1965 (12) TMI 149 - HC - Income Tax

Summary

Issues Involved:

1. Whether there was a gift by the assessee of Rs. 2,36,377 on which he is liable to pay gift-tax.
2. Whether the excess allotment during partition amounts to a gift under the Gift-tax Act.
3. Whether a partition in a Hindu undivided family constitutes a transfer of property.
4. Whether the transaction falls within the extended meaning of "gift" under the Gift-tax Act.

Issue-wise Detailed Analysis:

1. Whether there was a gift by the assessee of Rs. 2,36,377 on which he is liable to pay gift-tax:

The Gift-tax Officer assessed the tax on the excess amount of Rs. 2,36,377 allotted to the other members of the family, considering it a gift. However, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal held that no gift was made during the partition, as there was no transfer of property. The Tribunal referred the question to the High Court for a decision under section 26(1) of the Gift-tax Act.

2. Whether the excess allotment during partition amounts to a gift under the Gift-tax Act:

The court examined the definition of "gift" under the Gift-tax Act, which includes voluntary transfers of property without consideration. The court noted that a partition in a Hindu undivided family does not involve a transfer of property, as each coparcener has a pre-existing title to the entire family property. Therefore, the excess allotment to other family members does not constitute a gift within the meaning of the Act.

3. Whether a partition in a Hindu undivided family constitutes a transfer of property:

The court cited several precedents, including Narasimhulu v. Someswara Rao and Radhakrishnayya v. Sarasamma, to establish that partition is not a transfer of property. Partition merely converts joint enjoyment into enjoyment in severalty, and each coparcener relinquishes rights in other properties in consideration of exclusive rights to specific properties. This process does not involve a transfer of interest from one person to another.

4. Whether the transaction falls within the extended meaning of "gift" under the Gift-tax Act:

The court considered the extended definition of "gift" under section 4 of the Gift-tax Act, which includes certain deemed transfers. The court examined whether the transaction in question falls under the extended meaning of "transfer of property" as defined in section 2(xxiv), which includes dispositions, conveyances, and other forms of alienation. The court concluded that the process of division by metes and bounds in a partition does not constitute a "transaction entered into by any person" as required by sub-clause (d) of section 2(xxiv). The court also noted that the joint family is deemed to continue until partition by metes and bounds is recorded by the tax authorities, making it inconsistent to treat the family as divided for the purpose of assessing the transaction as a gift.

Conclusion:

The court held that the transaction in question is not a gift liable to pay tax under the Gift-tax Act and answered the reference in favor of the assessee with costs. The question was answered in favor of the assessee.