M.S.P. Rajah vs Commissioner of Gift-tax, Madras

Ramaswami, J.—One M. S. P. Rajah, the karta of an HUF consisting of himself, his wife and three daughters gifted certain jewellery,

belonging to the HUF, to his wife on March 31, 1971. He filed a return admitting the gross value of the three items of jewellery which were gifted

as Rs. 92,314, which represented actually the purchase value of the jewellery. Since there was an interval between the date of purchase and the

date of gift, he was required to have the jewellery re-valued in order to take into account any fluctuations in the value of gold and diamonds. The

assessee had substituted subsequently the value of the gifted jewellery on the basis of the valuation report and the value of the gift was taken as Rs.

1,01,364. He was assessed in the status of an HUF. The assessee had claimed, in addition to the statutory exemption of Rs. 5,000 under s. 5(2)

of the G.T. Act, a deduction of Rs. 50,000 under s. 5(1)(viii). The GTO, in the view that the donor is the HUF and the donee is the spouse of the

karta, held that s. 5(1)(viii) is not applicable to the gift in question. In that view, he allowed only the statutory exemption of Rs. 5,000 and rejected

the claim for deduction of Rs. 50,000.

The assessee preferred an appeal before the AAC. The AAC held that the karta of a joint Hindu family can make within reasonable limits gifts,

out of affection, of ancestral movable or immovable property to his wife and that, in the instant case, since the net worth of the assessee''s family

was of the order of Rs. 20,00,000 and more, the gifts were validly made. He was also of the view that merely because the gifted property

belonged to the family, it would be incorrect to identify the family itself as the donor. He was further of the view that if in the exercise of his power

of disposition over the joint family property a gift is made by a karta, he, the karta, would be the donor and the fact that the gift might have taken

effect out of some other person''s interest might be immaterial since what is essential is only the capacity to alienate and not the ownership of what

is alienated. In that view, he allowed the appeal and held that the gift was qualified for exemption up to the limit specified under s. 5(1)(viii) of the

Act.

The GTO preferred an appeal to the Income Tax Appellate Tribunal. Rejecting the argument that the gift by the karta of a family to his wife shall

be deemed to be a gift made by him in his individual capacity and distinguishing certain cases cited by the assessee and holding that there was no

evidence to show that the karta had gifted the jewellery in question to his wife in that capacity, the Tribunal allowed the appeal and held that the

exemption under S. 5(1)(viii) was not applicable.

At the instance of the assessee, the following question has been referred:

Whether, on the facts and in the circumstances of the case, Rs. 50,000 has to be deducted from the value of the gifted jewels u/s 5(1)(viii) of the

Gift-tax Act, 1958 ?

Section 5(1)(viii), which is the relevant provision, reads as follows:

Gift-tax shall not be charged under this Act in respect of gifts made by any person - ...

(viii) to his or her spouse, subject to a maximum of rupees fifty thousand in value in the aggregate in one or more previous years, the expression

''spouse'' in this clause, where there are more wives than one, meaning all the wives together.

It may be seen from the facts as found by the Tribunal that the jewellery, which were the subject-matter of gift, were owned by the HUF of

which M. S. P. Rajah, the father, was the karta and he gifted them to his wife. The AAC held that having regard to the total wealth of the HUF, the

value of the jewels gifted to the wife of the karta who was a member of the family was within reasonable limits and within the powers of the father-

karta of an HUF. On these facts, therefore, the question for consideration is, whether the donor can be considered o be undivided Hindu family

and not the father-coparcener in favour of his wife in his individual capacity.

A Mitakshara HUF is purely a creature of law. It cannot be created by the act of parties, except in so far as adoption is concerned, as by such

adoption, a stranger may be introduced as a member thereof. Though a female can be a member of a joint Hindu family, she cannot be a

coparcener. A joint or undivided. Hindu family may consist of a single male member, his wife and his unmarried daughters. In a case, where the

joint Hindu family consisted of only one male member and the other members were females or the only male member was the sole surviving

coparcener, the said male member is entitled to dispose of the coparcenary or the joint Hindu family property as if it were his separate property.

He may sell, mortgage or he may make a gift of it. These propositions are well settled and quoting any decision would be pedantic. In this case,

therefore, when the father, a sole member, gifted the property in favour of his wife, it could not but be any in his character as an individual with all

the powers vested in him in the disposition of joint family property, as if it were his separate property. Since at the time he was the sole surviving

member, he had not been fettered by any of the conditions imposed on the karta of a joint Hindu family or a coparcenary and he shall be deemed

to have acted in his individual capacity while making the gift in favour of his wife.

