V.S. Mani vs Commissioner of Gift-tax

Sethuraman, J.—u/s 26(1) of the G.T. Act, 1958 (for short, "" the Act "") the following question has been referred to this court:

Whether the transaction evidenced by the release deed dated February 25, 1970, executed by the assessee, by and under which he gave up his

life interest in the lands set out in Schedules '' B '' and '' C '' thereto, amounts to a '' gift'' within the meaning of the expression as denned in Section

2(xii) read with Section 2(xxiv) of the Gift-tax Act, 1958 ? "".

Sri S. Vaidyanatha Iyer, who is now no more and who is the father of the assessee, executed a will on November 17, 1957, under which he

bequeathed to the assessee 27 acres and 90 cents of wet lands and 5 acres and 32 cents of dry lands totalling 33 acres and 32 cents in certain

villages in Kumbakonam taluk, Thanjavur District, to be enjoyed by him for his lifetime without any power of alienation. After the lifetime of the

assessee the lands were to be taken by his grandson R. V. Ramani and Sakuntala and Lalitha, his grand daughters with absolute rights equally, that

is, 1/3 share each. Sri Vaidyanatha Iyer died on September 5, 1958. The assessee took possession of the lands and was in enjoyment of the same.

On January 25, 1970, he executed what is called a deed of release by and under which he gave up the rights in 18 items of wet lands of the total

extent of 9 acres and 96 cents situated in one of the villages and set out in Schedule '' B'' to the document and in one item of wet land of the extent

of 4 acres and 74 cents and two items of dry lands of the extent of 28 cents totalling 5 acres and 2 cents and set out in Schedule '' C ''. Under this

deed, the release was in favour of R. V. Ramani and Sakuntala of Schs. B and C respectively. It was stated in the release deed that since the

assessee was a bachelor and the income from the remaining lands bequeathed to him by his late father was considered sufficient for his needs and

since he was desirous of accelerating the reversionary and absolute interest of the releasees mentioned therein he was giving up his rights in the

lands.

The GTO started proceedings by issuing notice u/s 13(2) of the G. T. Act requiring the assessee to file the return declaring the value of the gift

made by him for the assessment year 1970-71. It was contended for the assessee before the GTO that he had merely surrendered his life interest

in some of the lands that had been bequeathed to him by his father, that such giving up of life interest only accelerated the absolute title of the

persons who were entitled to the vested remainder in such lands and that, therefore, the said transaction did not amount to a gift. The GTO did not

accept this contention and he held that the transaction amounted to a transfer of property within the meaning of Section 2(xxiv)(d) of the Act and

hence a gift u/s 2(xii) of the Act liable to be taxed. The total value of the property gifted was taken to be Rs. 52,040 and a tax of Rs. 2,954 was

levied.

The assessee appealed to the AAC contending that he had only surrendered his life interest and that it did not amount to a gift. The AAC upheld

this contention and cancelled the entire assessment. The department appealed to the Tribunal. The Tribunal held that R. V. Ramani, Sakuntala and

Lalitha were co-owners of the vested remainder in the lands that had been bequeathed to the assessee by his late father, that after the lifetime of

the assessee they could have either enjoyed the lands as tenants in common with equal rights or could have divided them by metes and bounds

each taking a one-third share, and that the assessee had no right to divide the lands as between them much less unequally as had been done.

The result was that the release deed was taken as operating as a conveyance of the assessee''s life interest in the lands to the respective donees.

It is this order which is now challenged in the present reference.

The Act by Section 3 levies tax in respect of gifts made by a person during the relevant previous year. The word "" gift"" is defined in Section

2(xii) as meaning 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. The expression "" transfer of property "" has been defined u/s 2(xxiv). as meaning any disposition, conveyance,

assignment, settlement, delivery, payment or other alienation of property. The transfer of property includes under Clause (b) the creation or grant

of an interest in property and also under Clause (d) any transaction entered into by one 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 question is whether there is any "" transfer of

property "" in the present case.

In the will executed by the deceased he has stated as follows:

Out of self-acquired properties belonging to me absolutely excluding the properties contained thereunder, my younger son Subramaniyan will

take after my death the properties mentioned hereunder in Schedule A without any power to alienate the same and enjoy only the income from the

same, paying the Government kist, etc. After the lifetime of the said Subramaniyan my grandson R. V. Ramani his heirs will take one-third of the

same, his wife Sow. Sakuntala, her heirs will take one-third share, and another grand-daughter Sow Lalitha, her heirs will take one-third share,

absolutely.

As already stated the total extent of the property bequeathed came to 33 acres and 32 cent.

In the deed of release executed by the assessee, it was stated as follows :

WHEREAS the releasor considers that he being a bachelor, the income from a portion of the '' A '' Schedule properties to be quite sufficient for

his needs, AND WHEREAS the releasor desires to accelerate the reversionary and absolute interest of the Releasees 1 and 2 only for the present

in respect of the B and C schedule properties respectively.

NOW THIS DEED WITNESSETH :

The Releasor doth hereby release, disclaim and relinquish all his right, title and interest whatsoever in respect of the B and C schedule properties

to and in favour of the Releasees (1) and (2) respectively.

The Releasees (1) and (2) shall henceforth be the absolute owners of the properties mentioned in schedules B and C respectively free from any

right, title and interest of the Releasor or any person claiming through or under him.

