PETITIONER: GOLI ESWARIAH Vs. RESPONDENT: COMMISSIONER OF GlFT TAX, ANDHRA PRADESH DATE OF JUDGMENT: 05/05/1970 BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. SHAH, J.C. CITATION: 1970 AIR 1722 1971 SCR (1) 522 1970 SCC (2) 390 CITATOR INFO : RF 1977 SC2230 (17) ACT: Gift Tax Act 18 of 1958, s. 2(xxiv) (d)-Transfer of property-Hindu throwing separate property into joint family stock-His act whether amounts to 'transaction' within the meaning of sub-cl. (d)-Whether amounts to 'transfer of property' liable to be treated as 'gift' under ss. 2(xii) & 4(a) of the Act-Word 'disposition' in s. 2(xxiv), meaning of. HEADNOTE: The appellant owned certain self-acquired properties which by a deed dated December 9, 1957 he threw into the common stock of his Hindu Joint Family. The Gift Tax Officer held that he had thereby made it gift taxable under the Gift Tax Act, 1958. After proceedings before the authorities under the Act the question whether the appellant had made 'transfer' of the property so as to attract the provisions of the Act was referred to the High Court of Andhra Pradesh. Following its earlier decision in Satyanarayanamurthy's case the High Court held that the act of' the appellant amounted to a 'transfer' within-the terms of s. 2(xxiv)(d) of the Act and therefore was a gift such as envisaged in s. 2(xii) and s. 4(a) of the Act. In Satyanarayanamurthy's case aforesaid, it had been held that an act similar to that of the appellant would amount to "a 'transaction' entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person". With certificate appeal against the judgment of the High Court was filed in this Court. HELD:The appeal must be allowed since the declaration by which the assessee had impressed the character of joint Hindu family property on the self-acquired properties owned by him did not amount to a transfer' so as to attract provisions of the Act, [529 F] A Hindu Joint Family is not a creature of contract. The doctrine of throwing into common stock inevitably postulates that the owner of the separate property is a copartner who has an interest in the coparcenary property and desires to blend his separate property with the coparcenary property. The separate property of a member of a joint Hindu Family may be impressed with the character of Joint Family property if it is voluntarily thrown by him into the common stock with the intention of abandoning his separate claim therein. The act by which the coparcener throws his separate property to the common stock is a unilateral act. By his individual volition he renounces his individual right in that property and treats it as a property of the family. As soon as he declares his intention to treat his self acquired property as that of the Joint Family, the property assumes the character of Joint Family Property. The doctrine of throwing into common stock is a doctrine peculiar to the Mitakshara School of Hindu Law. When a coparcener throws his separate property into common stock he makes no gift under Ch. VII of the Transfer of Property Act. In such a case there is no donor or done. Further no question of acceptance of the property thrown into the common stock arises. [526 A-F] 523 It was not necessary in the present case to consider whether the act of the assessee could be said to have "diminished directly or indirectly the' value of his own property and increased the value of the property" of his joint family, because his act could not he considered as a "transaction entered into". Clause (d) of s. 2(xxiv) contemplates a "transaction entered into" by one person with another. It cannot apply to a unilateral act. it must be an act to which two or more persons are parties. Even though under the Act the undivided 'family is a 'person' the assessee did not enter into any transaction with his family. Therefore, it was not possible to agree with the High Court that the act of the assessee fell within the scope of s. 2(xxiv) (d) of the Act. [528 A-B] The assessee's act could also not be considered as a 'disposition' under the main part of s. 2(xxiv). The word 'disposition' is not a term of law. Further it has no precise meaning. Its meaning has to be gathered from the context in which it is used. In the context in which the term is used in s. 2(xxiv), it cannot mean to "dispose of. Otherwise, even if a man abandons or destroys his property it would become a "gift" under the Act. That could not have been the intention of the Legislature. In s. 2(xxiv) the word 'disposition' is used along with words "conveyance, assignment, settlement, delivery, payment or other alienation of property". It is clear' from the context that the word 'disposition' therein refers to a bilateral or multilateral act. It does not refer to a unilateral act. [528 D-F] Mallesappa Bandeppa Desai & Ors. v, Desai Mallappa & Ors. [1961] 3 S.C.R. 779, Grimwade & Ors. v. Federal Commissioner of Taxation, 78 C.L.R. 199, Commissioner of Income-tax, Madras v. M. K. Stremann, 56 I.T.R. 62 and M. K. Stremann v. Commissioner of Income-tax, 41 I.T.R. 297, applied. Commissioner of Gift Tax, Madras v. P. Rangaswami Naidu T.C. 272 of 1964 : R. S. R. M. Ramaswami Chettiar v. The Commissioner of Gift Tax, Madras. Tax Case No.10 of 1966, Dr. A. R. Shukla v. Commissioner of Gift Tax, Gujarati, 74 I.T.R. 167 and Smt. Laxmibai Narayana Rao Nerlekar v. Commissioner of Gift-tax, 65, I.T.R. 19, approved. Commissioner of income-tax, Hyderabad v. C. Satyanarayanamurthy, 56 I.T.R. 353, G. V. Krishna Rao, & Ors. v. First Addl. Gift Tax Officer, Guntur, 70 I.T.R. 812 and Commissioner of Gift Tax v. Jagdish Saran, 75 I.T.R. 529, disapproved. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No, 695 of 1968.
