Jugal Kishore Jai Prakash v. Commissioner Of Income-Tax, Lucknow.

Pathak, J.:— The Income-tax Appellate Tribunal has referred the following three questions of law:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the gifts were to the detriment of the interest of the respective minors and not within reasonable limits in view of the provisions of the Hindu Minority and Guardianship Act, 1956?

2. Whether the Tribunal, on the facts and in the circumstances of the case, was justified in holding that the gifts were void at law?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee-firm was not entitled to the deduction of the interest of Rs. 9,000, paid to each of these two ladies, Smt. Prakash Wati and Smt. Snehlata?”

2. Lala Jugal Kishore together with his sons, Jai Prakash and Baij Nath, and their respective families constituted a Hindu undivided family. Upon partition of the larger family in 1947, Jai Prakash and Baij Nath became the kartas of their respective Hindu undivided families. The father and sons entered into a partnership under the name “Jugal Kishore Jai Prakash”, which is the assessee before us. The capital contributed by Jai Prakash and Baij Nath to the capital of the firm proceeded out of the funds of their respective Hindu undivided families. Jai Prakash has a wife and four sons, two of whom were majors and two were minors at the relevant time. Baij Nath has a wife and a minor son. Out of the total capital of Rs. 2,41,278, standing in the capital account of Jai Prakash in the firm he made a gift of Rs. 1,00,000, to his wife. Similarly, out of a total sum of Rs. 2,69,949, standing in the capital account of Baij Nath, he made a gift Rs. 1,00,000 to his wife. The two amounts of Rs. 1,00,000 remained deposited with the firm during the previous year ending March 31, 1962, relevant to the assessment year 1962–63. The assessee paid a sum of Rs. 18,000 as interest on the deposits to the wives of Jai Prakash and Baij Nath.

3. In assessment proceedings for the assessment year 1962–63, the assessee claimed a deduction of the amount paid as interest, but the Income-tax Officer rejected the claim. On appeal by the assessee, the Appellate Assistant Commissioner allowed the claim. Thereafter, upon appeal by the Income-tax Officer, the Income-tax Appellate Tribunal reversed the finding of the Appellate Assistant Commissioner and allowed the appeal. The Tribunal held that, while the gifts must be considered to have been made by the kartas of the respective Hindu undivided families to their wives, the gifts being to the extent of Rs. 1,00,000, each could not be said to be reasonable and were detrimental to the interests of the minors. It pointed out that the gifts militated against the provisions of the Hindu Minority and Guardianship Act, under which the interest of the Hindu minor had been considered as of paramount importance. Accordingly, the gifts were held to be void. Now, there can be no dispute that a father has the power of making a gift of ancestral movable property without the consent of his sons for the purpose of performing “indispensable acts of duty, and for purposes prescribed by texts of law, as gifts through affection, support of the family, relief from distress and so forth”,1 but such gifts must be within reasonable limits. The Supreme Court in Ammathayee (alias) Perumalakkal v. Kumaresan (alias) Balakrishnan 1967 S.C 569, 572. observed:

“Hindu law on the question of gifts of ancestral property is well settled. So far as movable ancestral property is concerned, a gift out of affection may be made to a wife, to a daughter and even, to a son, provided the gift is within reasonable limits.”

4. The law was considered by this court in L. Hirday Narain v. Commissioner of Income-tax [1965] 57 I.T.R 363 All... Apart from discussing the powers of the karta of a Hindu undivided family to gift ancestral movable property, it was also pointed out that the powers of a Hindu father in this regard extended beyond those of a mere karta. And then reference was made to the principle that where a transaction exceeded the well-settled limits contemplated by law, it was not void but only voidable, being open to challenge by the coparceners. Reference was made to the observations of this court in Jagesor Pande v. Deo Dat Pande A.I.R 1924 All. 51. that an alienation by the manager of a joint Hindu family without necessity is not absolutely void but is voidable at the instance of the persons whose interests are affected by it, namely, the coparceners in the property. The Punjab High Court also in S. Raghbir Singh Sandhawalia v. Commissioner of Income-tax followed the principle that a Hindu father could gift a part of the ancestral movable property without the consent of his sons, provided the gift was within reasonable limits. We may also refer to a decision of the Rajasthan High Court in Commissioner of Income-tax v. Braham Dutt Bhargava, where, after discussing the case law on the subject, the learned judges observed:

“This review of the legal position, in our opinion, is sufficient to establish two broad propositions. The first is that a gift by the manager of a joint Hindu family of the family property at any rate to a member or members thereof is voidable and not void ah initio. The second is that such a gift can be attacked only by the members of the family whose interests are affected thereby and not by strangers.”

