1969 (5) TMI 1 - HC - Income Tax

HUF member's property transfer not a gift under Gift-tax Act; Commissioner bears reference costs

The court held that the conversion of separate property into joint family property by a Hindu undivided family member does not qualify as a 'gift' under ... Gift Tax Act, 1958 - A member of a HUF by his unilateral act throws his separate property into the common hotchpot of the joint family and impresses it with the character of joint family property - held that there is no `gift` within the meaning of section 2(xii) of the GT Act when an individual coparcener impresses his separate property with the character of joint family property Issues Involved1. Whether there was any gift within the meaning of section 2(xii) of the Gift-tax Act, 1958.2. Whether the assessee's claim regarding his interest as a member of the Hindu undivided family in the said properties is right in law.Detailed AnalysisIssue 1: Gift within the meaning of section 2(xii) of the Gift-tax Act, 1958The primary issue was whether the act of a Hindu undivided family (HUF) member throwing his separate property into the common hotchpot of the joint family constitutes a 'gift' under the Gift-tax Act, 1958. The court examined the relevant sections of the Act, particularly the definitions of 'gift,' 'donee,' 'donor,' and 'transfer of property' under sections 2(viii), 2(ix), 2(xii), and 2(xxiv), respectively.The court noted that for a transaction to qualify as a gift, it must involve a transfer of property by one person to another, made voluntarily and without consideration. The court found that the unilateral act of a coparcener converting his separate property into joint family property does not involve a transfer of property as defined under section 2(xxiv). The property remains within the ownership of the coparcener, although it is now shared with other family members. The court emphasized that the Hindu undivided family is not a distinct entity separate from its members, and thus, no transfer occurs in the legal sense.The court also discussed the doctrine of blending, which allows a coparcener to voluntarily treat his separate property as part of the joint family property. This doctrine does not require any formal legal procedure but is based on the coparcener's intention to abandon his separate claim on the property. The court concluded that this act does not constitute a transfer of property because the coparcener retains an interest in the property, which is now shared with other family members.Issue 2: Assessee's claim regarding his interest as a member of the Hindu undivided familyThe second issue, regarding whether the assessee's interest in the property should be excluded from the value of the gift, was not pressed by the assessee and thus was not addressed by the court.ConclusionThe court concluded that the conversion of separate property into joint family property does not constitute a 'gift' under the Gift-tax Act. The court emphasized that such conversion does not involve a transfer of property as defined under the Act, nor does it create a new interest in the property for other family members. The court's answer to the first question was in the negative, and the Commissioner was directed to pay the costs of the reference to the assessee.