Strict construction of spouse exemption under gift tax excludes gifts by a karta from Hindu undivided family funds.

Section 5(1)(viii) of the Gift-tax Act was held not to cover a gift made by a karta of a Hindu undivided family out of family funds to his wife. The Karnataka HC applied strict construction of exemption provisions in a taxing statute and held that the spouse exemption is confined to gifts between living spouses in their individual capacity. Because a karta acts in a representative capacity when dealing with HUF property, the gift was not treated as one made by an individual spouse within the exemption clause. The Tribunal's view allowing exemption was set aside and the question was answered in favour of the Revenue.

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Issues: Whether exemption under section 5(1)(viii) of the Gift-tax Act, 1958 applies to a gift made by the karta of a Hindu undivided family out of family funds to his wife.

Analysis: The exemption clause was held to be confined to gifts made by one living spouse to another living spouse in an individual capacity. A karta, when dealing with Hindu undivided family property, acts in a representative capacity and not as an individual donor of his own property. The definitions and scheme of the Gift-tax Act, read with the settled legal incidents of a Hindu undivided family, did not justify extending the spouse exemption to a gift made by a karta on behalf of the family. The court applied the plain language rule for taxing statutes and declined to read into the provision any wider meaning merely because some earlier decisions had taken a different view.

Conclusion: Section 5(1)(viii) does not exempt a gift made by a karta of a Hindu undivided family out of family funds to his wife; the question was answered in the negative, in favour of the Revenue and against the assessee.

Final Conclusion: The Tribunal's view allowing the exemption was set aside, and the Revenue's reference succeeded on the substantive question of law.

Ratio Decidendi: Exemption provisions in a taxing statute must be construed strictly according to their plain language, and a gift made by a karta in a representative capacity from Hindu undivided family property is not a gift by an individual spouse within the meaning of the spouse-exemption clause.

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