Income Tax Appellate Tribunal - Hyderabad
Gift-Tax Officer vs M. Hymavathamma on 29 December, 1987
Equivalent citations: [1988]27ITD214(HYD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. This is a gift-tax appeal filed by the Department against the order of the A AC Vijayawada, dated 16-1-1986 and it relates to asst. year 1976-77. The brief facts of the case leading to the present appeal are as follows:
2. Sri M. Adinarayana Reddy was a native of Kurugonda, Gudur Taluk, Nellore Dist. Smt. M. Hymavathamma is his wife. He had only two daughters, viz., Smt. Ramasubbamma and Smt. Suharlata and no sons. He used to have landed property comprising of both wet and dry land. It is the case of the assessee that he had brought into his family one Shri Y. Dayakar Reddy of Dampur Village, Kovur Tq. on illatom adoption with a view to give his first daughter, Smt. Ramasubbamma in marriage to him. The said Sri Dayakar Reddy used to reside along with his would-be-father-in-law as one of the members of his family even from 1970. There was an illatom agreement executed between Sri Adinarayana Reddy and Sri Dayakar Reddy on 25-5-1970 the terms of which would be relevant and would be subsequently referred to in this order. In pursuance of the illatom adoption, runs the case of the assessee that Smt. Ramasubbamma was given in marriage to Sri Dayakar Reddy on 2-11-1973. Smt. Suharlata the second daughter of Sri M. Adinarayana Reddy was given in marriage to Sri Y. Adisesha Reddy on 13-12-1973. It is the case of the asses-see that at the time of her marriage with Sri Adisesha Reddy, her father Sri Adinarayana Reddy promised to give her 3 Acs. of wet land and 81/2 Acs. of dry land towards 'Pasupukunkuma'.
3. In 1974 one Smt. Y. Sarojanarnma of Sirsanambedu village near Naidupet, Nellore District, filed a suit against Sri M. Adinarayana Reddy claiming half the share in his properties on the ground that she had lived with him from 1970 to 1973 and during that period she rendered all sorts of services to him, in consideration whereof, he promised to give her half share in his property. Sri M. Adinarayana Reddy, donor assessee, actually died on 12-9-1976. Prior to his death he settled his properties to his wife, two daughters and two sons-in-law by means of the registered Settlement Deeds dated 29-3-1976. The list of the donees, their relationship with the deceased, extents of wet and dry lands gifted and their value are shown in the table given below:
Name of the person Relationship Wet Dry Value Rs.
Ac. Cts. Ac. Cts
1. Y. Dayakar Reddy Illatom son-in-law 2.86 8.81 24,572
2. Y. Ramasubbama First daughter 2.86 8.81 24,572
3. Y. Adisesha Reddy Second 2.86 8.81 24,572
son-in-law
4. Y. Suharlata Second daughter 2.86 8.81 24,572
5. M. Hymavathamma Wife 2.80 8.18 20,410
In the original gift-tax return the gifts made to the wife, second son-in-law as well as second daughter amounting to Rs. 70,554 only was disclosed. The gift made to the wife was claimed exemption under Section 5(1)(viii). Thus, the total of Rs. 31,410 was claimed exemption and the remaining value of gift came to Rs. 39,144. From out of it basic exemption of Rs. 5,000 was claimed and so the total taxable gift in the original gift-tax return was shown at Rs. 39,144. Subsequently, the letter dated 25-2-1980 was addressed disclosed therein that two more settlement deeds were executed by the deceased. Late Adinarayana Reddy on 29-3-1976 one in favour of his first son-in-law claimed to have been adopted as illatom son-in-law and the first daughter Smt. Ramasubbamma, It was stated that the terms of illatom adoption were reduced to writing by the deed dated 25-5-1970, where-under Sri Adinarayana Reddy was agreed to give half his properties to his first son-in-law under illatom adoption. Therefore, it was claimed that the gift of the extents both to the illatom son-in-law as well as his wife Smt. Ravnasubbamma roughly represent half the property, held by Sri Adinarayana Reddy and so those gifts must be deemed to have been given towards the half share of the illatom son-in-law, and as such, they were exempt from gift-tax, According to the assessee the gifts in favour of illatom son-in-law and his wife were made not out of love and affection but in discharge of the obligation undertaken by Sri Adinarayana Reddy under the illatom adoption agreement dated 25-5-1970. It was stated before the GTO that the illatom son-in-law is entitled to half share in the property held by his father-in-law (adopter). The original of the adoption deed dated 25-5-1970 was not filed before the GTO on the ground that the same was filed with the Land Tribunal in connection with the land ceiling proceedings pending at that time. The GTO first pouncing upon the fact of the illatom adoption agreement held that the document was executed on a plain paper and was not registered and it was executed three years prior to the marriage. The GTO also held that on verification of the concerned provisions of Hindu Law and the commentaries thereon, it is found that the illatom agreement does not give any actionable right to the illatom son-in-law. In support of this finding a passage in N.R. Raghavachari's Hindu Law Commentary was relied upon which is as follows:
By the illatom affiliation, the adopter does not deprive himself of his absolute power of disposing of his property in any way he likes, and hence the illatom son is not entitled to interdict the adopter's alienation on the ground that it is unauthorised.
