1985 (1) TMI 102 - AT - Income Tax

Summary

Issues Involved:

1. Validity of the gift made by the Karta of the HUF.
2. Whether the transaction was a family arrangement or a gift.
3. Obligation to maintain and educate daughters out of HUF property.
4. Applicability of exemption under section 5(1)(xii) of the Gift-tax Act.
5. Misapplication of section 6A of the Gift-tax Act.

Detailed Analysis:

1. Validity of the Gift Made by the Karta of the HUF:

The primary issue was whether the gift of Rs. 3 lakhs made by the Karta (Shri S.N. Malhotra) to his three daughters was valid. The assessee contended that the gift was void ab initio as the Karta had no right to alienate the HUF property. The Tribunal noted that under the Mitakshara law, a sole surviving coparcener has the absolute right to dispose of the joint family properties as if they were his separate properties. The Tribunal cited the Supreme Court's decision in Guramma Bhratar Chanbasappa Deshmukh v. Mallappa Chanbasappa, which held that a sole surviving coparcener could alienate the family property, including by way of gift. Therefore, the Tribunal concluded that the gift was not void.

2. Whether the Transaction was a Family Arrangement or a Gift:

The assessee argued that the transaction was a family arrangement and not a gift. The Tribunal examined the declaration made by the Karta and noted that the Karta had the right to effect a partial partition through a family arrangement. The Tribunal relied on the Supreme Court's decision in Apoorva Shantilal Shah v. CIT, which held that a father could unilaterally effect a partial partition of joint family properties. The Tribunal also referred to the decision in CIT v. Narain Dass Wadhwa, which supported the view that a sole surviving coparcener could validly effect a partial partition through a family arrangement. The Tribunal concluded that the transaction was indeed a family arrangement and not a gift.

3. Obligation to Maintain and Educate Daughters out of HUF Property:

The Tribunal considered whether the Karta was obliged to maintain and educate his daughters out of the HUF property. The Tribunal referred to the Hindu Adoptions and Maintenance Act, which includes education as part of maintenance. The Tribunal also cited the decisions in CGT v. Basant Kumar Aditya Vikram Birla and M. Radhakrishna Gade Rao v. CGT, which held that a HUF has a legal obligation to incur expenses for the education and maintenance of unmarried daughters. The Tribunal concluded that the Karta was within his legal rights to set apart Rs. 3 lakhs for the education of his daughters, and this did not constitute a gift.

4. Applicability of Exemption under Section 5(1)(xii) of the Gift-tax Act:

The assessee claimed that even if the transaction amounted to a gift, it was exempt under section 5(1)(xii) of the Gift-tax Act. However, since the Tribunal held that the transaction was a family arrangement and not a gift, this issue did not arise for consideration.

5. Misapplication of Section 6A of the Gift-tax Act:

The assessee raised a ground that the Commissioner (Appeals) erred in not adjudicating on the misapplication of section 6A of the Gift-tax Act. The Tribunal noted that this ground did not arise out of the order of the Commissioner (Appeals) and rejected it.

Conclusion:

The Tribunal annulled the assessment and allowed the appeal, holding that the transaction was a family arrangement and not a gift, and thus not liable to gift-tax.