1969 Supreme(Raj) 230

RAJASTHAN HIGH COURT
D.M.Bhandari, S.N.Modi, JJ.
Commissioner of Wealth-Tax, Rajasthan - Appellant
Versus
Motilal Ramswaroop - Respondent
D.B. Civil Income-Tax Reference No. 66 of 1966 and D.B. Civil Wealth-Tax Reference No. 36 of 1966.
Decided On : 25-08-1969

Gifts made by the karta of a joint Hindu family are not necessarily void but are only voidable if objections are taken by other family members. The interest accruing on gifted amounts does not accrue to the assessee family for income-tax purposes if the gifted amount has passed into the hands of strangers who earned income from it, and the assessee has not earned any income from the gifted amount. The gifted amount together with the estimated interest thereon ceases to be an asset of the assessee family for wealth-tax purposes if it has been transferred under an irrevocable transfer.

Headnote:

GIFT - VOID OR VOIDABLE - INCOME-TAX - INTEREST ON GIFTED AMOUNT - WEALTH-TAX - GIFTED AMOUNT AS ASSET - INTERPRETATION OF SECTIONS 2(6C), 3, 16(1)(C) OF THE INCOME-TAX ACT, 1922 AND SECTIONS 2(M), 3, 4(1)(A)(IV) OF THE WEALTH-TAX ACT - DISTINCTION BETWEEN VOID AND VOIDABLE GIFTS - TAXABILITY OF INCOME AND ASSETS.

Fact of the Case:

The assessee, a Hindu undivided family, made gifts totaling Rs. 4,00,000 to various family members. The Income-tax Officer included the gifted amount and interest thereon in the assessee's income, while the Wealth-tax Officer treated it as an asset of the assessee. The Tribunal referred questions to the High Court on whether the gifts were void or voidable and whether the interest and gifted amount were taxable.

Finding of the Court:

The High Court held that the gifts were voidable, not void, and that the interest and gifted amount were not taxable. The court distinguished between void and voidable gifts, noting that void gifts have no legal effect from the beginning, while voidable gifts have full legal effect until set aside by a person entitled to do so. The court found that the gifted amount had passed into the hands of strangers who earned income from it, and that the assessee had not earned any income from the gifted amount. The court also found that the gifted amount was not an asset of the assessee for wealth-tax purposes, as it had been transferred under an irrevocable transfer.

Issues: 1. Whether the gifts made by the karta of the assessee family were void or voidable? 2. Whether the interest accruing on the gifted amounts accrued to the assessee family for income-tax purposes? 3. Whether the gifted amount together with the estimated interest thereon ceased to be an asset of the assessee family for wealth-tax purposes?

Ratio Decidendi: 1. The court relied on the Privy Council decision in Hanuman Kamat v. Hanuman Mandur and the Lahore High Court decision in Imperial Bank of India, Jullundur v. Mt. Maya Devi to hold that gifts made by the karta of a joint Hindu family were not necessarily void but were only voidable if objections were taken by other family members. 2. The court held that the interest accruing on the gifted amounts did not accrue to the assessee family for income-tax purposes because the gifted amount had passed into the hands of strangers who earned income from it, and the assessee had not earned any income from the gifted amount. 3. The court held that the gifted amount together with the estimated interest thereon ceased to be an asset of the assessee family for wealth-tax purposes because it had been transferred under an irrevocable transfer.

Final Decision: The High Court answered both questions in the negative, holding that the gifts were voidable, not void, and that the interest and gifted amount were not taxable.