TMI Blog1965 (12) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer held that no reasons were advanced by the assessee for allotting a share far in excess of half share to the other members of the family and that, therefore, there had been a gift within the meaning of the Gift-tax Act, and assessed the tax on a sum of ₹ 2,36,377, which was the excess allotment to the other sharers. On appeal, the Appellate Assistant Commissioner held that there was no transfer of property in the case of partition when the joint enjoyment came to an end and, therefore, the transaction did not involve any gift exigible to tax. The Income-tax Appellate Tribunal agreed with the view of the Appellate Assistant Commissioner and held that no gift was made by one coparcener to another when a partition took place between the members of a Hindu undivided family. On the application of the Commissioner of Gift-tax, Madras, the Income-tax Appellate Tribunal has referred the question of law to this court for decision under section 26(1) of the Gift-tax Act. The admitted facts are that the assets of the joint family were worth ₹ 8,51,440. Though Getti Chettiar was entitled to a half share, viz., ₹ 4,25,720, he took only ₹ 1,78,343. The question is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the coparceners has title to the entire joint family properties, there is no transfer involved in a partition. The contention of the learned counsel for the revenue that immediately after the severance in status is effected, the share of each of the coparceners becomes ascertained, and thereafter, when he deals with his share in such a manner as to reduce the value of his share and increases the share of another coparcener, it would amount to a transfer amounting to a gift, is not supported by any authority. At this stage, as already stated, we are not dealing with the extended meaning of the word gift under the Act. In Narasimhulu v. Someswara Rao([1948] 1 M.L.J. 150) it was held that the allotment at a partition of a jyeshtabagam to the eldest brother was no more than giving a larger share than would strictly be due to him and involved no gift by the younger brother or brothers. Dealing with the nature of the partition,the court held that under a partition arrangement each co-owner gets a specific property in lieu of his rights in all joint properties, that is to say, each co-sharer renounces his rights in other common properties in consideration of his getting exclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income-tax v. Keshavlal Lallubhai Patel([1965] 55 I.T.R. 637 (S.C.) In Sahu Madho Das v. Mukand Ram([1955] 2 M.L.J. (S.C.) 1; A.I.R. 1955 S.C. 481, 490) Bose J. stated the position thus at page 10: It is well-settled that a compromise or family arrangement is based on the assumption that there is an antecedent title of some sort in the parties and the agreement acknowledges and defines what that title is, each party relinquishing all claims to property other than that falling to his share and recognising the right of the others, as they had previously asserted it, to the portions allotted to them respectively. That explains why no conveyance is required in these cases to pass the title from the one in whom it resides to the person receiving it under the family arrangement. It is assumed that the title claimed by the person receiving the property under the arrangement had always resided in him or her so far as the property falling to his or her share is concerned and therefore no conveyance is necessary. In a recent decision of the Supreme Court in Kalooram Govindram v. Commissioner of Income-tax(1965] 57 I.T.R. 335, 339 (S.C.).the question arose whether the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bounds, whereunder separate properties are allotted towards the definite shares of individuals, is not a transfer of property. On a consideration of the authorities cited above, it is clear that the partition by metes and bounds between the divided members of the family subsequent to a division in status would not amount to a transfer of property. The next question that has to be considered is whether the transaction in question would come within the extended meaning of the word gift under the Gift-tax Act. Gift is defined to include the transfer of property deemed to be a gift under section 4. Transfer of property is defined in section 2(xxiv) as follows: 'Transfer of property' means any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes-- (a) the creation of a trust in property; (b) the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property; (c) the exercise of a power of appointment of property vested in any person, not the owner of the property, to determine its disposition in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the foregoing would make any difference. Learned counsel for the revenue relied on a decision reported as Grimwade v. Federal Commissioner of Taxation* for the interpretation of this phrase. Section 4 of the Gift Duty Assessment Act, 1941-42, is the same as section 2(xxiv) of the Gift-tax Act. The phrase without limiting the generality of the foregoing is used in section 4 of the Gift Duty Assessment Act. The case cited, Grimwade v. Federal Commissioner of Taxation(78 Commonwealth Law Reports 199), was disposed of on the ground that the assessee did not enter into a transaction constituting disposition of property within the meaning of paragraph (f) (similar to sub-clause (d) of clause (xxiv) of section 2) and, therefore, there was no gift upon which duty became chargeable. The effect of the phrase in question was not considered by the Full Court on appeal. But Williams J., whose decision was appealed against, at page 208, made the following observation: It appears to me that paragraphs (a) to (f) were included in the definition of disposition of property for the purpose of including in the definition transactions which might otherwise not be held to fall within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Taxation(78 Commonwealth Law