Goli Eswariah v. Commissioner Gift Tax, Andhra Pradesh

522 **GOLI ESWARIAH** _v._ **COMMISSIONER** _**OJ[**_ **GIFT** **TAX,** **ANDHRA** **PRADESH** _May_ 5, 1970 _[J._ C. SHAH AND K. S. HEGDE, JJ.] _Gift_ _Tax_ _Act_ 18 _of_ 1958, _s._ _2(xxiv) (d)-Transfer of property-Hindu_ _throwing_ _separate property into joint family_ _stock-His_ _act_ _whe1ha_ _amounts_ _to_ _'tmnsacrion' within the_ _meaning_ _of_ _sub-cf._ _(d)-Whether_ _amounts to_ _'transfer_ _of_ _property'_ _liable to_ _be_ _treated as 'gift'_ _under_ _ss._ ~(xii) _& 4(a)_ _of the Act-Word 'disposition'_ _ins._ _2(xxiv),_ _meaning of._ The appellant owned certain self-acquired properties which by a deed Jated December 9, 1957 he threw into 'the common stock of his Hindu Joint Family. The Gift Tax Officer held that he had thereby made a gift t<rxable under the Gift Tax Act, 1958. After proceedings before the authorities ur.der the Act the question whe_ther 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 deci sion in _Satymrarayanamurthy's_ case the High Court held that the act of .the appellant r1mounted to a 'trans'fer' within the te'fms 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 _SCityanarayananwrthy '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 inC'rease 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 al!owed since the declaration by which the assessee had impw-essed the character of joint Hindu family property en the self-acquired properties owned by him did not amot'11t lo a ·transfer' so as to attract provisions of the Act. [529 Fl A **B** G **D** **E** A Hindu Joint Family is no,t a creature of contract. The doctrine of throwing into common sto.:k inevitably postulates that the owner of the separate property is a coparcener who has an interest in the coparcenary **F** property and desires to blend his separate property with the coparcenary prope-rty. The separate property of a member of a joint Hindu Family may he 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 separ'atc property to the common stock is _a·_ _unilateral act._ By his individual volition he renounces hi~ individual right in that property and treats it as a property of the family. As soon as he declares his in- **G** tention to treat his self acquired property as that of the Joint Family, the property assumes the charac:er 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 commo'l stock. he makes no gift under Ch. VII of the Transfer of **H** Property Act. In such a case there is no donor or donee. Further no question of accerytance of the property thrown into the common stock arises. [5~6 A-F] / # A B ##### c D F G GOLI ESWARIAH _v._ COMMR. GIFT TAX _( Hegde._ _f.)_ 52 :l Tt was not necessary in the present .::ase to comider 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 •·trans:tction entered into"'. Clause (d) of s. 2(xxiv) contemplate;; a "transaction entered into" by one person with another. It cannot appl~ to a unilateral :~ct. It m11st 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 <~!tree with the High Court that the act of the assessee fell within ih-· scope of s. :!(xxiv) (d) of the Act. [52S A-Bl The assessee's act could also not be considered as a 'disposition' unJer the main part of s. 2(x:.>iv). The word 'disposition' is not a term of luw. 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 u~ed in s. 2(xxiv), it cannot mean to "dispose o"f". Otherwise, even ifa 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-FJ _Ma/lesappa Bandeppa Desai_ & _Ors._ v. _Desai_ _Mallappa_ _&_ _Ors._ [19611 3 S.C.R. 779, _Grimwade_ & Or.~. v. _Federal Commissior1er_ _of_ _Taxation,_ 78 C'.L.R. 199, _Commi.vsioner_ _o/lncome-lax,_ _Mc1dras_ v. _M._ _K._ _Stremamz._ 56 l.T.R. 62 ond _M._ _K._ _Stremann_ v. _Commi.uioner_ _of_ _Income-tax,_ 41 I.T.R. 297, applied. _Commissioner_ _oJ_ _Gift_ _Tax,_ _Madra.1'_ v. _P._ _Ranj?aswami Naidu_ T.C. 272 of 1964 : _R. S._ _R._ _M. Ramaswami_ _Cl!ettiar_ v. _The_ Com11zis.~ioner _of Gift_ 1(~o~:, _Madras._ Tax Case No.lO of 1966, _Dr._ _A._ _R._ _Shukla_ v. _Co111missioner_ _of_ _Gift_ _Tax._ Gujara~. 