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TMI Blog1969 (12) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... t-tax, Madras. The assessee in that case who had four sons, two of them minors, by a deed dated May 21, 1958, drawn in the form of an affidavit, made a declaration, the relevant portion of which runs : " The properties inherited and acquired by me from my professional earnings are in my possession. The properties inherited by me and income derived therefrom have been small and the other properties were acquired from my own earnings...... I therefore hereby express my intention and declare that myself and my aforesaid four sons do constitute a joint Hindu family from this 21st day of May, 1958, and that all properties consisting of movables, immovables, bank deposits, shares, mortgage debt, pronote debts standing either solely in my name or solely in the name of Sri R. Rangarajan or jointly in my name and that of my son, Sri R. Rangarajan, or in the name of my wife, Srimathi R. Kamalammal, are the undivided joint family properties of my undivided family and I impress on and invest with all the said properties ; the character of joint Hindu family property. " There is no dispute that all movable and immovable properties which were thus impressed with the character of joint family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oners in W. P. Nos. 1833 and 1834 of 1965 came up to this court earlier for the issue of writs of mandamus or any other appropriate writ, when they were called upon to make returns under the Gift-tax. Act. The declarations made by the assessees in these cases are straight and, simple. The assessee, in each case, after setting out his exclusive right to the assets in question, stated : " I hereby declare that from this day onwards all the aforesaid properties have become the properties of the Hindu undivided family consisting of myself and my sons. All the aforesaid wealth and properties have been entered into the accounts of the Hindu undivided family consisting of myself and my sons. " This court dismissed the petitions for mandamus observing that the petitioners were at liberty to file writs of certiorari or seek other remedy in the event of the Gift-tax Officer making assessment on the petitioners. On the assessments having been made by the Gift-tax Officer, the petitioners have preferred the writs for certiorari. In W. P. No. 1108 of 1968, it is admitted that on June 7, 1957, the assessee had thrown his self-acquired properties into the hotchpot of his Hindu undivided fami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the general law, is the absence of any consideration. The main definition of " gift " in the Act emphasises that the consideration which will vitiate a transfer as a gift is the consideration in money or money's worth. The material part of section 4 of the Act, which contains the deemed gifts we have to refer, runs as follows : " 4. For the purposes of this Act,- (a) where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor ;... (d) where a person absolutely entitled to property causes or has caused the same to be vested in whatever manner in himself and any other person jointly without adequate consideration and such other person makes an appropriation from or out of the said property, the amount of the appropriation used for the benefit of the person making the appropriation or for the benefit of any other person shall be deemed to be a gift made in his favour by the person who causes or has caused the property to be so vested. " While the Act extends the definition of " gift " by deeming to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the definition and what it meant to include, in the sub-clauses. In Craies on Statute Law, 6th edition, at page 212, it is pointed out that, when the definition contains the words " mean and include ", it inevitably raises a doubt as to interpretation. The doubt, if any, is resolved by the contents of the inclusive clauses, like charge, licence and power, which are far from transfers of property, and the words " without limiting the generality of the foregoing ". The phrase " without limiting the generality of the foregoing " brings out clearly that that the definition is not intended to be restricted. The effect of the phrase is that the different clauses which are included under the sub-clauses do not, by any implication, limit the generality of the words used in the main part of the definition. But this is not to widen the scope of the sub-clauses themselves. As by the sub-clauses, Parliament seeks, to include within the definition of transfer of property, dealing, with property which are not covered by the wider definition of transfer of property, the special clauses should not be given any wider meaning than what they literally carry. Subjects which are made transfers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit them into modern legal concepts and language of statutes borrowed from jurisdiction where the prevalent system of jurisprudence has little relation to the personal law of Hindus, has led to divergence of judicial opinion. The definition of " transfer of property " under section 2(xxiv) is taken practically word for word from section 4 of the Gift Duty Assessment Act 1941-42, of the Commonwealth of Australia, section 2(xxiv) being identical with and a verbatim reproduction of section 4(f) of the Australian Gift Duty Assessment Act. In order to determine whether there is any transfer of property when a Hindu father throws his self-acquisition into the hotchpot of joint family property or, as it is commonly called, in blending, we consider it necessary