1974 (12) TMI 11 - HC - Income Tax

Legal ruling: Transfer of medical shop half-share to grandsons deemed present gift, subject to gift tax

The court held that the gift of a half share in a medical shop, medicines, and furniture was a present gift and not a future gift. The donor effectively ... Gift Tax Issues:Whether a half share of the assessee's rights in a medical shop inclusive of medicines and furniture valued at Rs. 15,000 is taxable under the Gift-tax Act, 1958.Analysis:The judgment of the court, delivered by S. OBUL REDDI C.J., addresses the issue of whether a gift of 50% share in a medical shop is a gift of future property or a void gift under the Gift-tax Act, 1958. The settlement deed executed by the assessee in favor of his daughter's sons included a half share in the medical shop, medicines, and furniture. The contention was that it was a gift in futuro and not liable to be taxed, which was rejected by all authorities. The court analyzed the definitions of 'gift,' 'transfer of property,' and 'property' under the Act to determine the nature of the gift. It was established that the donor intended to transfer his proprietary interest in the medical shop to his grandsons immediately, retaining only a limited right to enjoy profits during his lifetime. This limited right did not render the gift a future gift, as it constituted a transfer in praesenti of his share in the property.The court referred to precedents to support its interpretation. A Full Bench of the Allahabad High Court had previously held that a donor could make an immediate gift of property while retaining a limited benefit without it being repugnant to Hindu law. This principle applied to both movable and immovable property. Additionally, a Division Bench of the Madras High Court had ruled that a right to obtain specified shares in a company's capital was a tangible right in existing property, not future property. The court distinguished a previous decision of a Division Bench of the same court, which dealt with joint family property, emphasizing that in the present case, the donor had the power to validly gift the movable property in question.In conclusion, the court held that the gift of the half share in the medical shop, medicines, and furniture was a gift in praesenti and not in futuro. The question was answered in the negative, in favor of the department. The judgment established that the donor had effectively transferred his interest in the property to his grandsons, making it subject to gift tax under the Gift-tax Act, 1958.