TaxTMI 
TaxTMI 
1988 (2) TMI 52
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....ssment made on the 'gift' was not valid in law and should, therefore, be cancelled ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the transfer made by the assessee in favour of her two sisters of certain lands and the transfer made by the two sisters in favour of the assessee conveying certain other lands to the assessee were not independent transactions of gift under the Gift-tax Act, 1958, but amounted to an 'exchange' as defined under section 118 of the Transfer of Property Act, 1882 ? " The short facts of the case may be stated as under: By a deed of settlement dated July 10, 1971, the assessee settled certain lands on her sister's two daughters. On the same day, ....
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....h the documents form part of one transaction. Section 118 of the Transfer of Property Act defines " exchange in these terms: S. 118:" When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an 'exchange'. A transfer of property in completion of an exchange can be made only in manner provided for the transfer of such property by sale." The section does not require that an exchange should be brought about by one document only. There is nothing in law which prevents an exchange being brought into existence by two documents. In Mulla's Transfer of Property Act, Seventh Edition, at page 780, the following passage occurs : " Mode of t....
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....exchange. It was pointed out that if the consideration for a transfer is not paid in cash but is paid by the transfer of ownership of some property, it would only be an exchange and not a sale. It was also held that the mere fact that the values of the properties transferred had been fixed does not convert the transaction into one of sale. The following passage in the judgment would be relevant (p. 231 ) : " It is not the name or form of the transaction but the nature of the consideration paid for the transfer which determines the nature of the transfer itself. If the consideration for the transfer is not paid in cash, but is paid by transfer of the ownership of some property, it would be only an exchange and not a sale." Learned counsel ....
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....ands had to be reconveyed within the period of seven years, the assessee had not derived any enduring or permanent advantage. That view was upheld by the Tribunal on appeal. On a reference, it was held by the Division Bench, on the facts, that merely because an option to repurchase was reserved with or conferred on the vendor, it did not mean that the purchaser had obtained something less than the full title. It was further held that what the purchaser had obtained under the document of sale was the land itself and the entire fee in the land. On a true construction of the documents in that case, it was held that the assessee had acquired a fixed capital item, namely, gypsum-bearing land, and the price paid was for the acquisition of that fi....
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....scertained the legal rights of the parties may disregard mere nomenclature and proceed to decide the question of taxability or non-taxability in accordance with the legal rights ". This shows that it is for the court to ascertain in the first instance the nature of the transaction from the facts and circumstances of the case. If the court finds that the transaction is of one particular character, then the legal rights which flow from that transaction have to be upheld. The Division Bench also referred to the decision of the Supreme Court in CIT v. Motors and General Stores (P.) Ltd. [1967] 66 ITR 692, wherein the Supreme Court had quoted with approval the following passage in IRC v. Wesleyan and General Assurance Society [1948] 30 TC 11 ; ....
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....e given by the parties to the transaction in question was not decisive. Learned counsel for the Revenue drew our attention to the decision of a Division Bench of the Karnataka High Court in CIT v. Maganathi Amba Devi [1986] 162 ITR 796. In that case, the assessee and her husband settled certain immovable properties in favour of their son and daughter under a registered settlement deed dated September 21, 1972. On the very next day, viz., September 22, 1972, the son and daughter executed an agreement undertaking to pay annuity to the assessee and her husband. The assessee claimed that the settlement was not a gift within the meaning of the term occurring in section 4(1)(a) of the Gift-tax Act, 1958, and that the annuity payable under the ag....