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Issues Involved:
1. Whether the Cutchi Memons settled in Travancore are governed by Hindu law in all matters, including property rights and joint family property, or only in matters of succession and inheritance. 2. Whether the transaction recorded on February 11, 1965, is a partition or a gift concerning the shares allotted to the assessee's two sons. Issue-wise Detailed Analysis: 1. Governance of Cutchi Memons by Hindu Law: The primary issue was whether the Cutchi Memons in Travancore are governed by Hindu law in all matters, including property rights and joint family property, or only in matters of succession and inheritance. The Tribunal held that Cutchi Memons in Travancore are governed by Hindu law in all matters, including property rights, joint family property, its distribution according to the rule of survivorship, and the right of a son in it by birth. However, the court referred to the Supreme Court's exhaustive survey in CED v. Hajee Abdul Sattar Sait [1972] 86 ITR 53, which concluded that Cutchi Memons who settled among Hindus regulated their affairs according to Hindu law not only in matters of succession and inheritance but also in property matters. The Supreme Court noted that Cutchi Memons retained Hindu law in matters of inheritance and succession, including rules as to joint family property and devolution by survivorship. The court also examined the principle that the law applicable to a community depends on the surroundings and traditions of the place where they settled. For instance, Cutchi Memons in Mombasa accepted Mohamedan law, while those in Porbandar followed Hindu law. The court reiterated that the burden of proving a change in customary law after migration lies on the party asserting the change. In the case of Cutchi Memons in Travancore, the court referred to the decision in Hajee Kameesa Jacob Sait v. Haji Mohammed Kathrimbai (XXIV TLR 228), which established that Cutchi Memons in Travancore followed Hindu law in matters of inheritance and succession, and there was no proof of a change to Mohamedan law. The court concluded that there was no warrant for holding that the Cutchi Memons in Travancore were governed by Hindu law in all matters. The Hindu law applied to them only in matters of inheritance and succession, and there was no proof of any custom or usage making it applicable in other matters. 2. Nature of the Transaction Recorded on February 11, 1965: The second issue was whether the transaction recorded on February 11, 1965, was a partition or a gift concerning the shares allotted to the assessee's two sons. The Gift Tax Officer (GTO) viewed the transaction as a gift by the assessee to his children in the guise of a partition and issued a notice to furnish the gift-tax return. The assessee contended that the property was joint family property partitioned according to Hindu law. The Appellate Assistant Commissioner (AAC) reversed the GTO's decision, holding that the transaction was a partition concerning the two sons but a gift concerning the daughter. The Tribunal upheld the AAC's finding, stating that the Cutchi Memons in Travancore are governed by Hindu law in all matters, including property distribution. The court, however, disagreed with the Tribunal's view that the Cutchi Memons were governed by Hindu law in all matters. It held that the Hindu law applied only in matters of inheritance and succession. As there was no proof of any custom or usage making Hindu law applicable in other matters, the court concluded that the transaction was not a partition but a gift concerning the shares allotted to the two sons. Conclusion: The court answered the questions referred in the negative, in favor of the revenue and against the assessee, concluding that the Cutchi Memons in Travancore are governed by Hindu law only in matters of inheritance and succession, and the transaction recorded on February 11, 1965, was a gift concerning the shares allotted to the two sons. There was no order as to costs.
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