TMI Blog1985 (1) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... he total value of the gifts at nil. The GTO rejected the assessee's contention and subjected the entire gifts to taxation. 3. The material facts of the case are that at the relevant time the assessee-HUF consisted of its karta, Shri S.N. Malhotra, his wife Mrs. Soni Malhotra, and his three daughters, Miss Kiran Malhotra, Miss Anjali Malhotra and Miss Renuka Malhotra. At the material time the last two daughters were minors. On 9-9-1971 there had taken place a partial partition as regards the property belonging to the bigger-HUF of Shri H.L. Malhotra. In that partition the smaller-HUF of Shri S.N. Malhotra, namely, the present assessee, got some shares and cash worth Rs. 3,79,600. On 1-4-1974 the capital account of the assessee-HUF showed a credit balance of Rs. 3,98,231. Here it would also be pertinent to point out that Shri S.N. Malhotra had one son named Navin Prakash who had been given away in adoption to Shri V.P. Malhotra, brother of Shri S.N. Malhotra. Though the date of adoption could not be ascertained from the records placed before us but in reply to a query from the Bench it was stated by Shri N.K. Poddar, the learned counsel for the assessee, that the said adoption had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Shri S.N. Malhotra, as the sole surviving coparcener has the absolute right to dispose of the joint family properties as if they were his separate properties. Hence, the transaction in question cannot be regarded as being void ab initio. (ii) Lacking as it does the essential indicia of a family arrangement properly so called, the transaction cannot be treated as a family arrangement. (iii) Involving as it does the setting apart and transfer of a fairly substantial portion of the joint family properties, the transaction cannot be regarded as a mere incident in the discharge of Shri S.N. Malhotra's obligation to educate the girls. (iv) The sum having been transferred by Shri S.L. Malhotra in his capacity as the karta of the family and on behalf of the family, the exemption under section 5(1)(xii) is not available to the appellant. (v) On the facts and in the circumstances of the case, the transaction in question is a gift pure and simple, and as such exigible to gift-tax. 7. The assessee has now come up in further appeal before the Tribunal. Shri N.K. Poddar, the learned counsel for the assessee, has contended that even assuming that the transaction whereunder a su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted in this connection that even though Shri S.N. Malhotra was the sole surviving coparcener at the relevant time, the character of the property did not change and it continued to be the ancestral property of the joint family and in support of this contention reliance has been placed on the decision of the Supreme Court in the case of Gowli Buddanna v. CIT [1966] 60 ITR 293 and N.V. Narendranath v. CWT [1969] 74 ITR 190. In this connection reliance has also been placed on the decision of the Supreme Court in the case of Smt. Sitabai v. Ramchandra AIR 1970 (SC) 343. 8. The second limb of the argument advanced by Shri N.K. Poddar was that the setting apart of the sum of Rs. 3 lakhs by the karta of the HUF for the education of three daughters amounted to partition through family arrangement. It was also argued that it is open to a Hindu father to unilaterally make a partition and in support of this contention reliance has been placed on the decision in the case of Apoorva Shantilal Shah v. CIT [1983] 141 ITR 558 (SC). It was further submitted that the family property given to the three daughters, namely, the sum of Rs. 3 lakhs through a family settlement, does not amount to a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions in M.S.P. Rajah v. CGT [1982] 134 ITR 1 (Mad.), CGT v. Mary Antony [1972] 86 ITR 469 (Ker.), Dr. Xavier v. GTO [1982] 2 ITD 414 (Coch.) and CGT v. P. V. John [1977] 108 ITR 225 (Ker.). 11. Shri S.R. Das, the learned departmental representative, in his submissions first replied to the argument of the learned counsel for the assessee that the transaction evidenced by the declaration dated 11-10-1974 made by Shri S.N. Malhotra, karta of the assessee-HUF, effected a partial partition through a family settlement in favour of the three daughters by setting apart a sum of Rs. 3 lakhs for their education and that this transaction was neither a transfer nor a gift. Besides, relying upon the order of the Commissioner (Appeals) in this regard, it was submitted by the learned departmental representative before us that the declaration in writing made by the karta of the HUF does not indicate that the sum of Rs. 3 lakhs was set apart for the education of the three daughters in consequence of a partition through a family settlement. It was also pointed out that the language of the declaration clearly indicated that the money set apart for the education of the three daughters was handed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples of Hindu Law, Fifteenth edn., and reliance was placed on a decision of the Madras High Court in Karuppana Gounder v. Chinna Nachammal AIR 1974 Mad. 329. It was further urged that under the Hindu Adoptions and Maintenance Act it is the personal obligation of a Hindu father to maintain his unmarried dependent daughters. It was also submitted that under section 4 of the said Act it is clearly laid down that any text, rule or interpretation of Hindu law or any custom or usage as part of that law in force immediately before the commencement of the said Act shall cease to have effect with respect to any matter for which provision has been made in the said Act. It was, thus, submitted that in view of the provision contained in section 4, which has an overriding effect, the old Hindu law under which an unmarried daughter was entitled to maintenance out of the joint family property stood abrogated with the result that after coming into force of the Hindu Adoptions and Maintenance Act, an unmarried daughter has no claim of maintenance out of the joint family property. It was also submitted that the authorities cited on behalf of the assessee are distinguishable on facts. 13. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Andhra Pradesh High Court in the case of Yarlagadda Nayudamma and submitted that it should not be followed. On the strength of the decision of the Tribunal, Delhi Bench in WTO v. Sunil Lamba [1982] 1 ITD 916, it was further submitted that the Tribunal is not bound to follow the aforesaid decision of the Andhra Pradesh High Court. 15. The learned departmental representative then submitted that even if the adoptee had any interest even after he had been given in adoption, that was only in the properties belonging to the bigger-HUF at the time of adoption and that he had absolutely no right or interest in the properties belonging to the smaller-HUF of which he was no longer a member or a coparcener after his adoption. It was next contended that even if it is assumed for the sake of argument that the adoptee retained interest in the properties belonging to the smaller-HUF after his adoption, vis-a-vis, those properties his status would be that of a tenant-in-common and not as a joint tenant and that in such a situation the gift would not be void to the extent of the interest so held by the adoptee but it would be avoidable at his instance. In this connection it was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould also be kept in mind. It was also submitted that since the gift was made by the karta on behalf of the HUF, the claim for exemption under section 5(1)(xii) is untenable. In this connection reliance has been placed on the decisions in the cases of M.S.P. Rajah and CGT v. Harbhajan Singh Sons [1979] 119 ITR 542 (Punj. Har.). 18. In reply, Shri N.K. Poddar submitted that in order to effect partition through family settlement it is not necessary that the claimant should have an antecedent title and that what is necessary is that there must be a relationship between the parties and there should be a possible claim, to the property or a claim or even a semblance of a claim on some other ground as say affection and in respect of this contention reliance has been placed on the decisions of the Supreme Court in Ram Charan Das v. Girja Nandini Devi AIR 1966 SC 323 and the Gauhati High Court in Ziauddin Ahmed v. CGT [1976] 102 ITR 253. It was reiterated on behalf of the assessee that even after enactment of the Hindu Adoptions and Maintenance Act, an unmarried daughter has a right to be maintained out of the HUF properties and that the controversy has been set at rest by the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,11,342 were left with the assessee-HUF and that the bigger-HUF also has properties worth lakhs of rupees and, therefore, it could not successfully be argued that the amount set apart for the education of the three daughters was unreasonable having regard to the facts and circumstances of the case. 19. About the claim for exemption under section 5(1)(xii), it was submitted on behalf of the assessee that as the gift was made by the sole surviving coparcener, exemption under section 5(1)(xii) was available to the assessee. 20. We have given our careful consideration to the rival submissions as also the facts on record. We have also perused the paper book filed by the assessee as well as various authorities cited on behalf of the parties. We propose to take up for consideration the points arising in this case in the same order in which they have been argued before us on behalf of the assessee. 21. The first controversy which requires consideration is whether the alleged gift of Rs. 3 lakhs in favour of the three daughters of the karta of the assessee-HUF is void ab initio as contended before us by the learned counsel for the assessee. At this stage it would be appropriate to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the time of alienation there is no other member who has joint interest in the family. If another member was in existence or in the womb of his mother at the time of the alienation, the power of the major son was circumscribed as aforesaid and his alienation would be voidable at the instance of the existing member or the member who was in the womb but was subsequently born, as the case may be, unless it was made for purposes binding on the members of the family or the existing member consented to it or the subsequently born member ratified it after he attained majority...." The ratio laid down in the aforesaid case by the Supreme Court does apply to the facts of the present case for the simple reason that here also we are concerned with the case where the gift was said to have been made by the sole surviving coparcener. We are not impressed by the argument advanced on behalf of the assessee that the ratio laid down by the Supreme Court in the aforesaid case will not apply to a gift made by a sole surviving coparcener in respect of ancestral property. An ancestral property belonging to a joint Hindu family is also a family property in respect of which the sole surviving coparcen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntact or it ceased to exist after he had been given in adoption. The learned counsel for the assessee has submitted before us that by reason of proviso (b) to section 12, the undivided coparcenary interest of the adoptee remained intact and he was not divested of that interest despite the fact that his ties with the natural family got severed on adoption and he became a member of the family of his adoptive father. This contention is fully supported by the decision of the Andhra Pradesh High Court in the case of Yarlagadda Nayudamma. It has been held in this case by