Blending or throwing self-acquired property into common stock does not constitute a gift under the Gift-tax Act.

Narayana Pai, J.—This is a reference under section 26(1) of the Gift-tax Act, 1958, made by the Bombay Bench "B" of the Income Tax Appellate Tribunal, at the instance of the assessee. The assessee, since deceased, one N. B. Nerlekar, had owned several properties which were his self-acquired property. On 30th August, 1961, he executed a registered instrument of partition to which himself, his wife and five children were parties; N. B. Nerlekar himself was party No. 1. The properties were set out in two schedules "A" and "B". The "A" schedule properties he retained for himself and partitioned only "B" schedule properties among himself, his wife and children under the instrument. The opening paragraphs (II) and (III) of the deed contain the following recitals :

"(II) Properties mentioned in schedule 'A' and 'B' annexed at pages 10 and 11 to this instrument are initially the self acquisition of No. 1, i.e., Sri Narayan Balakrishna Nerlekar. The joint family had no nucleus or ancestral property with the aid of which the properties in schedule 'A' and 'B' could have been acquired by No. 1. They are in fact acquired by No. 1 from time to time by his talent, industry and exertions, without the aid of any joint family property. This position of things is true and accepted by all other executants.

(III) That being so, No. 1 is desirous of making a family arrangement, so that every one would live in peace and be able to look after his or her own affairs and live happily and in amity. With this view, No. 1 has voluntarily thrown properties in schedule 'B' into the common stock with the intention of abandoning all separate claims upon them, though they were his exclusive self-acquired properties. Those properties as are set out in schedule 'B' having been thrown into the common stock have become joint family properties and are subject to all the incidents of joint family property under Hindu Law. No. 1 has, however, retained schedule 'A' properties as his self-acquired properties and thus of his exclusive ownership. Properties in schedule 'B' only have thus become divisible amongst the members of the joint family of executants Nos. 1 to 7 as joint family properties by the clear intention of No. 1 to waive his separate rights in them."

2. For the assessment year 1962-63, the Gift-tax Officer considered that the process evidenced by the above document amounted to a gift by the assessee, N. B. Nerlekar, to the family and imposed gift-tax to the entire extent of the value of the properties in "B" schedule of the deed of partition.

3. Upon appeal, the Appellate Assistant Commissioner took a different view. He held that the process evidenced by the document in question was a process whereby, in the first instance, the assessee impressed his self-acquired properties with the character of joint family property and later partitioned it between himself and children after effecting a division or disruption of status between them and that neither the first nor the second stage involved any transfer of property, much less, therefore, a transfer by way of gift attracting liability to gift-tax.

4. The department appealed to the Appellate Tribunal. The Tribunal disagreed with the first appellate authority and agreed with the original assessing authority on the question as to the nature of the process to which the assessee had subjected the properties in "B" schedule of the partition deed. The opinion of the Tribunal as summarised by itself in paragraph 8 of its statement of the case is as follows :

"The Tribunal observed that the terms 'transfer' and 'gift' have been defined in the Gift-tax Act and those transactions should not, therefore, be judged with reference to the provisions of the Transfer of Property Act or the Hindu Law for finding out whether the transaction, in question, amounted to a gift under those Acts. The Tribunal further observed that, for a gift, there should be acceptance by the done, whether under other Acts or under the Gift