first, to examine the true nature of the process by which the character of property is changed or transformed from the holding of the individual to that of the Hindu joint family. In Mallesappa v. Mallappa, the Supreme Court observed : " The rule of blending postulates that a coparcener who is interested in the coparcenary property and who owns separate property of his own may by deliberate and intentional conduct treat his separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Sadasiva Vital v. Rattalu. Decisions thus establish that the two essential requisites for the conversion are : (1) the existence of a coparcenary and (2) the deliberate intention formed by the coparcener owning separate property to treat the same as joint family property. This intention may manifest itself in any form, such as by a statement in a deposition, an affidavit, execution of a document as a declaratory deed, or by course of conduct. What transforms the separate property into joint family property is not the outward act or the conduct or the public declaration of the coparcener owning the separate property, but his intention to so treat it the intention of the coparcener who ownes the separate property to waive and surrender his special rights in the property as separate property. The outward acts are merely evidence of the intention and by themselves they do not change the character of the property. As pointed out in Mayne's Hindu Law, 11th edition, at page 349, separate property does not cease to be as such and become joint family property by any physical act, but the acquirer's own volition and intention to surrender his exclusive right. In bringing about the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfy all the requirements of section 2(xii) ; only where the context permits, the special meanings of some of the expressions used in the definition of " gift " have to be read into the definition ; these expressions alone get amplified in their coverage. The rest of the definition of " gift " stands. The definition contemplates a bilateral transaction between the doner and donee. It is urged for the revenue that as in blending property that belonged to the individual coparcener as his separate property is made over to another person, the undivided Hindu family, it can well be said that there is a disposition or transfer of property by one person to another. There are two obstacles in the way of accepting this argument. First, the change in the character of the property is brought about wholly by the intention of the owner, and as it will be seen presently, merely by self-abnegation on the part of the owner not to exercise his special powers over the property. There is no place in the scheme for the exercise of any volition on the part of the coparceners to accept or reject the change in the character of the property. In our view, it would be a strained application and misuse of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty even as of the other coparceners, for the interest of every coparcener extends over the whole of the joint family property. In words which have become classic Lord Westbury, referring to the mode in which the joint family property is to be enjoyed, said in Appovier v. Rama Subba Aiyan. " According to the true notion of an undivided family in Hindu law, no individual member of that family, whilst it remains undivided, can predicate of the joint and undivided property, that he, that particular member, has a certain definite share. " In Katama Natc0hiar v. Rajah of Shivagunga, Turner L.J. referred to the property as " the common property of a united family " and observed : " There is community of interest and unity of possession between all the (coparceners) members of the family, and upon the death of any one of them the others may well take by survivorship that in which they had during the deceased's lifetime a common interest and a common possession. " Examining the position in relation to the Ceylon Estate Duty Ordinance No. 8 of 1919, on the death of a son leaving his father, the sole surviving coparcener, and only other female members of the Mitakshara undivided Hind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivision between the divided members of what had been the property of the joint family ...... Obviously, no question of transfer of assets can arise when all that happens is separation in status, though the result of such severance in status is that the property hitherto held by the coparcenary is held thereafter by the separated members at tenants-in-common. Subsequent partition between the divided members of the family does not amount either to a transfer of assets from that body of the tenants-in-common to each of such tenants-in-common. We, therefore, come back to the question, was there a transfer to the coparcenary from the coparcener, that is, in this case was there a transfer from the assessee of his self-acquired properties to the coparcenary of which he was the karta ? ' Severance in status with the resulting change in the nature of the ownership of the property is one of the incidents of a coparcenary...... The change does not itself constitute a transfer. Nor even does it result from any transfer of assets. Similarly, when the separate property of a coparcener ceases to be his separate property and becomes impressed with the character of coparcenary property there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indu undivided family, and that a subsequent transfer as a result of partition could not be regarded as a transfer by the individual to his wife or minor child. M. K. Stremann's case and Keshavlal Lallubhai Patel's case were taken up