1980 (10) TMI 20 - HC - Income Tax

Release Deed Not Taxable Gift under Gift-tax Act - Assessee Prevails

The court concluded that the release deed executed by the assessee did not constitute a taxable gift under the Gift-tax Act, 1958. The transaction was not ... Gift Tax Issues Involved:1. Whether the transaction effected by the release deed dated July 12, 1964, executed by the assessee, is taxable within the meaning of the Gift-tax Act, 1958Rs.Issue-wise Detailed Analysis:1. Nature of the Transaction:The primary issue is whether the release deed executed by the assessee constitutes a taxable gift under the Gift-tax Act, 1958. The assessee, Smt. Ansuya, released her life interest in the net income of the trust property in favor of the ultimate beneficiaries, who were the children and grandchildren of the settlor, late Shri Ambalal Sarabhai. The Income-tax Appellate Tribunal concluded that the assessee had not transferred her life interest to the beneficiaries but had released the trust from its obligation to pay her the income, thereby accelerating the beneficiaries' rights to the corpus.2. Definition of Gift and Transfer of Property:According to Section 2(xii) of the Gift-tax Act, a gift is defined as a transfer of existing property made voluntarily and without consideration. Section 2(xxiv) further defines 'transfer of property' to include various forms of disposition, including any transaction intended to diminish the value of one's property and increase the value of another's. The court examined whether the release deed constituted such a transfer.3. Applicability of Section 4(1)(c) of the Gift-tax Act:Section 4(1)(c) of the Act deals with deemed gifts, including the release or surrender of any interest in property. The court needed to determine whether the release deed fell under this provision and whether the Gift-tax Officer (GTO) found the release to be bona fide.Court's Analysis:Nature of the Release Deed:The court analyzed the recitals in the release deed and concluded that the assessee had unilaterally surrendered her life interest in the trust property. This act did not constitute a transfer of property to another person but was a unilateral release, which extinguished her life interest and accelerated the beneficiaries' rights to the corpus.Interpretation of Statutory Provisions:The court noted that for a transaction to be considered a gift under Section 2(xii), it must involve a transfer between two parties. The release deed in question was a unilateral act by the assessee, and thus, did not meet this requirement. Similarly, Section 2(xxiv)(d) requires a bilateral or multilateral transaction, which was not present in this case.Bona Fide Nature of the Release:The court observed that the GTO had not made any finding regarding the bona fide nature of the release. The Appellate Assistant Commissioner (AAC) had found the release to be bona fide, considering the assessee's age and the intention to benefit the ultimate beneficiaries as per the settlor's original intention. This finding was not contested by the revenue before the Tribunal.Relevant Case Law:The court referred to several decisions, including those of the Bombay High Court and the Supreme Court, to support its interpretation. Notably, in CIT v. Neville N. Wadia, the Bombay High Court held that a similar release deed did not constitute a transfer of assets and thus was not taxable under the relevant provisions.Conclusion:The court concluded that the release deed executed by the assessee did not constitute a taxable gift under the Gift-tax Act, 1958. The transaction was not a transfer of property as defined by Section 2(xii) and Section 2(xxiv)(d) and was found to be a bona fide release under Section 4(1)(c). Therefore, the question referred to the court was answered in the negative, in favor of the assessee and against the revenue. The Commissioner of Gift-tax was directed to pay the costs of the reference to the assessee.