COMMISSIONER OF GIFT TAX Vs. K R KUMARAN

JUDGEMENT

(1.) AT the instance of the CGT, Ernakulam under s. 26(1) of the GT Act, 1958, answer to the following question is expected. 'Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that 'a father could lend money to his minor child and that the transaction made by the father in dual capacity is valid in law' ?' In other words the situation is as to whether father can lend money to his minor child, both as a contracting party for the loan and accepting party as the guardian - a dual capacity.

(2.) IT arises under the following circumstances. The assessee Shri K. R. Kumaran on 26th April, 1981 purchased a property in three names - his wife showing consideration of Rs. 30,000 his two minor sons showing consideration of Rs. 40,000 each. There is no dispute that the entire amount is assessees own money.

(3.) THE GTO, Palghat dealing with the situation of assessment for the year 1982 -83 considered the situation. He observed that the transaction of a loan implies an agreement to repay the money borrowed and its essence is a contract. He also observed that there can be no loan from a father to minor sons because such a transaction is clearly unenforceable. The officer observed that there cannot be any lawful agreement between the assessee father and his minor children as the children cannot be found to repay the amount borrowed from their father. The officer also observed that the transaction of loan by the father both in his individual capacity as the father as well as in his capacity as the guardian of the minor children would be incomprehensible. He observed that legal capacity cannot be equated with the legal personality, as a contract of loan requires two persons whereas the situation represents loan by a person to himself. He accordingly held that the transaction would have to be termed as a gift. Accordingly the GTO proceeded to value the gift for the purposes of levy of gift -tax.