1965 (1) TMI 2 - HC - Income Tax

Gift-tax Act, 1958 - Whether the gift made by Sri Vadrevu Venkappa Rao who is a karta of the Hindu undivided family to his wife of a part of the Hindu undivided family property is exempt under section 5(1)(viii) of the Act ? Question answered in the affirmative in favour of the assessee

Summary

Issues:
1. Whether a gift made by a karta of a Hindu undivided family to his wife of a part of the family property is exempt under section 5(1)(viii) of the Gift-tax Act.

Analysis:
The case involved a question referred under section 26(1) of the Gift-tax Act, 1958, regarding the exemption of a gift made by a karta of a Hindu undivided family to his wife. The assessee had gifted land to his wife, claiming exemption under section 5(1)(viii) of the Act. However, the Gift-tax Officer denied the exemption due to the donor being a Hindu undivided family. The Tribunal also rejected the exemption, stating that gifts by a Hindu undivided family to wives are not covered under the said section. The assessee argued that the gift should be treated as an individual gift, not a family gift, and thus, should be exempt. The court analyzed the provisions of section 5(1)(viii) and the definition of "person" under section 2(xviii) to determine eligibility for exemption.

The court rejected the department's argument that gifts by individuals from Hindu joint family property are excluded from the exemption under section 5(1)(viii). It emphasized that members of a Hindu joint family have individual rights in the joint family property, allowing them to gift such property to their spouses. The court focused on the nature of the gift and the construction of the deed to ascertain if it was a gift inter vivos. It referenced a similar case where a gift by a manager of a joint Hindu family to his wife was considered a gift by a person to his spouse under section 5(1)(viii), irrespective of his family status. The court concluded that the gift in question was made by the individual, not the Hindu joint family, and thus, qualified for exemption under section 5(1)(viii).

In alignment with previous judicial interpretations, the court held that the capacity in which the gift was made, i.e., as an individual or a family member, determines the applicability of the exemption. It emphasized that the wording of the gift deed and the intent behind the gift are crucial factors in deciding the eligibility for exemption under section 5(1)(viii). The court clarified that the gift by the karta of the joint family was a personal gift to his wife, not a gift by the Hindu joint family itself. Therefore, the court answered the question in the affirmative, in favor of the assessee, allowing the exemption claimed under section 5(1)(viii) of the Gift-tax Act.