74 I.T.R. 167 and Sllll'. _Laxmibai Narayana Ra6_ _Nerlekar_ v. _Commissioner_ _of_ _Gift-tax._ 65, J.T.R. 19, approved. _Commissioner_ _of_ _Income-tax. Hyderahad_ v. _C._ _Satyanarayanamurthy,_ :~fi I.T.R. _353. G. V._ _Krishna_ _Rao_ _&_ _Ors._ v. _First Add/. Gift Tax_ _O!Jin'l"._ _Gwltur._ 70 I.T.R. 812 and _Commissioner_ _of_ _Gift Tax_ _v,_ _laRdish_ _Saran,_ 75 I.T.R. 529, disapproved. 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._ _Sachthev_ and _B._ _D._ Sh~1rma, for H the respondent. ~ _M._ C. _Chaglo,_ _M._ _Shankar_ and _K._ _Jayaram,_ ior interveners Nos. 1 and 2. l i j ."i .I . l ; I ' I ###### :l I. .-I I 524 SUPREME COURT REPORTS (1971]1 S.C.R, _N. D. Karkhanis_ and _T._ _A. Ramachandmn,_ for .intcr\'ener No.3 . - ~he Judg1~1cnt of the Court was delivered by ·of the He "' ' [ode ] Andhra [J. ] Prades This appeal h H. tg h C by certificate arises ourt ren d ere d · · m from Jts advisory the J:~dom, 0 juris. cnt diction on a case stated by the Income-t.ax Appellate Tribunal Hyderabad Bench under s. 26 _(!)_ o,f the Gtft-tax ~ct, 195g (to~ hereinafter referred to as the Act _)_ . The question referred for the opinion of the High Court was : "Whether the declaration by which the assessee bas impn:ssed the character of joint Hindu family properly 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 _Commissiontr_ _.of_ _Income-tax,_ _H.vderabacl_ v, C. _Satymiarayanamurlhy(l);_ D answered that question in the affirmative. The material~facts as could be gathered from the statement of the case submitte? to the High Court arc as follows : The assessee is the karla of his joint family. The ~ssessment year with which we are concerned in this case is 1959-60, for which the "previous year" is the year commencino on 23-10-1957 and ending on 10-ll-1958. The assessee ownel movab!e and immOI'· able propertie3 which were his self acquisitions. By a deed dated Dcc~mber 9, 1957, he threw into the common stock his houses beanng Nos. 6658-59 and 273! situate at Tmambavidil Secuo· der~bad an~ a cash deposit of Rs. 1,50,000 in the firm of M/~ Goh Eswanah, Paper Merchants, Secunderabad. In the IJO?k of account of the finn, necessary entries were made transfern~g ~e amount to the account of the family. The Gift-tax. om~~ e~~ed that portion of the value of the properties so bknded., which .the assessee ceased to have a right on partition of the fJrnll) as h.avlllg been gifted by him to the family. He rejected the ~ [0] ~ tcrntlo.n. of _the assessee that his act of throwing his self .acqUld~r fh op1rtles_ mto the common s tock did not amount to a gJft un oot w· 111 [~ ] vtew [• ] _[ct. ]_ [1 ] [hln ] at [appeal, ] smce the [the ] deed [Appellate ] hi question was [Assistant ConunissionJr ] not registere· ' 1~ ~as ere su~~ n~ trans.fer of the immovable propertie~ to the ·familY . [30 ] but ~ with rc;~~ was hno gift of the two houses mentioned ~ari~e~ ~ift 1 and '. to [1 ] e sum of Rs I 50 000 he considered [11 ] a_~ ndcr accordingly held that 3/ 4th. of 'it w;s liable to be taxed u 111 [~ ] [• ] _[ct. ]_ [hln ] [appeal, ] [the ] [Appellate ] [Assistant ConunissionJr ] [1 ] n' 56 un. R. 353. A R ##### c D E F G H .. GOLI ESWARIAH _V._ COMMR. Q!FT TAX _(Hegde,_ J.) 525 the provisions of the Act. Thereafter the matter was taken up il1 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 coparcener threw his self acquired properties into the hotchpot of the joint family, there was no element of transfer within the meaning of s. 2, cl. (x.xiv) sub-cl. (d) of the Act'. At the instance of the Commissioner, Gift-tax, Andhra Pradesh, the tribunal stated a case for the opinion : o,f the High Court and s~bmitted 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 decisi0n of that High Court in _Commissioner of lncome•tax,_ _Hyd!'rabad_ v. _C. Satyanarayanamurthy(l)_ 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 _oi_ 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 amolmt 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 Antlhra Pradesh High Court in the case referred to earlier as well as in _G._ _V._ _Krishna_ _Rao_ _and_ _Ors._ _v._ _First_ _Addit·ional Gift-tax_ _Officer,_ _Guntur(l)_ and the Allahabad High Court in _Commissioner of_ _Gift-tax_ v. _Jagdish Saran(a)_ 