1982 (1) TMI 4 - HC - Wealth-tax

Summary

Issues Involved:
1. Validity of the gift of Rs. 25,000 by the assessee to his minor son.
2. Inclusion of Rs. 25,000 in the net wealth of the assessee for the assessment years 1969-70, 1970-71, 1971-72, and 1972-73.
3. Inclusion of interest accrued on the sum of Rs. 25,000 in the net wealth of the assessee for the respective years.

Detailed Analysis:

1. Validity of the Gift of Rs. 25,000:
The primary issue was whether the gift of Rs. 25,000 by the assessee to his minor son was valid under the Wealth Tax Act. The assessee, a Muslim, credited Rs. 25,000 to his minor son's account and debited his capital account. The GTO and WTO initially contended that the gift was invalid due to insufficient cash balance (Rs. 1,097.19) on the date of the gift, arguing that mere book entries do not constitute a valid gift. The Tribunal upheld this view, emphasizing that there was no delivery of possession of the cash.

However, the High Court analyzed the principles of Muslim law, which require a declaration of gift, acceptance by the donee, and delivery of possession. The court noted that delivery of possession could be actual or constructive, depending on the nature of the subject matter. Citing precedents, the court stated that for incorporeal property or actionable claims, a gift could be completed by acts showing the donor's intention to divest himself of the property and confer it upon the donee. The court referenced several cases, including E. S. Hajee Abdul Kareem and Son v. CIT, where similar gifts were deemed valid despite the absence of physical cash transfer.

The court concluded that the assessee's actions, including filing a gift-tax return and crediting interest to the minor son's account, demonstrated a clear intention to make a valid gift. Thus, the gift of Rs. 25,000 was valid.

2. Inclusion of Rs. 25,000 in Net Wealth:
Given the validity of the gift, the court examined whether Rs. 25,000 should be included in the assessee's net wealth for the assessment years 1969-70 to 1972-73. The WTO had included this amount in the assessee's net wealth, arguing that the gift was invalid. The Tribunal upheld this inclusion.

However, the High Court, having established the validity of the gift, ruled that neither the principal sum of Rs. 25,000 nor the interest accrued should be included in the assessee's net wealth. The court emphasized that the assessee had divested himself of control over the gifted amount, and it was no longer part of his wealth.

3. Inclusion of Interest Accrued on Rs. 25,000:
The WTO had also included the interest accrued on the gifted amount (Rs. 4,500, Rs. 9,000, and Rs. 13,500 for the respective years) in the assessee's net wealth. The AAC upheld the assessee's claim regarding the interest, noting that the minor had withdrawn and spent the interest amounts.

The High Court agreed with the AAC's finding, stating that the interest credited to the minor son's account and subsequently withdrawn by him further evidenced the validity of the gift. Consequently, the interest accrued on Rs. 25,000 should not be included in the assessee's net wealth.

Conclusion:
The High Court held that there was a valid gift of Rs. 25,000 by the assessee to his minor son on March 28, 1969. Consequently, neither the sum of Rs. 25,000 nor the interest accrued in subsequent years should be included in the assessee's net wealth for the assessment years 1969-70, 1970-71, 1971-72, and 1972-73. The court answered the question in the affirmative, in favor of the assessee, and awarded costs to the assessee.