The GTO held that the legal position having been expounded in the above passage the settlements in favour of both the illatom son-in-law as well as Smt. Ramasubbamma cannot be taken to be either family settlement or arrangement and so they should be taken to be subjected to gift-tax. The fact that the same extent was settled in favour of the second son-in-law as well as second daughter were held to be significant. If really the settlements were made in favour of the illatom son-in-law and his wife in pursuance of the illatom adoptment agreement, then the extents which should have been settled on them must be much more than the extents settled on the second son-in-law and the second daughter. However, the fact that the same extents were settled on the second son-in-law and daughter goes against the contentions of the assessee. Further, the GTO held that if by illatom's adoption the illatom son-in-law is entitled to half share in the properties of his father-in-law then, the execution of the settlement was not at all necessary. Further, the recital in the settlement deed in favour of the illatom son-in-law clearly show that the gift was made out of love and affection and it was not found to have been made in pursuance of the illatom adoption agreement. Therefore, the gifts made in favour of the first son-in-law as well as his wife Smt. Ramasubbarnma attract gift-tax. Nextly it was contended before the GTO that the gifts in favour of both the daughters were exempt under Section 5(1)(vii) and in support of this contention reliance was placed upon the following two AP High Court decisions:
1. CGT v. Ch. Chandmsekham Reddy [1976] 105 ITR 849.
2. CGT v. Bandlamudi Subbaiah [1980] 123 ITR 509.
The GTO distinguished the abovesaid two cases from the facts on hand and held that the considering the inordinate delay in executing deeds and that too in favour of all the then existing members of the family, viz., wife, two daughters and two sons-in-law cannot be said to be settlement made on the occasion of the marriage. He further held that the assessee was not keeping good health and, therefore, he settled the properties perhaps on the advice of the Doctors. He ultimately died on 12-9-1986. Proximity of death to the date of gift indicates that the assessee settled his property prior to his death because of his ill-health. Ultimately he gave a finding that the gifts in favour of daughters are not exempt under the provisions of Section 5(1)(viii) of the GT Act as according to the GTO they were not made on the occasion of the marriage. Thus, rejecting the contentions advanced on behalf of the assessee he completed the assessment, computing the taxable gifts as follows:
Rs. Rs. Gifts to sons-in-law 24,572 X2=49,144 Gifts to 2 married daughters 24,572 x2=49,144 Gifts to wife Rs. 21,410 was exempt under Section 5(1)(viii) 98,288 Less: Basic Exemption 5,000 Taxable Gift 93,288 or 93,290
Thus, the GTO computed the value of the total taxable gift at Rs. 93,290 by his asst. order dated 30-3-1981.
4. Aggrieved against the assessment order the assessee went in appeal before the AAC. He held by his impugned orders that under Hindu Law Sri Dayakar Reddy was entitled to half share of the property of Shri M. Adinarayana Reddy even during his lifetime. He relied upon the Mayne's treatise on Hindu Law and Usage, 11th Edition, Page 280, Paragraph 228. He also relied upon the AP High Court's decision in the case of Peechu Ramaiah v. Government of Andhra Pradesh [1976] 2 APLJ 278 wherein it was held that custom of illatom adoption was prevalent among Reddy and Kamrna castes. The illatom adoption consisted in the affiliation of a son-in-law in consideration of assistance in the management of family property. Now religious significance is attached to the act. Neither execution of document nor performance of any ceremony is necessary. It need not be in writing, it can also be implied. After the death of the adopter he is entitled to the full rights of a son. If there is an agreement to that effect, the illatom son-in-law, is also entitled to a half share in the property of his adoptive father-in-law, even during his lifetime. The AAC then referred to the relevant portion of the recital in the adoption agreement dated 25-5-1970 which is as follows:
It has been decided to adopt Sri Y. Dayakar Reddy as illatom son-in-law and give him in marriage the first daughter of Sri M. Adinarayana Reddy named Rama Subbamma and it has been promised to transfer 1/2 of the property (movable and immovable) in favour of Sri Y. Dayakar Reddy and this proposal was agreed to by the illatom son-in-law and his father.
