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PETITIONER: GOLI ESWARIAH

       Vs.

RESPONDENT: COMMISSIONER OF GlFT TAX, ANDHRA PRADESH

DATE OF JUDGMENT: 05/05/1970

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. SHAH, J.C.

CITATION:  1970 AIR 1722            1971 SCR  (1) 522  1970 SCC  (2) 390  CITATOR INFO :  RF         1977 SC2230  (17)

ACT: Gift  Tax  Act  18  of  1958,  s.  2(xxiv)  (d)-Transfer  of property-Hindu throwing separate property into joint  family stock-His  act whether amounts to ’transaction’  within  the meaning  of  sub-cl.  (d)-Whether amounts  to  ’transfer  of property’ liable to be treated as ’gift’ under ss. 2(xii)  & 4(a)  of the Act-Word ’disposition’ in s.  2(xxiv),  meaning of.

HEADNOTE: The  appellant owned certain self-acquired properties  which by  a deed dated December 9, 1957 he threw into  the  common stock of his Hindu Joint Family.  The Gift Tax Officer  held that he had thereby made it gift taxable under the Gift  Tax Act,  1958.  After proceedings before the authorities  under the  Act  the  question  whether  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 decision in Satyanarayanamurthy’s case the High Court held that the act of’ the appellant  amounted to a ’transfer’ within-the terms 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   Satyanarayanamurthy’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 increase 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 allowed since the  declaration  by which  the  assessee had impressed the  character  of  joint Hindu family property on the self-acquired properties  owned by  him  did  not amount to a transfer’  so  as  to  attract provisions of the Act, [529 F] A  Hindu  Joint Family is not a creature of  contract.   The doctrine of throwing into common stock inevitably postulates that  the owner of the separate property is a copartner  who has  an interest in the coparcenary property and desires  to

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blend  his separate property with the coparcenary  property. 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 into the  common  stock with the intention of abandoning his separate claim therein. The act by which the coparcener throws his separate property to the common stock is a unilateral act.  By his  individual volition he renounces his individual right in that  property and  treats it as a property of the family.  As soon  as  he declares  his intention to treat his self acquired  property as  that  of  the Joint Family,  the  property  assumes  the character  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 common stock he makes  no  gift under  Ch.  VII of the Transfer of Property Act.  In such  a case  there  is no donor or done.  Further  no  question  of acceptance  of  the property thrown into  the  common  stock arises. [526 A-F] 523 It was not necessary in the present case to consider 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  "transaction entered  into".   Clause (d) of s.  2(xxiv)  contemplates  a "transaction  entered into" by one person with another.   It cannot apply to a unilateral act. it must 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 agree with the High Court that the  act of  the assessee fell within the scope of s. 2(xxiv) (d)  of the Act. [528 A-B] The  assessee’s  act  could  also not  be  considered  as  a ’disposition’  under the main part of s. 2(xxiv).  The  word ’disposition’  is  not  a term of law.  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 used in s. 2(xxiv), it cannot mean to "dispose  of. 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, 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-F] Mallesappa  Bandeppa Desai & Ors. v, Desai Mallappa  &  Ors. [1961] 3 S.C.R. 779, Grimwade & Ors. v. Federal Commissioner of  Taxation,  78 C.L.R. 199,  Commissioner  of  Income-tax, Madras v. M. K. Stremann, 56 I.T.R. 62 and M. K. Stremann v. Commissioner of Income-tax, 41 I.T.R. 297, applied. Commissioner of Gift Tax, Madras v. P. Rangaswami Naidu T.C. 272  of  1964  :  R. S. R.  M.  Ramaswami  Chettiar  v.  The Commissioner  of Gift Tax, Madras.  Tax Case No.10 of  1966, Dr.  A. R. Shukla v. Commissioner of Gift Tax, Gujarati,  74 I.T.R.  167  and  Smt.  Laxmibai Narayana  Rao  Nerlekar  v. Commissioner of Gift-tax, 65, I.T.R. 19, approved. Commissioner     of    income-tax,    Hyderabad    v.     C. Satyanarayanamurthy,  56  I.T.R. 353, G. V. Krishna  Rao,  & Ors. v. First Addl.  Gift Tax Officer, Guntur, 70 I.T.R. 812 and  Commissioner  of Gift Tax v. Jagdish Saran,  75  I.T.R. 529, disapproved.

