Execution of a release deed relinquishing a life interest in property is not a “transfer of property” or a “gift” within the meaning of the Gift-tax Act, 1958, unless it falls within the ambit of Section 4(1)(e) inserted by the Finance Act, 1980, with effect from April 1, 1980.

J.S. Verma, CJ.-This is a reference under Section 26(1) of the Gift-tax Act, 1958 (hereinafter referred to as “the Act”), at the instance of the Commissioner for decision of the following questions of law, namely: “(i) Whether, on the tacts and in the circumstances of the case, the Tribunal was right in law in holding that the execution of the release deed in question is a unilateral act and as such, it is not a transfer within the meaning of Section 2(xxiv) of the Gift-tax Act, 1958 ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the execution of the release deed in question is not a gift within the meaning of Section 2(xii) of the Gift-tax Act, 1958?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the release deed in question is a bonafide one and as such, it is not hit by Section 4(1)(c) of the Gift-tax Act, 1958?”

2. The relevant assessment year is 1973-74. By a will dated January 15, 1951, executed by Mohan Lal Sanghi, father of Smt. Ayodhya Kumari, wife of Sah Roop Narain, the assessee, the testator bequeathed his properties at Kota comprising of Brij Talkies, Mohan Kutir and Mohan Mansion in favour of Anil Kumar, son of Smt, Ayodhya Kumari, and Sah Roop Narain, while giving his daughter, Smt. Ayodhya Kumari, and her husband, Sah Roop Narain, the life interest to enjoy the income from these properties without having any right to alienate or encumber the same in any manner. For the assessment years 1963-64 to 197 1-72, the assessment was completed in the case of Anil Kumar including the value of these properties treating them as his properties. It appears that an objection was taken to the failure to tax the income from these properties in the hands of Sah Roop Narain and his wife, Smt. Ayodhya Kumari. Accordingly, the Wealth-tax Officer commenced proceedings against them. It then transpired that Sah Roop Narain and his wife, Smt. Ayodhya Kumari, had executed a release deed dated May 27, 1972, under which they had given up their right to enjoy the income from these properties declaring categorically that Anil Kumar, who was the owner of these properties, would also be entitled to enjoy the income thereof

3. The assessee, Sah Roop Narain, did not include the value of the life interest to enjoy the income from these properties in the gift-tax return and a mention of this fact of relinquishing the same in this manner was made. The Gift-tax Officer wrote a letter dated December 15, 1975, to the assessee saying that this release deed amounted to a gift in favour of Anil Kumar of the life interest of the assessee to enjoy the income from the properties and, as such, the value of the life interest was taxable in the hands of the assessee. The assessee sent a reply dated February 2, 1976, stating that the unilateral act of the assessee was bona fide and it merely

accelerated the right of Anil Kumar, who was the owner of the properties, to also enjoy the income therefrom from the date of relinquishment by the assessee. It was also pointed out that Anil Kumar was already in possession of the properties and had been enjoying the income accordingly. The Gift-tax Officer held that the assessee’s right to enjoy the income from the properties as a result of the relinquishment by him constituted a gift under Section 2(xii) of the Act and in the alternative it was a deemed gift under Section 4(1)(c) of the Act. Accordingly, the Gift-tax Officer determined the value of this life interest of the assessee at Rs. 3,23,394 and after allowing the exemption held the same to be taxable under the Act.

4. The assessee’s appeal to the Appellate Assistant Commissioner succeeded. The Appellate Assistant Commissioner held that this relinquishment by the assessee was a bona fide transaction; that the transaction was not a gift under Section 2(xii) of the Act ; and that it was also not a deemed gift under Section 4(1)(