Appeal from the judgment and order dated October 13, 1966 of
the Andhra Pradesh High Court in Case Referred No. 74 of
1963.
N. A. Palkhivala and T. A. Ramachandran, for the
appellant.
B. Sen, G. C. Sharma, R. N. Sachthey and B, D. Sharma, for
the respondent.
M.-C. Chagla, M. Shankar and K. Jayaram, for interveners
Nos. 1 and 2.
5 2 4
N. D. Karkhanis and T. A. Ramachandran, ‘for intervener
No. 3.
The Judgment of the Court was delivered by
Hegde, J. This appeal by certificate arises from the
judgment of the Andhra Pradesh High Court rendered in its
advisory jurisdiction on a case stated by the Income-tax
Appellate Tribunal, Hyderabad Bench under s. 26(1) of the
Gift-tax Act, 1958 (to be hereinafter referred to as the
‘Act’). The question referred for the opinion of the High
Court was :
“Whether the declaration by which the assessee
has impressed the character of joint Hindu
family property on the self-acquired
properties owned by him amounts to a transfer
so as to attract the provisions of the Gift-
tax Act.”
The High Court following its earlier decision in
Commissioner ,of Income-tax, Hyderabad v. C.
Satyanarayanamurthy(1); ,answered that question in the
affirmative.
The material facts as could be gathered from the statement
of the case submitted to the High Court are as follows :
The assessee is the karta of his joint family. The
assessment year with which we are concerned in this case is
1959-60, for which the “previous year” is the year
commencing on 23-10-1957 and ,ending on 10- 11- 1958. The
assessee owned movable and immovable properties which were
his self acquisitions. By a deed dated December 9, 1957, he
threw into the common stock his houses bearing Nos.
6658-5-9- and 2731 situate at Imamba vidi, Secunderabad and
a cash deposit of Rs. 1,50,000 in the firm of M/s. Goli
Eswariah, Paper Merchants, Secunderabad. In the books of
account of the firm, necessary entries were made
transferring the amount to the account a the family. The
Gift-tax Officer treated that portion of the value of the
properties so blended in which the assessee ceased to have a
right on partition of the family as having been gifted by
him to the family. He rejected the contention of the
assessee that his act of throwing his self acquired
properties into the common stock did not amount to a gift
under the Act. In appeal, the Appellate Assistant
Commissioner took the view that since the deed in question
was not registered, there was no transfer of the immovable
properties to the family and as such there was no gift of
the two houses mentioned earlier but with regard to the sum
of Rs. 1,50,000, he considered it as a gift and accordingly
held that 3/4th of it was liable to be taxed under
(1) 56 I.RT.R. 353.
525
the provisions of the Act. Thereafter the matter was taken
up in appeal to the tribunal. The tribunal by its order
dated November 17, 1961 held that the act by which the
assessee threw his self acquired properties to the family
hotchpot did not amount to a transfer- and hence it need not
have been effected by a registered document. It further
held that where the copartner threw himself acquired
properties into the hotchpot of the joint family, there was
no element of transfer within the meaning of s. 2, cl.
(xxiv) sub-cl. (d) of the Act. At the instance of the
Commissioner,Gift-tax, Andhra Pradesh, the tribunal stated a
case for the opinion. of the High Court and submitted the
aforementioned question for its opinion. The High Court did
not examine the question of law arising for decision afresh
as it was bound by the earlier decision of that High Court
in Commissioner of Income-tax, Hyderabadv. C.
Satyanarayanamurthy(1) wherein that court had held that
where a Hindu by a declaration has impressed on his self
acquired property the character of joint family property,
the same would-. amount to a transfer of property within the
terms of s. 2 (xxiv) (d) and as such is a gift as envisaged
in s. 2(xii) and s. 4(a) of the. Act. The view taken in
that case was that an act similar to the one we are called
upon to consider in this case would amount to, a
“‘transaction’ entered into by any person with intent
thereby to diminish directly or indirectly the value ‘of his
own property and to increase the value of the property of
any other person.”
On the question of law that we are required to, decide in
this case, there is a sharp cleavage of judicial opinion.