in appeal to the Supreme court by the revenue. In Commissioner of Income-tax v. Keshavlal Lallubhai Patel, the appeal from the decision of the Gujarat High Court, observing that on the question whether the act of throwing self-acquired property into the hotchpot is a transfer of property or not, there is some difference of opinion, the Supreme Court proceeded on the view that it was unnecessary to settle the controversy in that case. Holding that a partition of joint Hindu family property would not be a transfer, the case was decided against the revenue. In the appeal against the decision of this court, Commissioner of Income-tax v. M. K. Stremann in which judgment was pronounced on the same day the Supreme Court followed their decision in the case from the Gujarat High Court. The question now in issue was not decided. In support of his contention that where a coparcener converts his self-acquired property into joint family property there is a transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government with a member of an undivided Hindu family. The contention raised was about the factum and validity of the conversion of property acquired under the settlements into the property of the joint family, not the manner in which the change was brought about. While examining the true character of blending under the Gift-tax Act, the Andhra Pradesh High Court, in Commissioner of Gift-tax v. V. C. Satyanarayanamurty, expressed its inclination to agree with the view of the Gujarat High Court in Keshavlal Lallubhai Patel's case, in preference to that of this court in M. K. Streman's case. The learned judges, however, considered it unnecessary to express any final opinion on this aspect of the matter, in the view that the conversion of separate property into joint family property would fall under the definition of " transfer " found in section 2(xxiv)(d) of the Gift-tax Act. In Laxmibai Narayana Rao Nerlekar v. Commissioner of Gift-tax, the Mysore High Court held that blending or throwing the self-acquired property into the common hotchpot of the Hindu undivided family does not involve any transfer of property or interest in the property. In a recent decision, G. V. Krishna Rao v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the reasoning of the learned judges in M. K. Stremann's case, is general, and shows that the elements which would constitute transfer or disposition, even as popularly understood, are wanting in the conversion of self-acquired property into joint family property. It is now firmly established that a partition in a joint Hindu family is not a transfer of property. Before us, there has been no contention that, for the purpose of the Gift-tax Act, a partition of joint family property would be a transfer. Under the gift-tax itself, in Commissioner of Gift-tax v. Getty Chettiar, a Division Bench of this court, to which one of us was a party, held that partition between members of a Hindu joint family does not involve any " transfer of property from one member to the other or others ". On partition, coparcenary property ceases to be the property of the joint family and comes to be held in severalty by the divided members. In blending it is the converse that happens : the separate property of the coparcener becomes the property of the joint family. Both events are incidents of the coparcenary system. They have no parallel in any other system of jurisprudence. If the juridical basis for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edition, at page 336). With the father having absolute power of disposition inter vivos or testamentary in respect of his self-acquisition and with no power in the son to interdict any alienation or disposition or call for partition, the son's interest is next to nothing. But the right is real. It lies dormant. It is this dormant right which the undivided sons have in their father's property that entitles them to take the self-acquired property of the father as coparceners to the exclusion of a divided son. Juridically it must be this dormant birthright, that enables the father at his pleasure without formalities to deny to himself, his independent power or predominant interest and look upon the property as the property of the family. Mr. V. Balasubrahmanyan, learned counsel for the revenue, referred to the decision of this court in Vairavan Chettiar v. Srinivasachariar, where a Full Bench had to consider the question whether in a suit by a son for the recovery of money which was the self-acquired property of the deceased father, a succession certificate must be produced before a decree could be given in his favour. When expressing the opinion that the self-acquired property ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indiscriminately a right in the grandfather's estate, the son has a power of interdiction if the father be dissipating the property. " In Muddun Gopal v. Ram Buksh, the learned judges attempted to reconcile the conflicting texts by regarding the right of the son in the self-acquired property of his father as an imperfect right incapable of being enforced at law. The injunction in section 1 of Chapter 1of Mitakshara against the father making an alienation without convening all his sons even with reference to the property acquired by the father himself, since they who are born, and they who are yet unbegotten, and they who are still in the womb, require the " means of support ", was regarded as a prohibition and not an absense of power to do the prohibited act. In Arunachala Mudaliar v. Marugantham Mudaliar, the Supreme Court has referred with approval to the reconciliation of the conflicting texts found in Balwant Singh