Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the gift is void and not voidable ?

Counsel Appeared

V. Ramachandran for V. Narayanamurthy, for the Assessee : N.V. Balasubramanian, for the Revenue.

RANGARAJAN, J.:

The facts relating to this reference are as follows : The assessee is an HUF. The karta of the family made a gift of Rs. 1,00,000 on 11th Oct., 1960, to his nephew. The ITO came to know that in an appellate order for the earlier years, it had been held that the gift was void. Consequently, he came to the conclusion that the income attributable to this sum of Rs. 1,00,000 estimated on compound interest basis had to be added to the income assessed. This was confirmed on appeal. In the further appeal to the Tribunal, the contention of the assessee was, firstly, that the transaction was only voidable and not ab initio void, secondly, that a minor coparcener had ratified the transaction after attaining majority, and, thirdly, that the estimate of the income was unreasonable and excessive, and, in any event, the interest could not be estimated on compound rate basis.

The Tribunal found that the transaction was ab initio void, as held by several decisions of the Supreme Court and followed by the Tribunal in the cases of the assessee’s brother. The Tribunal also found that the claim of ratification was an afterthought, as demonstrated by the facts on record, that it would be reasonable to assess the actual interest earned on the amount which was lying as a deposit with a firm, and if such information was not available, to estimate the interest at a simple rate of interest instead of at a compound rate of interest. The assessee required the Tribunal to state the following common questions of law :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the gift is void and not voidable ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in not considering the applicant’s contention that the gift has become time-barred latest by 11th Oct., 1972, and as such thereafter no income shall be deemed to accrue for the asst. yrs. 1973-74 and 1974-75 ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in not accepting the contention that no income has accrued or arisen to the applicant in so far as no income was actually received by the applicant ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in estimating the rate of interest at 9% for 1971-72 and at 12% for 1972-73, 1973-74 and 1974-75 ?”

2. While referring the questions, the Tribunal had stated that the question whether the amount was irrecoverable had not been argued before the Tribunal.

3. Before us, learned counsel for the assessee argued that such a question arises from the facts found by the Tribunal, and that, on the accepted position that the amount of Rs. 1,00,000 had gone out of the family, no interest could be deemed to have accrued to the assessee at all and an assessment of a notional income was bad in law. It was also argued that the question of recoverability was a subsidiary issue, once this main point was accepted.

On the other hand, learned counsel for the Revenue pointed out that the questions raising this issue had never been raised before the Tribunal as stated in the statement of the cases.

4. We find that the assessee is unable to press the first question as to whether the gift was void, inasmuch as it is concluded by the decision of the Supreme Court cited in the order of the Tribunal. The assessment of the income from the amount gifted is a mere consequence of the finding that the gift was void. Once the gift is void, the donee stands in the position of a trustee and is accountable to the donor for the income derived from the amount, as he will be holding it on behalf of the donor. That is the reason why the Tribunal has given a direction that the actual interest earned by the donee should be treated as income and should be assessed as accruing to the assessee. It follows that this is not an assessment on a notional income at all. Such a situation can arise only if the assessee is able to establish that the amount gifted had become irrecoverable. That issue, as stated by the Tribunal, was never raised before the Tribunal. In the circumstances, we answer the first question in the affirmative and against the assessee. The second and third questions do not arise from the order of the Tribunal. The fourth question challenges only the issue of interest which, as held by the Tribunal, was only alternative to the actual amount which was directed to be added. Therefore, the answer to this question also has to be in the affirmative and against the assessee.

No costs.

[Citation :210 ITR 1047]