9911796707
TMI Blog1969 (12) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... into the common hotchpot of the joint family and impresses the same with the character of joint family property. As conflicting views on the question are found expressed in different High Courts, the matter has been placed before a Full Bench. In T.C. No. 272 of 1964 the reference has been obtained by the Commissioner of Gift-tax, Madras. The assessee in that case who had four sons, two of them minors, by a deed dated May 21, 1958, drawn in the form of an affidavit, made a declaration, the relevant portion of which runs : " The properties inherited and acquired by me from my professional earnings are in my possession. The properties inherited by me and income derived therefrom have been small and the other properties were acquired from my own earnings...... I therefore hereby express my intention and declare that myself and my aforesaid four sons do constitute a joint Hindu family from this 21st day of May, 1958, and that all properties consisting of movables, immovables, bank deposits, shares, mortgage debt, pronote debts standing either solely in my name or solely in the name of Sri R. Rangarajan or jointly in my name and that of my son, Sri R. Rangarajan, or in the name of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Assistant Commissioner, and the Tribunal, following the decision of the Andhra Pradesh High Court in Commissioner of Gift-tax v. Satyanarayanamurthy, allowed the appeal and confirmed the assessment of the Gift-tax Officer. The Tribunal, on the application of the assessee, has referred the question of law. The petitioners in W. P. Nos. 1833 and 1834 of 1965 came up to this court earlier for the issue of writs of mandamus or any other appropriate writ, when they were called upon to make returns under the Gift-tax. Act. The declarations made by the assessees in these cases are straight and, simple. The assessee, in each case, after setting out his exclusive right to the assets in question, stated : " I hereby declare that from this day onwards all the aforesaid properties have become the properties of the Hindu undivided family consisting of myself and my sons. All the aforesaid wealth and properties have been entered into the accounts of the Hindu undivided family consisting of myself and my sons. " This court dismissed the petitions for mandamus observing that the petitioners were at liberty to file writs of certiorari or seek other remedy in the event of the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inition of gift conforms to the definition of " gift " under section 122 of the Transfer of Property Act, that it is a transfer of existing movable or immovable property, made voluntarily and without consideration by one person called the donor to another called the donee. An essential element of " gift " defined under the Act, as under the general law, is the absence of any consideration. The main definition of " gift " in the Act emphasises that the consideration which will vitiate a transfer as a gift is the consideration in money or money's worth. The material part of section 4 of the Act, which contains the deemed gifts we have to refer, runs as follows : " 4. For the purposes of this Act,- (a) where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor ;... (d) where a person absolutely entitled to property causes or has caused the same to be vested in whatever manner in himself and any other person jointly without adequate consideration and such other person makes an appropriation from o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case, it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions. " That Parliament here intended not to restrict the scope of the expression " tranfer of property " by using the words " means and includes " is apparent from the words used in the main part of the definition and what it meant to include, in the sub-clauses. In Craies on Statute Law, 6th edition, at page 212, it is pointed out that, when the definition contains the words " mean and include ", it inevitably raises a doubt as to interpretation. The doubt, if any, is resolved by the contents of the inclusive clauses, like charge, licence and power, which are far from transfers of property, and the words " without limiting the generality of the foregoing ". The phrase " without limiting the generality of the foregoing " brings out clearly that that the definition is not intended to be restricted. The effect of the phrase is that the different clauses which are included under the sub-clauses do not, by any implication, limit the generality of the words used in the main part of the definition. But this is not to widen the scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of " transfer of property " in section 2(xxiv) and on sub-clauses (b) and (d) of section 2(xxiv), particularly, sub-clause (d). Alternatively, the revenue relies on the deemed gifts found in sub-clauses (a) and (d) of section 4. Having regard to the peculiar doctrines of Hindu law involved in the matter, it is not surprising that the attempt to fit them into modern legal concepts and language of statutes borrowed from jurisdiction where the prevalent system of jurisprudence has little relation to the personal law of Hindus, has led to divergence of judicial opinion. The definition of " transfer of property " under section 2(xxiv) is taken practically word for word from section 4 of the Gift Duty Assessment Act 1941-42, of the Commonwealth of Australia, section 2(xxiv) being identical with and a verbatim reproduction of section 4(f) of the Australian Gift Duty Assessment Act. In order to