1978 (9) TMI 117 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the gift under the Gift-tax Act, 1958.
2. Requirement of acceptance by the donee for the gift to be taxable.
3. Deduction of liabilities from the value of the gift.

Detailed Analysis:

1. Validity of the Gift under the Gift-tax Act, 1958:
The primary issue was whether the gift of the property at No. 3, Pachiappa's Hostel Road, Madras, executed by the assessee in favor of her son, was valid under the Gift-tax Act, 1958. The assessee executed a deed of settlement on 8th August 1972, transferring the property to her son. However, the son did not accept the gift, and the property remained under the control of the assessee. The deed of settlement was later revoked on 10th April 1975.

The AAC concluded that there had been no gift of the property in question, citing the lack of acceptance by the donee and the continued possession and control by the assessee. The Tribunal had to decide whether the execution and registration of the deed of settlement alone constituted a valid gift under the Gift-tax Act.

2. Requirement of Acceptance by the Donee for the Gift to be Taxable:
The Tribunal examined whether acceptance by the donee is necessary for a gift to be taxable under Section 3 of the Gift-tax Act, 1958. The Judicial Member concluded that acceptance was not necessary for taxability under the GT Act, while the Accountant Member held that acceptance was essential for the property to vest in the donee and constitute a valid gift.

The Tribunal referred to the definitions in the Gift-tax Act and the Transfer of Property Act. Section 122 of the Transfer of Property Act requires acceptance by the donee for a gift to be complete. The Tribunal emphasized that a bilateral element is essential for a valid gift, and without the donee's acceptance, the gift remains incomplete and non-taxable.

3. Deduction of Liabilities from the Value of the Gift:
The assessee claimed deductions for liabilities and basic exemption against the aggregate value of the gift. The GTO allowed only an exemption under Section 5(2) of Rs. 5,000 and did not consider the liabilities. The AAC suggested that if there was a gift, the value of the liability charged on the property (amount due to Sudersan Chit Funds) should be allowed as a deduction.

Conclusion:
The Tribunal concluded that for a gift to be taxable under Section 3 of the Gift-tax Act, 1958, it is necessary that the gift should have been accepted by the donee. The absence of acceptance by the donee renders the gift incomplete and non-taxable. The case was referred back to the original Bench for further proceedings based on this conclusion.