1974 (3) TMI 21 - HC - Income Tax

High Court grants exemption under Gift-tax Act for settlement to spouse exceeding Rs. 1,00,000

The High Court ruled in favor of the assessee, affirming entitlement to exemption under section 5(1)(viii) of the Gift-tax Act for a settlement made to ... Gift Tax Issues:Interpretation of exemption under section 5(1)(viii) of the Gift-tax Act for gifts made to a spouse.Analysis:The judgment involves a settlement made by a Maharaja in favor of his wife, Maharani, for her comfort and support, involving properties valued at Rs. 20,31,500. The Gift-tax Officer assessed the properties at Rs. 22,52,553 for taxation, granting an exemption of Rs. 10,000 under section 5(2) of the Act. The Appellate Assistant Commissioner provided some relief, leading to an appeal by the Maharani to the Tribunal. The Tribunal highlighted the oversight of section 5(1)(viii) by the department, directing an exemption of Rs. 1,00,000 for gifts to the assessee's wife. The Tribunal referred the question of exemption entitlement to the High Court.The High Court analyzed the relevant provisions of the Gift-tax Act, emphasizing section 5(1)(viii) which exempts gifts to a spouse up to a maximum of Rs. 1,00,000. The definition of 'gift' under section 2 includes the transfer of property without consideration, encompassing interests in property. The court elaborated on the concept of a trust, defining trustees' obligations and beneficiaries' beneficial interests. The court rejected the argument that a settlement to a trust does not constitute a gift to the spouse, emphasizing that the trust mechanism serves as a means of transferring interest in property to beneficiaries.The court further addressed the contention that for a gift to fall under section 5(1)(viii), the spouse must have disposing power over the property. It analyzed sub-section (3) of section 5, clarifying that it does not restrict the operation of clause (viii). The court aligned with the Bombay High Court's interpretation, concluding that the assessee was entitled to an exemption under section 5(1)(viii) for the settlement made to his spouse. The court affirmed that the value of the interest given to the spouse exceeded Rs. 1,00,000, granting the exemption accordingly.In conclusion, the High Court answered the question in favor of the assessee, affirming the entitlement to exemption under section 5(1)(viii) for the settlement made to the spouse. The court awarded costs to the assessee and upheld the exemption of at least Rs. 1,00,000 for the gift involved in the settlement.