5. From the foregoing, the following principles are deducible:

1. The karta of a Hindu undivided family may gift a portion of the ancestral movable property to a member of the family;

2. The gift must be within reasonable limits;

3. If the gift is not within reasonable limits it may be challenged, but only by members of the family whose interests are affected thereby; and

4. The gift is voidable and not void.

6. It is, therefore, clear that the gifts made by Jai Prakash and Baij Nath in favour of their respective wives were transactions within their powers, provided, of course, they were gifts within reasonable limits; if the gifts were in excess of their powers, they were voidable only and not void. If the gifts were within reasonable limits, no question arises of avoiding them. If, however, they exceeded the reasonable limits contemplated by law they could be avoided, but only by their respective sons.

7. Now, it has not been shown to us, and indeed there is no material on the record in this behalf, that the amount of rupees one lakh gifted by Jai Prakash and Baij Nath each was in excess of the reasonable limits. The transactions were challenged by the revenue, and assuming it was open to the revenue to challenge them, the burden would be upon the revenue to prove by material evidence that they exceeded reasonable limits. The Punjab High Court in S. Raghbir Singh Sandhawalia's case explained what “reasonable” meant in this context:

“The expression ‘reasonable’ means ‘rational according to the dictates of reason and not excessive or immoderate’. An act is reasonable when it is conformable or agreeable to reason, having regard to the facts of the particular controversy. The question whether a particular gift made by a Hindu father is within reasonable limits must be answered with reference to the facts and circumstances of the particular case, the word ‘reasonable’ meaning what is just, fair and equitable in view of the value, income and financial position of the estate, the number of persons who constitute the joint Hindu family, the relationship which the donor bears to the donee and any other circumstances which may appear in the case and are relevant and material to its determination.”

8. What is the material before us on the basis of which the revenue seeks a finding that the gifts made by Jai Prakash and Baij Nath were in excess of reasonable limits? It is pointed out that the capital account of Jai Prakash showed a total of Rs. 2,41,278, while the capital account of Baij Nath showed a total amount of Rs. 2,69,949. But there is nothing to prove that those figures represent the entire value of the assets of the respective Hindu undivided families. There should have been clear material to indicate what was the total extent of Hindu undivided family property in each case, and it would then have been possible to infer whether, having regard to the number of persons constituting the family, the gifts were within reasonable limits. We are not satisfied that the gifts have been proved in law to exceed reasonable limits.

9. There was a faint attempt on behalf of the revenue to establish that Jai Prakash and Baij Nath were not competent to make the gifts in question, the submission being based upon the provisions of sections 8 and 13 of the Hindu Minority and Guardianship Act. We fail to see how these provisions apply at all. The powers of a natural guardian of a Hindu minor have been set out in section 8 of the Act. And it is clear from section 6 that a natural guardian cannot act in respect of the minors' undivided interest in joint family property. And all that section 13 declares is that in the appointment or declaration of any person as guardian of a Hindu minor by a court, the welfare of the minor shall be the paramount consideration, and that no person shall be entitled to the guardianship if the court is of opinion that his or her guardianship would not be for the welfare of the minor. Inasmuch as the guardian has no right to act in respect of the undivided interest of the minor in coparcenary property, the emphasis lent by this declaration can hardly come into play in the present case. Upon the aforesaid considerations we answer the three questions referred as follows:

Question No. 1: In the negative.

Question No. 2: In the negative.

Question No. 3: In the negative.

10. The assessee is entitled to its costs, which we assess at Rs. 200. Counsel's fee is assessed at the same figure.