1982 (10) TMI 77 - AT - Income Tax

Summary

Issues Involved:
1. Whether the transfer of Rs. 10,00,000 to the assessee's son and wife by creating trusts was exempt under the provisions of Section 5(1)(xvi) of the Gift Tax Act.
2. Whether the transfer of agricultural lands to the assessee's family members constituted a gift and was taxable under the Gift Tax Act.
3. Determination of whether the privy purse and agricultural lands were joint family properties.
4. Whether the transfers made by the assessee were family arrangements and thus not subject to gift tax.

Issue-wise Detailed Analysis:

1. Exemption of Rs. 10,00,000 under Section 5(1)(xvi) of the Gift Tax Act:
The assessee claimed exemption for the transfer of Rs. 10,00,000 under Section 5(1)(xvi) of the Gift Tax Act, which allows exemptions for gifts made out of the privy purse for the maintenance of dependents or for performing official ceremonies. The Gift Tax Officer (GTO) denied the exemption, arguing that the assessee did not provide sufficient evidence that the gifts were made out of the privy purse and that the gifts were neither for maintenance nor official ceremonies.

The CIT(A) verified the bank account details and confirmed that the gifts were indeed made out of the privy purse. However, he concluded that only Rs. 4,00,000 was exempt, as it was reasonable for the maintenance of the assessee's wife and son, while the remaining Rs. 6,00,000 was taxable.

2. Taxability of Agricultural Lands as Gifts:
The GTO included the value of the agricultural lands transferred to the assessee's family members in the taxable gifts, arguing that the transfer of land did not amount to maintenance but was a parting with an asset. The CIT(A) held that the agricultural lands were part of the joint family property (HUF) and thus, the transfer did not constitute a gift under the Gift Tax Act.

3. Determination of Joint Family Properties:
The Tribunal examined the historical context of the privy purse and the agricultural lands, referring to the "Dastur-ul-Amal" and the covenant dated 5th May 1948. It concluded that the privy purse was a quid pro quo for the surrender of ruling powers and was intended to cover the expenses of the ruler and his family. The privy purse and the agricultural lands were considered joint family properties, governed by the rule of primogeniture and the prevalent customs.

4. Family Arrangements and Gift Tax:
The Tribunal found that the transfers of Rs. 10,00,000 and the agricultural lands were family arrangements of the joint family properties. It held that these transfers did not constitute gifts under the Gift Tax Act, as they were made by the Karta of the HUF for the support and maintenance of family members. The Tribunal relied on the Supreme Court's judgment in CGT vs. N.S. Getti Chettiar, which held that partition by a Hindu family does not effect any transfer as understood in law and does not fall within the definition of a gift.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the transfers of Rs. 10,00,000 and the agricultural lands were family arrangements of joint family properties and thus not subject to gift tax. The revenue's appeal was dismissed, and the CIT(A)'s order was reversed to the extent it held Rs. 6,00,000 as taxable.