Release of life interest not a taxable gift under the pre-amendment Gift-tax Act; bona fide relinquishment also escaped deemed gift treatment.

A unilateral release deed by which the assessee and his wife relinquished their life interest in property was held not to amount to a taxable gift or a transfer of property under the Gift-tax Act, 1958 as it then stood, because sections 2(xii) and 2(xxiv) did not cover such a self-effacing surrender. The later insertion of section 4(1)(e) and the corresponding amendment to section 2(xxiv) by the Finance Act, 1980 showed that transactions of this kind were not previously within the earlier text. As the Tribunal had found the relinquishment bona fide, it also did not fall within section 4(1)(c).

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Issues: Whether the release deed by which the assessee and his wife relinquished their life interest in property amounted to a transfer of property or a gift under the Gift-tax Act, and whether, in the alternative, it constituted a deemed gift as a bona fide relinquishment.

Analysis: The release deed was treated as a unilateral relinquishment of life interest. On the statutory scheme as it stood for the relevant assessment year, the Court read section 2(xii) of the Gift-tax Act, 1958 and section 2(xxiv) of the Gift-tax Act, 1958 together and held that such a self-effacing surrender did not fall within the expressions "gift" or "transfer of property" then in force. The Court also relied on the legislative history introduced by the Finance Act, 1980, particularly the insertion of section 4(1)(e) of the Gift-tax Act, 1958 and the corresponding amendment to section 2(xxiv), to hold that the later provision showed that transactions of this kind were not previously covered by the earlier text. Since the Tribunal had found the transaction to be bona fide, section 4(1)(c) of the Gift-tax Act, 1958 was also inapplicable.

Conclusion: The release deed was not a taxable gift, was not a transfer of property within the pre-amendment Act, and was not a deemed gift under section 4(1)(c); the answer was in favour of the assessee.

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