ORDER
M.A.A. Khan. Judicial Member
1. The common ground raised by Revenue in all these appeals from the consolidated order of DC (Appeals), Ajmer Range, Ajmer dated 16-1-1989 for assessment years 1983-84, 1984-85 and assessment year 1985-86 reads as under:
On the facts and in the circumstances of the case, the learned DC (Appeals) Ajmer Range, Ajmer has erred in holding that a gift in the form of ‘Hiba’ under the Mohemmedan Law did not attract the provisions of Section 64(1)(v) read with Section 27(1) of the IT Act and consequently erred in deleting the rental income from Hiba properties from assessee’s income.
The relevant facts are these:
2. By making separate oral declarations on 1-1-82 in favour of his minor sons Mr. Zahiruddin and Mohd. Zat far and similar oral declarations on 1 -12-82 in favour of his third minor son Mr. Moinuddia, the assessee had gifted certain immovable properties for the purpose of ensuring their proper education. Such gifts were accepted by Mrs. Chunni, the mother of tae minors, on their behalf and subsequently the transfer of the gifted properties was evidenced by execution of three gift deeds on 31-12-82 by the assessee. The gifted properties were on the tenancy of M/s Id. Mohd. Nizamuddin, Tonk (wherein the assessee was a partner) and of Punjab National Bank.
3. In each of the three years under consideration the gifted property yielded rental income of Rs. 13,500. In his return for assessment year 1983-84 the assessee had shown rental income of Rs. 2,100 from the braiding Set out to Punjab National Bank and he had been assessed accordingly. For assessment years 1984-85 and 1985-86 no rental income from the gifted properties had been shown by the assessee in his returns and he was not, accordingly, assessed thereat. The ITO, therefore, was of the opinion that it was by reason of the omission or failure on the part of the assessee to disclose truly and fully all material facts regarding the property income of the minors that income of Rs. 11,400 in assessment year 1983-84 and Rs. 13,500 in each of the two subsequent assessment years, which was chargeable to tax in the hands of She assessee under Section 64(1)(v) of the I.T. Act, 1961 (the Act) had escaped assessment He, therefore, re-opened assessee’s assessments under Section 148/147(a) for all the three years and taxed the above mentioned incomes in the hands of the assessee under the provisions of Section 64(1)(v) of the Act
4. In appeals the learned DC (Appeals) accepted assessee’s contention to the effect that Mohammedan law being a personal Saw, no enactment could interfere with the vires of that. Saw and since the gifts (Hibas) in the present case were accepted as valid in gift-tax proceedings inclusion of rental income from gifted properties was not correct. He accordingly deleted the additions in all the three years.
5. The learned Departmental Representative has strenuously urged that the learned DC (A) had totally misunderstood the aims and objects of the relevant provisions in different laws and his approach to the case of the assessee was not at all correct. It was urged by him that the Act has given a specific definition in Section 2(47) to the term “transfer” and such definition was in no way affected by the provisions of Transfer of Property Act, the Indian Registration Act or Mohammedan Law. He further submitted that extent and purpose of the gift may be relevant considerations for applying the relevant provisions of the Gift-tax Act, 1958 bat that was not the erne in applying the provisions of Section 64(1)(v) in this case. In this behalf the Seined Departmental Representative referred to the cases of S. Visivasom v. CIT [1963] 50 ITR 503 (Ker.) and M..S.M. RatnaswamiNadar v. CIT [1975] 100 ITR 669 (Mad.). The learned Departmental Representative, therefore, asked for the restoration of ITO’s order.