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JUDGMENT: 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. Sachthey and B, D. Sharma, for the respondent. M.-C.  Chagla, M. Shankar and K. Jayaram, for  interveners Nos.  1 and 2. 5 2 4 N.   D.  Karkhanis and T. A. Ramachandran,  ’for  intervener No. 3. The Judgment of the Court was delivered by Hegde,  J.  This  appeal  by  certificate  arises  from  the judgment  of the Andhra Pradesh High Court rendered  in  its advisory  jurisdiction  on a case stated by  the  Income-tax Appellate  Tribunal, Hyderabad Bench under s. 26(1)  of  the Gift-tax  Act,  1958 (to be hereinafter referred to  as  the ’Act’).   The question referred for the opinion of the  High Court was :               "Whether the declaration by which the assessee               has  impressed  the character of  joint  Hindu               family    property   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 Commissioner    ,of    Income-tax,    Hyderabad    v.     C. Satyanarayanamurthy(1);  ,answered  that  question  in   the affirmative. The  material facts as could be gathered from the  statement of the case submitted to the High Court are as follows : The  assessee  is  the  karta  of  his  joint  family.   The assessment year with which we are concerned in this case  is 1959-60,   for  which  the  "previous  year"  is  the   year commencing  on 23-10-1957 and ,ending on 10- 11- 1958.   The assessee  owned movable and immovable properties which  were his self acquisitions.  By a deed dated December 9, 1957, he threw  into  the  common  stock  his  houses  bearing   Nos. 6658-5-9- and 2731 situate at Imamba vidi, Secunderabad  and a  cash  deposit of Rs. 1,50,000 in the firm of  M/s.   Goli Eswariah,  Paper Merchants, Secunderabad.  In the  books  of account   of   the  firm,  necessary   entries   were   made transferring  the amount to the account a the  family.   The Gift-tax  Officer treated that portion of the value  of  the properties so blended in which the assessee ceased to have a right  on partition of the family as having been  gifted  by him  to  the  family.  He rejected  the  contention  of  the assessee  that  his  act  of  throwing  his  self   acquired properties  into the common stock did not amount to  a  gift under   the  Act.   In  appeal,  the   Appellate   Assistant Commissioner  took the view that since the deed in  question was  not registered, there was no transfer of the  immovable properties  to the family and as such there was no  gift  of the two houses mentioned earlier but with regard to the  sum of Rs. 1,50,000, he considered it as a gift and  accordingly held that 3/4th of it was liable to be taxed under (1)  56 I.RT.R. 353.                             525 the provisions of the Act.  Thereafter the matter was  taken

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up  in  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  copartner  threw  himself   acquired properties into the hotchpot of the joint family, there  was no  element  of  transfer within the meaning of  s.  2,  cl. (xxiv)  sub-cl.  (d)  of the Act.  At the  instance  of  the Commissioner,Gift-tax, Andhra Pradesh, the tribunal stated a case  for the opinion. of the High Court and  submitted  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 decision of that High  Court in    Commissioner    of    Income-tax,    Hyderabadv.    C. Satyanarayanamurthy(1)  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 of 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  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 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  Andhra,  Pradesh  High Court in the  case  referred  to earlier  as well as in G. V. Krishna Rao and Ors.  v.  First Additional  Gift-tax  officer, Guntur(1) and  the  Allahabad High Court in Commissioner of Gift-tax v. Jagdish Saran (  3 )  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  hands  a full bench of the Madras High Court in Commissioner of Gift- tax,  Madras  v.  P.  Rangasami Naidu(4)  and  VR.   S.  RM. Ramaswami   Chettiar  v.  The  Commissioner   of   Gift-tax, Madras(,), a full bench of the Gujarat High Court in Dr.  A. R.  Shukla  v.  Comnzissioner  of  Gift-tax,  Gujarat(");  a division bench of the Kerala High Court in P. K.  Subramania lyer  v. Commissioner of Gift-tax, Kerala(1) and a  division bench  of the Mysore High Court in Smt.   Laxmibai  Narayana Rao  Nerlekar  v. Commissioner of  Gift-tax(8)  havetaken  a contrary view. (1)  56  I.T.R. 353.                         (2)  70  I.T.R. 812.      (3)  75 I.T.R. 529.(4)Tax Case 272 of 1964’..      (5)  Tax Case No. 10 of 1966.(6)74 I.T.R. 167.      (7)  67 I.T.R. 612.(8)65 I.T.R. 19. 526 To  pronounce  on  the question of  law  presented  for  our decision,  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 family  is not a creature of a contract.As    observed by this Court in Mallesappa Bandeppa Desai and Ors. v.   Desai  Mallappa  and Ors.(1)  that  the doctrine of throwing  into  common  stock inevitably postulates that the owner of a separate  property is  a  coparcener, who has an interest  in  the  coparcenary property  and desires to blend hi-, separate  property  with the coparcenary property.  The existence of a coparcenary is absolutely necessary before a coparcener can throw into  the

