TMI Blog1985 (1) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... hat at the relevant time the assessee HUF consisted of its Karta Sri S. N. Malhotra, his wife Mrs. Soni Malhotra and his 3 daughters—Miss Kiran Malhotra, Miss Anjali Malhotra and Miss Renuka Malhotra. At the material time the last two of the daughters were minors. On 9th Sept., 1971 there had taken place a partial partition as regards the property belonging to the bigger HUF of Sri H. L. Malhotra. In that partition the smaller HUF of Sri S. N. Malhotra, namely the present assessee got some shares and cash worth Rs. 3,79,600. On 1st April, 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 Sri S. N. Malhotra had one son named Sri Navin Prakahs who had been given away in adoption to Sri V. P. Malhotra, brother of Sri 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 Sri N. K. Poddar, the ld. counsel for the assessee that the said adoption had taken place before 1971. It was further stated before us by Sri N. K. Poddar that after the partial partition effected on 9th Sept., 1971 and in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... void ab initio. (ii) Lacking as it does the essential indicia of a family arrangement property 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 Sri S. N. Malhotra's obligation to educate the girls. (iv) The sum having been transferred by S. L. Malhotra in his capacity as the Karta of the family and on behalf of the family, the exemption under s. 5(1)(xii) is not a available to the appellant. (v) In the facts and 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. Sri N. K. Poddar, the ld. counsel for the assessee has contended that even assuming that the transaction where under a sum of Rs. 3 lakhs was set apart for the education of 3 daughters of the Karta of the assessee HUF amounted to a gift, it was void ab initio and not merely voidable and, therefore, there would be no gift within the meaning of GT Act, 1958. Elabo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cestral of the joint family property and in support of this contention to be ancestral of the joint family property and in support of this decisions of Supreme Court in the cases of Gowli Buddanna vs. CIT (1966) 60 ITR 293 (SC) and N. V. Narendranath vs. CWT (1969) 74 ITR 190 (SC). In this connection reliance has also been placed on the decision of the Supreme Court in the cases of Smt. Sitabai vs. Ramachandra AIR 1970 SC 343. 8. The second limb of the argument advanced by Sri N. K. Poddar was that the setting apart the sum of Rs. 3 lakhs by the Karta of the HUF for the education of 3 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 Apporva Sharitilal Shah vs. CIT (1983) 33 CTR (SC) 153 : (1983) 141 ITR 558 (SC). It was further submitted that the family property given to the 3 daughters, namely the sum of Rs. 3 lakhs through a family settlement does not amount to a gift and in support of this submission reliance has been placed on the decision of the Supreme Court in CGT vs. N. S. Getty Chettiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 336 : (1982) 134 ITR 1 (Mad), CGT vs. Mary Antony (1972) 86 ITR 469 (Ker), Dr. Xavier vs. GTO (1982) 2 ITD 414 (Coch) and CGT vs. P. V. John 1977 CTR (Ker) 135 : (1977) 108 ITR 225 (Ker). 11. Sri S. R. Das, the ld. Departmental Representative in this submissions first replied to the argument of the ld. counsel for the assessee that the transaction evidenced by the declaration dt. 11th Oct., 1974 made by Sri S. N. Malhotra, Karta of the assessee HUF effected a partial partition through a family settlement in favour of the 3 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 CGT(A) in this regard it was submitted by the 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 3 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 3 daughters was handed over through 3 cheques and was given directly to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is connection reference was made to Art. 304 of Mulla's Hindu Law 15th Edition and reliance was placed on a decision of the Madras High Court reported in 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 s. 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 it view of the provision contained in s. 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 daughters 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 ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nayudamma and submitted that it should not be followed. On the strength of the decision of the Tribunal, 'D' Bench, Delhi in WTO vs. Sunil Lamba reported in (1982) 1 ITD 916 (Del-Trib), it was further submitted that the Tribunal is not bound to follow the aforesaid decision of the Andhra Pradesh High Court. 15. The ld. 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 or 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 pointed out that the adopted son or his g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of the HUF the claim for exemption under s. 5(1)(xii) is untenable. In this connection reliance has been placed on the decisions reported in M. S. P. Rajah vs. CGT (1981) 20 CTR (Mad) 336 : (1982) 134 ITR 1 (Mad) in the case of CGT vs. Harbhajan Singh Sons (1979) 119 ITR 542 (P H). 18. In reply Sri 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 relation ship 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 decision of the Supreme Court in Ram Charan vs. Girja Nandini Devi and Ors. AIR 1966 SC 323 and of the Gauhati High Court in Ziauddin Ahmed vs. CGT 1976 CTR (Gau) 161 : (1976) 102 ITR 253 (Gau). It was reiterated on behalf of the assessee that even after enactment of the Hindu Adoptions 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 decision of the Calcut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 3 daughters Rs. 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 3 daughters was unreasonable having regard to the facts and circumstances of the case. 19. About the claim for exemption under s. 5(1)(xii) it was submitted on behalf of the assessee that as the gift was made by the sole surviving coparcener exemption under s. 