The same result would be reached even if it were a case when the father-karta was not the sole surviving coparcener or the only male member

of a joint family. A coparcener has no right to alienate or gift coparcenary property or the property of an HUF. But a father- coparcener has

certain special powers of disposing of the joint family or coparcenary property. The property of a joint family could be alienated by the whole

body of the coparceners, where they are all adults, or by a single coparcener with the consent of all the adult male members, if there are no minor

coparceners. But there are certain exceptions to these rules. A father-coparcener can without the consent of the other coparceners to the extent

authorised by the Hindu law. He can also make a gift within reasonable limits of movable property belonging to the family without the consent of his

sons or other coparceners for the purpose of performing indispensable acts of duty, and for purposes prescribed by texts of law, as gift through

affection, support of the family, relief from distress and so forth. A gift out of affection may be made to a wife or to a daughter or even to a son, the

only limitation being that the gifts must be of property within reasonable limits. (vide Mulla''s Principles of Hindu Law, 14th Edn., at p. 275,

(section 225) and at pp. 319 and 320 (secs. 255,256 and 257). These propositions which are well established clearly show that while making a

gift out of affection to his wife, the father does not act in a representative capacity, because the very fact that the rule enables him to act without the

consent of his other coparceners clearly shows that it was a power vested in him in his individual capacity as father and not merely as a member of

the coparcenary. It is only when he is not authorised by law to act individually that, in order to validate a gift or an alienation, either all the other

coparceners must join or the consent of the other non-executing coparceners are necessary.

In this case, since there is a finding of the AAC that as it was a gift out of affection and within reasonable limits and that being not canvassed

before nor found against by the Tribunal, we have to proceed on the basis that the gift was a valid gift made by the father in his individual capacity.

Thus, looked at from any point of view, the donor cannot be held to be the HUF, but it is the father-karta who made the gift in his capacity as a

person authorised to act on his own.

At this stage, we may also refer to some of the decisions cited at the Bar. The earliest of the cases which were cited is JANA VEERA

BHADRAYYA Vs. COMMISSIONER OF GIFT-TAX, ANDHRA PRADESH., . In that case also the assessee who happened to be the karta

of an HUF made a gift of certain joint family property to his wife, but the gift was evidenced by a written document. The relevant portions of the

document mentioned that the donee was his wife and that out of love and affection for her he is making a gift to the donee of certain landed

property which are described in the schedule thereto. It was pointed out that there was nothing in the document to indicate that he was making the

gift in any capacity other than as the husband and based on such construction of the document it was held that there was no obstacle in the way of

the applicability of s. 5(1)(viii) of the Act.

The decision in Sri Vadrevu Venkappa Rao Vs. The Commissioner of Gift-tax, Andhra Pradesh, Hyderabad, is also similar on facts to the one

decided in JANA VEERA BHADRAYYA Vs. COMMISSIONER OF GIFT-TAX, ANDHRA PRADESH., . Again, after referring to the

recitals in the document, the court observed that the document itself does not mention anywhere that the assessee was making a gift of the property

as an HUF and that the fact that he happens to be a manager or karta of the joint family cannot make the gift a gift by the HUF. In that view, it was

held that the exemption to the extent provided under s. 5(1)(viii) was available to the assessee.

These two decisions of the Andhra Pradesh High Court were followed by the Punjab and Haryana High Court in Commissioner of Gift-tax

Vs. Hari Chand, in a case where there was no document at all, but on a finding that it was a gift by a person who happened to be the manager of

the Hindu family to his wife, of a reasonable portion of the property belonging to the joint family. Though the two decisions of the Andhra Pradesh

High Court aforementioned proceeded to rest the conclusion on the basis of the recitals in the document, we are of the view that the ratio of the

judgments will have to be taken to be that from the mere fact that the donor happens to be the manager of a joint Hindu family, it does not

necessarily follow that either the gift was made by the HUF or that the karta or manager shall be deemed to have acted only in h:1 is capacity as

such karta. It is in those circumstances the Punjab and Haryana High Court also held in Commissioner of Gift-tax Vs. Hari Chand, that if the other

circumstances show that he could have acted in his individual capacity, the gift will be entitled to the exemption under s. 5(1)(viii).