determine whether there is any transfer of property when a Hindu father throws his self-acquisition into the hotchpot of joint family property or, as it is commonly called, in blending, we consider it necessary first, to examine the true nature of the process by which the character of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty belonging to him the character of joint family property. No formalities are necessary in order to bring this about and the only question is one of intention on the part of the owner of the separate property to abandon his separate rights and invest it with the character of joint family property. " These principles were applied by the Andhra Pradesh High Court in Sadasiva Vital v. Rattalu. Decisions thus establish that the two essential requisites for the conversion are : (1) the existence of a coparcenary and (2) the deliberate intention formed by the coparcener owning separate property to treat the same as joint family property. This intention may manifest itself in any form, such as by a statement in a deposition, an affidavit, execution of a document as a declaratory deed, or by course of conduct. What transforms the separate property into joint family property is not the outward act or the conduct or the public declaration of the coparcener owning the separate property, but his intention to so treat it the intention of the coparcener who ownes the separate property to waive and surrender his special rights in the property as separate property. The outward acts are mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word. But, under the definition of " gift ", " disposition " of property even in its most extended sense has to be by one person to another, for the definition of " gift " requires that the transfer must be " by one person to another. " It is an essential limb of the definition of " gift. " Every " gift " under the Act (we are now not on the deemed gifts), has to satisfy all the requirements of section 2(xii) ; only where the context permits, the special meanings of some of the expressions used in the definition of " gift " have to be read into the definition ; these expressions alone get amplified in their coverage. The rest of the definition of " gift " stands. The definition contemplates a bilateral transaction between the doner and donee. It is urged for the revenue that as in blending property that belonged to the individual coparcener as his separate property is made over to another person, the undivided Hindu family, it can well be said that there is a disposition or transfer of property by one person to another. There are two obstacles in the way of accepting this argument. First, the change in the character of the property is brought about wholly by the intention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal debt not contracted for immoral purposes, alienate family property ; also by incurring such debt lay the family estate open to be taken in execution proceedings upon a decree for payment of that debt. Only he cannot claim to have, till disruption, a specified share in the property. His interest in his erstwile separate property would extend to the whole of the property even as of the other coparceners, for the interest of every coparcener extends over the whole of the joint family property. In words which have become classic Lord Westbury, referring to the mode in which the joint family property is to be enjoyed, said in Appovier v. Rama Subba Aiyan. " According to the true notion of an undivided family in Hindu law, no individual member of that family, whilst it remains undivided, can predicate of the joint and undivided property, that he, that particular member, has a certain definite share. " In Katama Natc0hiar v. Rajah of Shivagunga, Turner L.J. referred to the property as " the common property of a united family " and observed : " There is community of interest and unity of possession between all the (coparceners) members of the family, and upon the death of any one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arcenary are pooled with the joint family property and partitioned, there are three distinct stages. First, the self-acquired property of the coparcener is impressed with the character of the joint family property of the coparcenary. The next stage is the disruption of the coparcenary. The members thereafter become divided in status. The next stage after that is the actual division between the divided members of what had been the property of the joint family ...... Obviously, no question of transfer of assets can arise when all that happens is separation in status, though the result of such severance in status is that the property hitherto held by the coparcenary is held thereafter by the separated members at tenants-in-common. Subsequent partition between the divided members of the family does not amount either to a transfer of assets from that body of the tenants-in-common to each of such tenants-in-common. We, therefore, come back to the question, was there a transfer to the coparcenary from the coparcener, that is, in this case was there a transfer from the assessee of his self-acquired properties to the coparcenary of which he was the karta ? ' Severance in status with the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property. The same may be said to be transferred from the assessee, the individual, to the Hindu undivided family. " In that case, it was held that the transfer was to the undivided family, as an assessable unit, that there was no transfer, direct or indirect, within the meaning of section 16(3)(a) of the Income-tax Act to the wife or minor child who may be a member