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  • Jaganmohan Reddy, C.J
  • Venkatesam, J.
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  • Jaganmohan Reddy, C.J
  • Venkatesam, J.
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Smart Summary

Structured Summary of the Opinion delivered by Jaganmohan Reddy, C.J.

Factual and Procedural Background

This Court directed the Income-Tax Appellate Tribunal, Hyderabad to state a case on whether a deed dated 23rd December, 1957, executed by the assessee in favour of her son, Sriramulu, constituted a transaction of gift under section 2(12) of the Gift-Tax Act and was liable for assessment.

The material facts set out in the opinion are: the assessee was the wife of Valluru Pullayya and mother of three sons, including the eldest son Valluru Sriramulu. The father partitioned family properties on 9th April 1953. On 30th August 1954, Sriramulu executed a deed of gift transferring to his mother the properties he had obtained on partition. At that time Sriramulu had a daughter and his wife was pregnant; a son was born about a month after the 1954 gift. Subsequently, on 17th November 1954 the mother (the assessee) executed an agreement to reconvey the properties in favour of Sriramulu and pursuant to that agreement executed a gift deed reconveying the properties to him.

Later (in 1959) the mother, as guardian of the infant son, filed a suit for partition and separate possession of the minor son's share. The Gift-Tax Officer assessed the assessee to gift tax on the reconveyance. The assessee challenged the assessment before the Appellate Assistant Commissioner, who upheld the assessment, and the matter was taken up to the Tribunal which then led to this reference to the Court.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances, the deed dated 23rd December, 1957 (the reconveyance by the assessee to her son) constituted a transaction of gift under section 2(12) of the Gift-Tax Act and was liable for assessment.
  2. Whether a gift made by a Hindu coparcener/manager/head of a joint family of joint family property (or the entire share received on partition) to a non-member (here, the mother) is valid under Hindu law.
  3. Whether the 1954 transfer was a nominal or sham transaction (and the evidentiary effect of asserted but not considered documents such as receipts and an agreement dated 17th November, 1954).
  4. Whether the existence of a child in utero at the time of the gift affected the capacity to alienate the property and rendered such alienation challengeable.

Arguments of the Parties

Assessee's Arguments

  • The reconveyance did not fall within the purview of the Gift-Tax Act because it lacked essential ingredients of a gift.
  • The earlier gift deed (30th August 1954) was a sham or nominal, executed to prevent the son from dissipating the properties while he led an immoral and wasteful life; the device was to protect the family property.
  • At the time Sriramulu conveyed the property to his mother in 1954 he had only a daughter (and a wife enceinte), so he was not competent to gift away the whole of the properties; at most he could have validly gifted only his actual share.
  • The assessee's advocate stated that cost (cash) receipts and copies of the plaint and written statement in O.S. No. 25 of 1959 were filed before the Tribunal to show that possession remained with Sriramulu (i.e., the gift was nominal); and that an agreement dated 17th November, 1954 could not initially be produced but would be filed in court.

Revenue / Department's Arguments

  • If the assessee had filed receipts or documents before the Tribunal and the Tribunal took no notice of them, the proper remedy was to request that fact be mentioned in the statement of the case and, if necessary, ask this Court for a specific question; the assessee did not do so and thus cannot now urge that omission.
  • The Tribunal's record, when called for, showed that copies of the plaint and written statement had been filed by the assessee; and the assessee's counsel did not seek adjournment to produce the agreement.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Commissioner of Wealth-Tax v. Narendranath Held (by a Bench of this Court) that the property of a sole coparcener cannot be treated as joint family property in the absence of a son; no joint family can be deemed to be constituted with a daughter alone (as stated by that Bench). The Court noted this earlier view but treated it alongside subsequent authoritative Supreme Court dicta; it used the discussion to examine whether the family in the present case was a joint family at the time of the gift.
Gowli Buddanna v. Commissioner of Income-Tax, Mysore The Supreme Court held that property of the joint family does not cease to belong to the family merely because representation rests with a single coparcener; a Hindu undivided family may consist of a single male member and widows, and the Income-Tax Act treats a Hindu undivided family as an assessable entity without requiring more than one male member. The Court relied on this authority to explain the legal meaning of "Hindu undivided family" and to show that the existence of members (including an unborn son) gives rights to challenge alienations; the decision supported the proposition that joint family rights persisted and could constrain alienations.
Baba v. Timma A Full Bench of the Madras High Court held that a Hindu father, if unseparated, has no power (except as warranted by special texts) to make a gift to a stranger of an ancestral estate, whether movable or immovable. The Court cited this authority as part of a series of decisions establishing that gifts of joint family property by a father/manager/coparcener are generally void except for limited reasonable gifts to family members.
Peramanayakam v. Sivaraman A Full Bench of the Madras High Court reviewed prior case-law and concluded similarly that managers/coparceners cannot validly make gifts of joint family property to outsiders beyond narrowly sanctioned exceptions. The Court relied on this Full Bench review (and its approval by higher courts) to reinforce the settled principle limiting the power of a manager/coparcener to make gifts of joint family property.
Gurramma v. Mallapa Latest decision of the Supreme Court (as cited) supporting the proposition that gifts by a Hindu father or manager or coparcener of undivided joint family property are void. The Court treated this Supreme Court authority as direct support for the conclusion that the gift in the instant case was void.
Guramma v. Mallappa (as cited in the opinion) The opinion reproduces language from the Supreme Court (in this name as used in the text) explaining the limitations on a manager's power to make gifts of joint family property and that gifts to strangers are void except in narrow, sanctioned circumstances. The Court quoted this passage at length to justify the legal proposition that the manager (or similar fiduciary figure) lacks broad power to make gifts of joint family property and to apply that principle to the present facts.