their Lordships that notwithstanding the adoption, a person in Mitakshara family has got a vested right even in the undivided property his natural family which on adoption he continues to have a right over it. So this authority supports the proposition that if an adoptee held undivided coparcenary interest in the natural family, he would continue to hold that interest even after adoption. No authority of any other High Court including the Calcutta High Court has been cited before us laying down a contrary view. Also no Supreme Court decision on the point has been brought to our notice. As the decision of the Andhra Prade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partition the ITO passed an order under section 171, a photostat copy whereof appears at pages 11 and 12 of the paper book. It was through that partition that the smaller-HUF of Shri S.N. Malhotra, i.e., the present assessee, received shares and cash worth Rs. 3,79,600. It has neither been asserted nor shown by the assessee that before the partial partition which took place on 9-9-1971, the assessee held any ancestral or joint family property. Here it may also be recalled that during the course of argument, it was stated by Shri N.K. Poddar that after the partial partition effected in the year 1977, the bigger-HUF was left with properties worth lakhs of rupees. So when Navin Prakash was given in adoption before 1971, he had an undivided coparcenery interest in the properties held by the bigger HUF of Shri H.L. Malhotra. At the time when he was given in adoption the smaller-HUF of Shri S.N. Malhotra, namely, the assessee had no coparcenary property of its own with the result that the adoptee could not have any undivided coparcenary interest in the family property of the smaller-HUF for the simple reason that neither at the time of the birth of the adoptee nor at the time of his ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been set apart on 10-10-1974 on behalf of the joint family for the education of his three daughters and in pursuance of the said arrangement Rs. 1 lakh was given to each of the three daughters through separate cheques. The contention of the assessee that it was a case of family arrangement was rejected by the Commissioner (Appeals) mainly on the ground that the declaration in question was made unilaterally by Shri S.N. Malhotra and that there was nothing to indicate that the other members of the family particularly his wife, Smt. Soni Malhotra, was a party to the declaration. It was further observed by the Commissioner (Appeals) that even as regards the three daughters the position is that they are only the beneficiaries under the declaration and cannot, therefore, be called parties to an agreement which is the essence of a family arrangement. In Apoorva Shantilal Shah's case it has been held by their Lordships of the Supreme Court that the father in exercise of his superior right or of his right as patria potestas is entitled to bring about a complete disruption of a joint family and to effect a complete partition of joint family properties of a Hindu joint family consisting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inor coparcener has limited right of partition, the adult coparcener can put an end to a joint status by his conduct and declaration where the family consists of only an adult and a minor coparcener. It was further held that the law does not compel a karta, who happens to be the only male coparcener of the family, to remain joint and continue to hold property jointly with the other members of the family. When the sole male coparcener has full right to alienate the property, it does not stand to reason that he cannot divide the property amongst the members of the family for the purpose of maintaining peace and harmony in the family. 28. In Ram Kishan's case the karta of an HUF executed six different documents called deeds of gift in favour of each of his five sons and the widow of a predeceased son and as a result a major part of the agricultural land belonging to the family was apportioned amongst them. It was held by the High Court that the transaction was one of family settlement and that the transfer could not be treated as deeds of gift. In this case also the transaction which was held to be a family arrangement was effected only by the karta of the HUF and not by the coparc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in that Act which relates to maintenance of unmarried daughters who are members of an HUF out of the family properties. As the provision of section 20 relates only to the personal and legal obligation of a Hindu father to maintain, inter alia, his unmarried minor daughters, this provision cannot have the effect of abrogating the text of Hindu law provided for maintenance of an unmarried daughter out of the joint family properties. Also the Hindu law on the subject of maintenance of an unmarried daughter out of the joint family properties is in no way inconsistent with the provisions of section 20. It is open to the daughter of a Hindu father to claim maintenance from him under section 20 and at the same time she retains her right available to her under the Hindu law to claim maintenance out of the joint family properties. The two rights, one flowing from section 20 and the other out of the text of Hindu law, are neither conflicting nor inconsistent with each other. It is in addition to maintenance out of the joint family properties that a Hindu daughter is also entitled to be maintained by her father in his personal capacity. We are, therefore, clearly of the view that in spit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as having been effected by the assessee in his capacity as a karta of a HUF. The assessment was, accordingly, made on the HUF. This case, thus, related to the year 1970 after the Hindu Adoptions and Maintenance Act had already come into