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 paperbook 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 3 daughters the Karta of the assessee HUF is void ab initio as contended before us by the ld. counsel for the assessee. At this stage it would be appropriate to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est 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 was circumscribed as aforesaid and his alienation would be avoidable 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 purpose binding on the members 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 coparcener has an absolute right of disposition including alienation by way of sale or gift. 24. The contention raised o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons Maintenance Act, 1956 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 person in Mitakshara family has got a vested right even in the undivided property of 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 Pradesh High Court in the aforesaid case is directly on the point and as there is no other decision on the point by any other decision on the point b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 9th Sept., 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 Sri Poddar that after the partial partition effected in the year 1977 the bigger HUF was left with properties worths lakhs of rupees. So when Navin Prakash was give in adoption before 1971 he had an undivided coparcenary 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 H. L. Malhotra, namely the assessee had no coparcenary property of its own with the result that the adopt 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 adoption did the smaller HUF had any property. Whatever interest the adoptee had was in respect of the properties belonging to the bigg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to each of the 3 daughters through separate cheques. The contention of the assessee that it was a case of family arrangement was thus wrongly rejected by the CGT(A) mainly on the ground that the declaration in question was made unilaterally by Sri S. N. Malhotra and that there was nothing to indicate that the other members of the family particularly his wife Smt. Seni Malhotra was a party to the declaration. It was further observed by the CGT(A) that even as regards the 3 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 Apporva Shantilal Shah it has been held by their Lordships of the Supreme Court that the father in exercise of his superiors right or of his right as patrio 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 of himself and his minor sons even against the wishes of the minor sons. This right which a father enjoys is always expected to be exercised in the best interest of the members of the family. It was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f only an adult and a minor coparcener. It was further held that the law does not compel 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 is 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 CGT vs. Ram Kishan, the Karta of an HUF executed 6 different documents called deeds of gift in favour of each of his 5 sons and the widow of deceased son and as a result a major part of the agricultural land belonging to the family was apportioned amongst them. It was hled by the High Court that the transaction was 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 affected only by the Karta of the HUF and not by the coparceners and so this authority also supports the view canvassed before us that the Karta of an HUF can unilaterally effect a partition through family arrangement. So the ground presse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the personal and legal obligation of a Hindu father to maintain, inter alia his unmarried minor daughters his 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 is in no way consistent with the provision of s. 20. It is open to the daughter of Hindu father to claim maintenance from him under s. 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 s. 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 by maintained by her father in his personal capacity. We are, therefore, clearly of the view that inspire of the coming into force of the Hindu Adoptions Maintenance Act an unmarried Hindu daughter has a right to claim maintenance out of the joint family properties. 30. In karuppana Gounder and Another, cited on behalf of the Department one Kanda-Sami Gouder who died on 26th Sept., 1964 was Karta of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions 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 his kind cannot be brought within the mischief of the GT Act. Another decision which has a bearing on the controversy under consideration is of the Calcutta High Court in CGT vs. Basant Kumar Aditya Bikram Birla. In that case the assessee was an HUF and the matter related to the gift tax assessment for the asst. yr. 1970-71. The gift made by the assessee HUF during the previous year included the following amounts given to Smt. Jayashree Mohta, daughter of Sri B. K. Birla, Karta of the assessee family at the time of her marriage: "Jewellery worth — Rs. 47,000 Cash — Rs. 11,000 Fridge — Rs. 9,744 . Total Rs. 67,744" This amount was claimed as exempt on the ground that these were marriage expenses, the claim was disallowed by the GTO. One of the questions which arose for consideration before their Lordships was that can it be said to be a case of gift in terms of s. 2(xii) of the GT Act, 1958. It was held that a daughter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 956. On 25th Oct., 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 asst. yr. 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 held that transfer of movable properties of the value of Rs. 1,46,500 to Lakshminarayanan under the family arrangement is a taxable gift. The facts of that case being entirely different the decision given in that case had no application to the facts of the case in hand. 33. The case of Ram Charan Das v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 again 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 a provision for the education of the unmarried daughters. Such a transactions undoubtedly a family settlement and cannot be regarded as a gift. This view also finds support from the decision of the Madras High Court in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in CGT vs. Bandlamudi Subbaiah and of the Madras High Court in CGT vs. M. Radha Krishna Gade Rao, 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 s. 2(xii) of the Act 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 s. 4, deemed to be a gift in that section. So in order to constitute a gift a transaction must amount to transfer and should be made voluntarily and without consideration in money or money's worth. In the instant case, it has already been held above that transaction is a family settlement whereunder the sum of Rs. 3 lakhs was set apart for the maintenance (education) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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 s. 2(xii) and also is not a deemed gift under cl. (a) or (b) of s. 4(1) of the Act. The question of reason ableness of the amount set apart for the education of the 3 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 ld. counsel for the assessee is that in case the transaction is held to be a gift, the assessee is entitled to exemption under s. 5(1)(xii). As we have already held that it is not a case of gift this point does not arise for our consideration. 42. Ground No. 9 taken up by the assessee in the grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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