On the basis of the specific recitals of the illatom adoption agreement above extracted the AAC held that Shri Dayakar Reddy was entitled to half share of the property of Shri M. Adinarayana Reddy even during his lifetime. He also recorded a finding that the clear position is that Shri Dayakar Reddy was given a property worth Rs. 49,144 which he was entitled to under law and, therefore, there was no element of gift in this transfer. In other words, the settlement in favour of Shri Dayakar Reddy and Smt. Ramasubbamma is outside the purview of gift as denned under the Gift-tax Act.
5. The next contention before the AAC was that the gift of properties worth Rs. 24,572 in favour of the second daughter Smt. Suharlata was exempt from gift-tax as it was given to her in pursuance of a specific promise made to her to give certain lands towards 'Pasupukunkuma' at the time of her marriage and the gift was made in fulfilment of the said obligation, undertaken at the time of marriage, and as such, it was exempt from gift-tax. The AAC held that a Hindu father is under a legal obligation to maintain his unmarried daughter. Maintenance includes meeting marriage expenses also. If any amount is given as 'Pasupu-kunkuma' to the daughter on the occasion of her marriage the same falls outside the cope of gift within the meaning of Section 2(xxii) of the Gift-tax Act. Thus, he ordered exclusion of the following gifts and their values from the total value of the taxable gift computed by the GTO:
Rs.
1. Sri Y. Dayakar Reddy 24,572
2. Sri Y. Ramasubbamma 24,572
3. Smt. Y. Suharlata 24,572 Thus, the AAC allowed the appeal filed before him.
6. Aggrieved against the impugned order passed by the AAC the Department came up in second appeal before this Tribunal and thus the matter stands for our consideration. In the grounds of appeal the revenue took up the position that the AAC erred in holding that there is no element of gift in a settlement made in favour of Shri Dayakar Reddy, illatom son-in-law and Smt. Ramasubbamma, daughter. So also, the AAC erred in holding that there is no element of gift in the case of Smt. Suharlata and ultimately it was contended that ordering exclusion of Rs. 73,716 from out of the total taxable gift of Rs. 93,290 determined by the GTO is erroneous and should be set aside.
7. We have heard Shri D.S. Prasada Reddy, learned counsel for the assessee and Shri K.K. Viswanatharn, learned Departmental Representative, On behalf of the assessee two paper compilations were filed, the first comprising 74 pages and the second comprising 25 pages. The Department also filed a paper book containing 9 pages. The learned DR contended that the whole property held by the donor Shri Adinarayana Reddy was ancestral property in his hands, whereas, the donor made the gifts in his capacity as an individual. The original of the alleged adoption agreement dated 25-5-1970 was never filed before the GTO but it was only filed before the AAC. Factually, the GTO did not accept the adoption agreement dated 25-5-1970, whereas, there is no dispute regarding adoption agreement dated 25-5-1970 and it is an accepted document. The learned Departmental Representative further contended that no conclusive evidence was produced to show that Shri Y. Dayakar Reddy was the illatom son-in-law of the donor Sri Adinarayana Reddy and secondly, it was strongly contended that if really Sri Dayakar Reddy was illatom son-in-law it appears strange why two settlement deeds were executed in favour of Sri Dayakar Reddy as well as his wife Smt. Ramasubbamma. The GTO did not investigate into the aspect whether Sri Dayakar Reddy had been living with his father-in-law or not. It is further contended that after the passing of the Hindu Adoptions and Maintenance Act illatom adoption is no longer valid. It is also contended that the settlement by Sri Adinarayana Reddy is in his capacity as a sole-surviving coparcener. Therefore, it is contended that the impugned order of the AAC is based upon several assumptions and on facts not proved or established, especially regarding the correctness of the illatom adoption, the conduct of the parties with regard so enjoyment of property after the illatom adoption, etc. Now let us first take up the gift deed executed in favour of Sri Y. Dayakar Reddy. Copy of the gift deed was provided at pages 21 to 29. It was a duly registered gift deed executed on a stamp paper. It was dated 29th March, 1976. In the recitals of the said deed which are in Telugu it is clearly stated that the donee Shri Dayakar Reddy was his first son-in-law and that from the date of his marriage the donor kept him as illatom son-in-law and that all the ancestral property