1968 (11) TMI 27 - HC - Income Tax

Whether the allotment of the properties to the adopted son under the deed constitutes a gift within the meaning of the GT Act - Held, yes - Whether the income from the properties in question can be included in the total income of the applicant u/s 16(3)(a)(iv) of the IT Act - Held, yes

Issues Involved:
1. Inclusion of income from properties in the total income under section 16(3)(a)(iv) of the Income-tax Act.
2. Inclusion of the value of properties in the net wealth under section 4(1)(a)(ii) of the Wealth-tax Act.
3. Whether the allotment of properties to the adopted son constitutes a 'gift' within the meaning of the Gift-tax Act.

Issue 1: Inclusion of Income from Properties in Total Income under Section 16(3)(a)(iv) of the Income-tax Act

The core question was whether the property subject to the partition deed was joint family property or separate property. The property was admittedly self-acquired by the father at the time of the alleged partition. The court examined whether the self-acquired property had been converted into joint family property. It is established under Hindu law that self-acquired property can be converted into joint family property through an unequivocal declaration of intention. However, the court found no evidence or declaration in the partition deed indicating that the self-acquired property was treated as joint family property. The deed merely stated that the adopted son was given a share in the self-acquired properties from the date of the deed. Consequently, the partition deed was deemed to operate as a gift rather than a partition of joint family property. Therefore, the income from the properties could be included in the total income of the assessee under section 16(3)(a)(iv) of the Income-tax Act.

Issue 2: Inclusion of the Value of Properties in the Net Wealth under Section 4(1)(a)(ii) of the Wealth-tax Act

Given the finding that the partition deed operated as a gift rather than a partition of joint family property, the value of the properties allotted to the adopted son was includible in the net wealth of the assessee under section 4(1)(a)(ii) of the Wealth-tax Act. The reasoning applied in the income-tax reference was also applicable to the wealth-tax reference.

Issue 3: Whether the Allotment of Properties to the Adopted Son Constitutes a 'Gift' within the Meaning of the Gift-tax Act

The court held that the partition deed, which purported to divide the self-acquired properties between the assessee and his adopted son, effectively amounted to a gift of the properties allotted to the adopted son. The Gift-tax Officer had assessed the transaction as a gift and levied gift-tax accordingly. The court found no grounds to question this assessment. Additionally, the assessee's contention that the minor did not have the benefit or enjoyment of the income from the properties was rejected. The court interpreted the relevant clause in the partition deed to mean that the guardian was required to manage the properties and accumulate the income for the minor, who would receive it upon attaining majority. This did not postpone the vesting of the property in the minor, and thus, section 16(3)(a)(iv) of the Income-tax Act was applicable.

Conclusion:

The court answered the questions in the affirmative and in favor of the department. The income from the properties could be included in the total income of the assessee, the value of the properties was includible in the net wealth of the assessee, and the allotment of properties to the adopted son constituted a gift within the meaning of the Gift-tax Act. The court also directed the office to register separate references under the Wealth-tax Act and the Gift-tax Act, treating the present reference as one under the Income-tax Act, and passed a consolidated order to dispose of all three references. The costs were awarded with one set of Rs. 250 as advocate's fee.

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