force, True, the provisions of the said Act were not considered by their Lordships in that case but the fact remains that in view of the general principles of Hindu law it was held that the settlement of this kind cannot be brought within the mischief of the Act. Another decision which has a bearing on the controversy under consideration is of the Calcutta High Court in Basant Kumar Aditya Vikram Birla's case. In that case the assessee was a HUF and the matter related to the gift-tax assessment for the assessment year 1970-71. The gift made by the assessee-HUF during the previous year included the following amounts given to Smt. Jayashree Mehta, daughter of Shri B.K. Birla, karta of the assessee-family, at the time of her marriage : Rs. " Jewellery worth 47,000 Cash 11,000 Fridge 9,474 --------------------- Total 67,474 " --------------------- This amount was claimed as exempt on the ground that these were marriage expenses, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly constituted a HUF. By an instrument dated 1-3-1956 the members of the family aforesaid declared their intention to remain divided in status from the joint family. A male child called Lakshmi Narayanan was subsequently born to Gangadhara Setty on 21-10-1956. On 25-10-1957 a family arrangement was arrived at by which Nanjiah Setty transferred shares worth Rs. 1,46,500 to Lakshminarayanan, the grandson born after the date of partition. In the assessment for the assessment year 1958-59, the GTO considered the transfer of a property of the value of Rs. 1,46,500 by the assessee to Lakshminarayanan as gift. On admitted facts it was found that a share was given to the assessee at partition. That being so, minor Lakshminarayanan could have only claimed his share from the properties allowed to his father, brothers and sisters. It was thus held that no liability was cast on the assessee to make good the share due to Lakshminarayanan. The assessee had given a sum of Rs. 1,46,500 to the aforesaid minor in the form of shares and cash entirely from out of his share for which he (assessee) has not received any consideration. On these facts it was hold that transfer of movable properties of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint family has an obligation to maintain and get an unmarried daughter married. That right of the unmarried daughter to be maintained and to get married and the obligation of the family to do this may be inchoate, in the sense, that these rights and obligations do not attach to any specific property. It was further held that once under a partition deed or a family settlement or a gift or other instrument certain properties are set apart for the maintenance and marriage of the unmarried daughters, then the right of the unmarried daughters and the corresponding obligations of the family gain a coherent and concrete form. They immediately attach to the property thus allotted under the instrument. Since the property is given to the unmarried daughter in recognition of her right, in discharge of the obligation of the family, by no stretch of imagination it could be treated as a gift. This ratio laid down by the Andhra Pradesh High Court is fully applicable to the facts of the instant case. Here in recognition of the right of the unmarried daughters the sum of Rs. 3 lakhs was set apart for their maintenance (education). This resulted in discharge of the obligation of the family to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir respective trust deeds. The assessee in that case was an individual and not a HUF. So the facts of that case being entirely different, the ratio laid down therein cannot be applied to the facts of the case in hand. On the other hand, the decisions of the Andhra Pradesh High Court in Bandlamudi Subbaiah's case, and of the Madras High Court in M. Radhakrishna Gade Rao's case, which support the view canvassed on behalf of the assessee, fully apply to the facts of the present case. 39. For the foregoing reasons, we uphold the contention that the transaction effected through the declaration executed by the karta of the assessee-HUF is in fact a family settlement and that in that transaction no element of gift is involved. 40. The third point pressed before us on behalf of the assessee may now be considered. The word ' gift ' is defined in section 2(xii) as the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth and includes transfer or conversion of any property referred to in section 4 of the Act deemed to be a gift in that section. So in order to constitute a gift a transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ancestral or joint family property in favour of unmarried daughters in Hindu families. It was further held that a settlement in favour of an unmarried daughter of joint family property as a marriage provision can hardly be regarded as a gift since such a provision is compulsory under the Hindu law and by no means voluntary in the proper sense of the term. It was also noted that such a transaction cannot be regarded as one without consideration in money or money's worth since the settlement of the property discharges the obligation of the joint family's estate to meet the expenses of the marriage. We are, therefore, of the view that the transaction in question does not amount to a gift within the meaning of section 2(xii) and also is not a deemed gift under clause (a) or (b) of section 4(1). The question of reasonableness of the amount set apart for the education of the three daughters is not germane to the determination of the question if it is a case of gift, once it is found that the transaction was neither voluntary in the proper sense of the term nor was made without consideration in money or money's worth. 41. The fourth point urged before us by the learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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