Court's Reasoning and Analysis

The Court proceeded by first reviewing the procedural posture and the evidentiary contentions: the assessee contended that documentary evidence (receipts and the agreement) showed the 1954 transfer was nominal, and that the Tribunal failed to consider that evidence. The Court observed that if such documents were before the Tribunal and no notice was taken, the proper procedure was to have that omission reflected in the statement of the case; the assessee did not secure such a specific question and thus the Court felt precluded from entering into the procedural issue of whether the receipts were filed or considered.

Notwithstanding those procedural defects, the Court examined the substantive legal position on the validity of the gift. The Court set out the controlling factual premise: at the time of the 1954 gift by Sriramulu the properties were joint family property, and the family consisted of Sriramulu, his wife and daughter, with the son then in utero. The Court relied on the principle (stated in cited authorities) that a son acquires an interest in joint family property from the date of conception and that therefore any alienation made while the unborn son had rights could be challenged by him when he came into existence.

The Court surveyed judicial authority concluding that a gift by a Hindu father, manager or coparcener of undivided joint family property is generally void except for limited reasonable gifts to family members. It cited Full Bench decisions (Baba v. Timma; Peramanayakam v. Sivaraman) and Supreme Court authority (Gurramma/Guramma v. Mallappa / Mallapa) that restrict the manager's power and hold gifts to outsiders void. It also discussed the statutory/interpretative point addressed in Gowli Buddanna concerning the composition and tax treatment of a Hindu undivided family.

Applying these principles to the facts, the Court concluded that (a) at the time of the 1954 transfer there was an existing joint family interest which precluded Sriramulu from gifting away the entire properties, (b) the transfer to the mother — who was not to all intents and purposes a member of his joint family for the purpose of this transfer — was therefore void, and (c) the transaction was, in any event, a nominal one. Because the initial gift deed itself was void, the Court reasoned there was no legal necessity or effect in a later second gift deed that was the subject of assessment; consequently the assessee could not be held liable for gift-tax on the later transaction.

Holding and Implications

Holding: Our answer to the reference is in the negative and in favour of the assessee with costs. The Court held that the gift (the earlier transfer) was void and that the assessee was not liable for gift-tax on the subsequent reconveyance/transaction which was sought to be taxed.

Implications:

  • Direct effect: the assessee's liability to gift-tax in relation to the latter transaction was negated; the reference was answered in the assessee's favour and costs were awarded.
  • Costs and fees: Advocate's fee of Rs. 250 was recorded.
  • Precedential effect: the Court applied established principles from earlier Full Bench and Supreme Court authorities that restrict the power of a Hindu father, manager or coparcener to make gifts of undivided joint family property. The opinion does not purport to lay down a novel rule beyond the application of those authorities to the facts before the Court.

This summary is based exclusively on the content of the provided opinion. No facts or legal propositions beyond those stated in the opinion have been added.

Show full summary ...

    Valluri Janakamma v. Commissioner Of Gift-Tax

    Jaganmohan Reddy, C.J:— This Court had directed the Income-Tax Appellate Tribunal, Hyderabad to state a case on the following question, viz:—

    “Whether on the facts and in the circumstances of the case the deed dated 23rd December, 1957, executed by the assessee in favour of her son, Sriramulu, constituted a transaction of gift under section 2(12) of the Gift-Tax Act liable for assessment?”

