1971 (11) TMI 31 - HC - Income Tax

Court rules transfer of business to son not a conveyance of full ownership; gift-tax based on assessee's life interest.

The court held that the assessee was not an executrix under the will and that the transfer of the stationery business to her son constituted the ... Gift Tax - properties of testator were assigned to his wife by will to go ultimately to sons and the will prohibited alienation of business by wife - Whether, under the will the assessee is an executrix by implication or by tenor of the will – Whether the transfer of the said stationery business by the assessee to Kuriappan amounts to a valid gift for the lifetime of the assessee - If the gift is valid for the lifetime of the assessee, what is the nature of the interest gifted and how is it to be valued – held that assessee has by the gift conveyed her life interest in the properties comprised in the gift and in favour of Kuriappan – held that that the donee has secured only the life interest of the assessee in the properties gifted and the life interest of the assessee in the properties in the gift deed has alone to be valued for assessment to gift-tax Issues:1. Whether the assessee is an executrix under the will dated October 10, 1953Rs.2. Whether the transfer of a stationery business to the assessee's son constitutes a valid gift for the lifetime of the assessee and how should it be valuedRs.Analysis:Issue 1:The court examined whether the assessee was an executrix under the will dated October 10, 1953. The assessee transferred a stationery business to her son without consideration, claiming she acted as an executrix under the will. The Gift-tax Officer valued the business and goodwill, assessing gift-tax. The Appellate Assistant Commissioner held the donor had absolute rights in the property. The Tribunal determined the assessee had a life interest in the properties under the will, not as an executrix. The court confirmed the Tribunal's view, stating the assessee was not an executrix under the will.Issue 2:Regarding the validity and valuation of the gift, the court considered the terms of the will granting the assessee a life interest in the properties. The will specified the distribution of assets after the assessee's death. The Tribunal's order highlighted the assessee's life interest in the properties. The court held that the gift-tax should be levied on the value of the assessee's life interest in the properties gifted to her son. Consequently, the court answered the questions against the assessee, confirming that only the life interest of the assessee in the properties comprised in the gift deed is subject to gift-tax assessment.In conclusion, the court determined that the assessee was not an executrix under the will and that the gift constituted the conveyance of the assessee's life interest in the properties to her son. The valuation for gift-tax purposes was based on the assessee's life interest in the gifted properties.