1970 (5) TMI 15 - HC - Income Tax

Partners made gift to their wives who in turn advanced to the firm - Tribunal was not justified in holding that the gifts were to the detriment of the interest of the respective minors and not within reasonable limits in view of the provisions of the Hindu Minority and Guardianship Act, 1956 - Tribunal was not justified in holding that the gifts were void at law

Summary

Issues:
1. Validity of gifts made by kartas to their wives under Hindu law.
2. Deduction of interest paid by the assessee-firm to wives of kartas.
3. Interpretation of provisions of Hindu Minority and Guardianship Act in relation to gifts made by kartas.

Analysis:
1. The case involved gifts made by two kartas of a Hindu undivided family to their wives, which were challenged for being detrimental to the interests of minors and exceeding reasonable limits under the Hindu Minority and Guardianship Act. The Tribunal held the gifts void, considering them against the Act's provisions prioritizing the interests of minors. However, the High Court emphasized that a father has the power to gift ancestral property within reasonable limits without sons' consent, as established in various legal precedents. The Court highlighted that gifts exceeding reasonable limits are voidable, not void, and can be challenged only by affected family members.

2. The assessee-firm claimed a deduction for interest paid to the wives of the kartas, which was initially allowed by the Appellate Assistant Commissioner but reversed by the Income-tax Appellate Tribunal. The Tribunal's decision was based on deeming the gifts void, leading to the disallowance of the interest deduction. However, the High Court clarified that the gifts were within the kartas' powers if within reasonable limits, and the burden of proving excess fell on the revenue. Insufficient evidence was presented to establish the gifts exceeded reasonable limits, leading the Court to reject the revenue's claim.

3. The Tribunal's decision was also challenged concerning the interpretation of sections 8 and 13 of the Hindu Minority and Guardianship Act in relation to the gifts made by the kartas. The High Court ruled that the Act's provisions did not apply to the gifts in question, as the powers of natural guardians do not extend to undivided interests in coparcenary property. The Court emphasized that the Act's emphasis on the minor's welfare in appointing guardians was not relevant in this case. Consequently, the High Court answered all three questions in the negative, affirming the validity of the gifts and the entitlement to the interest deduction, with costs awarded to the assessee.