1976 (7) TMI 49 - HC - Income Tax

Court Affirms Will Over Gift: Tax Act Inapplicable. Assessee Awarded Costs.

The Court affirmed the Tribunal's decision that the document executed on July 1, 1963, was a will and not a gift. Consequently, the provisions of the ... Gift Tax, Transfer Of Property Issues Involved:1. Whether the deed of settlement executed on July 1, 1963, constitutes a will or a gift under the Gift-tax Act, 1958.Detailed Analysis:Issue 1: Construction of the DocumentThe primary issue revolves around the interpretation of the document dated July 1, 1963, executed by the assessee and his wife. The Tribunal had to determine whether this document was a will or a gift, which would affect its applicability under the Gift-tax Act, 1958.Tribunal's Findings:The Tribunal concluded that the document was testamentary in nature and did not constitute a 'gift.' This decision was based on a detailed examination of the document, its clauses, and relevant legal principles distinguishing a will from a gift.Legal Principles:1. Characteristics of a Will vs. Gift:- A will disposes of property to take effect upon the testator's death.- A gift involves an immediate transfer of interest in the property.- A will is inherently revocable, whereas a gift, once executed, is irrevocable.2. Nomenclature and Registration:- The title or nomenclature of the document (whether called a 'settlement' or 'will') is not decisive.- Registration of a document as a settlement does not conclusively determine its nature.- The presence of a clause declaring the document irrevocable does not necessarily make it a gift if the disposition is testamentary.Document Analysis:The document in question was styled and registered as a settlement, with a clause stating it was irrevocable. However, the Tribunal noted that these aspects were not conclusive. The critical factor was whether the document transferred any interest in praesenti.Key Provisions of the Document:1. Enjoyment of Property:- The settlors were to continue enjoying the properties during their lifetime without any power to alienate them.- Both sons (settlees) were to enjoy the properties only after the lifetime of the settlors, with no power to alienate during their lifetime.2. Transfer of Interest:- The document specified that the heirs of the sons would take absolute ownership only after the lifetime of the sons.- There was no immediate transfer of interest to the sons or their heirs during the lifetime of the settlors.Court's Conclusion:The Court concluded that the document did not transfer any interest in praesenti to the sons or their heirs. The disposition was intended to take effect only after the death of the settlors, making the document testamentary in nature. Therefore, it was a will and not a gift, and the provisions of the Gift-tax Act, 1958, were not applicable.Supporting Case Law:1. Thakur Ishri Singh v. Thakur Baldeo Singh:- The Judicial Committee held that a document providing for contingencies ascertainable only upon the testator's death was a will.2. Sagar Chandra Mandal v. Dwarka Nath Mandal:- The Calcutta High Court emphasized that the principal test is whether the disposition takes effect during the lifetime of the executant or after their death.3. Venkatachalam Chetty v. Govindaswami Naicker:- This Court held that a document reserving a life interest for the donor, without giving any present interest to the donee, was a will.4. Damodara Moothan v. Ammu Amma:- The Court interpreted a provision allowing the testator and his wife to enjoy the property during their lifetime as indicative of a will.Final Judgment:The Court affirmed the Tribunal's decision, holding that the document was a will and not a gift. Consequently, the provisions of the Gift-tax Act, 1958, were not applicable. The question referred to the Court was answered in the affirmative and in favor of the assessee. The assessee was entitled to costs, with counsel's fee fixed at Rs. 500.