- (1.) THIS is a reference" preferred by the Revenue on a question as to : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there could be no element of deemed gift in favour of the brothers of the assessee, who owned 2/3rds of the house property in respect of the renovation expenses incurred on the house property ?" The assessee spent a sum of Rs. 60,732 in the remodelling, renovating and carrying out certain repairs of a house of which he was 1/3rd owner and the remaining 2/3rds was owned by his two brothers. The house is obviously an ancestral house. The assessee was asked by the Revenue to provide evidence in this connection and he was further asked as to why an amount of Rs. 40,520 representing 2/3rds of Rs. 60,732 spent by the assessee on renovating the house should not be treated as a gift in favour of his brothers. The assessee could not furnish any plausible explanation and thereafter the Gift-tax Officer treated Rs. 40,522 as deemed gift. Aggrieved by the order passed by the Gift-tax Officer, the assessee preferred an appeal before the Appellate Assistant Commissioner who accepted the arguments advanced by the assessee that the transaction could not be treated as a deemed gift except probably under Clause (d) of Section 4 of the Gift-tax Act, 1958, and as per this clause the gift could be said to have taken place when the person in whom the property vests along with the donor appropriate something out of the property donated and since no such appropriation was done by any of the co-owners, there was no gift in the eye of law. The Appellate Assistant Commissioner accordingly deleted the amount of Rs. 40,520 from the order of the Assessing Officer. The Department was aggrieved by this order as passed by the Appellate Assistant Commissioner and it took the matter before the Income-tax Tribunal. The assessee placed reliance on a letter dated December 14, 1984, addressed to the Department in which he made a submission that the house was an ancestral one and that in the absence of the house being actually divided it should be treated as a joint family property of the assessee along with his brothers and the additions and alterations carried out to the joint property by any one of them could not be taken to be a deemed gift in favour of two other co-owners. According to the assessee, this aspect was never considered by the Gift-tax Officer as well as by the Appellate Assistant Commissioner. The Tribunal, however, accepted the averment of the assessee and reached a conclusion that the assessee had not made any gift. Hence, this reference at the instance of the Revenue.
(2.) THE term "gift" is defined in Section 2fxii) of the Gift-tax Act to mean 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 or conversion of any property referred to in Section 4, deemed to be a gift under that section. Although under Section 2(xii) of the Gift-tax Act, the expression "transfer of property" has also been given an extended meaning so as to cover certain transactions which would not ordinarily be comprised within that term, it was held by the Supreme Court in the case of Goli Eswariah v. CGT [1970] 76 ITR 675 that the act of conversion of separate property by a coparcener of a Hindu undivided family into property belonging to the family did not fall within the normal or even the extended meaning of the term "transfer of property" under the Gift-tax Act and, hence, such an act of conversion of separate property into Hindu undivided family property did not attract liability to gift-tax. With a view to closing this loophole for avoidance of gift-tax liability by using the device of converting self-acquired property into Hindu undivided family property, the Legislature in its wisdom through Section 37 of the Finance (No. 2) Act, 1971, has amended sections 2 and 4 of the Gift-tax Act for the purpose. Under the amendment to Section 4 it has been provided that where a member of a Hindu undivided family converts his separate property into joint family property, he shall be deemed to have made a gift in favour of the family, of so much of that property as the other members of the family would be entitled to if a partition of the converted property had taken place immediately after such conversion. The definition of the term "gift" enacted in Section 2(xii) has also been modified so as to cover the transfer or conversion of any property referred to in Section 4, deemed to be a gift in that section. These amendments have already taken effect from April 1, 1972, and apply for the assessment year 1972-73 onwards. We have gone through the provisions of the statute in so far as Section 4(2) of the Gift-tax Act are concerned. The amended statute makes clear the intention of the Legislature that in such exigencies as covered by the instant case if a separate property of the individual stands converted into property belonging to the family through the act of impressing such separate property with the character of property belonging to his Hindu undivided family or throwing it into the common stock of the family, then notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, for the purpose of computation of taxable gifts made by the individual, the said individual shall be deemed to have made a gift of so much of the converted property as the members of the Hindu undivided family other than such individual would be entitled to, if a partition of the converted property had taken place immediately after such conversion. We would, accordingly, answer the reference in the affirmative and in favour of the Revenue and hold that in the facts and circumstances of the case the Tribunal is not justified in holding that there could be no element of deemed gift in favour of the brothers of the assessee who owned 2/3rds of the house property in respect of the renovation expenses incurred on the house property. Accordingly, the amount of Rs. 40,520 would be assessed legally to gift-tax. A copy of the order may be sent to the Income-tax Appellate Tribunal, Jaipur. ;