High Court Of Rajasthan
Commissioner Of Gift Tax vs. Inder Singh Rajput
Sections GT 2(xii), 4(2)
M.G. Mukherji, C.J. & J.C. Verma, J.
DB GT Ref. No. 54 of 1987
22nd July, 1997
BY THE COURT:
This is a reference preferred by the Revenue on a question as to : “Whether on the facts and in the circumstances of the case the Tribunal was right in holding that there could be no element of deemed gift in favour of the brothers of the assessee, who owned 2/3 of the house property in respect of the renovation expenses incurred on the house property”.
2. The assessee spent a sum of Rs. 60,732 in the remodelling, renovating and carrying out certain repairs of a house of which he was 1/3 owner and the remaining 2/3 was owned by his two brothers. The house is obviously an ancestral house. The assessee was asked by the Revenue to provide evidence in this connection and he was further asked as to why an amount of Rs. 40,520 representing 2/3 of Rs. 60,732 spent by the assessee on renovating the house should not be treated as a gift in favour of his brothers. The assessee could not furnish any plausible explanation and thereafter the GTO treated Rs. 40,522 as deemed gift. Aggrieved by the order passed by the GTO the assessee preferred an appeal before the AAC who accepted the arguments advanced by the assessee that the transaction could not be treated as a deemed gift except probably under cl. (d) of s. 4 of the GT Act and as per this clause the gift could be said to have taken place when the person in whom the property vests along with the donor appropriates something out of the property donated and since no such appropriation was done by any of the co-owners, there was no gift in the eye of law. The AAC accordingly deleted the amount of Rs. 40,520 from the order of the AO. The Department was aggrieved by this order as passed by the AAC and it took the matter before the Tribunal. The assessee placed reliance on a letter dt. 14th Dec., 1984, addressed to the Department in which he made a submission that the house was an ancestral one and that in the absence of the house being actually divided it should be treated as a joint family property of the assessee along with his brothers and the additions and alterations carried out to the joint property by any one of them could not be taken to be a deemed gift in favour of two other co-owners. According to the assessee this aspect was never considered by the GTO as well as by the AAC. The Tribunal, however, accepted the averment of the assessee and reached a conclusion that the assessee had not made any gift. Hence this reference at the instance of the Revenue.
3. The term “gift” is defined in s. 2(xii) of the GT Act to mean the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or moneyâs worth, and includes the transfer or conversion of any property referred to in s. 4, deemed to be a gift under that section. Although under s. 2(xii) of the GT Act, the expression “transfer of propertyâ has also been given an extended meaning so as to cover certain transactions which would not ordinarily be comprised within that term, it was heby the Honâble Supreme Court in the case of Goli Eswariah vs. CGT (1970) 76 ITR 675 (SC) : TC 35R.247, that the act of conversion of separate property by a coparcener of an HUF into property belonging to the family did not fall within the normal or even the extended meaning of the term “transfer of property” under the GT Act and hence, such an act of conversion of separate property into HUF property did not attract liability to gift-tax.
4. With a view to closing this loophole for avoidance of gift-tax liability by using the device of converting self- acquired property into HUF property, the legislature in its wisdom through s. 37 of the Finance (No. 2) Act, 1971, has amended ss. 2 and 4 of the GT Act for the purpose. Under the amendment to s. 4 it has been provided that where a member of an HUF converts his separate property into joint family property, he shall be deemed to have made a gift in favour of the family, of so much of that property as the other members of the family would be entitled to if a partition of the converted property had taken place immediately after such conversion. The definition of the term “gift” enacted in s. 2(xii) has also been modified so as to cover the transfer or conversion of any property referred to in s. 4, deemed to be a gift in that section. These amendments have already taken effect from 1st April, 1972, and do apply for asst. yr. 1972-73 onwards.
5. We have gone through the provisions of the statute in so far as s. 4(2) of the GT Act are concerned. The amended statute makes it clear the intention of the legislature that in such exigencies as covered by the instant case if a separate property of the individual stands converted into property belonging to the family through an act improvises his such separate property with the character of property belonging to his HUF or through common stock of the family, then notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, for the purpose of computation of taxable gifts made by the individual, the said individual shall be deemed to have made a gift of so much of the converted property as the members of the HUF other than such individual would be entitled, if a partition of the converted property had taken place immediately after such conversion.
We would, accordingly, answer the reference in the affirmative (sic) and in favour of the Revenue and hold that in the facts and circumstances of the case the Tribunal is not justified in holding that there could be no element of deemed gift in favour of the brothers of the assessee who owned 2/3 of the house property in respect of the renovation expenses incurred on the house property. Accordingly, the amount of Rs. 40,520 would be assessed legally as gift-tax.
[Citation : 233 ITR 660]