which was in the hands of the donor was being managed by Sri Dayakar Reddy and he has been continuing as one of the members of the donor family. It is stated further that apart from love and affection which he got towards his first son-in-law the fact that the first son-in-law has been looking after the properties of the donor with due care and caution was stated to be an additional factor which prompted the donor to execute the gift deed. Now we are at the point whether the gift deed in his favour is valid or not. According to us for two reasons it was valid. Firstly, because in the Land Revenue Appellate Tribunal proceedings when the matter went up to the High Court, the Hon'ble High Court in CR P No. 1630 of 1982 and 631 of 1982 by their judgment dated 11-2-1987 held that illatom adoption agreement was held to be established and that as per the terms of the agreement, Sri Dayakar Reddy was entitled to half the property of his father-in-law and therefore, the Hon'ble High Court directed that half the property as per the agreement dated 25-5-1970 should be included in the holding of Shri Y. Dayakar Reddy. In the said order of the AP High Court the lower Tribunals following the case of G. Narayanappa v. State of AP [1978] 2 APL J 60 held that after the advent of the Hindu Adoptions and Maintenance Act the question of illatom adoption does not arise and such an illatom adoption could not be given effect to. However, the Hon'ble High Court (Justice Seetharama Reddy) held that the said decision was overruled by a subsequent division bench of the very same High Court. It is contended by the learned D.R. that the Hon'ble Supreme Court by its decision in Kartar Singh v. Surjan Singh AIR 1974 SC 2161 held at page 2163 as follows:
After the Hindu Adoptions and Maintenance Act, 1956 came into force there is no room for any customary adoption. Section 4 of the Act specifically provides that 'any text rule or interpretation of Hindu Law or any custom or usage as part of that law in force immediately before the commencement of that Act shall cease to have effect with respect to any matter which provision is made in that Act'. Therefore, the question of any customary adoption, as was in force in Punjab before that Act came into force, does not any longer arise.
The learned DR argued that just like the customary adoption in Punjab, illatom is a customary type of adoption prevalent in two or three castes in Andhra Pradesh. The impugned adoption certainly took place even according to the assessee in 1970 which is much after the advent of the Hindu Adoption and Maintenance Act. However, the learned DR stated that inasmuch as in the absence of any citation of the division bench was given in the order of the Hon'ble High Court (copy of which is provided at page 1 of the paper compilation No. 2 filed on behalf of the assessee) it is difficult to presume whether the Hon'ble High Court while delivering the division bench case overruling the single bench decision of Justice Ramachandra Rao considered the Supreme Court's decision in Kartar Singh's case (supra) or not. We may make it clear that even at the time of arguments before us the learned counsel for the assessee did not locate or place before us the division bench decision of the AP High Court under which the decision of Justice Ramachandra Rao in G. Narayanappa's case (supra) was overruled. Later we found out that the division bench decision was rendered in [1980] 2 APLJ 333 (sic). However, there is a presumption that a later decision presumed to have taken into consideration the march of law till the date of their judgment. Therefore, we are presuming that the later division bench decision of the AP High Court must have considered the Supreme Court's decision in Kartar Singh's case (supra). In fact, though we studied fully [1980] 2 APLJ 333 we did not come across any reference being made to Kartar Singh's case (supra). It is not the case of the revenue that the matter (the judgment dated 11-2-1987 in CR P 630 and 631 of 1982) was taken in further appeal either to the Full Bench or to the Supreme Court. Therefore, it must be taken to have become final and accordingly we have to hold that the illatom agreement dated 25-5-1970 was true and established and according to it half the property held by the donor must belong to the illatom son-in-law, Sri Y. Dayakar Reddy. It was never the case of the assessee that there was any partition between the father-in-law and the first son-in-law during the former's lifetime. Therefore, a fortiori, it shows that half the property is covered by the gift deed in favour of Sri Dayakar Reddy, were the own properties of Sri Dayakar Reddy. The