6. On the other hand Mr. G.D. Gargieya highlighted the purpose of the gifts and non-taxability thereof by the Tribunal under the Gift-tax Act, 1958 and further submitted that as the gifts were made under the Mohammedan Law to which even the provisions of Transfer of Property Act were not applicable by virtue of Section 129 of that Act, income therefrom would not be taxable in the hands of the assessee under Section 64(1)(v). A parity between the relevant provisions of the Act and Wealth-tax Act, 1957 was also sought to be made and it was submitted that since gifts had resulted in complete transfer of ownership of the properties from the assessee to his minor children and since the wealth represented by the gifted properties was not includible in the wealth of the assessee under the provisions of Wealth-tax Act, 1957, the income therefrom was also not includible in the hands of the assessee. At one stage of his argument Mr. Gargieya even submitted that since the gifts were not evidenced with registered transfer deeds, as was required by the provisions of the Indian Registration Act, the transfer of capital asset was not complete and therefore income from the gifted properties was not includible in the hands of the assessee under Section 64(1)(v) of the Act. Reliance in this behalf was placed on the case of CIT v. Motilal Ramswaroop [1970] 76ITR 43 (Raj.). We, however, find force in Departmental Representative’s argument.
7, First we would like to avail of this opportunity to remove the misconception on the part of the learned DC (A) with regard to the applicability of the relevant provisions of Mohammedan Law to this case and the effect of the provisions of Transfer of Property Act or of the Indian Registration Act either on the gifts made under Mohammedan Law or on taxability of the income from the gifted property under Income-tax Act. Mohammedan Law is applied by Courts in India to Muslims not in all but in some matters only. The powers of courts to apply Mohammedan Law to Muslims is derived from and regulated partly by Statutes of the Imperial Parliament read with Article 225 of the Constitution of India but mostly by Indian Legislature. Section 2 of the Shariat Act, 1937 says that notwithstanding any custom or usage to the contrary in all questions (save questions relating to agricultural land) regarding, inter alia, gifts the rule of decision in cases where the parties are Muslims shall be the Muslim Personal Law (Shariat). It may be noted that the question regarding the taxability of a property or the income therefrom does not fall within the purview of Section 2 of the Shariat Act, 1937. Therefore, the gift of a property made under the Muslim Personal Law or income from such property would not be saved from the application of the provisions of relevant tax laws.
8. In the matter of gifts, Mohammedan Law is simply concerned with its validity and not with the taxability thereof or the income arising therefrom. A gift under Mohammedan Law is to be effected in the manner prescribed by the Mohammedan Law. If the formalities of declaration of the gift by the donor, acceptance of the gift, express or implied, by or on behalf of the donee and delivery of possession of the subject of gift by the donor to the donee are complied with, the gift is valid even though it is not effected by a registered instrument and though, where effected by an instrument, the instrument is not attested. But if the formalities are not complied with, the gift is not valid even though it may have been effected in the manner prescribed by Section 123 of the Transfer of Property Act as the provisions of Section 123 of that Act are not applicable to gifts made under Mohammedan Law (vide Section 129 of that Act).
9. A ‘Hiba’ or gift under Mohammedan Law is a “transfer of property, made immediately, and without any exchange” by one person to another and accepted by or on behalf of the latter. For the purposes of taxability of the income from the gifted property the meaning of the term “Transfer” shall have to be known from the definition of the term as given in Section 2(47) of the Act.’ Once a transaction amounting to gift under Mohammedan Law falls within the definition of the term “Transfer”, as given in Section 2(47) of the Act, the charging section under the Act would come into play and exemption from charge of income-tax could be claimed with reference to the provisions of the Act only.
10. In the instant case gifts of certain properties made by the assessee in favour of his three minor sons is an admitted position. It cannot be disputed that the gifts so made involved transfer of capital asset by the assessee to his sons within the meaning of the terms defined in Section 2(47). There is no dispute on the point that during the years under consideration the minors had derived incomes from the gifted properties. On these facts the express provisions of Section 64(1)(v), reproduced below, obviously come into operation and the incomes, as mentioned above, was rightly subjected to tax by the ITO :
64. (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly –
(v) subject to the provisions of Clause (i) of Section 27, in a case not falling under Clause (iii) of this sub-section, to a minor child (not being a married daughter) of such individual, from assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration.
11. The argument that the provisions of Section 64(1)(v) being in pari materia with the provisions of Section 4(1)(vi) of Wealth-tax Act, 1957 read with the proviso thereunder, no income from the gifted property should be considered as chargeable to tax in the hands of the assesssee, as the gifted properties were not found by the Tribunal as chargeable to gift-tax on the ground of the purpose of the gift being ensuring education to the minors and as such not includible in the computation of the net wealth of the assessee, is not convincing.
