TMI Blog1968 (2) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... . On March 27, 1958, he effected a partition of the said properties between himself and his sons by a registered instrument. On information received of certain dispositions by late Srinivasa Rao the Gift-tax Officer having appropriate jurisdiction, issued a notice under section 13(2) of the Gift-tax Act to late Srinivasa Rao to furnish a return for the assessment year 1959-60. With respect to that notice late Srinivasa Rao filed a return declaring only the gifts made by him to his daughters on March 4, 1958, and cash gift to his purohit. The properties referred to in the affidavit dated March 26, 1958, of late Srinivasa Rao were claimed as joint family properties which were already partitioned and, therefore, not liable for the gift-tax. Sri Srinivasa Rao died on January 9, 1962. On October 31, 1962, the First Additional Gift-tax Officer, Guntur, passed an order under section 15(3) of the Act holding that the properties gifted by Srinivasa Rao to his daughters and purohit on March 4, 1958, and the self-acquisitions converted into joint family properties on March 26, 1958, and partitioned on March 27, 1958, less the 1/5th share of Srinivasa Rao were liable to the payment of gift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Mysore High Court in D. H. Hazarath v. Gift-tax Officer. In that case the learned judges held that the power conferred on the State legislature by entry 49 of List II of the Schedule VII to the Constitution to make laws with respect to taxes on lands and buildings includes the power and to tax gifts of lands and buildings and therefore within the exclusive power of the State legislature. The Gift-tax Act, 1958, in so far as it purports to provide for taxes on lands and buildings was held to be ultra vires the powers of Parliament. The learned judges in the above case proceeded on the footing that an entry in the lists to the Schedule VII to the Constitution should be given its widest possible amplitude and that the aforesaid principle refers not only to the general items but also to entries relating to taxation. It was observed that the residuary entry 97 in List I should not ordinarily be invoked and should be invoked only as a last resort and that the power to tax property necessarily includes the power to tax a right or incidence of ownership. It is a well settled principle that the entries in the legislative lists should not be interpreted in a narrow and pedantic sens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st I of the Constitution. " Article 248 is in these terms : " 248. (1) Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List. (2) Such power shall include the power of making any law imposing a tax not mentioned in either of those Lists." Item 97 is in these terms: "Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists." Having regard to the pattern of the Indian Constitution, it requires no demonstration that Parliament has exclusive power to make laws with respect to any subject or matter which is not expressly within the scope of the heads of power enumerated in the Lists. We are of opinion that the Gift-tax Act does not entrench upon the exclusive legislative power of the State Legislature as indicated in item 49 of List II. The manifest object of the Gift-tax Act and its pith and substance is not to tax lands or buildings as such but to impose tax on gifts inter vivos. The scope of the gift-tax, therefore, is referable to article 248 read with item 97. In Joseph v. Gift-tax Officer, a Beach of the Kerala High Court has held that, inas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person; ........ The learned counsel has contended that these provisions should be construed in the context of the relevant principles of Hindu law and he has relied on a passage in the judgment of the Supreme Court in Commissioner of Income-tax v. Bagyalakshmi Co. where Subba Rao J. (as he then was) observed : " Except where there is a specific provision of the Income-tax Act which derogates from any other statutory law, personal law, the provision will have to be considered in the light of the relevant branches of law." We are of the opinion that the Gift-tax Act is a self contained enactment and the definitions of gift and transfer of property are exhaustive in their scope and the two statutory definitions have to be construed strictly without importing any conceptions not strictly derivable from the expressions employed. The learned counsel has, however, strongly pressed upon our attention a decision of the Madras High Court in M. K. Stremans v. Commissioner of Income-tax . In that case, a question arose as to whether, when a father merged the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bilateral transaction. The transaction by which a property ceases to be the property of a coparcener and becomes impressed with the character of coparcenary property does not itself amount to a transfer. No transfer need precede the change. No transfer ensues either. " So far as the partition of the joint family property is concerned, it is clear that there is no transfer as such. In a Hindu family governed by the Mitakshara school so long as it remains joint and undivided, there is joint ownership and no particular member