1967 (1) TMI 3 - HC - Income Tax

Property blending in Hindu undivided families not considered a gift under Gift-tax Act

The court held that throwing self-acquired property into a Hindu undivided family's common hotch-pot and subsequently partitioning it did not constitute a ... Whether,the act of throwing the self-acquired property of the assessee into the common hotch-pot of the HUFof which he was the karta, with the intention of abandoning his rights in that property and then dividing it unequally between his wife and sons amounted to a gift within the meaning of the term 'gift' as defined in the Gift-tax Act - Held,no Issues Involved:1. Whether the act of throwing self-acquired property into the common hotch-pot of a Hindu undivided family constitutes a 'gift' under the Gift-tax Act.2. The interpretation of 'transfer' and 'gift' under the Gift-tax Act in relation to Hindu law principles.3. The applicability of section 2(xxiv)(d) and section 4(d) of the Gift-tax Act.Detailed Analysis:Issue 1: Whether the act of throwing self-acquired property into the common hotch-pot of a Hindu undivided family constitutes a 'gift' under the Gift-tax Act.The High Court examined whether the act of the deceased assessee, N. B. Nerlekar, of throwing his self-acquired property into the common hotch-pot of the Hindu undivided family and subsequently partitioning it among family members amounted to a 'gift' under the Gift-tax Act. The Gift-tax Officer initially considered this act as a gift and imposed gift-tax. However, the Appellate Assistant Commissioner disagreed, stating that the process did not involve any transfer of property and thus did not attract gift-tax. The Tribunal, however, sided with the Gift-tax Officer, considering the act as a transfer within the meaning of section 2(xxiv)(d) of the Gift-tax Act.Issue 2: The interpretation of 'transfer' and 'gift' under the Gift-tax Act in relation to Hindu law principles.The court emphasized that the definitions in the Gift-tax Act should not necessarily exclude the principles of general law, whether personal or statutory. The ordinary law defines a gift as a voluntary transfer of property without consideration, accepted by the donee. The Gift-tax Act's definition of 'gift' in section 2(xii) aligns with this, except for certain deemed gifts under section 4. The court noted that the essence of a gift is the absence of consideration and that the Gift-tax Act includes transfers with inadequate or pretended consideration under section 4.Issue 3: The applicability of section 2(xxiv)(d) and section 4(d) of the Gift-tax Act.The court analyzed whether section 2(xxiv)(d), which includes transactions intended to diminish the value of one's property and increase the value of another's property, applies to the case. It concluded that even this section presupposes a transfer of property. The court referred to various judgments, including those from the Bombay and Andhra Pradesh High Courts, which held that acts of blending or throwing self-acquired property into common stock do not constitute transfers. The Supreme Court also left open the question of whether blending involves a transfer.The court referred to the case of Commissioner of Gift-tax v. Satyanarayanamurthy, where the Andhra Pradesh High Court considered blending as a gift under section 2(xxiv)(d). However, the court here disagreed with this view, emphasizing that blending does not involve any consideration and thus does not fall under section 4(d).The court concluded that both blending and partition in a Hindu undivided family do not involve any transfer of property. The act of blending is akin to the process of partition, where no new title is acquired, but rather a change in the nature of the existing title occurs.Conclusion:The court answered the question in the negative, holding that the act of throwing the self-acquired property into the common hotch-pot of the Hindu undivided family and then dividing it did not amount to a gift under the Gift-tax Act. The assessee was awarded costs for the reference.