of the Hindu undivided family, and that a subsequent transfer as a result of partition could not be regarded as a transfer by the individual to his wife or minor child. M. K. Stremann's case and Keshavlal Lallubhai Patel's case were taken up in appeal to the Supreme court by the revenue. In Commissioner of Income-tax v. Keshavlal Lallubhai Patel, the appeal from the decision of the Gujarat High Court, observing that on the question whether the act of throwing self-acquired property into the hotchpot is a transfer of property or not, there is some difference of opinion, the Supreme Court proceeded on the view that it was unnecessary to settle the controversy in that case. Holding that a partition of joint Hindu family property would not be a transfer, the case was decided against the revenue. In the appeal against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng his own life as well as after his death. " In that case the question whether there was a transfer in the sense we are here called upon to decide was not present. It was immaterial for the purposes of that case how the change was brought about. The case arose under the Oudh Proclamation of 1958, the Hindu Wills Act I of 1869 and under the Sunnud and Summary Settlements made by the Government with a member of an undivided Hindu family. The contention raised was about the factum and validity of the conversion of property acquired under the settlements into the property of the joint family, not the manner in which the change was brought about. While examining the true character of blending under the Gift-tax Act, the Andhra Pradesh High Court, in Commissioner of Gift-tax v. V. C. Satyanarayanamurty, expressed its inclination to agree with the view of the Gujarat High Court in Keshavlal Lallubhai Patel's case, in preference to that of this court in M. K. Streman's case. The learned judges, however, considered it unnecessary to express any final opinion on this aspect of the matter, in the view that the conversion of separate property into joint family property would fall under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are in entire agreement with the reasoning of the learned judges of this court in M. K. Stremann's case. May be, the question arose then for consideration, under section 16(3)(a) of the Income-tax Act and the word " transfer " there, has been used in the strict sense and no in the popular sense of including every " means by which property may be passed from one person to another ". But the reasoning of the learned judges in M. K. Stremann's case, is general, and shows that the elements which would constitute transfer or disposition, even as popularly understood, are wanting in the conversion of self-acquired property into joint family property. It is now firmly established that a partition in a joint Hindu family is not a transfer of property. Before us, there has been no contention that, for the purpose of the Gift-tax Act, a partition of joint family property would be a transfer. Under the gift-tax itself, in Commissioner of Gift-tax v. Getty Chettiar, a Division Bench of this court, to which one of us was a party, held that partition between members of a Hindu joint family does not involve any " transfer of property from one member to the other or others ". On partition, cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for the father has an independent power over it or a predominant interest. The son's right by birth does not, therefore, extend to his enforcing a partition or interdicting an alienation of his father's property. The right, however, remains a real birthright, though dormant, and enables the son to succeed to the property by survivorship or as apratibandhadaya. " (Mayne's Hindu Law, 11th edition, at page 336). With the father having absolute power of disposition inter vivos or testamentary in respect of his self-acquisition and with no power in the son to interdict any alienation or disposition or call for partition, the son's interest is next to nothing. But the right is real. It lies dormant. It is this dormant right which the undivided sons have in their father's property that entitles them to take the self-acquired property of the father as coparceners to the exclusion of a divided son. Juridically it must be this dormant birthright, that enables the father at his pleasure without formalities to deny to himself, his independent power or predominant interest and look upon the property as the property of the family. Mr. V. Balasubrahmanyan, learned counsel for the revenue, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as a positive rule of Hindu law, runs : " Although he (the son) has a right by birth in his father's and in his grandfather's property, still, since he is dependent on his father in regard to the paternal estate, and since the father has a predominant interest, as it was acquired by himself, the son must acquiesce in the father's disposal of his own acquired property but since both have indiscriminately a right in the grandfather's estate, the son has a power of interdiction if the father be dissipating the property. " In Muddun Gopal v. Ram Buksh, the learned judges attempted to reconcile the conflicting texts by regarding the right of the son in the self-acquired property of his father as an imperfect right incapable of being enforced at law. The injunction in section 1 of Chapter 1of Mitakshara against the father making an alienation without convening all his sons even with reference to the property acquired by the father himself, since they who are born, and they who are yet unbegotten, and they who are still in the womb, require the " means of