2005 (5) TMI 249 - AT - Income Tax

Summary

Issues Involved:
1. Whether the relinquishment of capital by Miss Priti Shah in favor of her brothers amounts to a gift under sections 2(xii) and 4 of the Gift Tax Act.
2. Whether the declaration made by Miss Priti Shah is exempt under section 5(1)(x) and/or 5(1)(xi) of the Gift Tax Act.

Issue-wise Detailed Analysis:

1. Relinquishment of Capital:
The Department contended that the declaration by Miss Priti Shah, who decided to renounce the world and become a 'Sadhvi', amounted to a gift under sections 2(xii) and 4 of the Gift Tax Act. The Assessing Officer found that the transfer of her capital in four firms to her brothers constituted a gift and levied gift tax accordingly. The CIT (Appeals) overturned this decision, holding that the act of renunciation and the subsequent declaration did not fall within the purview of section 2(xii) of the Gift Tax Act as it was akin to a civil death under Hindu Law. The Tribunal upheld the CIT (Appeals)'s decision, agreeing that the declaration was a unilateral act in contemplation of civil death and thus not a taxable gift.

2. Exemption under Section 5(1)(x) and/or 5(1)(xi):
The Department argued that the declaration should be considered a gift deed and thus taxable. The assessee's representative countered that the declaration was more akin to a will or a document made in contemplation of death, which is exempt under section 5(1)(x) and 5(1)(xi) of the Gift Tax Act. The Tribunal found that under Mulla's Hindu Law, renouncing the world and becoming a 'Sanyasi' is equivalent to a civil death, and the declaration was made in anticipation of this civil death. Therefore, the transaction was exempt from gift tax under the mentioned clauses.

Separate Judgment Analysis:

Judicial Member's View:
The Judicial Member opined that the declaration by Miss Priti J. Shah, who renounced the world and became a 'Sadhvi', was a unilateral document similar to a will or a document made in contemplation of death. As per Mulla's Hindu Law, such renunciation amounts to civil death, and the declaration was made in anticipation of this. Hence, it did not fall within the purview of section 2(xii) of the Gift Tax Act and was exempt under clauses (x) and (xi) of section 5 of the Gift Tax Act.

Accountant Member's View:
The Accountant Member disagreed, stating that the declaration was a statement of intent and there was no evidence that Miss Priti J. Shah had actually taken sanyas. He argued that the transfer of property was effective from 31-12-1990, before the declaration was made, and thus could not be considered a will. He emphasized that the exemption under section 5(1)(x) and 5(1)(xi) applies only to gifts under a will or in contemplation of natural death, not civil death. Therefore, the declaration did not qualify for exemption, and the relief given by the CIT(A) should be vacated, restoring the order of the Assessing Officer.

Third Member's Decision:
The Third Member, considering the difference of opinion, concluded that the declaration dated 14-1-1991 was effective immediately and constituted a transfer of property in praesenti. The declaration was not a will as it became operative before Miss Priti J. Shah renounced the world. The Third Member agreed with the Accountant Member that the declaration was a taxable gift under section 2(xii) of the Gift Tax Act, and thus, the order of the CIT(A) should be set aside, restoring the order of the Assessing Officer.

Final Order:
The appeal by the revenue was allowed, and the order of the Assessing Officer was restored, concluding that the declaration made by Miss Priti J. Shah amounted to a taxable gift under section 2(xii) of the Gift Tax Act and was not exempt under section 5(1)(x) and/or 5(1)(xi).