The Andhra, Pradesh High Court in the case referred to
earlier as well as in G. V. Krishna Rao and Ors. v. First
Additional Gift-tax officer, Guntur(1) and the Allahabad
High Court in Commissioner of Gift-tax v. Jagdish Saran ( 3
) have taken the view that when a coparcener in a Hindu
Undivided Family governed by Mitakshara School throws his
self acquired properties into common stock. the,. same
amounts to a ‘gift’ under the Act. On the other hands a
full bench of the Madras High Court in Commissioner of Gift-
tax, Madras v. P. Rangasami Naidu(4) and VR. S. RM.
Ramaswami Chettiar v. The Commissioner of Gift-tax,
Madras(,), a full bench of the Gujarat High Court in Dr. A.
R. Shukla v. Comnzissioner of Gift-tax, Gujarat(“); a
division bench of the Kerala High Court in P. K. Subramania
lyer v. Commissioner of Gift-tax, Kerala(1) and a division
bench of the Mysore High Court in Smt. Laxmibai Narayana
Rao Nerlekar v. Commissioner of Gift-tax(8) havetaken a
contrary view.
(1) 56 I.T.R. 353. (2) 70 I.T.R.
812.
(3) 75 I.T.R. 529.(4)Tax Case 272 of 1964′..
(5) Tax Case No. 10 of 1966.(6)74 I.T.R. 167.
(7) 67 I.T.R. 612.(8)65 I.T.R. 19.
526
To pronounce on the question of law presented for our
decision, we must first examine what is the true scope of
the doctrine of throwing into the ‘common stock’ or ‘common
hotchpot. It must-be remembered that a Hindu family is
not a creature of a contract.As observed by this Court in
Mallesappa Bandeppa Desai and Ors. v. Desai Mallappa and
Ors.(1) that the doctrine of throwing into common stock
inevitably postulates that the owner of a separate property
is a coparcener, who has an interest in the coparcenary
property and desires to blend hi-, separate property with
the coparcenary property. The existence of a coparcenary is
absolutely necessary before a coparcener can throw into the
common stock ‘his self acquired properties The separate
property of a member of a joint Hindu family may be
impressed with the character of joint family property if it
is voluntarily thrown by him into the common stock with the
intention’ of abandoning his separate claim therein. The
separate property of a Hindu ceases to be a separate
property and acquires the characteristic of a joint family
or ancestral property not by any physical mixing with his
joint family or ‘his ancestral property but by his, own
volition and intention by his waiving and surrendering his
separate rights in it as separate property. The act by
which the coparcener throws his separate property to the
common stock ‘is a unilateral act. There is no question of
either the family rejecting or accepting it. By his
individual volition he renounces his individual right in
that property and treats it as a property of the family. As
soon as he declares ‘his intention to treat his self
acquired property as that of the joint family, the property
assumes the character of joint family property. The
doctrine of throwing into the common stock is a doctrine
peculiar to the Mitakshara School of Hindu law. When a
coparcener throws his separate property into the common
stock, he makes no gift under Chapter VII of the Transfer of
Property Act. In such a case there is no donor or donee.
Further no question of acceptance of the property thrown
into the common stock arises.
Bearing in mind the true nature of the doctrine of throwing
into the common hotchpot, we shall now proceed to examine
the relevant provisions of the, Act to ascertain whether
the act of the assessee can be considered as a gift under
the Act.
Section 3 is the charging section. It provides that subject
to the other-provisions contained in the Act, there shall
be charged for every assessment year commencing on and from
the 1 St day of April, 1958, a tax known as gift tax in
respect of the gifts, if any, made by a person during the
previous year (other than gifts made
(1) [1961] 3 S.C.R.770.
5 2 7
before the 1st day of April 1957) at the rate or rates
specified in the Schedule. Gift is defined in s. 2(xii) as
follows :
” “gift” means the transfer by one person to
another of any existing movable or immovable
property made voluntarily and without
consideration in money or money’s worth, and
includes the transfer of any property deemed
to ‘be a gift under section 4“.
In this case we are not dealing with a deemed gift.
Therefore we need not consider the scope of s. 4. Before an
act can be considered as a gift as defined, there must be a
transfer of property by one person to another. ‘Person’ is
defined as including a Hindu Undivided Family in s.
2(xviii). Section 2(xxiii) says that ‘property’ includes
any interest in property, movable and immovable.Section
22(xxiv) defines “transfer of property” thus :
“Transfer of property” means any disposition,
conveyance, assignment, settlement, delivery,
payment or other alienation of property and,
without limiting the. generality of the
foregoing includes.-
(a) the creation of a trust in property;
(b) the grant or creation of Any lease,
mortgage, charge, easement, licence, power,
partners hip or interest in property;
(c) the exercise of a power of appointment
of property.-vested in any person, not the
owner of the property, to determine its
disposition in favour of any person other than
the donee of the power-, and
(d) any transaction entered into by any
person with intent thereby to diminish
directly or indirectly the value of his own
property and to increase the value of the
property of any other person.”