support ", was regarded as a prohibition and not an absense of power to do the prohibited act. In Arunachala Mudaliar v. Marugan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the existence of the owner is an obstruction. In Lashminarasamma v. Rama Brahmam, referring to the true character of the interest which the son had in his father's self-acquired property, Rajamannar C.J. observed : " According to the Mitakshara, the son has a right by birth in every kind of property. This must always be borne in mind. Mr. Mayne evidently overlooked this in his argument in Jagampet case : Venkayamma v. Venkataramanayamma, when he cited the instance of sons taking the self-acquired property of the father as an instance of obstructed heritage (In Jagampet case, Lord Lindley, in delivering the judgment, apparently found the instance not satisfactory, for his Lordship observed : " but it may be that where sons succeed the inheritance as to them is unobstructed "). The description is extremely misleading, because it is neither heritage nor is it obstructed. The misconceptions prevailing in this branch of the Hindu law are mostly due to the mistake of equating the right by birth (Jenmanaiva swatwa) with equal ownership (sadrisam swamyam.) Though it is true that the son has a right by birth in all kinds of property belonging to the father, the amplitude of his ownershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the father to the effect, a resolve not to exercise his special rights over the property. There is only self-abnegation or denial to himself of his powers. There is no passing of property from the father to the son in this processs to make it a transfer of property by the father, however widely the word "transfer " is used. In the acquisition of full coparcenary rights by the son, what is nascent becomes active under the doctrines of Hindu law. True, the father's intention has to manifest itself. But, as it is the intention that matters, no formality is required and the mode in which the intention is manifested cannot alter the true nature of the process. The blending by a coparcener of his separate property may manifest itself " either by bringing his self-acquired property into the joint family account or by bringing joint family property into his separate account "---Rajanikanta Pal v. Jagamohan Pal. In the latter case, the manifested act is disposition from the family to the individual; but the result is the same. The change can be brought about by the father without any negotiation, consent, co-operation or bilateral dealings with other members of the family. The discussion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property jointly with the family. The fiction that the family is a person under the Act has to be maintained and fully worked out. The mind cannot be allowed to boggle midway. We have, therefore, no hesitation in overruling the applicability of sub-clauses (a) and (d) of section 4. There is no discussion in the decisions of the Andhra Pradesh High Court, cited above for their view that in blending there is a transfer which falls within section 4(d). Equally, in blending there is no transfer falling under section 2(xxiv)(b) which takes in as transfer of property the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property. Manifestly the rights contemplated in this clause are grant or creation of right in the property of the owner limiting the owner's general rights over the property, creation of rights in the nature of jure in re aliena. If at all there is a transfer, it is a transfer of the entire property to the joint family as an entity and not an interest in property. No residuary interest is retained by the father as personal property when he throws the property into the hotchpot of the family. We shall now take up for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound in Webster's Dictionary are : " Act : a communicative action or activity involving two parties or two things reciprocally affecting or influencing each other ". If the word " transaction " has stood by itself, there will be considerable force in the argument of learned counsel for the revenue, that formation of the intention to blend would be an act and so a transaction. But first the transaction has to conform to the definition of " gift " requiring a transfer by one person to another. Secondly, while in the context of its user and the definition of gift, the term " transaction " itself would have been sufficient to indicate that the transaction referred to is not an unilateral act, Parliament has made the position clear and removed ambiguity by the use of the words " entered into by any person ". When we speak of a transaction as entered into by any person, it can only be with some other person. The phrase " entered into " cannot be regarded as a superfluity and we find the High Court of Australia interpreting the identical language in the Australian Gift Duty Assessment Act, 1941-42, in the same way. Section 4 of the Australian Act reads : " ' Disposition of property ' me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholder in a company voted in favour of reducing the rate of dividend upon preference shares in order to allow the company to pay some dividends to ordinary shareholders it would be an unreal description of what took place to say that that fact showed that the preference shareholder had ' entered into a transaction '.............. It was suggested that even to abstain from voting against a resolution beneficial to a class of shareholders amounted to entering into a transaction within para. (f). All these contentions interpret the words ' enter into