Muniyamma B. v. Commissioner Of Gift Tax

Venkataramiah, J.:— The question referred to this Court by the Income-tax Appellate Tribunal, under Section 26(1) of the Gift-tax Act, 1958 (hereinafter referred to as ‘the Act’) reads as under:—

“Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that there was a gift of Rs. 80,115/- by the aaaessee on 22-1-1967 which was liable to gift tax?.”

2. The assessee - Smt. B. Muniyamma - was a partner in the firm Lakshminarayana Rice Mills along with her husband Jyothinagaram Chikkavenkata Swamaiah representing the joint Hindu family of which he was the Kartha. The assessee was a partner in her individual capacity. On 22-1-1967, the said firm was dissolved and on taking account, it was found that she was entitled to Rs. 80,114-99 P. In the books of the firm, the amount standing to her credit was transferred to the account of her husband. On the next day, i.e, on 23-1-1967, the entire amount which was standing to the credit of her husband which included the amount transferred from the account of the assessee to his account was partitioned amongst himself and his sons by way of partial partition of the family. The Gift-tax Officer treated the transfer of the sum of Rs. 80,115/- from the account of the assessee to the account of her husband as a gift and levied tax thereon. The order of the Gift-tax Officer was affirmed in appeal by the Appellate Assistant Commissioner of Gift-tax and in the second appeal, by the Income-tax Appellate Tribunal. This reference is made at the instance of the assessee.

3. The question which arises for consideration is, whether the authorities under the Act and the Tribunal were right in holding that there was a gift of Rs. 80,115/- by the assessee to her husband on 22-1-1967.

4. At one stage of the proceedings, it was urged on behalf of the assessee that she had transferred the amount in question to the joint family hotch-pot and that the transaction in question could not be treated as a gift. That case was, however, given up at a later stage, It was, however, maintained that the amount in question being an actionable claim, in the absence of a written instrument the transaction in question could not be treated, as a valid gift even though there was a transfer of the amount in question by the assessee to her husband. We find it difficult to agree with the above submission made by Sri K. Srinivasan, on behalf of the assessee. An ‘actionable claim’ involves a claim to a debt. That is not the case here. In support of his case, he however, relied upon a decision of the High Court of Bombay in Virji Devshi v. Commissioner Of Income-Tax, Bombay., Bombay(1) in which there was an observation to the effect that mere making of entries in the account of the partnership firm would not constitute transfer of the amount from one person to another by way of gift. It has to be observed that having regard to the peculiar facts involved in that case, it was not necessary for the High Court to decide the question whether mere making an entry would amount to a transfer or a gift. It is seen at page 300 of that decision that the High Court found that the primary facts such as acceptance of gift on behalf of a minor son who was alleged to be the donee and Corresponding entries reflecting such an acceptance by the trustee were absent and therefore they could not hold that there was a gift by the father who was an assessee in that case in favour of the minor son. This becomes clear from the following observations made in that decision:—

“The argument that the amount could be treated as having been accepted by the father on behalf of the son, since the son was a minor, is not again available in the present case in view of the declaration which the father has purported to make, in which he speaks of the other partner, Jadavji being the trustee and guardian of the minor in respect of the sum. It is important to note that the declaration is inconsistent to a certain extent with the entries made in the partnership accounts. If Jadavji was a trustee in whom the money was to vest for the benefit of the minor, then the account in the partnership firm should normally be expected to be in the name of the trustee on behalf of the minor. Secondly, as the tribunal has pointed out, there is nothing on record to show whether Jadavji has accepted the trust or whether he is even aware of the fact that he has been made a trustee and a guardian of the minor son in respect of the same. It will thus be seen that there is nothing in the present case excepting the entries and the unilateral declaration made by the assessee before the Presidency Magistrate. The said declaration is a private document and does not by itself create any rights in favour of the donee. In our opinion, therefore, the Tribunal was right in view that it took that there was no valid gift of the amount by the assessee in favour of his minor son.”

It is however seen from another decision cited before us in’ Bhau Ram Jawaharmal v. Commissioner Of Income-Tax, U.P, U.P(2) the Allahabad High Court has observed that it was not necessary in every case for the validity of a gift that there should be physical delivery by the donor to the donee and that a transfer could be effected by making debit entries in the account of the donor and by making corresponding credit entries in the account of the donee. So long as the entries made in the respective accounts put the gifted amount beyond the control of the donor and resulted in his ownership in it being replaced by the ownership of the donee, there was no reason why a valid gift cannot be effected through such book entries.

5. In the instant case, It is not the case of the assessee that she had not transferred the amount in question in favour of her husband. As mentioned earlier, she first pleaded that she had transferred the amount to the joint family. What transpired subsequently is substantially in conformity with the statement made by her. The amount was transferred in the books of the firm of which the assessee was a partner from her account to the account of her husband and on the next day, the said amount formed the subject matter of partial partition which took place amongst her husband and his sons. The amount was placed beyond the control of the assessee. It was not her case that she was still entitled to recover that amount from her husband and his sons at any stage. In the circumstances, it has to be held that the authorities under the Act and the Tribunal were right in holding that there had been a transfer of the amount in question without consideration which attracted Section 2(xii) of the Act which defined the expression ‘gift’ for purposes of the Act.

6. The question is therefore answered in the affirmative and against the assessee.

7. No costs.