In the unreported judgment in T.C. No. 198 of 1976 Commissioner of Gift Tax Vs. K.B. Manickam Gupta, , where a gift was made by the

karta of an HUF, it was held that the assessee was entitled to relief under s. 5(1)(viii). Since the facts were not clearly stated in the judgment, we

have referred to the original records. We find from the records that the gift was made by the karta of a joint Hindu family from and out of his self-

acquired property. Therefore, though that case was decided as if it was made by the karta of an HUF, viz., gift of the shares belonging to the

HUF, on facts there could be no doubt that it was the separate property of the karta and, therefore, that decision has no direct bearing.

The decision in T.C. Nos. 508 and 509 of 1976 Commissioner of Gift-tax, Tamil Nadu-IV Vs. R.M.D.M. Ranganathan Chettiar, relied on by

the learned counsel for the revenue also does not lay down any different proposition. In fact, the learned judges purported to follow the aforesaid

decisions of the Andhra Pradesh High and on the ground that there was no definite finding of the Tribunal on the question of capacity of the donor

in which the gift was made, there was a remand to the Tribunal.

The learned counsel for the revenue also relied on the decision in CGT v. Harbhajan Singh and Sons [1979] 119 ITR 542, in which the Punjab

and Haryana High Court, on facts, came to the conclusion that the gift was by the HUF and not by the individual. In fact they did not purport to

differ from the earlier Division Bench judgment of the same High Court, nor the decisions of the Andhra Pradesh High Court aforementioned. If

this decision were to be taken as an authority for holding that whenever the the karta of an HUF makes a gift it shall always be deemed to be that

of the HUF, we are unable to subscribe to that view.

The decisions of the Andhra Pradesh High Court and the earlier judgment of the Punjab and Haryana High Court, therefore, support our

conclusion, even apart from the principles under the Hindu law relating to the powers of a father-coparcener that he can deal with the family

property in his individual capacity.

In this connection we may also refer to one other fact. Section 2(ix) of the G.T. Act defines a donor as meaning any person who makes a gift.

In order to enable a person to make a gift of a property, it is not necessary that be should necessarily be the owner of the property. The law

recognises certain cases where a person is made competent to transfer even though he is not the owner of the property. Section 7 of the Transfer

of Property Act, dealing with persons competent to transfer, states ""every person competent to contract and entitled to transfer property or

authorised to dispose of transferable property not his own, is competent to transfer such property either wholly or in part, and either absolutely or

conditionally in the circumstances, to the extent and in the manner allowed and prescribed by any law for the time being in force."" The jewellery in

this case is a transferable property. The father is authorised by the Hindu law to dispose of the same by way of gift under certain circumstances,

and those conditions being present, the father-donor was competent to transfer, though the property belonged to the HUF.

Then it was pointed out by the learned counsel for the revenue that the return was submitted by the father-karta as that of the HUF and that,

therefore, it was not open to him to now contend that it was a gift by him to his wife and that the donor was not the HUF. Section 3 read with ss.

13 and 29 make it clear that the tax is levied on the donor who makes the taxable gift. The assessee was all along contending that the gift was not

by the HUF but that it was made by the karta in his capacity as husband of the donee and that he acted in his individual capacity, though the return

might have been submitted in the status of an HUF. If really the donor was not the HUF, the mere fact that the HUF offered the taxable gift for

gift-tax purposes will not take it out of the provisions of s. 5(1)(viii). In fact, in the two cases aforementioned which came up for consideration

before the Andhra Pradesh High Court as also the case which came before the Punjab and Haryana High Court, the return was made only by the

HUF, the contention of the assessee in each of them was that whatever may be the status in which he filed the return, which according to him was

mistake, what was necessary for the purpose of determining whether the exemption under s. 5(1)(viii) was available was a determination as to

what according to the tenor of the document the assessee had purported to do. This was accepted by the court. Even in T.C. No. 198 of 1976

Commissioner of Gift Tax Vs. K.B. Manickam Gupta, the assessee was the HUF but ultimately it was found that the gift was by the karta in favour

of his wife in his individual capacity and that the gift was made from and out of his self-acquired property. The remanded case in T.C. Nos. 508

and 509 of 1976 Commissioner of Gift-tax, Tamil Nadu-IV Vs. R.M.D.M. Ranganathan Chettiar, was also a case of an HUF. All these cases

have taken note of the fact that for the applicability of s. 5(1)(viii), it is the nature of the gift that is relevant and not the status in which the return

was submitted by the assessee.

Therefore, the assessee will be entitled to a deduction under s. 5(1)(viii) in respect of the gift in question. Accordingly, we answer the question

referred to us in the affirmative and in favour of the assessee. The assessee will be entitled to his costs. Counsel''s fee Rs. 500.