A firm is not a recognised legal personality.

per the Honble Sri Justice L.Narasimha Reddy

This reference is made under Section 26 (1) of the Gift Tax Act, 1958 (for short the Act) by the Income Tax Appellate Tribunal, Hyderabad Bench A (for short the Tribunal).

The circumstances that led to the making of the reference are as under:

The applicant, his brother Sri Arjun Das, and their mother Smt. Susheela Devi jointly owned a building at Nizamabad. In addition to that, the two brothers held an open land at Nizamabad in common. The building was leased to the State Bank of India at monthly rent of Rs.16,230/-.

Through a deed of partnership, dated 07.04.1986, the mother and two sons constituted a partnership firm and the two properties referred to above were made the assets of the firm. However, the firm was dissolved within one year i.e. on 02.03.1987. At the time of dissolution, the building at Nizamabad was allotted towards the share of the mother, open land to the share of one of the sons, by name Arjun Das, and the applicant herein was allotted some liquid assets.

In the income tax returns submitted for the assessment year 1987-88, the value of the building was shown at Rs.6,21,000/-. While processing the returns, the Income Tax Officer, who also happens to be the authority under the Act, took the view that a transaction of gift has taken place from the applicant herein to his mother, to the extent of his one-third share in the house. In addition to that, he assessed the value of the house at Rs.20,28,750/- through the method of capitalisation.

Accordingly, he proposed to levy gift tax at Rs.1,34,775/-. After considering the explanation submitted by the applicant, the assessing authority confirmed the levy and demand.

Aggrieved by the order of the assessing authority, the applicant carried the matter to the Commissioner of Income Tax (Appeals) IV. The appeal was dismissed on 17.01.1996. Thereafter, the applicant availed the remedy of further appeal before the Tribunal. The further appeal was dismissed on 04.03.1999. On an application submitted under Section 26 (1) of the Act, the following questions are referred to this Court:

1. Whether on the facts and in the circumstances of the case the conclusion of the Appellate Tribunal that there are no family disputes or that there is no family settlement is based on relevant material or reasonable or could be correct conclusion which could be arrived at based on the facts occurring in the case?

2. Whether on the facts and in the circumstances of the case the assessee is entitled to plead that the formation and dissolution of the partnership Arjundas & Rajkumar & Others to give effect to family settlement, is relevant for understanding whether at all, there is any transfer resulting in a deemed gift under the Gift Tax Act?

3. Whether on the facts and in the circumstances of the case the Tribunal is correct in its conclusion that upon the dissolution of the firm Arjundas & Rajkumar there is deemed gift by the assessee in favour of his mother ignoring the family settlement altogether and in assessing the deemed gift at Rs.4,69,250/-?

4. Whether on the facts and in the circumstances of the case for the purpose of assessing the deemed gift the valuation of the property at Nizamabad at Rs.20,28,750/- is correct or whether the same is exclusive?

5. Whether on the facts and in the circumstances of the case while valuing the property on rental method, is the assessee entitled to deduction of Municipal taxes repairs and collection charges from the annual rent for arriving at the net rent?

6. Whether on the facts and in the circumstances of the case for valuing the building is it open to the assessing officer to treat rent paid towards air cooling charges as part of property income, when the rental deed itself specifies the rent of the property and the charges for providing air cooling separately?

7. Whether on the facts and in the circumstances of the case, the Tribunal is justified in not adopting a combination of rental method and land and bui