Issue (i): Whether the assessee's conversion of individual property into joint family property attracted gift-tax under section 4(2) of the Gift-tax Act, 1958, for the assessment year 1973-74.

Analysis: The relevant previous year fell within the assessment year 1973-74, and the law applicable is the law in force on the first day of that assessment year. Section 4(2), though brought into force from 1 April 1972, governed the assessment because the transaction fell within the relevant previous year. No express provision or necessary implication showed an intention to exclude such transactions from the deeming fiction created by the amendment.

Conclusion: The transaction attracted gift-tax liability for the assessment year 1973-74, and the issue was decided against the assessee.

Issue (ii): Whether the assessee was entitled to exemption under section 5(1)(viii) of the Gift-tax Act, 1958 in respect of the portion deemed to have been gifted to his wife.

Analysis: Section 4(2) deems a gift of the portion of converted property which the other family members would take on an immediate partition. On that footing, the wife's share constituted a deemed gift in her favour, and the statutory exemption available under section 5(1)(viii) followed in respect of that share. The exemption could not be denied merely because the gift arose through the deeming provision.

Conclusion: The assessee was entitled to exemption of Rs. 50,000 under section 5(1)(viii), and the issue was decided in favour of the assessee.

Final Conclusion: Gift-tax liability was upheld on the deemed transfer, but the assessee succeeded on the statutory exemption relating to the wife's share, resulting in a partly favourable outcome for the assessee.

Ratio Decidendi: For assessment purposes, the law in force on the first day of the assessment year applies unless a contrary intention is clearly shown, and where a statutory deeming provision creates a gift in favour of a family member, the consequential statutory exemption attached to that gift must also be given effect to.

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