COMMISSIONER OF GIFT TAX Vs. BHUPATHIRAJU VENKATA NARASIMHARAJU

JUDGEMENT

(1.) THE assessee is the karta of a Hindu undivided family consisting of his wife, minor daughters and minor sons. THE family possessed ancestral immovable property of acres 44.44. Out of the immovable property that the family held, the assessee made three gifts through written instruments. One gift was made on May 20, 1957, giving acres 17.681/2 to his three minor daughters. THE second gift was made on October 11, 1957, through an instrument in respect of acres 728 in favour of his minor sons and the third gift on January 26, 1959, in respect of acres 7.46 in favour of his fourth minor daughter. THE first two gifts fell for consideration for assessability to gift-tax in the assessment year 1958-59, the accounting year of which was the financial year 1957-58. THE third gift in favour of the fourth minor daughter fell for assessability in the year 1959-60, the relevant accounting year of which was the financial year 1958-59. THE Gift-tax Officer held that there were completed gifts in respect of those transactions and they were chargeable to gift-tax for the relevant assessment years and accordingly levied gift-tax on those gifts. In respect of the third gift the Gift-tax Officer also charged gift-tax for the assessment year 1959-60. Aggrieved by those assessments the assessee filed appeals to the Appellate Assistant Commissioner of Gift-tax. THE Appellate Assistant Commissioner of Gift-tax held that those transactions amounted to family arrangements and were not gifts within the meaning of the Gift-tax Act so as to attract gift-tax. Accordingly, the Appellate Assistant Commissioner allowed the appeals. Aggrieved by those orders the Gift-tax Officer preferred appeals to the Income-tax Appellate Tribunal. THE Tribunal held that no enquiry about the validity or otherwise of the gift was envisaged in terms of the Gift-tax Act and that if a transaction of gift was complete in all respects, gift-tax was chargeable under the Act, and the transactions referred to were gifts and were accordingly chargeable to gift-tax. THE assessee was aggrieved by the order passed by the Tribunal and at his instance references were made to this court for its opinion on the question whether the settlements in question made by the assessee were gifts liable to tax under the Gift-tax Act. Those references were answered by this court by its judgment dated April 16, 1965, in Bhupathiraju Narasimharaju v. Commissioner of Gift-tax, AIR 1936 Mad 825. This court split up the question into two parts. THE first part was whether the transactions under the settlement deeds are gifts within the meaning of the Act irrespective of the legal effect and the second part was whether the assessee is liable to tax under the Act in respect of the said transactions irrespective of their legal effect. After discussing the legal position this court held that irrespective of their legal effect the transactions under the settlement deeds were gifts within the meaning of the Act. In regard to the second part of the question this court did not agree with the Tribunal's view that the legal effect of a gift within the meaning of the Act was beyond the purview of the Act. This court held that the taxability of a gift under the Gift-tax Act depended on the legal effect of the gift which had to be determined by the Tribunal.

(2.) WHEN the file went back to the Tribunal for passing a consequential order in view of the answer given by this court on the references made by the Tribunal, the Income-tax Appellate Tribunal held that the matter had to be gone into by the Appellate Assistant Commissioner for the ascertainment of the legal effect of the gifts and accordingly remanded the matter to the Appellate Assistant Commissioner. After remand the Appellate Assistant Commissioner held that the gifts were valid and the karta of the family was competent to make those gifts and those gifts were reasonable in view of the fact that large sums of dowry were required to be paid in the community to which they belong for the marriage of the daughters and accordingly upheld the taxability of those gifts. Aggrieved by the order, the assessee went up in appeal to the Tribunal. The Tribunal after discussing the legal position held that the ultimate position was that the gifts were void in. so far as the persons other than the coparceners of the family were concerned, as there could be no purchasers because so far as they were concerned there was no transmission of title to the donees under the said gifts. Since in their opinion there was no valid transmission of titles to the donees, the gifts could not be charged to gift-tax and accordingly the appeals filed by the assessee were allowed. At the request of the Commissioner of Gift-tax, who was aggrieved by the order of the Tribunal, the following question has been referred to this court under Section 26(1) of the Gift-tax Act, 1958 :

(3.) THE learned judge further observed :