1989 (11) TMI 116 - AT - Income Tax

Summary

Issues Involved:

1. Whether the revocable gift made by the assessee is liable to gift-tax.
2. Validity of the gift under the Transfer of Property Act.
3. Applicability of Section 6(2) of the Gift-Tax (GT) Act and Rule 11 of the GT Rules.

Detailed Analysis:

1. Liability of the Revocable Gift to Gift-Tax:

The primary question in this appeal is whether the revocable gift made by the assessee to M/s. M&L Investment Pvt. Ltd. is liable to gift-tax. The assessee transferred jewellery valued at Rs. 7.5 lakhs with conditions including a right to revoke the transfer after 74 months. The Gift-Tax Officer (GTO) considered this transfer as a gift under Section 2(xii) and a transfer of property under Section 2(xxiv) of the GT Act, thus liable for gift-tax. The GTO computed the value of the jewellery at Rs. 14,68,000 and levied tax on Rs. 15,40,000.

2. Validity of the Gift under the Transfer of Property Act:

The assessee contended that the gift is void as it is revocable, offending Section 126 of the Transfer of Property Act. The Commissioner(A) accepted this argument, holding that the gift is void and thus not subject to gift-tax. The Commissioner(A) did not address the valuation of the gift or the applicability of Section 6 of the GT Act and Rule 11 of the GT Rules due to this finding.

3. Applicability of Section 6(2) of the GT Act and Rule 11 of the GT Rules:

The Revenue appealed to the Tribunal, arguing that the transfer does amount to a gift. The Tribunal examined the provisions under Section 6(2) of the GT Act, which deals with gifts that are not revocable for a specified period, and Rule 11 of the GT Rules, which pertains to the valuation of such gifts. The Tribunal noted that the Bombay High Court in CGT vs. Dr. R.B. Kamdin held that irrevocability is an essential feature of a gift under the GT Act, but this does not apply to trusts under the Indian Trusts Act.

The Tribunal concluded that the gift in question, which is revocable after 74 months, falls under Section 6(2) of the GT Act. The donor had divested herself of the jewellery for at least 74 months, making it a gift revocable after a certain period. Therefore, the value of such a gift should be computed according to Rule 11 of the GT Rules.

Conclusion:

The Tribunal set aside the orders of the GTO and the Commissioner(A). It directed the GTO to apply Section 6(2) of the GT Act to the gift in question and determine its value by applying Rule 11 of the GT Rules. The assessee was allowed to raise all contentions relating to the value of the gift before the GTO. The appeal of the Revenue was allowed for statistical purposes.