The High Court relied on s. 2 (xxiv) (d) in answering the
question referred to it in favour of the Revenue. It came
to the conclusion that the act of the, assessee in throwing
his self-acquired properties into the common stock amounted
to “a transaction entered into by him with intent thereby to
diminish directly or indirectly the value of his own
property and to increase the value of the property of any
other person”. It is true that the assessee ‘by throwing
his self-acquired property into the common stock gave up his
exclusive right in that property and in its place he was
content to own that property jointly with the other members
of his family. We do not think that it is necessary in this
case to consider whether the act of the assessee can be said
to have “diminished
5 28
directly or indirectly the value of his own property and
increased the value of the property” of his joint family
because in our opinion that act cannot be considered as a
“transaction entered into”. Clause (d) of s. 2(xxiv)
contemplates a “transaction entered into” by one person with
another. It cannot apply to a unilateral act. It must be
an act to which two or more persons are parties. It is true
that for the purpose of the Act, a Hindu Undivided Family
can be considered as a “person”. But the assessee did not
enter into any transaction with his family. Therefore we
are unable to agree with the High Court that the act of the
assessee fell within the scope of S. 2 (xxiv) (d) of the
Act.
Section 2(xxiv(d) is similar to Paragraph (f) of S. 4 of the
Australian Gift Duty Assessment Act, 1941-42. Interpreting
that section in Grimwade and Ors. v. Federal Commissioner of
Taxation(1), the High Court of Australia observed that the
transaction by a person referred to therein must be a
transaction with some other person and that it cannot be a
unilateral act.
Mr. B. Son, learned Counsel for the department contended
that the said act should be considered as a ‘disposition’
under the main part of S. 2 (xxiv). The word ‘disposition’
is not a term of law. Further it has no precise meaning.
Its meaning has to be gathered from the context in which it
is used. In the context in which that term is used in S.
2(xxiv), it cannot mean to ‘dispose of’. Otherwise even if
a man abandons or destroys his property, it would become a
‘gift’ under the Act. That could not have been the
intention of the legislature. In S. 2(xxiv), the word
‘disposition’ is used along with words “conveyance,
assignment, settlement, delivery, payment or other
alienation of property.” Hence it is clear from the context
that the word ‘disposition’ therein refers to a bilateral or
a multi-lateral act. It does not refer to a unilateral act.
In this connection reference may be usefully made to the
decision of this Court in Commissioner of Income-tax, Madras
v. M. K. Stremann(2). Therein the assessee first threw his
private properties into the common stock and afterwards
there was a partition amongst the members of the family
which included his two minor sons and a minor daughter,
represented by their mother. The question arose whether the
partition in question amounted to a transfer of assets by
the assessee to the three minor children so as’ to attract
the provisions of s. 16(3) (a) (iv) of the Indian Income-tax
Act, 1922. In that case, the Revenue did not contend in
this Court that the act of the assessee throwing into common
stock his self acquired properties amounted to transfer of
assets by the assessee to his three minor children. On the
other hand, ,it contended that the partition that took place
subsequently amounted to a transfer of assets of the
assessee to his minor child-
(1) 78 C.L.R. 199.
(2) 56 I.T.R. 62.
5 2 9
ren. This Court overruled that contention. Therein the
contention of the Revenue appeared to have proceeded on the
basis that the antecedent act of the assessee viz. throwing
his self-acquired properties to the common stock may not
amount to a transfer of his assets to his minor children but
the partition that followed amounted to such a transfer. In
that very case the Revenue appears to have contended before
the High Court that the act of the assessee in throwing his
self acquired properties into common stock amounted to a
transfer of his assets to his minor children. The High
Court observed that when the separate property of a copar-
cener ceases to be his separate and becomes impressed with
the character of coparcenary property, there is no transfer
of that property from the coparcener to the coparcenary; it
becomes joint family property because the coparcener who
owned it until then as his separate property, has by the
exercise of his volition, impressed it with the character of
joint family or coparcenary property, to be held by him
thereafter alongwith other members of the joint family; it
is by his unilateral action that the property became joint
family property; the transaction by which a property ceased
to be the property of a coparcener and became impressed with
the character of copes property, does not itself amount to a
transfer; no transfer need precede the change and no
transfer ensues either-see M. K. Stremann v. Commissioner of
Income-tax, Madras(1). We are in agreement with those
findings.
For the reasons mentioned above, we allow this appeal, set
aside the judgment of the High Court and answer the question
referred to the High Court thus :–
The declaration by which the assessee has impressed the cha-
racter of joint Hindu family property on the self-acquired
properties owned by him did not amount to a transfer so as
to attract the provisions of the Act. The Revenue shall pay
the costs of the appellant in this appeal.
G.C.
Appeal allowed.
(1) 41 1. T.R. 297.
L 13 Sup. Cl/70-5
530