    2. The assessee is the wife of one Valluru Pullayya, Mandapeta. They had three sons by name Valluru Sriramulu, Valluru Narasimharao and Valluru Sathiraju. The father and the three sons constituted the joint family. On 9th April, 1953, the father partitioned the properties between himself and his three sons each of whom got into possession of their respective shares. On 30th August 1954, Valluru Sriramulu, the eldest of the three sons, executed a deed of gift whereby fee transferred the entire properties obtained on partition to his mother, the assessee. It may be stated and it is not disputed that at the time when the gift deed was made, Valluru Sriramulu had a daughter and his wife was enceinte. A month after this gift deed, a son was born to him. Thereafter on 17th November, 1954. It is stated that the mother (assessee) executed an agreement to reconvey the properties in favour of Sriramulu. Pursuant to the agreement dated 17th November, 1954, the assessee executed a gift deed whereby she reconveyed all the properties to her ton, Sriramulu, which were gifted to her by him through the gift-deed dated 30th August, 1954. Subsequently, the mother (i.e the assessee) at the guardian of the intent son filed a suit in 1959 against Sriramulu for partition and separate possession of the minor son's share. This suit was hotly contested because the defendant, Sriramulu, denied many of the allegations made in the plaint, and it is said that the suit resulted in decree. The Gift-Tax Officer assessed the assessee to gift tax on this re-conveyance. The assessee pleaded that this conveyance did not come within the purview of the Gift-Tax Act as it did not have any of the essential ingredients of a gift, that the first conveyance itself was a sort of shun and faked affair, that this device was resorted to because her son started dissipating the properties by leading an immoral life and in order to prevent his ways of vice and wasteful habits it was considered necessary to transfer the properties to his mother; and that as a consequence the gift-deed dated 30th August, 1954, was executed it was ??? Contended that at the time when Sriramulu conveyed the property by way of gift to his mother in 1954, he had only a daughter and since the properties gifted belonged to the Hindu joint family, Sriramulu was not competent to gift away the whole of those properties and at the most the gift could be valid only to the extent of his share. The Gift-Tax Officer rejected this claim of the assessee and held that the gift was valid and consequently assessed her to tax. The Appellate Assistant Commissioner also negatived the contentions of the assessee and having looked into the contents of the two gift-deeds he found that there was nothing therein to support the ??? of the assessee.

    3. Before the Tribunal, the assessee ??? of the plai???t and the written statement in O.S No. 25 of 1959 on the file of the Subordinate Judge, Rajahmundry. The learned Advocate appearing for the assessee, now states that he had filed the cist receipts before the Tribunal to show that notwithstanding the gift deed of 1954, the possession was still with Sriramulu, that be had not parted with it, and that the gift was only a nominal one. He also says that he had informed the Tribunal that the agreement dated 17th November, 1954, was not in his power and control and until it was filed in the Court, he could not obtain copies there of. In spite of this, he says that the Tribunal did not consider these aspects of the matter.