a transaction ' as if they had the same meaning as 'do an act or abstain from doing an act '. Such an interpretation gives no real effect to the words ' enter ' and ' transaction '. " In Gorton v. Commissioner of Taxation, also a case of manipulation in shares, the majority of judges expressed the view that section 4(f) of the Australian Act is framed to cover cases where the result of transfer of value is achieved by transactions involving modification, " pursuant to an agreed plan " of the rights of different classes of shareholders. It is manifest, therefore, that no " transaction " is entered into, according to the true meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word "estate" has been used instead of the word "property ". In Finch's case a husband and wife, with their children, lived together in a house which belonged to the wife; each had separate income. The husband paid to a builder with whom he had made a contract, about pound 2,000 for improvements and repairs to the house. A few months later the husband died. It was found that there was no reason to believe that the deceased would not enjoy the normal span of life or that he would necessarily pre-decease his wife, and that the transaction was not entered into with intent to diminish the value of the husband's estate, but that the object was simply to improve the family home in accordance with their means and station in life. On the findings, the Judicial Committee held, reversing the judgment of the Court of Appeal, that the payments to the builder did not constitute a gift to the wife of the deceased so as to be deemed to be part of the husband's estate for the purpose of the Death Duties Act. Their Lordships observed: " On the facts found here it seems to their Lordships quite plain that the payments to the builder were not referable to any intention of making a gift or improving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one person diminishes and the value of property held by another person increases. The donor's property remains where it was : no interest is carved and moved or passed out therefrom, but the effect intended by the transaction is to diminish the value of property, not necessarily of an item of property, in the hands of the donor, and increase the value of property of any other person. The language of the sub-clause does not suggest that in the transaction even an interest in property of one person, as such, passes to another person. The use of the expressions, " his own property " and " the property of any other person " with reference to diminishing and increasing, brings out this feature of the transaction sought to be caught in the net of taxation. It is significant that the word "interest" in property is carefully avoided in this sub-clause. A diminution in the value of property is not the same thing as deprivation of property. A man may hold on to his property and by market fluctuations its value may go down or go up. Such changes in value could certainly be deliberately brought about. Words in fiscal statutes must be given their proper meaning. We find the Australian High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the nephews, there was no change in their value. They acquired property for amounts which represented a mere fraction of their value, while what the definition requires, is an increase in the value of property in their hands. On the same reasoning, in blending there is no increase in the value of the property previously held by the undivided family, only property of another person is added to its asset. In Laxmibai Narayana Rao Nerlekar v. Commissioner of Gift-tax, the Mysore High Court, following certain observations in Grimwade's case, is of the view that the transaction described in sub-clause (d) of clause (xxiv) involves a transfer, the only extension of the idea of transfer which can be read into it being the interposition of a third person between the donor and the donee, serving as a conduit pipe through which property or interest in property passes from the donor to the donee. No doubt, it was said in Grimwade's case, that a transfer of property by A, not directly to another person, C, but through an intermediary B, where it was the intention that C should obtain the property without giving consideration, would be a transaction falling within paragraph (f). But clearly t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the observation in Grimwade's case, that paragraph (f) is intended to cover cases of transactions entered into with intent to diminish the value, not of some property which is transferred to another person, but of the donor's property in globo and to increase the value of the property, in globo, of another person. We are unable to see how this observation will help the revenue. The observation was made when discussing whether paragraph (f) is evidently intended to include within the scope of the Act transactions which do not consist in an actual transfer of property from a donor to donee. Learned judges point out that such latter transactions are dispositions of property within the meaning of other parts of the definition. The question in the context of the subject now under consideration is not, whether the value of the donor's property in globo, meaning thereby his estate is diminished and the value of property of another person increased in globo, meaning thereby the latter's estate, but whether the diminution has not been brought about by the donor parting with some property in the transaction and the other party acquiring property thereby taking the transaction out of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
