COMMISSIONER OF GIFT TAX Vs. GOLLAPUDI SANTHAMMA SMT

JUDGEMENT

(1.) THESE two cases have been referred to us, R.C. No. 34 of 1976, under Section 26(1) of the G.T. Act and E.D.C. No. 5 of 1975, under Section 64(1) of the E.D. Act. Since the two references relate to a common subject-matter, we propose to answer the questions referred to us by a common judgment.

(2.) THE facts leading to the two references are these 3 One Potti Venkata Subbarayudu of Kadavakuduru village, Guntur District, adopted one Rajendra Prasad on June 14, 1963. He is no other than his brother's grandson. Earlier to that on June 11, 1963, he executed a gift deed in favour of his daughter, Santhamma, whereby he gave some of his lands. On the same date, he gifted some other lands in favour of his granddaughter. On June 11, 1963, he executed three gift deeds, one in favour of his daughter, Santhamma, another in favour of his daughter's daughter and another in favour of his great grandson, who was then a minor. On June 12, 1963, he made a gift of an amount of Rs. 42,966 in favour of his wife. He died on January 20, 1965. THE adoption of Rajendra Prasad was made in accordance with the custom prevailing in the Vysya community to which he and the adopted son belong. THE adopted son was about 22 years old at the date of adoption. On July 20, 1963, he executed a registered deed of adoption. On the same date, he executed another deed, styled as settlement deed, in favour of his adopted son whereby the properties in question, which were self-acquired, were settled upon him. After the death of Potti Venkata Subbarayudu, hereinafter referred to as "the deceased", the accountable person, viz., his daughter, Santhamma, filed the estate duty return. Among the various questions that cropped up was the one relating to the inclusion of the properties covered by the settlement deed dated July 20, 1963, executed in favour of the adopted son. THE properties covered by the settlement deed were included for the purpose of determination of the estate duty by the Assistant Controller. Aggrieved by the decision of the Assistant Controller, the matter was carried in appeal. At the appellate stage, a new ground was taken by the accountable person that the deed, though described as settlement deed, was not merely a settlement deed operating as a gift but was one executed in consideration of the ante-adoption agreement entered into between the adopted son and the deceased. THE Appellate Controller found on the material placed before him that the adoption of Rajendra Prasad by the deceased was not valid in view of Section 10(iv) of the Hindu Adoptions and Maintenance Act and that there was no truth in the plea that there was an ante-adoption agreement. It-was also held by him that even if there was such an ante-adoption agreement in existence, that would be invalid in view of the prohibition contained in Section 17 of the said Act. Another alternative finding recorded by the Appellate Controller was that even assuming that such an agreement was valid and existing, it was not supported by consideration. THE Tribunal on appeal reversed the findings of the Appellate Controller and held :

(3.) THE other reference, R.C. No. 34 of 1976, arises out of gift-tax assessment proceedings. THE assessee claimed exemption in respect of the value of the properties covered by the settlement deed dated July 20, 1963. Though that claim was disallowed by the GTO and the AAC of Income-tax, it was allowed by the Tribunal. Hence, the following question was referred for our opinion :