Gift by karta to wife treated as individual gift, allowing exemption under the Gift-tax Act.

A gift of HUF movable property by a Mitakshara karta to his wife was treated as a gift made by the karta in his individual capacity, because Hindu law recognises a father-coparcener's limited power to make gifts out of affection within reasonable limits. The relevant enquiry for Gift-tax Act exemption was the nature of the gift and the capacity in which it was made, not the form of the return or the fact that the property belonged to the HUF. On that basis, the gift qualified for deduction under section 5(1)(viii) of the Gift-tax Act, 1958, and the reference was answered in favour of the assessee.

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Issues: Whether a gift of HUF property by the karta to his wife is to be treated as a gift by the Hindu undivided family or by the karta in his individual capacity, and whether such gift qualifies for deduction under section 5(1)(viii) of the Gift-tax Act, 1958.

Analysis: A Mitakshara Hindu undivided family is a creature of law, and a father-coparcener has recognised powers to dispose of joint family movable property by way of gift within reasonable limits, including gifts out of affection to his wife. In such a case, the power is exercised by the father in his individual capacity as a person authorised by Hindu law to alienate the property, and the donor is not necessarily the HUF merely because the property belonged to it. The relevant enquiry for exemption is the nature of the gift and the capacity in which it was made, not the status in which the return was filed. A person competent to transfer under section 7 of the Transfer of Property Act, 1882 may make a valid gift even though he is not the owner, and the Gift-tax Act taxes the donor who makes the taxable gift.

Conclusion: The gift was made by the karta in his individual capacity and not by the HUF, so the exemption under section 5(1)(viii) of the Gift-tax Act, 1958 was available. The question referred was answered in favour of the assessee.

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