v. Ram Kishori and Muddun Gopal v. Ram Buksh. Referring to Mayne's view quoted above, the Supreme Court observed that it is undoubtedly true that according to Mitakshara the son has a right by birth both in this father's and grandfather's estate, but a distinction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pet case : Venkayamma v. Venkataramanayamma, when he cited the instance of sons taking the self-acquired property of the father as an instance of obstructed heritage (In Jagampet case, Lord Lindley, in delivering the judgment, apparently found the instance not satisfactory, for his Lordship observed : " but it may be that where sons succeed the inheritance as to them is unobstructed "). The description is extremely misleading, because it is neither heritage nor is it obstructed. The misconceptions prevailing in this branch of the Hindu law are mostly due to the mistake of equating the right by birth (Jenmanaiva swatwa) with equal ownership (sadrisam swamyam.) Though it is true that the son has a right by birth in all kinds of property belonging to the father, the amplitude of his ownership differs according to the nature of the property...... In property variedly described as paithamaha, pithamahopatha, kramagatha, all the epithets connoting the same species of property, the son has an equal right with the father. In property described as swarjitha or swaymopatha, the son's ownership is dormant and subordinate to the father's. But it is certainly not notional. It is as real as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omes active under the doctrines of Hindu law. True, the father's intention has to manifest itself. But, as it is the intention that matters, no formality is required and the mode in which the intention is manifested cannot alter the true nature of the process. The blending by a coparcener of his separate property may manifest itself " either by bringing his self-acquired property into the joint family account or by bringing joint family property into his separate account "---Rajanikanta Pal v. Jagamohan Pal. In the latter case, the manifested act is disposition from the family to the individual; but the result is the same. The change can be brought about by the father without any negotiation, consent, co-operation or bilateral dealings with other members of the family. The discussion leads us to the conclusion that when a Mitakshara father determines upon treating his self-acquired property as the property of the family in whatever form he manifests the intention, there is no transfer or disposition of the property under the main part of the definition of " transfer of property " in section 2 (xxiv) of the Act. Before examining the contention of the revenue that the event which co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a transfer which falls within section 4(d). Equally, in blending there is no transfer falling under section 2(xxiv)(b) which takes in as transfer of property the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property. Manifestly the rights contemplated in this clause are grant or creation of right in the property of the owner limiting the owner's general rights over the property, creation of rights in the nature of jure in re aliena. If at all there is a transfer, it is a transfer of the entire property to the joint family as an entity and not an interest in property. No residuary interest is retained by the father as personal property when he throws the property into the hotchpot of the family. We shall now take up for consideration the claim of the revenue based upon section 2(xxiv)(d). After defining " transfer of property " in wide terms, section 2(xxiv) seeks to include as transfers of property what really are not transfers of property, and by sub-clause (d), as we read it, are brought under the definition of " transfer " transactions where property as such does not pass from one person to another. Sub-clause (d) m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o conform to the definition of " gift " requiring a transfer by one person to another. Secondly, while in the context of its user and the definition of gift, the term " transaction " itself would have been sufficient to indicate that the transaction referred to is not an unilateral act, Parliament has made the position clear and removed ambiguity by the use of the words " entered into by any person ". When we speak of a transaction as entered into by any person, it can only be with some other person. The phrase " entered into " cannot be regarded as a superfluity and we find the High Court of Australia interpreting the identical language in the Australian Gift Duty Assessment Act, 1941-42, in the same way. Section 4 of the Australian Act reads : " ' Disposition of property ' means any conveyance, transfer, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes :-... (f) any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of property of any other person. " While sub-clause (d) of section 2(xxiv) of our Act cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial to a class of shareholders amounted to entering into a transaction within para. (f). All these contentions interpret the words ' enter into a transaction ' as if they had the same meaning as 'do an act or abstain from doing an act '. Such an interpretation gives no real effect to the words ' enter ' and ' transaction '. " In Gorton v. Commissioner of Taxation, also a case of manipulation in shares, the majority of judges expressed the view that section 4(f) of the Australian Act is framed to cover cases where the result of transfer of value is achieved by transactions involving modification, " pursuant