Goli Eswariah v. Commissioner of Gift Tax, Andhra Pradesh

B. Sen. G. C. Sharma. R.. N. Sachthev and B. D. Sh~1rma, for H the respondent. ~ M. C. Chaglo, M. Shankar and K. Jayaram, ior interveners Nos. 1 and 2. l i j ."i .I l . ; I ' I :l I. .-I I 524 SUPREME COURT REPORTS (1971]1 S.C.R, N. D. Karkhanis and T. A. Ramachandmn, for .intcr\'ener No.3 . · ~he Judg1~1cnt of the Court was delivered by Heode J. This appeal by certificate arises from the J:~dom, "' ' h H. h C d d · · 0 cnt ·of the Andhra Prades tg ourt ren ere m Jts advisory juris. diction on a case stated by the Income-t.ax Appellate Tribunal Hyderabad Bench under s. 26 (!) o,f the Gtft -tax ~ct, 195g (to~ hereinafter referred to as the Act ) . The question referred for the opinion of the High Court was : "Whether the declaration by which the assessee bas impn:ssed the character of joint Hindu family properly on the self-acquired properties owned by him amounts to a transfer so as to attract the provisions of the Gift-tax Act." .The High Court following its-earlier decision in Commissiontr .of Income-tax, H.vderabacl v, C. Satymiarayanamurlhy(l); D answered that question in the affirmative. The material~facts as could be gathered from the statement of the case submitte? to the High Court arc as follows : The assessee is the karla of his joint family. The ~sse ssment year with which we are concerned in this case is 1959-60, for which the "previous year" is the year commencino on 23-10-1957 and ending on 10-ll-1958. The assessee ownel movab!e and immOI'· able propertie3 which were his self acquisitions. By a deed dated Dcc~mber 9, 1957, he threw into the common stock his houses beanng Nos. 6658-59 and 273! situate at Tmambavidil Secuo· der~bad an~ a cash deposit of Rs. 1,50,000 in the firm of M/~ Goh Eswanah, Paper Merchants, Secunderabad. In the IJO?k of account of the finn, necessary entries were made transfern~g ~e amount to the account of the family. The Gift-tax. om~~ e~~ed that portion of the value of the properties so bknded. , which .the assessee ceased to have a right on partition of the fJrnll) as h.avlllg been gifted by him to the family. He rejected the ~0~ tcrntlo.n. of _the assessee that his act of throwing his self .acqUld~r fh op1rtles_ mto the common s tock did not amount to a gJft un oot 111 ~ • ct. hln appeal, the Appellate Assistant ConunissionJr 1~ ere w· vtew 1 at smce the deed hi question was not registere· ' ~as su~~ n~ trans.fer of the immovable propertie~ to the ·familY .30 but ~ with rc;~~ 1 was hno gift of the two houses mentioned ~ari~e~ ~ift and '. to 1 e sum of Rs I 50 000 he considered 11 a_~ ndcr accordingly held that 3/ 4th. of 'it w;s liable to be taxed u n' 56 un. R. 353. R .. GOLI ESWARIAH V. COMMR. Q!FT TAX (Hegde , J.) 525 the provisions of the Act. Thereafter the matter was taken up il1 appeal to the tribunal. The tribunal by its order dated November 17, 1961 held that the act by which the assessee threw his self acquired properties to the family hotchpot did not amount to a. transfer and hence it need not have been effected, by a. registered document. It further held that where the coparcener threw his self acquired properties into the hotchpot of the joint family, there was no element of transfer within the meaning of s. 2, cl. (x.xiv) sub-cl. (d) of the Act'. At the instance of the Commissioner, Gift-tax, Andhra Pradesh, the tribunal stated a case for the opinion : o,f the High Court and s~bmitted the aforementioned question for ' its opinion. The High Court did not examine the question of law arising for decision afresh as it was bound by the earlier decisi0n of that High Court in Commissioner of lncome•tax, Hyd!'rabad v. C. Satyanarayanamurthy(l) wherein that court had held that where a Hindu by a declaration has impressed on his self acquired property the character of joint family property, the same would amount to a transfer of property within the terms oi s. 2(xxiv) (d) and as such is a gift as envisaged in s. 2(xii) and s. 4(a) of the Act. The view taken in that case was that an act similar to the one we are called upon to consider in this case would amolmt to a " '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 the property of any other person." On the question of law that we are required to decide in this case. there is a sharp cleavage of judicial opinion. The Antlhra Pradesh High Court in the case referred to earlier as well as in G. V. Krishna Rao and Ors. v. First Addit·ional Gift-tax Officer, Guntur(l) and the Allahabad High Court in Commissioner of Gift-tax v. Jagdish Saran(a) have taken the view that when a copar­ cener in a Hindu Undivided Family governed by Mitakshara School throws his self acquired properties into common stock. the same amounts to a 'gift' under the Act. On the. other hand. a full bench of the Madras High Court in Commissioner of Gift-tax, Madras v. P. Rangasami Naidu( 4 ) ~nd VR. S. RM. Ramaswami Chettiar v. The Commissioner of Gift-tax, Madrasr•). a full tench of the Gujarat High Court in Dr. A. R. Shukla v. Commisstoner of Gift-tax, Gujarat(6 ); a division bench of the Kerala High Court in P. K. Subramania lyer v. Commissioner of Gift-tax, Kerala('l) and a division bench of the Mysore