Reports 199), while considering clause (f) of section 4 of the Gift Duty Assessment Act, 1941-42, which is similar to sub-clause (d) of clause (xxiv) of section 2 of the Gift-tax Act, the purport of the words entering into transaction was dealt with. In the case cited, E.M. Grimwade voted for a resolution of a company, which had the effect of reducing the value of his shares and increasing the value of the other sharers, who happened to be his sons. Rich J., after referring to the dictionary meaning of the word transaction , viz., negotiation: dealing between man and man, management: affairs, things managed , observed as follows: Whatever may be the precise meaning of the word in section 4(f), it should, in my opinion, be construed as meaning some act, doing, negotiation or dealing by a donor in favour of a donee, whether by direct or indirect method. Latham C.J. and Webb J. observed as follows: When a shareholder makes up his mind to vote in a particular way and casts his vote accordingly, he cannot be said to be entering into a transaction. A transaction by a person must be a transaction with some other person...If a preference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unambiguous language. A tax should not be imposed without a plain declaration of the legislature to impose it. It has been held that, if a provision is capable of two alternative meanings, the courts will prefer the meaning more favourable to the subject. If a particular case does not fall within the words of the statute, the words cannot be construed benevolently in favour of the State. It is well established in law that the process of division by metes and bounds is not a transfer of property. If it is intended to alter the well-established position of law, a distinct and positive legislative enactment is necessary. In the absence of express declaration, there can be no presumption that any alteration of law was intended. The words in sub-clause (d) of clause (xxiv) of section 2 are by no means clear and unambiguous in their intention either to alter the existing law or to impose a tax on a transaction like the present one, with which we are now concerned. Mr. V. Balasubrahmanyan, learned counsel for the revenue, relied on a decision reported as Commissioner of Gift-tax v. C. Satyanarayanamurthy([1965] 56 I.T.R. 353), where the Andhra Pradesh High Court held that the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on making the appropriation or for the benefit of any other person shall be deemed to be a gift. Clauses (c) and (d) can have no application. Clause (c) relates to a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, and the value of such transactions, which is found to the satisfaction of the Gift-tax Officer to be not bona fide, shall be deemed to be a gift. The transactions as such are not taxable but only to the extent to which it has been found to be not bona fide. In this case, it is not disputed that the partition is bona fide, and, even if the transaction is considered to be a release or abandonment of interest in the property, as there is no lack of bona fides, the transaction is not liable to tax. The transaction, therefore, will not fall under this clause. Clause (d) relates to a person, who is absolutely entitled to the property, vesting in himself and another person jointly without adequate consideration and such other person making an appropriation of it. The transaction cannot fall under this clause either. The transaction cannot also fall under clauses (a) and (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of property for consideration which is not passed or not intended to pass either in full or in part. Obviously even if the transaction in question is held to be a transfer, it cannot be read into section 4(a) or section 4(b) without straining the language considerably. This fact also supports our view that the transaction in question was not intended to be brought within the ambit of section 2(xxiv)(d). The intention of enacting section 20 of the Gift-tax Act is to enable the collection of the tax on gifts made by the joint family after the joint family had ceased to exist. The Gift-tax Officer is required to record an order that there had been a partition between the various members in definite portions. Until he is so satisfied and a record is made to that effect for the purpose of the Act, the joint family is deemed to continue. The fact that the Gift-tax Officer has not made a declaration that the family shall be deemed for the purpose of the Act to continue will not make any difference, for a partition is not recognised, unless it is divided in definite portions among the members and recorded by the officer. Section 25A of the Income-tax Act, 1922, is more or l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inued under both the sections, section 25A of the Income-tax Act and section 20 of the Gift-tax Act, even though there had been a partition, till the family properties are divided and a record is made to that effect. It is hardly consistent for the revenue to contend that, while a partition will not be recognised till the joint family properties are partitioned in definite portions and the fact recorded by an officer, the family should be treated as divided the moment there is severance in status and the transaction by any of the sharers during the process of division by metes and bounds as a transaction by the sharer and not by the family. Though section 20 is intended only to cover tax on gifts made by the family in the event of a subsequent partition, provision is made for the officer to satisfy himself and record the fact of a partition after division in definite portions. Sub- section (2) enables the officer to treat the family, even after division in status, as a joint family for the purpose of this Act. It could not have been the intention of the legislature to treat the joint family before division by metes and bounds as divided in different circumstances. In our view, what ..... 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