1971 (11) TMI 12 - HC - Income Tax

Hindu Undivided Family Gifts Ruled Void Ab Initio: Tax Exemption Granted

The court found that the gifts made by the assessee, acting as the karta of a Hindu undivided family, were void ab initio under Hindu law. As a result, ... Gift Tax Act, 1958 - whether the gift by a karta of the Hindu undivided family to the coparceners and persons who are not coparceners is void ab initio - Tribunal has taken the view that the gift is void - Tribunal was right in holding that the gift in the instant case was void and the contention of the learned counsel for the department that the gift is voidable cannot be supported either on authority or on principle Issues Involved:1. Whether the gifts made by the assessee, who is also the karta of the Hindu undivided family, were void ab initio.2. Whether these gifts could be brought to tax under the Gift-tax Act, 1958.Detailed Analysis:Issue 1: Validity of Gifts by Karta of Hindu Undivided FamilyThe primary issue revolves around whether the gifts made by the assessee, acting as the karta of a Hindu undivided family (HUF), were void ab initio. The assessee, Tej Nath, gifted land to various family members, including his three minor sons and three female relatives who were not coparceners. The Gift-tax Officer initially considered these gifts valid and taxable, but the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal later ruled the gifts invalid under Hindu law.Legal Framework:- Hindu Law: Under Hindu law, a karta has limited powers to gift ancestral immovable property. Gifts to non-coparceners are generally void unless they are for pious purposes and within reasonable limits.- Key Provisions:- Section 30 of the Hindu Succession Act: Allows testamentary disposition of coparcenary interest but does not extend to inter vivos gifts.- Mulla's Hindu Law: Paragraphs 225 and 226 outline that while a father can gift ancestral movables within reasonable limits, he cannot gift ancestral immovable property except for pious purposes.- Judicial Precedents: The Supreme Court in Guramma v. Mallappa and other cases has held that gifts to strangers or non-coparceners are void.Court's Analysis:- Coparcenary Property: The property in question was coparcenary property, meaning all coparceners, including the minor sons, had an undivided interest.- Gifts to Non-Coparceners: The gifts to the three female relatives (brother's widow, mother, and step-mother) were deemed void as they were non-coparceners.- Gifts to Coparceners: The gifts to the three sons were not considered transfers of ownership since the sons already had an interest in the property by birth. Therefore, these were not considered gifts under the Gift-tax Act.Issue 2: Taxability Under the Gift-tax ActThe second issue pertains to whether these gifts could be taxed under the Gift-tax Act, 1958. The definition of 'gift' under Section 2(xii) of the Act includes voluntary transfers of property without consideration.Legal Framework:- Definition of Gift: A gift must involve a transfer of property from one person to another without consideration.- Relevant Sections:- Section 2(viii): Defines 'donee.'- Section 2(xxiv): Defines 'transfer of property.'- Section 14 and 15: Provide the procedure for assessment and revision of returns.Court's Analysis:- No Valid Gift: Since the gifts were void under Hindu law, they did not constitute valid transfers of property. Consequently, they could not be taxed as gifts under the Gift-tax Act.- Jurisdiction of Gift-tax Officer: The Gift-tax Officer's jurisdiction to tax the gifts was contingent on the existence of a valid gift, which was absent in this case.Conclusion:The court concluded that the gifts made by the assessee were void ab initio under Hindu law. Consequently, these gifts could not be brought to tax under the Gift-tax Act, 1958. The question referred to the court was answered in the affirmative, in favor of the assessee and against the department.Separate Judgments:- H. R. SODHI J.: Agreed with the judgment.- BAL RAJ TULI J.: Also agreed and had nothing to add.Question answered in the affirmative.