High Court in Smt. Laxmibai Narayana Rao Nerlekar v. Commissioner of Gift-tax(8 ), have taken a contrary view. (t) 56 I.T.R. 353. (3) 75 I.T.R. 529. (5) Tax Case No. 10 of 1966. (7) 67 J.T. R. 61:!. (2) 70 I.T.R. 812. (4) Tax Case 272 of 1964 .. (6) 74 I.T.R. 167. (8) 65 I.T.R. 19. ... To pronounce on the question of law presented for our decJsJOn, we must first examine what is the true scope of the doctrine of throwing into the 'common stock' or 'common hotchpot'. It must . be remembered that a Hindu tamily is not a creature of :1 contr_act. As observed by th!s Coun in Maliesappa Bandeppa Desai and Ors. v. De sa,· Mallappa and On·. C) that the doctrine of throwing inlu common stock inevitably postulates that the owner of a separate property is a coparcener who has an interest in the copan.:enary property and desires to blend his separate propeny with the copar­ cenary prope;·ty. The existence of a coparcenary is absolutely necessary be,fc;e a coparcener can throw into the common stock his self acquired properties. The separate property of a member of a joint Hindu family may be impressed with the character of joint family property if it is voluntarily thrown 'by him illto lhe common sto:k with the intenti0n of abandoning his separate claim therein. The separate property of a Hindu ceases to be a ~ep.u•He .property and acquires the characteristic of a joint '.:amily or ances­ tral property not by any physical mixing with his joint family or his ancestral property but by his own volition and intention by his waiving and surrendering his separate rights in it as separate pro­ perty. The act by which the coparcener throws his sr::par<ate property to ~he common stock is a unilateral act. There is no question of either the family rejecting or accepting it. By his individual volition he renounces his individual right in that property and treats it as a property of the family. As so~11 as he declares his intention to treat his self acquired property as that of the joint family, the property assumes the character of ;oint family property. The doctrine of throwing into the common stock is a doctrine peculiar to the Mitakshara School of .. Jiindu Jaw. When ·a coparcener throws his separate property into tht: common stock. he makes no gift under Chapter VII of the Transfer of Property Act. In such a case there is no donor or donee. Further no question of <Jccept~"'Ce of t11e property thrown into the common ·stock arises. Bearing in mind the true nature of the doctrine of throwing into the common hotchpot, we shall now proceed to examine ~~ (' I) the relevant provisions of the Act to ·a~ertain whether the act of G the assessee can be comidered as a gift under the Act. Section 3 is the charging section. It provides that subiect to the other provisions contained in the Act, there shaH be charged ·for every assessment year commencin~ on and from the 1st dar of April, 1958, a tax known as gift tax in respect of the gifts, if anv. 11 ~made by a persQn during the previous year (other than gifts made . -- (l) [i961] 3 S.C.R. 770. n GOLI ESWARIAH V. COMMR. GIFT TAX (Hegde, J.) 527 before the )_st day of April 1957) at the rate or rates specified in the Schedule. Gift js defined in s. 2(xii) as follows: " "gift'' means 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 the transfer of any property deemed to be a gift under section 4"'. In this case we are not dealing with a deemed gitt. Therefore we need not consider the scoP'.! of s. 4. Before an acl can be considen:d as a gift as defined, there must be a transfer of property by one person to another. 'Person' is defined as including a Hindu Undivided Family in s. 2(xviii). Section 2(xxiii) says th:lt 'property' includes any interest in property, moveable and immov­ able. Section 22(xxiv) defines "transfer of property" thus : "Transfer of property'' mear.s any disposition, con­ veyance, assignment, settlement, dehvery, payment or other alineation of propertx and, without limiting the generality of the foregoin~ mcludes.- ( a) the creation of a 'trust in property; (b) the grant or crea~ion of any lease, mortgage, ~harge, ~asement, licence, power, partnership or mterest m propert)'.; . 'E (c) the exercise of ·a p~wer of appointment of pro- perty vested in any person, not the owner of the property, to determine its disposition in tfavour of any person other than the donee of the power; and (d) ~ny transaction entered into by any person with mtel).t thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person." The High Court relied on s. 2(xxiv) (d) in answering the question referred to it in favour of th~ Reven~e. ~t came to. the conclusion that the act of the assessee m throwmg his self-acquired properties into the col!lm?n stock amounted. t<? . "a t.ransaction entered into by him w1th mtent thereby to dimi~tsh dtreC::tly or indirectly the value of his own pro~~rty a~d to mcrease the value of .the property of any other person . ·It Js true that the assessee by throwing his sel!