12. It is not in dispute that the Tribunal in its order dated 30-5-89 passed in the gift-tax case of the assessee for assessment year 1983-84 (GTA No. 4/Jp/88) had declared the gifts in question as exempt under Section 5(1)(xii) of the Gift-tax Act, 1958. Benefit of such exemption may or may not be available to the assessee in his wealth-tax case, if any, but certainly not in the instant case for the obvious reason that in the Act there is no proviso below Section 64(1)(v) like proviso below Section 4(1)(vi) of the Wealth-tax Act, 1957 which runs as follows:
4. (1) In computing the net wealth of an individual, there shall be-included, as belonging to that individual – (a) the value of assets which on the valuation date are held – (vi) (by a person or association of persons to whom such assets have been transferred by the individual, directly or indirectly, on or after the 1st day of June, 1973, otherwise than for adequate consideration for the immediate or deferred benefit of the son’s wife, or the son’s minor child, of such individual or both).
Weather the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise:
Provided that where the transfer of such assets or any part thereof is either chargeable to gift-tax under the Gift-tax Act, 1958 (18 of 1958), or is not chargeable under Section 5 of that Act, for any assessment year commencing after the 31st day of March, 1964, (but before the 1st day of April, 1972) the value of such assets or part thereof, as the case may be, shall not be included in computing the net wealth of the individual.
13. It may further be observed that in the instant case gifts were made on 1-1-82 and 1-12-82 i.e., much after 1st April, 1972 and the proviso to Section 4(1)(vi) even if be held to be applicable, would provide no help to the assessee.
14. The case of CIT v. Motilal Ramswaroop (supra) involved altogether a different point and situation. In the case the Karta of an HUF had gifted an amount of Rs. 4 lakhs to seven divided members of the family. The ITO held that the Karta was not competent to make gift and he, therefore, included the gifted property as well as interest thereon in the hands of the donor, the Karta. The Tribunal had held that the gift was not void and directed the ITO to exclude the interest income from the gifted property from the assessment of the HUF. On reference to the High Court, both under the Gift-tax Act, 1958 and Wealth-tax Act, 1957, it was argued on behalf of Revenue that if the gift was void than title to the amount remained vested in the assessee and he was liable to pay income-tax. The High Court held that interest accrued on the gifted amount did not accrue to the assessee family for income-tax purposes on either view, whether the gift was void or voidable. There is no such situation in the instant case. Herein the gifts are not found void or voidable. Moreover, there is specific provision in Section 64(1)(v) of the Act to include the income from the gifted properties in the hands of the assessee as the gifted property vested in the minors. There is no scope here to hold that the gifts were void or voidable and the property of gifts did not vest in the minors.
15. The Kerala and Madras cases also do not afford any help to the assessee. In the case before the Kerala High Court S. Viswasom’s case (supra) a settlement of property worth Rs. 20,000 by a father in favour of his minor children to fulfil his legal obligation to maintain and educate the children was held to be for adequate consideration and accordingly not falling within the purview of Section 16(3)(a)(iv) of the I.T. Act, 1922. In the case before the Madras High Court income from properties so settled was held to be includible in the income of the assessee. In the case before us the Tribunal has already expressed the view in the Gift-tax case of the assessee and which we feel bound to follow, that the transaction amounted to gift but it was exempt from tax by reason of the exemption carved out in Clause (xii) of Section 5(1) of the Gift-tax Act, 1958. Moreover the Madras view proceeds on various decisions including those of Supreme Court in Nanak Chana v. Chandra Kishore Aggarwal AIR 1970 SC 446 and Sevantilal Maneklal Sheth v. CIT [1958] 68 ITR 503. We, therefore, feel inclined to follow the Madras view.
16. To sum up, we hold that the income of the three minors from the gifted properties was includible in the hands of the assessee in ail the three years under consideration. We, therefore, vacate DC (A)’s orders on this point and restore those of the lTO.
17. All the three appeals are allowed.