1968 (8) TMI 31 - HC - Income Tax

Gift Tax Act, 1958 - Whether section 5(1) of GT Act, 1958 is applicable and the allowance could be granted in respect of immovable property - Held no

Summary

Issues:
1. Whether the assessee was liable to gift-tax?
2. Whether the sum representing the value of immovable properties in Malaya is exempt from taxation under section 5(1) of the Gift-tax Act?

Analysis:

Issue 1: Liability to Gift-tax
The case involved a partition between the assessee and his minor son, resulting in the transfer of family assets. The Gift-tax Officer taxed the residue transferred to the son as a gift. The Appellate Assistant Commissioner agreed but exempted immovable properties outside India. The Tribunal upheld the exemption, emphasizing that the share in a foreign firm did not constitute immovable property. The High Court referred to A. Narayanappa v. B. Krishnappa, stating that a partner's share in a firm does not equate to ownership of specific assets. The Court held that the exemption under section 5(1) was not applicable, as the family's share in the foreign firms did not represent direct ownership of immovable properties.

Issue 2: Exemption of Immovable Properties
The Court further analyzed if the partition deed constituted a transfer of the assessee's half share to the son. Drawing from Commissioner of Income-tax v. Getti Chettiar, the Court determined that the division of assets did not amount to a gift. The revenue argued for an outright transfer post a division in status, but the Court found the partition deed did not support this interpretation. The deed indicated a simultaneous division in status and assets, negating the revenue's claim. Consequently, the Court ruled in favor of the revenue on the second issue, denying the exemption for the immovable properties in Malaya.

In conclusion, the Court held against the revenue on the liability to gift-tax but in favor of the revenue on the exemption of immovable properties. The judgment clarified the distinction between a partner's share in a firm and direct ownership of assets, emphasizing that the former does not automatically entail ownership of specific properties. The Court also emphasized the importance of analyzing the terms of a partition deed to determine the nature of asset transfers.