1980 (12) TMI 21 - HC - Income Tax

Gift from HUF father to wife qualifies for exemption under Gift-tax Act

The court determined that the gift made by the father-karta of a Hindu Undivided Family (HUF) to his wife qualified for exemption under Section 5(1)(viii) ... Exemptions, Gift Tax, Gift To Spouse Issues Involved:1. Applicability of Section 5(1)(viii) of the Gift-tax Act, 1958 for a gift made by the karta of a Hindu Undivided Family (HUF) to his wife.2. Determination of the donor's capacity in the context of a gift made by the karta of an HUF.3. Interpretation of the term 'donor' under the Gift-tax Act.Issue-wise Detailed Analysis:1. Applicability of Section 5(1)(viii) of the Gift-tax Act, 1958:The primary issue was whether the gift of jewellery made by the karta of an HUF to his wife qualifies for exemption under Section 5(1)(viii) of the Gift-tax Act, 1958. The section states that 'Gift-tax shall not be charged under this Act in respect of gifts made by any person to his or her spouse, subject to a maximum of rupees fifty thousand in value in the aggregate in one or more previous years.'The Gross value of the jewellery was initially admitted as Rs. 92,314 but later revalued to Rs. 1,01,364. The GTO allowed only the statutory exemption of Rs. 5,000, rejecting the claim for an additional deduction of Rs. 50,000 under Section 5(1)(viii), arguing that the donor is the HUF and the donee is the spouse of the karta, making the section inapplicable.2. Determination of the Donor's Capacity:The AAC ruled that the karta of an HUF can make gifts out of affection within reasonable limits, and in this case, the gifts were validly made considering the HUF's net worth. The AAC further stated that the gift should be considered as made by the karta in his individual capacity rather than by the HUF.The Tribunal, however, disagreed, holding that the gift was made by the HUF and not by the karta in his individual capacity, thus disqualifying it from the exemption under Section 5(1)(viii).The court examined the nature of the HUF and the powers of a karta under Hindu law. It was noted that a sole male member of an HUF has the authority to dispose of the joint family property as if it were his separate property, including making gifts out of affection. The court concluded that the father-karta acted in his individual capacity when making the gift to his wife, thus qualifying for the exemption under Section 5(1)(viii).3. Interpretation of the Term 'Donor':The court also discussed the definition of 'donor' under Section 2(ix) of the Gift-tax Act, which states that a donor is any person who makes a gift. It emphasized that a person need not be the owner of the property to make a gift; they only need to be authorized to dispose of it. The court referenced Section 7 of the Transfer of Property Act, which allows a person competent to contract to transfer property even if it is not their own, provided they are authorized by law.The court found that the father, as the sole surviving coparcener, had the authority to gift the jewellery to his wife, thus acting in his individual capacity. The court also noted that the return filed in the status of an HUF does not alter the nature of the gift for the purposes of Section 5(1)(viii).Conclusion:The court concluded that the gift made by the father-karta to his wife was made in his individual capacity and not by the HUF. Therefore, the exemption under Section 5(1)(viii) of the Gift-tax Act, 1958, is applicable. The question referred to the court was answered in the affirmative, in favor of the assessee, entitling them to the deduction under Section 5(1)(viii). The assessee was also awarded costs of Rs. 500.