1969 (12) TMI 12 - HC - Income Tax

Hindu father's property blending not considered gift under Gift-tax Act, 1958. Assessment orders quashed.

Commissioner of Gift-Tax, Madras Versus P. Rangasami Naidu (And Other Connected Petitions).

Commissioner of Gift-Tax, Madras Versus P. Rangasami Naidu (And Other Connected Petitions). - [1970] 76 ITR 315 Issues Involved:1. Whether the unilateral act of a Hindu father converting his self-acquired property into joint family property constitutes a 'gift' under the Gift-tax Act, 1958.2. Interpretation of 'transfer of property' under section 2(xxiv) of the Gift-tax Act.3. Applicability of deemed gifts under section 4 of the Gift-tax Act.Detailed Analysis:1. Whether the unilateral act of a Hindu father converting his self-acquired property into joint family property constitutes a 'gift' under the Gift-tax Act, 1958.The primary question was whether a Hindu father's unilateral act of converting his self-acquired property into joint family property amounts to a 'gift' under the Gift-tax Act, 1958. The court examined the nature of the act under Hindu law, emphasizing that the transformation of property from self-acquired to joint family property is a voluntary act without consideration in money or money's worth. The court held that this act does not constitute a 'gift' because it lacks the essential element of a bilateral transaction between a donor and a donee. The court stated, 'The conversion of self-acquisition into joint family property is admittedly voluntary and without consideration in money or money's worth.'2. Interpretation of 'transfer of property' under section 2(xxiv) of the Gift-tax Act.The court analyzed whether the act of blending self-acquired property with joint family property falls under the definition of 'transfer of property' as per section 2(xxiv) of the Gift-tax Act. The court noted that the definition includes any disposition, conveyance, assignment, settlement, delivery, payment, or other alienation of property. However, it emphasized that the transformation is brought about solely by the intention of the owner and does not involve any bilateral transaction or the exercise of volition by other coparceners. The court concluded, 'When a Mitakshara father determines upon treating his self-acquired property as the property of the family, there is no transfer or disposition of the property under the main part of the definition of 'transfer of property' in section 2(xxiv) of the Act.'3. Applicability of deemed gifts under section 4 of the Gift-tax Act.The court examined the applicability of deemed gifts under section 4, particularly sub-clauses (a) and (d). It held that these sub-clauses deal with transactions involving some consideration, which is inadequate. Since the conversion of self-acquired property into joint family property is without any consideration, these provisions are not applicable. The court stated, 'We are clearly of the view that sub-clauses (a) and (d) of section 4 have absolutely no relevancy.' Additionally, the court noted that sub-clause (d) of section 2(xxiv) is intended to cover transactions where property does not pass from one person to another but where there is an intent to diminish the value of one's property and increase the value of another's property. The court found that this sub-clause does not apply to the act of blending, as it does not involve any communicative action or bilateral transaction.Conclusion:The court concluded that the unilateral act of a Hindu father converting his self-acquired property into joint family property does not constitute a 'gift' under the Gift-tax Act, 1958. The references under section 26(1) were answered in favor of the assessees, and the writ petitions were allowed, quashing the orders of assessment. The court emphasized that the act of blending does not involve a 'transfer of property' as defined under section 2(xxiv) and does not fall under the deemed gifts provisions of section 4.