The Releasor has put Releasees (1) and (2) in possession of B and C schedule properties respectively this day......

It is further provided that the releasees will have to pay the taxes and enjoy the properties according to the deed. The total extent of B

schedule property comes to 9 acres and 96 cents and the release was in favour of R. V. Ramani and C schedule property measures 5 acres 2

cents and the release was in favour of Sakuntala.

The life interest as such is an interest in property and is capable of disposition or transfer. There is no dispute about this proposition. The

learned counsel for the assessee contended that what has happened as a result of the release deed is that the releasees got an accelerated interest

in the property. According to him, they had already an interest in the property by reason of the will and the release did not make any difference to

their right except that they got the absolute interest in present in the property. We have already extracted the relevant part of the will in which the

testator specifically stated that his grandson, Ramani and his granddaughters Sakuntala and Lalitha would take 1/3 share each. In the entire

properties left by the testator they thus get 1/3 share subject to the life interest of the assessee. The assessee could have transferred his life interest

in favour of any stranger. Instead of transferring the property in favour of a stranger, the assessee by executing this release, made the releasees the

object of his bounty. But for the release deed the two releasees, namely, Ramani and Sakuntala, would not be in a position to get a present interest

in the property in the sense that they cannot enjoy the income therefrom during the lifetime of the assessee. What in effect has happened is only the

transfer of the life interest of the assessee in favour of these two individuals. The fact that they happened to be the persons who had vested

remainder in the properties does not affect the present question.

Curiously enough the releasor, that is the assessee, has executed a release in respect of 9 acres and 96 cents in favour of Ramani and 5 acres

and 2 cents in favour of Sakuntala. As mentioned already Ramani, Sakuntala and Lalitha would be entitled to an equal share in all the properties.

The effect of the transaction of release is to allow Ramani to get the benefit of the income from 9 acres and 96 cents and to allow Sakuntala to get

the benefit of the income from 5 acres and 2 cents even during the lifetime of the assessee. After the lifetime of the assessee, the entire properties

would have to be pooled together and divided among the three individuals mentioned above as contemplated by the will. In order that there may

be an acceleration of interest for the vested remaindermen it is necessary that they, as a body, should get a right to the property as a result of the

sur- render, release or effacement of the releasor. The releasor cannot pick and choose one or more of the remaindermen to whom the property

should go. If he does so, then clearly he transfers the life interest in favour of these persons and that is what has happened in this case. Therefore,

this is clearly a case of grant of interest in the property in favour of Ramani and Sakuntala. The transaction would thus squarely fall within the scope

of Section 2(xxiv)(b) of the Act. It is unnecessary in this view to go into the applicability of Section 2(xxiv)(d) of the Act.

Further, if the doctrine of acceleration has to be applied here as a result of the execution of the document of release, then as a legal

consequence each of the three individuals would get a present interest with reference to 1/3 share in each of the properties bequeathed by the

testator. That has not happened in the present case and there was a conferment of an interest in and by the document only in respect of particular

properties. This result cannot be described as acceleration. Even though release can be partial and need not cover all the properties bequeathed,

still in order to bring the transaction within the scope of the principle of acceleration, it must be in favour of all the remaindermen and cannot be

partial with reference only to a few of them.

The learned counsel for the assessee drew our attention to a decision in Palanivelu and Others Vs. Ouseph Mathai, . In that case, the maternal

grandfather executed a settlement under which he gave a life estate to his daughter and the vested remainder to his grand-children. The daughter

executed a supplemental deed in favour of her children with the result that the remaindermen became entitled to the present possession of the

property from the date of the surrender. There was a decree against the daughter which was sought to be executed as against these properties,

after the surrender. The question was whether the transaction fell within the scope of Section 53 of the Transfer of Property Act. It is in that

context that the court had to examine whether there was transfer of property where there was acceleration of interest of the remaindermen as a

result of the surrender by the life estate holder. It was held that there was no transfer of property. The main point to be noted in that case is that the

surrender was in favour of the entire body of the remaindermen and not in favour of any chosen individuals who formed a part of the said body.

That case was such as to fall within the doctrine of acceleration as discussed above.

The learned counsel then referred to the decision in Commissioner of Gift-tax, Bombay City-I Vs. Jer Mavis Lubimoff, . In that case, Mrs.

Lubimoff had a life interest in certain trust properties. She was also given a power of appointment with reference to certain class of persons who

were intended to be benefited under the trust. She executed the power of appointment and she executed also a release deed in respect of her life

interest in the properties under the trust deed. The question was whether these two transactions amounted to gifts. As regards the exercise of the

power of appointment it was pointed out that the gift, if any, had been made under the trust deed and there was no gift by the person who had the

power to nominate. As regards the surrender executed by the beneficiary under the trust deed, it was pointed out that it was not a disposition as it

was a unilateral transaction. Here the transaction is one which is bilateral. The three clauses of the release deed extracted above will go to show

that it is a bilateral transaction and it is only on that basis Ramani and Sakuntala have also joined in the execution of the release deed. The Tribunal

has rightly held on this aspect in the present case that this is not a unilateral transaction. This is a clear case of transfer from the assessee to Ramani

and Sakuntala of his interest in Schedules B and C. It is thus a case of gift.

In the result, the question referred to us is answered in the affirmative and against the assessee. The revenue will be entitled to costs. Counsel

fee Rs. 500.