1966 (9) TMI 8 - HC - Income Tax

Whether on the facts and in the circumstances of the case could the assessee be said to have gifted properties to his sons which attracted tax under the Gift-tax Act

Summary

Issues:
Interpretation of whether the assessee gifted properties to his sons under the Gift-tax Act based on the partition deeds executed in 1954 and 1957.

Analysis:
The Tribunal found that the properties in question were self-acquired by the assessee and were divided among his four sons in 1954 through an unregistered deed, later affirmed in a registered partition deed in 1957. The revenue contended that the 1957 deed constituted a gift attracting tax under the Act. However, the Tribunal concluded that the 1957 document merely partitioned joint family properties and did not evidence any gift, as the properties had been thrown into the common hotch-potch in 1954, imparting them with the character of joint family properties.

The judgment emphasized the principle that a Hindu Mitakshara family member can convert self-acquired property into joint family property by blending it with the common hotch-potch. It cited precedents from the Bombay and Andhra Pradesh High Courts, as well as the Supreme Court, supporting the unilateral declaration by a family member to impress property with joint family character, even without an existing nucleus. The deed of 1957 indicated the assessee's intention to divide his self-acquired properties per Hindu law, further supported by the Bombay High Court's decision in a similar case.

The judgment highlighted that the assessee's conduct demonstrated an intention to treat the properties as joint family assets, as evidenced by the 1957 partition deed's provisions for undivided property. It rejected the revenue's argument that a formal declaration of blending was necessary, citing the absence of such a requirement in relevant case law. The Madras High Court's decision requiring a declaration was distinguished as fact-specific and not establishing a general legal principle.

Ultimately, the High Court upheld the Tribunal's decision, ruling that the shares given to the sons did not amount to gifts under the 1957 deed. The judgment concluded that the assessee did not gift properties to his sons under the deed, and the transactions were not taxable under the Gift-tax Act. The reference was answered in favor of the assessee, who was awarded costs for the proceeding.