of the family can predicate that he has any definite or ascertained share. When there is a partition between members of such family, there is a severance in status accompanied by a definition and ascertainment of shares of the respective members. The word " Vibhaga ", which is used in the Mitakshara and which is generally translated as partition, is nothing more than the adjustment of diverse rights regarded the whole, by distributing them in particular portions of the aggregate. In Girja Bai v. Sadashiv Dhundiraj the Privy Council cited with approval Sarkar's translation of the passage in Viramitrodaya to the effect that for partition is made of that in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. It is true that the son's interest even in their father's self-acquired property is " Aprathibandhadaya " but whether or not the conversion of self-acquired property into joint family property amounts to a transfer of right to property will have to be viewed in the context of the father's powers in relation to his self-acquired properties. In Vairevan Chettiar v. Srinivasachariar a Full Bench of the Madras High Court dissenting from the decision in Nana Tawker v. Ramachandra Tawker held that an undivided Hindu son acquires the self-acquired properties of his deceased father by inheritance and not by survivership. Kumaraswami Sastri J. observed thus: " It is difficult to see bow there can be any coparcenary between the father end the sons as regards self-acquired property over which the sons have no legal claim or enforceable rights. Coparcenery and survivorship imply the existence of co-ownership and of rights of partition enforceable at law, and a mere moral injunction can hardly be the foundation of a legal right. As observed by the Privy Council in Sartaj Kuari v. Deoraj Kuari the property in the paternal or ancestral estate acquired by birth under the Mitakshara law is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latter passages are in flat contradiction with the previous ones and in an early Calcutta case Muddun v. Ram a reconciliation was attempted at by taking the view that the right of the sons in the self acquired property of their father was an imperfect right incapable of being enforced at law. The question came pointedly for consideration before the Judicial Committee in the case of Balwant Singh v. Rani Kishori and Lord Hobhouse, who delivered the judgment of the Board, observed in coarse of his judgment that in the text books on commentaries on Hindu Law, religious and moral considerations are often mingled with rules of positive law. It was held that the passages in chapter 1, section 1, verse 27 of Mitakshara contained only moral or religious precepts while those in section 5, verses 9 and 10 embodied rules of positive law. The latter consequently would override the former. It was held, therefore, that the father of a joint Hindu family governed by Mitakshara law has full and uncontrolled powers of disposition over his self-acquired immovable property and his male issue could not interfere with these rights in anyway. This statement of the law has never been challenged since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax held as follows: " We are inclined to accept the view urged before us by the learned Advocate-General that by reason of operation of law, a transfer of property takes place when a member of a joint family throws his separate property into the hotchpot of the joint family. The real question which we have to consider is whether there has been a transfer of assets directly or indirectly by the assessee to his wife and minor son. The assessee, while throwing the property into the hotchpot, has effected a change of ownership of the property. The same may be said to be transferred from the assessee, the individual, to the Hindu undivided family." The decision of the Madras High Court in M. K. Stremann v. Commissioner of Ineome-tax, and the decision of the Gujarat High Court in Keshavlal Lalubhai Patel v. Commissioner of Income-tax were taken in appeal to the Supreme Court: vide Commissioner of Income-tax v. M. K. Stremann and Commissioner of Income-tax v. Keshavlal Lallubhai Patel. Their Lordships of the Supreme Court affirmed the decisions of the two High Courts. In Commissioner of Income-tax v. Keshavlal Lallubhai Patel, Sikri J., speaking, for the court, observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... family answers the description of any other person is seen by clause (xviii) of section 2 which says that a person includes a Hindu undivided family or a company or an ciation or a body of individuals or persons, whether incorporated or not since the conversion in this case has the effect of diminishing the value of the declarant's property and raising the value of the property of the joint Hindu family, it falls within the purview of clause (d). The transfer contemplated by this clause is a transfer as a result of which the income accrues to the joint family from the properties, the subject-matter of the declaration. There can be little doubt that by this transaction the owner of the property had divested himself of it and vested it completely in the joint Hindu family. He has thus effected a change of ownership of the property. If it is a transfer of property within the terms of clause (xxiv)(d) it is a gift as envisaged in clause (xii) and section 4(a)." 