to an agreed plan " of the rights of different classes of shareholders. It is manifest, therefore, that no " transaction " is entered into, according to the true meaning of the words, when a Hindu father declares his intention to treat his separate property as the property of the undivided Hindu family, for, in this process of conversion, the other members of the family have absolutely no voice and without any reference to them or consulting them the father can bring about the conversion. In Commissioner of Income-tax v. M. K. Stremann the Supreme Court observed. " When instru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eased would not enjoy the normal span of life or that he would necessarily pre-decease his wife, and that the transaction was not entered into with intent to diminish the value of the husband's estate, but that the object was simply to improve the family home in accordance with their means and station in life. On the findings, the Judicial Committee held, reversing the judgment of the Court of Appeal, that the payments to the builder did not constitute a gift to the wife of the deceased so as to be deemed to be part of the husband's estate for the purpose of the Death Duties Act. Their Lordships observed: " On the facts found here it seems to their Lordships quite plain that the payments to the builder were not referable to any intention of making a gift or improving the value of the estate of the wife, but were referable to the desire of the husband to improve the home in which he was living and in which his children were being brought up and did not constitute, either in intention or in fact, a gift to the wife ; they were merely a provision made by him for his own enjoyment and benefit and for the proper maintenance of his home and his children. " Here, when a father throws h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not suggest that in the transaction even an interest in property of one person, as such, passes to another person. The use of the expressions, " his own property " and " the property of any other person " with reference to diminishing and increasing, brings out this feature of the transaction sought to be caught in the net of taxation. It is significant that the word "interest" in property is carefully avoided in this sub-clause. A diminution in the value of property is not the same thing as deprivation of property. A man may hold on to his property and by market fluctuations its value may go down or go up. Such changes in value could certainly be deliberately brought about. Words in fiscal statutes must be given their proper meaning. We find the Australian High Court taking similar view in Gorton's case. It was observed : " By the ultimate paragraph (f)-transactions which do not involve a disposition of property are also included within the meaning of that term. In other words, transactions which are not in any sense dispositions of property are deemed by para. (f) to fall within the meaning of that expression. " The principal question in that case was whether there was a gift w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Rao Nerlekar v. Commissioner of Gift-tax, the Mysore High Court, following certain observations in Grimwade's case, is of the view that the transaction described in sub-clause (d) of clause (xxiv) involves a transfer, the only extension of the idea of transfer which can be read into it being the interposition of a third person between the donor and the donee, serving as a conduit pipe through which property or interest in property passes from the donor to the donee. No doubt, it was said in Grimwade's case, that a transfer of property by A, not directly to another person, C, but through an intermediary B, where it was the intention that C should obtain the property without giving consideration, would be a transaction falling within paragraph (f). But clearly the effect of such a transaction would be to diminish the property of A and not only the value of the property of A, and increase the property of B and not just increase the value of property already held by C. There is change in values at both ends, but that is consequential to a disposition of property. Such a transaction may well fall under other provisions. Any way there is no intermediary here in blending. On all hands, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r paragraph (f) is evidently intended to include within the scope of the Act transactions which do not consist in an actual transfer of property from a donor to donee. Learned judges point out that such latter transactions are dispositions of property within the meaning of other parts of the definition. The question in the context of the subject now under consideration is not, whether the value of the donor's property in globo, meaning thereby his estate is diminished and the value of property of another person increased in globo, meaning thereby the latter's estate, but whether the diminution has not been brought about by the donor parting with some property in the transaction and the other party acquiring property thereby taking the transaction out of the sub-clause. We cannot fall in with the suggestion for generalising the definition and hold that, if as a result of a transaction one person is worse off and another person better off than they would have been if the transaction had not occurred, and if the same is entered into with intent to produce the result, the requirement of section 2(xxiv)(d) is satisfied. It is said that in substance and reality the assets of the family g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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