1985 (10) TMI 48 - HC - Income Tax

Issues Involved:
1. Legal validity of the gifts of immovable properties made by the karta of the Hindu undivided family (HUF) to his wife.
2. Validity of the gifts after a partial partition effected in November 1966.
3. Legal validity of the gifts of money made by the karta of the HUF to his relations.
4. Tax treatment of the income from the gifted properties and amounts.

Issue-wise Detailed Analysis:

1. Legal Validity of the Gifts of Immovable Properties to the Wife:
The first issue concerns whether the gifts of immovable properties valued at Rs. 4,00,000 made by Gangadhar, as the karta of the HUF, to his wife were void and ineffective in law. The court examined several judicial decisions to address this matter. According to Ammathayee alias Perumalakkal v. Kumaresan alias Balakrishnan, AIR 1967 SC 569, and Guramma Bhratar Chanbasappa Deshmukh v. Mallappa Chanbasappa, AIR 1964 SC 510, Hindu law restricts the power of a karta to make gifts of immovable ancestral property. Such gifts are only permissible for "pious purposes" within reasonable limits. The court concluded that the gift of immovable property by the karta to his wife is void and ineffective in law, as it does not fall within the scope of "pious purposes."

2. Validity of the Gifts After Partial Partition:
The second issue was whether the gifts became valid after a partial partition in November 1966. However, the counsel for the assessee did not wish for this question to be answered, and the court declined to address it.

3. Legal Validity of the Gifts of Money to Relations:
The third issue involved the validity of gifts amounting to Rs. 4,80,000, Rs. 1,00,000, and Rs. 45,000 made by the karta to his relations during the assessment years 1964-65, 1965-66, and 1966-67, respectively. The court referred to the Supreme Court's observation in Guramma v. Mallappa, AIR 1964 SC 510, which states that gifts to strangers by the manager of a joint family are void. The court also considered the Full Bench decision of the Punjab and Haryana High Court in CGT v. Tej Nath [1972] 86 ITR 96, which held that gifts by the karta of HUF to his relatives, who are not members of the HUF, are void. The court concluded that the gifts of money to the karta's relations, who are considered strangers to the HUF, are void.

4. Tax Treatment of Income from Gifted Properties and Amounts:
The fourth issue was whether the Tribunal erred in treating the income from the gifted amounts as the income of the HUF. The court examined the Rajasthan High Court's decision in CIT v. Motilal Ramswaroop [1970] 76 ITR 43, which held that income from gifted amounts should not be taxed in the hands of the donor if the gifts were void. However, the court disagreed with this view, stating that under section 4 of the Income-tax Act, the charge of income-tax is on the total income of every person. Since the gifts were void, the properties and amounts gifted remained with the HUF, and the income derived from them must be regarded as the income of the HUF. The court concluded that the income from the properties and amounts gifted should be included in the income of the HUF.

Conclusion:
- Question No. 1: The gifts of immovable properties to the wife are void and ineffective in law.
- Question No. 2: Declined to answer as per the assessee's request.
- Question No. 3: The gifts of money to the relations are void and ineffective in law.
- Question No. 4: The income from the gifted properties and amounts should be treated as the income of the HUF.

All questions were decided against the assessee, who was ordered to pay the costs of the references.

← Previous Next →