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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 into the common stock with  the intention’  of abandoning his separate claim  therein.   The separate  property  of  a  Hindu ceases  to  be  a  separate property  and acquires the characteristic of a joint  family or  ancestral 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 separate property  to  the 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 soon  as  he  declares  ’his intention  to  treat  his  self acquired property as that of the joint family, the  property assumes  the  character  of  joint  family  property.    The doctrine  of  throwing into the common stock is  a  doctrine peculiar  to  the Mitakshara School of Hindu  law.   When  a coparcener  throws  his separate property  into  the  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 acceptance of the  property  thrown into the common stock arises. 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  ascertain  whether the act of the assessee  can be considered as a  gift  under the Act. Section 3 is the charging section.  It provides that subject to the    other-provisions contained in the Act, there shall be charged for every assessment year commencing on and  from the  1  St day of April, 1958, a tax known as  gift  tax  in respect  of the gifts, if any, made by a person  during  the previous year (other than gifts made (1)  [1961] 3 S.C.R.770. 5 2 7 before  the  1st  day of April 1957) at the  rate  or  rates specified in the Schedule.  Gift is 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  gift. Therefore we need not consider the scope of s. 4. Before  an act can be considered 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 that  ’property’  includes any  interest  in property,  movable  and  immovable.Section 22(xxiv) defines "transfer of property" thus :               "Transfer of property" means any  disposition,               conveyance, assignment, settlement,  delivery,               payment  or other alienation of property  and,               without   limiting  the.  generality  of   the               foregoing includes.-               (a)   the creation of a trust in property;               (b)   the  grant  or creation  of  Any  lease,               mortgage,  charge, easement,  licence,  power,               partners hip or interest in property;

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             (c)   the  exercise of a power of  appointment               of  property.-vested  in any person,  not  the               owner  of  the  property,  to  determine   its               disposition in favour of any person other than               the donee of the power-, and               (d)   any  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." The  High Court relied on s. 2 (xxiv) (d) in  answering  the question  referred to it in favour of the Revenue.  It  came to the conclusion that the act of the, assessee in  throwing his self-acquired properties into the common stock  amounted to "a transaction entered into by him 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".  It is true that the assessee  ’by  throwing his self-acquired property into the common stock gave up his exclusive  right  in that property and in its place  he  was content to own that property jointly with the other  members of his family.  We do not think that it is necessary in this case to consider whether the act of the assessee can be said to have "diminished 5 28 directly  or  indirectly the value of his own  property  and increased  the  value of the property" of his  joint  family because  in our opinion that act cannot be considered  as  a "transaction  entered  into".   Clause  (d)  of  s.  2(xxiv) contemplates a "transaction entered into" by one person with another.   It cannot apply to a unilateral act.  It must  be an act to which two or more persons are parties.  It is true that  for the purpose of the Act, a Hindu  Undivided  Family can  be considered as a "person".  But the assessee did  not enter  into any transaction with his family.   Therefore  we are unable to agree with the High Court that the act of  the assessee  fell  within the scope of S. 2 (xxiv) (d)  of  the Act. Section 2(xxiv(d) is similar to Paragraph (f) of S. 4 of the Australian Gift Duty Assessment Act, 1941-42.   Interpreting that section in Grimwade and Ors. v. Federal Commissioner of Taxation(1),  the High Court of Australia observed that  the transaction  by  a  person referred to  therein  must  be  a transaction  with some other person and that it cannot be  a unilateral act. Mr.  B.  Son, learned Counsel for the  department  contended that  the said act should be considered as  a  ’disposition’ under the main part of S. 2 (xxiv).  The word  ’disposition’ is  not a term of law.  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 that term is used  in  S. 2(xxiv), it cannot mean to ’dispose of’.  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, assignment,   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 usefully made  to  the decision of this Court in Commissioner of Income-tax, Madras v. M. K. Stremann(2).  Therein the assessee first threw  his private  properties  into the common  stock  and  afterwards there  was  a partition amongst the members  of  the  family

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which  included  his two minor sons and  a  minor  daughter, represented by their mother.  The question arose whether the partition  in question amounted to a transfer of  assets  by the  assessee to the three minor children so as’ to  attract the provisions of s. 16(3) (a) (iv) of the Indian Income-tax Act,  1922.   In that case, the Revenue did not  contend  in this Court that the act of the assessee throwing into common stock  his self acquired properties amounted to transfer  of assets by the assessee to his three minor children.  On  the other hand, ,it contended that the partition that took place subsequently  amounted  to  a  transfer  of  assets  of  the assessee to his minor child- (1) 78 C.L.R. 199. (2) 56 I.T.R. 62. 5 2 9 ren.   This  Court overruled that contention.   Therein  the contention 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 becomes impressed  with the character of coparcenary property, there is no  transfer of that property from the coparcener to the coparcenary;  it becomes  joint  family property because the  coparcener  who owned  it  until 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 of 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 copes 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(1).   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 the question referred to the High Court thus :-- The declaration by which the assessee has impressed the cha- racter  of joint Hindu family property on the  self-acquired properties  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 appellant in this appeal. G.C. Appeal allowed. (1) 41 1. T.R. 297. L 13 Sup.  Cl/70-5 530