Property devolving by operation of law is not a taxable gift; valid adoption also defeated the revenue challenge.

Property devolving by operation of law on civil death was not treated as a taxable transfer under the Gift-tax Act, because there was no inter vivos gift, release, relinquishment or extinguishment of rights by a taxable transaction. The assessee had adopted her nephew before taking sanyas, and the adoption deed merely recorded that earlier adoption rather than creating a fresh transfer; the gift-tax charge under section 4(1)(c) therefore did not apply. The adoption was also upheld as valid under the Hindu Adoptions and Maintenance Act, as additional evidence showed the age difference requirement was met and no other statutory defect was proved. On that basis, the revenue's challenge failed.

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Issues: (i) Whether the transfer of property to the adopted son on the assessee taking sanyas attracted gift-tax under section 4(1)(c) of the Gift-tax Act, 1958. (ii) Whether the adoption was invalid for non-compliance with section 11 of the Hindu Adoptions and Maintenance Act, 1956.

Issue (i): Whether the transfer of property to the adopted son on the assessee taking sanyas attracted gift-tax under section 4(1)(c) of the Gift-tax Act, 1958.

Analysis: Gift-tax applies to transfers inter vivos and to transactions involving a transfer by one person to another. A mere transmission of property by operation of law, including devolution on civil death, does not amount to a taxable gift. The assessee had inherited the property on her husband's death, adopted her nephew before taking sanyas, and on taking sanyas her secular relationship ceased and the property devolved on the adopted son by legal consequence. The adoption deed only recorded the earlier adoption and did not create a fresh transfer. There was therefore no release, relinquishment, or extinguishment of rights by a taxable transaction within section 4(1)(c).

Conclusion: The gift-tax charge under section 4(1)(c) was not attracted and this issue was decided in favour of the assessee.

Issue (ii): Whether the adoption was invalid for non-compliance with section 11 of the Hindu Adoptions and Maintenance Act, 1956.

Analysis: Additional evidence regarding the ages of the assessee and the adopted son was admitted after opportunity to the Revenue. On that evidence, the assessee was found to be more than 21 years older than the adopted son, satisfying the statutory age requirement. The Revenue did not rebut the evidence and no other breach of the conditions for valid adoption was established.

Conclusion: The adoption was held to be valid and this issue was decided in favour of the assessee.

Final Conclusion: The assessment could not be sustained because the property passed by operation of law on civil death and the adoption was valid, so the Revenue's appeal failed.

Ratio Decidendi: Property devolving by operation of law on civil death is not a gift under the Gift-tax Act, and a valid adoption supported by compliance with the statutory conditions does not by itself create a taxable transfer.

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