1991 (7) TMI 68 - SC - Income Tax

Whether the gift of movables valued at ₹ 67,578 is not a gift made in contemplation of death within the meaning of section 5(1)(xi) of the Gift-tax Act, 1958? Held that - the recitals in the deed of gift are not conclusive to determine the nature and validity of the gift. The party may produce evidence aliunde to prove that the donor had gifted the property when he was seriously ill and contemplating his death with no hope of recovery. These factors, in conjunction with the factum of death of the donor, may be sufficient to infer that the gift was made in contemplation of death. It is implicit in such circumstances that the donee becomes the owner of the gifted property only if the donor dies of the illness and if the donor recovers from the illness, the recovery itself operates as a revocation of the gift. It is not necessary to state in the gift deed that the donee becomes the owner of the property only upon the death of the donor. Nor is it necessary to specify that the gift is liable to be revoked upon the donor s recovery from the illness. The law acknowledges these conditions from the circumstances under which the gift is made. Thus it can be reasonably concluded that the gift was not absolute and irrevocable. On the contrary, it will be legitimate to infer that the gift was in contemplation of death. The only limitation under the Mahommedan law is that the disposition is restricted to a third on account of the right of the heirs. A Marz-ul-maut gift cannot, therefore, take effect beyond a third of the estate of the donor after payment of funeral expenses and debts unless the heirs give their consent after the death of the donor, to the excess taking effect. Whether there is any such consent given in this case by his heirs is the subject-matter of enquiry to be made by the Tribunal. It may be stated that the second question referred to the High Court relates to the validity of the gift beyond a third of the estate of the donor. On that question, the High Court has not expressed any view and it has directed the Tribunal to consider that issue afresh. Appeal dismissed.

Summary

Issues Involved:
1. Whether the gift of movables valued at Rs. 67,578 is a gift made in contemplation of death within the meaning of section 5(1)(xi) of the Gift-tax Act, 1958.

Issue-wise Detailed Analysis:

1. Whether the gift of movables valued at Rs. 67,578 is a gift made in contemplation of death within the meaning of section 5(1)(xi) of the Gift-tax Act, 1958:

The facts of the case reveal that Abdul Karim Mohammed executed a document styled as a "settlement will" gifting certain movables to the assessee-respondent, valued by the Gift-tax Officer at Rs. 67,578. The document was executed on April 24, 1964, while the donor was seriously ill and he died of the illness after about six weeks. The assessee claimed exemption under section 5(1)(xi) of the Gift-tax Act, which exempts gifts made in contemplation of death from being charged under the Act.

The Gift-tax Officer rejected the claim, but the Appellate Assistant Commissioner allowed the exemption, citing the circumstances of the gift and the subsequent death of the donor. The Tribunal affirmed the factual findings but did not agree with the exemption, stating that two other conditions must be satisfied: delivery of possession and the gift being conditional on the donor's death.

The High Court, however, opined that it is not necessary for the deed to explicitly state that the property would revert to the donor if he recovered from the illness. This condition could be inferred from the circumstances. The High Court relied on affidavits from the Sub-Registrar and the doctor to conclude that the donor was seriously ill and expected to die shortly, thus making the gift in contemplation of death.

The Supreme Court examined the statutory provisions, particularly section 5(1)(xi) of the Gift-tax Act and section 191 of the Indian Succession Act, which defines gifts made in contemplation of death. The Court outlined the requirements of such gifts: the gift must be of movable property, made in contemplation of death, the donor must be ill and expect to die shortly, possession must be delivered to the donee, and the gift does not take effect if the donor recovers.

The Court noted that all conditions except the last one were met. The Court emphasized that the recitals in the deed are not conclusive and that evidence can be produced to prove the donor's state of mind and circumstances. The Court referred to legal principles stating that the conditional nature of the gift is implied if made during the donor's last illness and in contemplation of death.

The Court also addressed the argument that section 191 of the Indian Succession Act does not apply to marz-ul-maut gifts under Mahomedan law. The Court clarified that the exemption under section 5(1)(xi) applies if the gift meets the conditions of section 191, regardless of personal law. The Court noted that marz-ul-maut gifts have similar conditions and are subject to strict scrutiny.

The Court concluded that the gift in question was made in contemplation of death and thus entitled to exemption under section 5(1)(xi). The appeal was dismissed, and the High Court's view was upheld.

Conclusion:

The Supreme Court upheld the High Court's decision, affirming that the gift of movables valued at Rs. 67,578 was made in contemplation of death and thus exempt from gift-tax under section 5(1)(xi) of the Gift-tax Act, 1958. The appeal was dismissed with costs.