2003 (10) TMI 14 - HC - Income Tax

Gift Tax Act 1958 - Whether the Tribunal was right in holding that a gift made by the karta of the Hindu undivided family to his wife out of the Hindu undivided family assets is entitled to exemption under section 5(1)(viii) of the Gift-tax Act? - We answer the reference in the affirmative in favour of the assessee and against the Revenue holding that in the facts and circumstances of the case the Tribunal was right in holding that the gift made by the karta of the Hindu undivided family to his wife out of the Hindu undivided family assets is entitled to exemption under section 5(1)(viii)

Summary

Issues involved:
Interpretation of section 5(1)(viii) of the Gift-tax Act, 1958 regarding exemption for gifts made by the "karta" of a Hindu undivided family to his wife out of family assets.

Analysis:
The judgment of the High Court of Madhya Pradesh addressed the issue of whether a gift made by the "karta" of a Hindu undivided family to his wife from family assets qualifies for exemption under section 5(1)(viii) of the Gift-tax Act, 1958. The case involved an assessee, a Hindu undivided family, who gifted gold ornaments to his wife and claimed exemption under the Act. The Gift-tax Officer initially denied the claim, stating it was not a gift by an individual to his wife but by the "karta" to a family member. The appellate authority ruled in favor of the assessee, emphasizing the "karta's" competence to make a gift. The Revenue appealed to the Tribunal, arguing against the exemption, but the Tribunal upheld the assessee's position.

The High Court analyzed the provisions of section 5(1)(viii) of the Act, focusing on the definition of "donor" as any person making a gift. The court emphasized that the "karta" of a Hindu undivided family can be considered a donor under the Act if competent to transfer property. The judgment highlighted the broad scope of the term "donor" and the competence of the "karta" to dispose of property through gifts under Hindu law. Referring to previous cases, the court affirmed that a male member of an undivided family can gift joint family property to his wife, as supported by legal precedents from Andhra Pradesh and Punjab and Haryana High Courts.

The court further cited a case to illustrate that when a sole surviving coparcener gifts family property to his wife, it is considered an individual act within his capacity. The judgment emphasized that the "karta" can make gifts within reasonable limits without the consent of other coparceners, as long as the act is not prohibited by law. In the absence of evidence from the Revenue to invalidate the gift, the court upheld the assessee's claim for exemption under section 5(1)(viii) of the Act. Ultimately, the High Court concurred with the Madras High Court's decision and answered the reference in favor of the assessee, affirming that the gift made by the "karta" to his wife from family assets qualifies for exemption under the Gift-tax Act.

In conclusion, the judgment provided a detailed analysis of the legal provisions, the competence of the "karta" to make gifts, and the application of exemption under the Gift-tax Act for gifts within a Hindu undivided family. The court's decision clarified the eligibility of gifts made by the "karta" to family members, particularly to the spouse, from family assets, emphasizing the individual capacity and competence of the "karta" in such transactions.