    4. Mr. Kondiah, appearing for the Department, has quite rightly contended that if the cist receipts were filed and no notice was taken, the assessee could have specifically asked for this matter to be mentioned in the statemet of the case, and if that was not acceded to the assessee could have asked this Court for a specific question in this respect. Neither of these she did. Consequently we are precluded from going into the question whether in tact the assessee had filed the cist receipts before the Tribunal and whether the same were returned. On the last occasion when the case was parrly heard, we had asked Mr. Kondiah to send for the records of the Tribunal which however, disclose that copies of the plaint and the written statement were filed by the assessee. The Advocate for the assessee frankly admits that he had not asked for an adjournment to produce the agreement; as such, we cannot say that the Tribunal has failed to give him an opportunity to file the relevant evidence Notwithstanding these defects, we think that the contention of the learned Advocate that the gift is invalid must be sustained. Apart from the question that the plaint alleges that the gift was only a nominal one, in the circumstances as set out therein namely, that Sriramulu was given to ways of vice and wasteful habits and was dissipating the property as a consequence of which the elders persuaded him to transfer the property nominally in the name of his mother, which illegation though denied to the extent of his leading a life of vice and wasteful habits admitted that the transfer itself under the Hindu law would be void and invalid. On the admitted facts, on the date when the gift was made the property was a joint family property of Sriramulu consisting of himself and his daughter, and the son being in the w??? at the time, any alienations made could be challenged by him. It is elementary that a son would inherit a right in the joint family property from the date he is conceived. Though a Bench of this Court in Commissioner of Wealth-Tax v. Narendranath1., held that the property of a sole coparcener of a Hindu joint family cannot be treated as a joint family property in the absence of a son and no joint family can be deemed to be constituted with a daughter, Their Lordships of the Supreme Court in a recent case, viz Gowli Buddanna v. Commissioner of Income-Tax, Mysore2. have held that property of the joint family did not cease to belong to the family merely because the family was represented after A's death by a single coparcener B, who possessed rights which en owner of property might possess, and the income received therefrom was taxable as income of the Hindu undivided family. There need not be more than one male member to form a Hindu undivided family as a taxable entity under the Income-Tax Act. The expression “Hindu undivided family” in the Income-Tax Act is used in the sense in which a Hindu joint family it understood under the personal law of the Hindus. Under the Hindu system of law a joint family may consist of a single male member and widows of deceased male members, and the Income-Tax Act does not indicate that a Hindu undivided family as an assessable entity must consist of least two male members. It was further observed that under section 3 of the Income-Tax Act not a Hindu coparcenary but a Hindu undivided family is one of the assessable entities. A Hindu joint family consists of all persons lineally descended from a common ancestor, and includes their wives and unmarried daughters A Hindu coparcenary is a much narrower body then the joint family: it includes only those persons who acquire by birth an interest in the joint or coparcenary property, these being the sons, grandsons and great-grandsons of the holder of the joint property for the time being.

    5. As we have said, at the time when the gift was made, the joint family of Sriramulu consisted of himself, his wife and daughter apart form the son in the womb, who had a right to challenge the gift; as such, there was a joint family in existence to preclude Sriramulu from gifting away the properties. That a gift by a Hindu father or a manager or a coparcener of an undivided joint family property is void, is supported by a series of decisions ranging over a long period beginning from Baba v. Timma to the latest decision of the Supreme Court in Gurramma v. Mallapa. There is a consensus of opinion of the Courts in this country that except for reasonable gifts made to members of the family, all other gifts whether to strangers or of the entire properties to relations are void and invalid. A Full Bench of the Madras High Court in Baba v. Timma, categorically held that a Hindu father, if unseparated, has no power, except for purposes warranted by special texts, to make a gift to a stranger of anscetral estate, movable or immovable.

    6. In Peramanayakam v. Sivaraman3. another Full Bench of the same High Court consisting of five Judges reviewed the entire case-law and came to similiar conclusion, This decision was referred to with approval by Their Lordships of the Supreme Court in Guramma v. Mallappa. Subba Rao, J. (as he then was,) delivering the judgment of the Court observed at pages 516, 517 as follows:—

    “But what we are concerned with in this case is the power of a manager to make a gift to an outsider of a joint family property. The scope of the limitations on that power has been fairly well settled by the decisions interpreting the relevant texts of Hindu law. The decisions of Hindu law sanctioned gifts to strangers by a manager of a joint Hindu family of a small extent of property for pious purposes. But no authority went so far, and none has been placed before us, to sustain such a gift to a stranger however much the donor was beholden to him, on the ground that it was made out of charity, It must be remembered that the manager has no absolute power of disposal over joint Hindu family property. The Hindu law permits him to do so only within strict limits. We cannot extend the scope of the power on the basis of the wide interpretation given in the words ‘pious purposes’ in Hindu law, in a different context. In the circumstances, we hold that a gift to a stranger of a joint family property by the manager of the family is void.”

    7. In the instant cane, the gift was made by the divided son who is the head of his joint family consisting of himself, his daughter and wife, to his mother, who to all intents and purposes was not a member of his joint family and the gift was of the entire share which was received on partition. In the circumstances the gift is void. We also hold that the transaction admittedly was a nominal one. If so, it need not be act aside. In any case the gift deed itself being void, there was no need nor necessity for a second gift deed, which is now sought to be taxed, and consequently, the essessee is not liable for gift-tax on this latter transaction.

    8. Our answer to the reference is in the negative and in favour of the assessee with costs.

    9. Advocate's fee Rs. 250.

    10. Reference answered accordingly.

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    Comments

    Valluri Janakamma v. Commissioner Of Gift-Tax
    (Oct 5, 1966)