Commissioner of Gift-tax vs N.R. Agandeswara Iyer

Gulab C. Gupta, J.—This is a reference u/s 26 of the Gift-tax Act, 1958, at the instance of the Department referring the following question

of law for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that there was no element of gift

involved in the settlement deeds executed by the assessee on May 2, 1970, and May 4, 1970, liable to gift-tax under the Gift-tax Act, 1958 ?

The facts necessary for the decision of the aforesaid question are that the assessee was the karta of a family which consisted of his two sons and

two unmarried daughters. In a partition between the father and sons, the father was given a larger share, i.e., 18.47 acres of land and a house as

against 9.82 acres of land only to each of the two sons. It is stated that the larger share to the father was because of the obligation of the family to

maintain and marry off unmarried daughters. Later on, the father settled on his two unmarried daughters a part of the land held by him by settlement

deeds dated May 2, 1970, and May 4, 1970. The value of this land was subjected to gift-tax treating the same as transferred without

consideration. The order of the assessing authority was upheld by the Appellate Assistant Commissioner. The matter was, therefore, taken by the

assessee to the Appellate Tribunal which held that the transfer was for adequate consideration, the consideration being the discharge of obligation

to maintain and marry off the unmarried daughters. The learned Tribunal further found that the consideration was adequate and, hence, held that

there was no gift as defined u/s 2(xii) of the Gift-tax Act. On this finding, the assessment was set aside. Thereafter, the Department made a request

for reference which, having been granted, the matter is before this court for consideration.

It cannot be doubted even for a moment at this stage that the assessee transferred a part of the property obtained by him in family partition for

discharging his obligation of maintaining and marrying off the two unmarried daughters. There is also no dispute at this stage that the consideration,

if at all it could be so termed, was adequate. The question, therefore, requiring consideration is whether the transfer for discharging the liability as

aforesaid is a transfer for consideration. The matter has received the consideration of a Division Bench of this court in CGT v. M. Radhakrishna

Gade Rao [1983] 143 ITR 260. That was also a case where the father had transferred a part of joint family property in favour of his unmarried

daughter to discharge the liability of the family for her maintenance and marriage. The court, on a detailed consideration, was of the opinion that the

discharge of liability for maintenance and marriage was a valid consideration and, therefore, the matter is well within section 2(xii) of the Gift-tax

Act. The submission of learned counsel for the Department, however, is that this was a case of transfer of joint family property where the father

had admittedly an obligation to maintain the unmarried daughter. The position, according to learned counsel, in the instant case, is different. The

assessee as father has in the instant case discharged his obligation u/s 20 of the Hindu Adoptions and Maintenance Act, 1956. We are unable to

see the distinction as aforesaid. The point under consideration is whether the discharge of liability to maintain and marry off the unmarried daughters

would amount to a valid consideration in law. It is not the source of liability which is important, but the liability itself which is important. Under the

circumstances, the fact that the liability in the instant case is created u/s 20 of the Hindu Adoptions and Maintenance Act, 1956, would not, in our

opinion, make any difference. Under the circumstances, there is no escape from the conclusion that the transfer made by the assessee was for a

valid consideration. Since there is a finding that the consideration was adequate and the said finding has become final, it must be held that the

transfer in question was for adequate consideration which has already been measured in terms of money. Only transactions which were without

consideration are covered by the first part of section 2(xii) of the Gift-tax Act. Since the assessment in the instant case has been made treating the

transaction as a gift under the first part of this provision, the same must be held to have been rightly set aside. The said part does not contemplate

transfer with adequate money consideration to be treated as gift for the purpose of tax.

Learned counsel for the Department, however, brought to our notice the decision of this court in M.S.M. Ratnaswami Nadar Vs. Commissioner

of Income Tax, and submitted that the discharge of liability of maintenance and marriage would not be a valid consideration and, therefore, the

instant transaction will be covered by the first part of the definition of gift u/s 2(xii) of the Gift-tax Act. This was a case u/s 16 of the Indian Income

Tax Act, 1922, and the point for consideration was whether the consideration was adequate. The opinion of this court was that the consideration

was a good consideration, but not adequate consideration. We are not concerned with the adequacy or otherwise of the consideration. Indeed, the

finding that the consideration was adequate has become final and has got to be accepted as such. This decision would, therefore, indicate that the

discharge of liability for maintenance and marriage of unmarried daughters would be a consideration. Whether that consideration would be

adequate or not, will depend upon the facts of each case. This case would, therefore, not support the submission of learned standing counsel for

the Department that the consideration in the instant case was not a consideration at all. Indeed, this would support the contrary proposition and

justify the view taken by us earlier.

In view of the discussion aforesaid, the answer to the question must be in the affirmative and against the Department. No costs. Counsel''s fee

Rs. 1,000.