-acquired property irtto the.cm_nmon stock gave up his exclusive rtght in that property and m tts place he w~s content to own that property jointly with the oth~r members of. his family. We do not think that it is necessary in thts case to constder whe~her the act of the assessee can be said to have "diminished 5 28 . SUPREME COURT REPORTS (1971] 1 S.C.R. dir:ctly or indireCtly the value of his own property ~nd iritrea~cd: A • the value of the property" of his join~ -family bec'ause in our opinion that act cannot be considered as. a "transaction entered into ... Clause.( d) ct s. 2 (xxiv) contemplates a "transaction entered into'' , by one person with another. It cannot apply to a unilateral acr. ' It must be an act to which two or more. persons ar~ parties.. It is true that for the purpose of the Act, a Hindu Uvdivided Family B can be considered as a "person": But the assessee did not enter into any transaction witlf his family. ;Therefore we are unable to agr~e with the High Coyrt that the ·~~t of the assessee fell within the scope of s. 2 (xxiv.) (d) of the Act. St>crinn ~ ~ ':>:J\'(d) i~ ::;imilar tQ_ Pur~graph (f) of s. 4 cf the Australian Gift Duty Assessment A:ct,.~1941-~2. Interpreting C that section in Grimwade and Ors. v. Federal Commissioner of Taxation ( 1), the High Court of Australia observed that the tr~n.­ sactlon by a person referred to therein must be a t~ansactio!)....wrtti. some other person and that "it cannot be a unilateral act. Mr. B. Sen, learned Counsel for the department contended that the said act should be considered as a 'disposition' under *e main part of s. '2(xxiv). The word 'disposition' js not a tenn of law. Futrher it lias no precise meaning. Its meaning has to be gatherea from the context in which it is used. In the context in which that term is used in s. 2 (xxiv), it cannot mean to 'dispose ct. Otherwise even if a man abandons or destroys his property, it would become a 'gift' under the Act .. That could not have been the intention of the legislature. In s. 2(xxiv), the word 'disposi­ tion' is used along with-words "conveyance, assigiunent, settlement. delivery, payment or other alienation of property." Hence it is clear from the context that the word 'disposition' therein refers to a bilateral or a multi-lateral, act. It does not refer to a unilateral act. In this connection reference may be usefuUy made to the decision of this Court in Commissioner of {ncome-tax, Madras v. M. K. Stremann(2). Therein the assessee first threw his private properties into the conunon stock and afterwards there was a partition amongst the m~mbers.of the family which included his two minor sons and a minor daughter, represented by their mother. The question arose whether the partitio,n in qu~stion amounted to a transfer of a~sets by the assessee tp tile three minor children -so as to attract the provisions of s. 16 ( 3) ( cr)(jv) of the Indian Income-tax Act, 1922. In that case~ the Revenue did not contend. in. this Court that the act of the assessee throwhlg into common stock his self acquired properties amounted to transfer of assetslJ by the ass.essee to his three minor childreq. On the other hand, it con~em~ed that. the.. partition, that took p1~su9s<;<~ue~tly amounted to a transfer of assets of the assessee t~"1iis muior child- (1) 71J C.L.R, 199. (2) s6 r.T.R. 6er _ E. cGOLI ES:WARIAH V. COMMR. GIFT TAX (Hegde, J.) 5 29 ren. This Court overruled that contention. Therein the conten~ tion of the Revenue appeared to have proceeded on the basis that the antecedent act of the assessee viz. throwing his self~acquired properties to the common stock may not amount to a transfer of his assets to his minor children but the partition that followed amounted to such a transfer. In that very case the Revenue appears to have contended before the High Court that the act of the assessee in throwing his self acquired properties into common stock amounted to a transfer of his assets to his minor children. The High Court observed that when the separate property of a copar­ cener ceases to be his separate and becornes impressed with the character of coparcenary property, there is no trnnsfi!r of that property from the coparcener to the coparcenary; it becomes joint family property because the coparcener who ov.ned it uptil then as his separate property, has by the exercise of his volition, impress­ ed it with the character of joint family or coparcenary property, to be held by him thereafter alongwith other members o: the joint family; it is by his unilateral action that the property became joint family property; the transaction by which a property ceased to be the property of a coparcener and became impressed with the character of coparcenary property, does not itself amount to a transfer; no transfer need precede the change and no transfer ensues either-see M. K. Stremann v. Commissioner of Income~ tax, Madras(l). We are in agreement with those findings. For the reasons mentioned above, we allow this appeal, set aside the judgment of the High Court and answer tl)e question referred to the High Court thus :- The declaration by which the assessee has impressed the cha­ racter of joint Hindu family property on the self~acquired proper~ ties owned by him did not amount to a transfer so as to attract the provisions of the Act. The Revenue shall pay the costs of the appe11ant in this appeal. G.. C. (1 ) 41 I. T. R. 291 L 13 Sup. Cl/10-5 Appeal allowed.