- Bookmark
- Share
- CaseIQ
Commissioner Of Gift-Tax, Patiala-I v. Harbhajan Singh And Sons.
Factual and Procedural Background
The Income-tax Appellate Tribunal (ITAT), Chandigarh Bench, referred a question of law under section 26(1) of the Gift-tax Act, 1958, concerning whether a gift made by the “karta” of a Hindu Undivided Family (HUF) to his wife attracted the provisions of section 5(1)(viii) of the Act. The assessee-HUF sold agricultural land and verbally gifted Rs. 1,05,000 to the wife of the karta from the sale proceeds. The Gift-tax Officer (GTO) rejected the assessee's claim that Rs. 50,000 of the gift was exempt under section 5(1)(viii). The Assistant Commissioner of Gift-tax (AAC) confirmed this order, holding that the gift was made by the karta in his capacity as the karta and not as an individual.
On second appeal, the Tribunal accepted the assessee's contention that Rs. 50,000 of the gift was exempt, relying on precedents including Jana Veera Bhadrayya v. CGT and CGT v. Hari Chand. However, upon further inquiry by a Division Bench of this court, the Tribunal clarified that the gift was made by the karta in his capacity as the karta of the HUF and not as an individual. The court then examined the applicability of the precedents in light of this finding.
Legal Issues Presented
- Whether the gift made by the karta of the assessee-HUF to his wife attracts the provisions of section 5(1)(viii) of the Gift-tax Act, 1958.
- If the gift was made by the karta in his capacity as the karta of the HUF or as an individual, and the consequent legal implications under the Act.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jana Veera Bhadrayya v. CGT, [1966] 59 ITR 176 (AP) | Determination of the capacity in which a gift is made (individual vs. karta of HUF) for the applicability of gift-tax exemptions. | The court noted that in this case the gift was made by the husband as an individual, not as karta, making the precedent distinguishable from the present case where the gift was made by the karta as karta. |
| CGT v. Hari Chand, [1974] 95 ITR 308 (Punj) | Clarification that gifts made by an individual described as karta are treated as individual gifts unless the department contests the capacity. | The court observed that in Hari Chand, the gift was held to be made individually and not by the HUF; thus, it was not applicable to the present case where the gift was made as karta of the HUF. |
Court's Reasoning and Analysis
The court analyzed whether the gift was made by the karta in his individual capacity or in his capacity as the karta of the HUF. It observed that the precedents relied upon by the Tribunal involved cases where the gift was made by the donor as an individual and not as the karta. In contrast, the Tribunal's additional statement clarified that the gift in the present case was made by the karta in his capacity as the karta of the HUF to his wife and daughter.
The court reasoned that if the gift is made by the karta as karta of the HUF, the provisions of section 5(1)(viii), which provide exemption for gifts to a spouse, do not apply because the HUF itself does not have a spouse as contemplated under the Act. Consequently, the Tribunal erred in applying section 5(1)(viii) to the gift made by the karta to his wife.
Thus, the question referred was answered in the negative, favoring the revenue's interpretation that the gift was not exempt under section 5(1)(viii) when made as karta of the HUF.
Holding and Implications
The court held that the gift made by the karta of the Hindu Undivided Family to his wife does not attract the exemption under section 5(1)(viii) of the Gift-tax Act, 1958.
The direct consequence of this ruling is that the gift in question is taxable and not exempt under the said provision. The decision reverses the Tribunal’s earlier finding in favor of the assessee. No broader precedent was established beyond the facts of this case. Since the assessee did not appear to contest costs, the court made no order as to costs.
J.V Gupta, J.:— The Income-tax Appellate Tribunal, Chandigarh Bench, has referred the following question of law under s. 26(1) of the G.T Act, 1958 (hereinafter referred to as “the Act”), for the decision of this court:
“Whether, on the facts of this case, the Tribunal was right in law in holding that the gift in favour of the wife of the ‘karta’ of the assessee-Hindu undivided family attracted the provisions of section 5(1)(viii) of the Gift-tax Act?”
2. The assessee is a HUF. The year ending 31st March, 1970, was the previous year relevant to the assessment year 1970–71.
3. The assessee furnished to the GTO the statutory return due under the Act. During the said previous year, the assessee-HUF sold out of the agricultural lands owned by it, certain lands totally measuring in area 62,296 sq. yards and out of the sale proceeds thereof, an amount of Rs. 1,05,000 was verbally gifted to Smt. Shavinder Kaur, the wife of the “karta” of the assessee-family. The GTO by his order dated 14th December, 1971, completed the gift-tax assessment after repelling the assessee's claim that the said gift was to the extent of Rs. 50,000 exempt from gift-tax by virtue of the provisions of s. 5(1)(viii) of the Act. On appeal, the AAC of Gift-tax by his order dated 16th March, 1972, confirmed the order of the GTO. He found that the gift in question had been made by Shri Harbhajan Singh in his capacity as “karta” of the family and not in his capacity as an “individual”.
4. On second appeal, the Tribunal accepted the assessee-family's contention that the gift in question was to the extent of Rs. 50,000 exempt as aforesaid. In coming to the said conclusion, it relied on a case, Jana Veera Bhadrayya v. CGT, [1966] 59 ITR 176 (AP), and also on a judgment of this court in CGT v. Hari Chand, [1974] 95 ITR 308 (Punj).
5. Earlier this reference came up for hearing before a Division Bench of this court and the Bench, after hearing the parties, vide its order dated 4th October, 1976, directed the Income-tax Appellate Tribunal to submit an additional statement as to whether the gift was made by Shri Harbhajan Singh as individual to individual or as representing a HUF. In the additional statement filed by the Tribunal, it has been stated that Harbhajan Singh made the gift to his wife and daughter simultaneously in his capacity as the karta of his joint family, and not as individual to individual. In view of this finding of the Tribunal, the authorities relied upon by it are clearly distinguishable. In Jana Veera Bhadrayya's case, [1966] 59 ITR 176 (AP), the Andhra Pradesh High Court expressly stated (p. 177):
“The controversy relates to the capacity, in which he made the gift. It cannot be postulated that he made the gift as the manager of the family, since the words of the document make it abundantly clear that it is in his capacity as the husband that he made the gift.”
6. Similarly, in CGT v. Hari Chand, [1974] 95 ITR 308 (Punj) it was stated (p. 312):
“It is significant that before the Tribunal it was not urged by the department that the gift was not made by Hari Chand as Hari Chand but as Hindu undivided family. The description of Hari Chand as karta is, therefore, beside the point.”
7. In both the cases, the finding was that the gift was made by the donor not as karta of the HUF but as individual to individual. In the present case, if the gift was made as karta of the HUF, then the provisions of s. 5(1)(viii) are not attracted, because there cannot be any spouse of the HUF as such as contemplated therein. In this view of the matter, the Tribunal was wrong in law in holding that the gift in favour of the wife by the karta of the assessee-HUF attracted the provisions of section 5(1)(viii) of the Act. Thus, the question is answered in the negative, i.e, in favour of the revenue. Since there is no representation on behalf of the assessee, there is no order as to costs.
Rajendra Nath Mittal, J.:— I agree.
Alert