4(a) is presumably a misprint for 4(d). This case directly deals with the question we have to determine and we in respectful agreement with the conclusion of the Chief Justice. A decision of the Mysore High Court in Smt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint family properties. It is next contended that the transfer in the instant case is not to a person referred to in section 2(xii), 2(xxiv) and 4(d). We are unable to assent to this contention. The word person is defined in clause xv(iii) of section 2 as follows : " 'person' includes a Hindu undivided family or a company or an association or a body of individuals or persons, whether incorporated or not ; ......." The definition is an inclusive one and will certainly take in the transferee in the instant case. It is contended that, where a coparcener of a Hindu joint family converts his self-acquisitions into joint family property, he does not enter into any transaction within the meaning of section 2(xxiv)(d). The argument is that the expression " any transaction entered into " postulates a bilaterial act and inasmuch as the conversion of self-acquired property into joint family property is wholly a unilateral act, such a conversion would not be a transaction. In support of this contention, reference has been made to a decision of the Kerala High Court in P. K. Subramania Iyer v. Commissioner of gift-tax and to Grimwade v. Federal Commissioner of Taxation . The word transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the gift." " 31. Notice of demand.- When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Gift-tax Officer shall serve upon the assessee a notice of demand in the prescribed form for specifying the sum so payable. " In this case, originally G. V. Srinivasa Rao filed a return of gifts on July 7, 1959, declaring his gifts valued at only Rs. 11,225. During the course of the enquiry a claim was made that the transfer of his property to the Hindu undivided family did not amount to a gift. At the enquiry the assessee was represented by a chartered accountant and the respondent completed the assessment on October 31, 1962. A sum of Rs. 15,629.80 was directed to be payable as tax before December 5, 1962. The demand notice was acknowledged by the second petitioner, Brahmanda Rao who signed for G. V. Srinivasa Rao. By that time, Srinivasa Rao was dead. On November 19, 1962, the second petitioner wrote to the respondent a letter stating that his father died on January 9, 1962, and that fresh demands on the donees in respect of the gift-tax may be made. Accordingly the respondent raised fresh demands on the donees on No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant circumstances of the case to find out whether he can collect the money from the donor or not and only on coming to a conclusion that the money cannot be recovered from the donor, can he start the proceedings for recovery of the tax against the donees. In this case, one of the donees, Brahmanda Rao, has expressly written to the respondent on November 19, 1962, that his father, Srinivasa Rao, had died on January 9, 1962, and that as such he was no more to meet the above demand. He further stated that " out of the properties he acquired on the partition be gifted away the rooms in Srinivasa Buildings during his lifetime. He willed away the agricultural land of 3.72 acres as on the date of his death to his daughters and cash for the obsequies and other expenses. The purport of that communication is that there were no assets available in the name of Srinivasa Rao from which the tax could be collected. It is on the information so supplied by one of the petitioners and after a discussion with their chartered accountant that the apportionment of the tax was made between the donees by the respondent in his order dated January 9, 1963. In these circumstances, it is not correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y article 19(1)(f) of the Constitution. " In regard to the last of the reasons referred to by the learned judge, viz., failure to give the donee an opportunity to contest the correctness of the demand, we may straightway observe, that on the fact of this case, it is obvious that it is at the instance of one of the petitioners that the demand under section 31 was raised on the donees and it is at their instance and after discussion with their representative that the tax was apportioned between all the donees. Mr. Anantababu, the learned counsel for the department, has contended that the other reasons suggested by the learned judge are not also sustainable. The word "assessee " is defined in section 2 (iii) as follows: " 'Assessee' means a person by whom gift-tax or any other sum of money is payable under this Act, and includes-- (a) every person in respect of whom any proceeding under this Act has been taken for the determination of gift-tax payable by him or by any other person or the amount of refund due to him or such other person; (b) every person who is deemed to be an assessee under this Act; (c) every person who is deemed to be an assessee in default under this Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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