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 hand. a full bench of the Madras High Court in _Commissioner_ _of_ _Gift-tax,_ _Madras_ v. _P._ _Rangasami Naidu(_ _[4 ]_ _)_ ~nd _VR._ S. _RM. Ramaswami_ _Chettiar_ v. _The Commissioner of Gift-tax, Madrasr•)._ a full tench of the Gujarat High Court in _Dr._ _A._ _R._ _Shukla_ _v._ _Commisstoner_ _of Gift-tax, Gujarat(_ _[6]_ _);_ a division bench of the Kerala High Court in _P._ _K._ _Subramania lyer_ v. _Commissioner_ _of Gift-tax, Kerala('l)_ and a division bench of the Mysore High Court in _Smt._ _Laxmibai_ _Narayana_ _Rao Nerlekar_ v. _Commissioner of Gift-tax(_ _[8]_ _),_ have taken a contrary view. (t) 56 I.T.R. 353. (3) 75 I.T.R. 529. (5) Tax Case No. 10 of 1966. (7) 67 J.T. R. 61:!. (2) 70 I.T.R. 812. (4) Tax Case 272 of 1964 .. (6) 74 I.T.R. 167. (8) 65 I.T.R. 19. ... SUPREME COURT REPORTS [1971] 1 S.C.R. To pronounce on the question of law presented for our decJsJOn, 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 tamily is not a creature of :1 contr_act. As observed by th!s Coun in _Maliesappa Bandeppa Desai and Ors._ v. _De sa,· Mallappa_ _and_ On·. _C)_ that the doctrine of throwing inlu common stock inevitably postulates that the owner of a separate property is a coparcener who has an interest in the copan.:enary property and desires to blend his separate propeny with the coparcenary prope;·ty. The existence of a coparcenary is absolutely necessary be,fc;e 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 illto lhe common sto:k with the intenti0n of abandoning his separate claim therein. The separate property of a Hindu ceases to be a ~ep.u•He .property and acquires the characteristic of a joint '.:amily or ances tral 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 sr::par<ate property to ~he 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 so~11 as he declares his intention to treat his self acquired property as that of the joint family, the property assumes the character of ;oint family property. The doctrine of throwing into the common stock is a doctrine peculiar to the Mitakshara School of .. Jiindu Jaw. When ·a coparcener throws his separate property into tht: 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 <Jccept~"'Ce of t11e property thrown into the common ·stock arises. A ~~ (' I) E F 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 ·a~ertain whether the act of G the assessee can be comidered as a gift under the Act. Section 3 is the charging section. It provides that subiect to the other provisions contained in the Act, there shaH be charged ·for every assessment year commencin~ on and from the 1st dar of April, 1958, a tax known as gift tax in respect of the gifts, if anv. 11 by a persQn during the previous year (other than gifts . ## (l) [i961] 3 S.C.R. 770. - ~made by a persQn during the previous year (other than gifts made ###### n GOLI ESWARIAH _V._ COMMR. GIFT TAX _(Hegde,_ J.) 527 before the )_st day of April 1957) at the rate or rates specified in the Schedule. Gift js 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 gitt. Therefore we need not consider the scoP'.! of s. 4. Before an acl can be considen:d 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 th:lt 'property' includes any interest in property, moveable and immovable. Section 22(xxiv) defines "transfer of property" thus : "Transfer of property'' mear.s any disposition, conveyance, assignment, settlement, dehvery, payment or other alineation of propertx and, without limiting the generality _of_ the foregoin~ mcludes. ( a) the creation of a 'trust in property; (b) the grant or crea~ion of any lease, mortgage, ~harge, ~asement, licence, power, partnership or mterest m propert)'.; . 'E (c) the exercise of ·a p~wer of appointment of pro perty vested in any person, not the owner of the property, to determine its disposition in tfavour of any person other than the donee of the power; and G H (d) ~ny transaction entered into by any person with mtel).t 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 th~ Reven~e. ~t came to. the conclusion that the act of the assessee m throwmg his self-acquired properties into the col!lm?n stock amounted. t<? . "a t.ransaction entered into by him w1th mtent thereby to dimi~tsh dtreC::tly or indirectly the value of his own pro~~rty a~d to mcrease the value of .the property of any other person . ·It Js true that the assessee by throwing his sel!