1971 (1) TMI 42 - HC - Income Tax

Gift Tax Act 1958 - settlement deed transfer of property - whether there is a transfer of interest in the property in favour of the son whether it amounts to gift under Gift-tax Act

Summary

Issues:
Whether the transfer of interest in settled properties to the son constitutes a taxable gift under the Gift-tax Act.

Analysis:
The case involved a reference by the Income-tax Appellate Tribunal regarding the taxability of a gift made by an individual to his sons through a settlement deed. The settlement involved certain lands to be enjoyed by the individual, his wife, and then passed on to his son with absolute rights. The Gift-tax Officer determined the value of the gift to the son, which was disputed by the assessee. The Appellate Assistant Commissioner initially ruled in favor of the assessee, but the Income-tax Appellate Tribunal reversed the decision, leading to the reference to the High Court.

The key contention was whether the transfer of property to the son constituted a "gift" under the Gift-tax Act. The definition of "gift" under the Act includes the transfer of any existing property made voluntarily and without consideration. The court analyzed the provisions of the Act and the Transfer of Property Act to determine the scope of a gift. It was established that a gift involves the transfer of property from one person to another without consideration.

The court examined the settlement deed and concluded that the transfer of interest in the settled properties to the son amounted to a taxable gift under the Act. Despite the postponement of the son's right to possess and enjoy the property, a vested right had been created in the son on the date of the document. The court emphasized that the broad definition of "transfer of property" under the Act encompassed the grant or creation of an interest in the property, supporting the taxability of the gift to the son.

The court distinguished a previous Bombay High Court decision cited by the assessee, emphasizing that the son in the present case had acquired a vested right in the property, making it a valid gift under the Act. The court disagreed with the interpretation that there was no transfer of interest in the property at the time of the settlement. Ultimately, the court answered the reference question in the affirmative, ruling against the assessee and directing them to pay the costs of the reference.

In conclusion, the court determined that the transfer of interest in settled properties to the son constituted a taxable gift under the Gift-tax Act, based on the broad definition of a gift and the vested right acquired by the son in the property. The decision highlighted the legal principles governing gifts and the interpretation of relevant provisions under the Act.