The main legal point established in the judgment is that the exemption under section 5(1)(viii) of the Gift-tax Act applies only to a living spouse making a gift to another living spouse as an individual and not as a karta of a Hindu undivided family.

K.S. Puttaswamy, J.—In this reference made under section 26(1) of the Gift-tax Act, 1958 (Central Act 18 Of 1958) ("the Act"), the Income Tax Appellate Tribunal, Bangalore Bench, Bangalore ("Tribunal"), at the instance of the Revenue has referred the following question of law for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in allowing the relief under section 5(1)(viii) in a case where the karta of a Hindu undivided family has given a gift to his wife from out of Hindu undivided family funds ?"

2. In order to appreciate this question, it is necessary to notice the facts that are not also in dispute in the first instance.

3. As the karta or the manager of a joint Hindu family (HUF) consisting of himself, his wife and children, the assessee by a deed of gift dated March 14, 1973 (annexure-C), gifted certain properties of the Hindu undivided family detailed in the schedule to that deed of the value of Rs. 60,000 to his wife, Smt. B. S. Narasamma.

4. For the assessment year 1973-74 relevant to the previous year ending on March 31, 1973, the assessee filed his return under the Act before XIVth Gift-tax Officer, Circle-I, Bangalore, claiming exemption under section 5 of the Act to the extent of a sum of Rs. 50,000 gifted to his wife with which claim only we are concerned in this case. On February 10, 1975, the Gift-tax Officer completed the assessment allowing the said exemption claimed by the assessee without critically examining the same (annexure-A).

5. With the aforesaid assessment made by the Gift tax Officer, the assessee was not aggrieved. But, the Commissioner of Gift-tax exercising his suo motu power of revision conferred on him by section 24 of the Act, and after issuing the requisite notice and affording, an opportunity of hearing, by his order dated January 11, 1977 (annexure-B), revised the same and directed the Gift-tax Officer to withdraw the exemption granted by him to the assessee and bring the same to tax under the Act. Aggrieved by the said order of the Commissioner, the assessee filed an appeal under section 25 of the Act before the Tribunal, which by its order dated June 13, 1978 (annexure-D), allowed the same, set aside the order of the Commissioner and restored the order of the Gift-tax Officer. Hence, this reference at the instance of the revenue.

6. Sri K. Srinivasan, learned senior standing counsel for the Income Tax Department, assisted by Sri H. Raghavendra Rao has appeared for the Revenue-Sri G. Sarangan, learned advocate, has appeared for the assessee. Both sides have relied on a large number of rulings in support of their respective cases. We will refer to them at the appropriate stage.

7. Sri Srinivasan has urged that a gift made by the "karta" as the "karta" of the properties belonging to a Hindu undivided family, on the plain language of section 5(1)(viii) of the Act, does not qualify for exemption.

8. Sri Sarangan, in refuting the contention of Sri Srinivasan, has urged that a "karta" making a gift of the property of a Hindu undivided family was also an individual and such a gift also qualifies for exemption under section 5(1)(viii) of the Act, as held by other High Courts for two decades and that view, even if another view was possible, should be preferred by this court.

9. The Act has been enacted to provide for levy of gift-tax. Section 2 of the Act defines various terms that are generally found in the Act. Section 3 of the Act which is the charging section provides for levy of gift-tax from April 1, 1958, in respect of the gifts, if any, made by a person during the previous year at the rate or rates specified in the Schedule to the Act. Section 4 of the Act declares certain transfers as gifts for purposes of the Act. Section 5 provides for exemptions in respect of certain gifts, one of them being gifts made by one spouse to another spouse subject to the limitation on the value - vide section 5(1)(viii).