-acquired property irtto the.cm_nmon stock gave up his exclusive rtght in that property and m tts place he w~s content to own that property jointly with the oth~r members of. his family. We do not think that it is necessary in thts case to constder whe~her the act of the assessee can be said to have "diminished ### . 5 28 SUPREME COURT REPORTS (1971] 1 S.C.R. dir:ctly or indireCtly the value of his own property ~nd iritrea~cd: A • the value of the property" of his join~ -family bec'ause in our opinion that act cannot be considered as. a "transaction entered into ... Clause.( d) _ct_ s. 2 (xxiv) contemplates a "transaction entered _into''_ , by one person with another. It cannot apply to a unilateral acr. ' It must be an act to which two or more. persons ar~ parties.. It is true that for the purpose of the Act, a Hindu Uvdivided Family B can be considered as a "person": But the assessee did not enter into any transaction witlf his family. ;Therefore we are unable to agr~e with the High Coyrt that the ·~~t of the assessee fell _within_ the scope of s. 2 (xxiv.) (d) of the Act. c St>crinn ~ ~ ':>:J\'(d) i~ ::;imilar tQ_ Pur~graph (f) of s. 4 cf the Australian Gift Duty Assessment A:ct,.~1941-~2. Interpreting C that section in _Grimwade and Ors._ v. _Federal_ _Commissioner of_ _Taxation_ ( [1] ), the High Court of Australia observed that the tr~n.­ sactlon by a person referred _to_ therein must be a t~ansactio!)....wrtti. some other person and that "it cannot be a unilateral act. Mr. B. Sen, learned Counsel for the department contended that the said act should be considered as a 'disposition' under *e main part of s. '2(xxiv). The word 'disposition' js not a tenn of law. Futrher it lias no precise meaning. Its meaning has to be gatherea 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 ct. 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, assigiunent, 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 usefuUy made to the decision of this Court in _Commissioner of {ncome-tax, Madras_ v. _M. K. Stremann(2)._ Therein the assessee first threw his private properties into the conunon stock and afterwards there was a partition amongst the m~mbers.of the family which included his two minor sons and a minor daughter, represented by their mother. The question arose whether the partitio,n in qu~stion amounted _to_ a transfer of a~sets by the assessee tp tile three minor children -so as to attract the provisions of s. 16 ( 3) ( cr)(jv) of the Indian Income-tax Act, 1922. In that case~ the Revenue did not contend. D E. G in. this Court that the act of the assessee throwhlg into common stock his self acquired properties amounted to transfer of assetslJ by the ass.essee to his three minor childreq. On the other hand, it con~em~ed _that._ the.. partition, that took p1~su9s<;<~ue~tly amounted to a transfer of assets of the assessee t~"1iis muior child H (1) 71J C.L.R, 199. (2) _s6_ r.T.R. 6er _ B ##### c D cGOLI ES:WARIAH _V._ COMMR. GIFT TAX _(Hegde,_ _J.)_ 5 29 ren. This Court overruled that contention. Therein the conten~ tion 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 becornes impressed with the character of coparcenary property, there is no trnnsfi!r of that property from the coparcener to the coparcenary; it becomes joint family property because the coparcener who ov.ned it uptil 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 o: 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 coparcenary 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(l)._ 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 tl)e question referred to the High Court thus : The declaration by which the assessee has impressed the character of joint Hindu family property on the self~acquired proper~ ties 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 appe11ant in this appeal. G.. C. (1 ) 41 I. T. R. 291 L 13 Sup. Cl/10-5 _Appeal_ _allowed._