other undivided half only belongs to the donor Sri Adinarayana Reddy. It was not the case of the revenue that the gift deed was invalid under any of the provisions of the AP Land Reforms (Ceiling on Agricultural Holdings) Act, 1963. Even if the illatom agreement dated 25-5-1970 is to be disregarded then also, the gift in favour of Sri Dayakar Reddy should be held to be valid as Adinarayana Reddy is entitled to absolutely dispose of half the extent held by him, his capacity as a sole-surviving coparcener. Thus, on both grounds it appears the gift in favour of Sri Dayakar Reddy is valid. Further, there is no truth in the contention that the deed of illatom adoption was never enquired into. For instance, we may refer to the order as dated 9-11-1979 passed by the Land Reforms Tribunal, Nellore (copy of which is furnished at pages 11 to 22 of the second paper book filed on behalf of the assesses). In that order it is very clear that the Land Reforms Tribunal had examined the attestors, scribe of the illatom adoption deed, the village municiff, the mother-in-law Smt. Mumma Reddy Hymavathamma, all of whom deposed in favour of the truth of the recitals mentioned in the illatom adoption deed dated 25-5-1970, which was found to have been written on a plain paper. The attestors to the said illatom adoption deed who were examined were Sri Biradavolu Balerama Reddy and Sri Chennareddy Venka Reddy, the scribe of the document is one Sri Mulumudi Chenchu Appa Rao. Sri Yeluru Dayakar Reddy also was examined besides his mother-in-law Smt. Hymavathamma. Even all these five gift deeds executed by Sri Adinarayana Reddy in favour of his wife, daughters and son-in-law were all produced before the Land Reforms Tribunal, Nellore, as exhibits A-1 to A-5 all dated 29-3-1976. Therefore, there is no truth in the contention that there was no evidence on record to show the genuineness of the recitals of the adoption deed dated 25-5-1970.
8. On behalf of the donees it is contended that according to the High Court order already referred to above, the adoption deed dated 25-5-1970 was held to be a genuine document and accordingly half the properties of Shri Adinarayana Reddy should belong to Shri Dayakar Reddy, his illatom son-in-law. It is the further case of the donees that the total extent covered by the gift deeds in favour of Shri Dayakar Reddy and his wife Ramasubbamma roughly equals to half the properties held by Sri Adinarayana Reddy and therefore, Smt. Ramasubbamma should be taken to be a mere benamidar for and on behalf of her husband and the gift deeds in favour of Shri Dayakar Reddy as well as his wife should be considered as having been executed by the donor for adequate consideration of Shri Dayakar Reddy giving up his joint rights in all the properties held by his father-in-law Sri Adinarayana Reddy and on that ground it should not be held to be a gift at all. We find this argument difficult to accept. This was never the case put forward before any of the lower authorities. This argument is not a pure legal argument. The question of benami is always a mixed question of fact and law and for the first time ordinarily we would be averse to allow any question of fact being looked into at our stage. Therefore, we refuse to entertain this argument for the first time before us.
9. Now, let us consider the validity of the gift deeds dated 26-9-1973 in favour of Smt. Ramasubbamma and Smt. Suharlata. As far as these gift deeds are concerned, it was vehemently contended by the learned Departmental Representative that their marriages took place in 1973 whereas, the gifts were made in 1976 three long years after their marriages. The gifts were purported to have been made in pursuance of the promises made by Sri Adinarayana Reddy to give some properties to his daughters towards their 'Pasupukunkuma' and in fulfilment of that promise these documents were executed. The learned DR argued that it is hard to believe those sort of stories. If really the gift deeds were intended as gifts in fulfilment of the promises made at their marriages these would have been made immediately after the marriages or after reasonable time of their marriages. However, the facts remain that there was a long delay in between the dates of the marriages and the execution of the gift deeds. Therefore, the gift deeds should not be taken to be in discharge of the promises made at their marriages. This topic need not detain us for long as the matter was fairly settled by the latest AP High Court decision in CGT v. Bandi Subba Rao [1987] 167 ITR 66. In the abovesaid case also the father had got only two daughters. In that case the father had got 40 acres of land. He gave about 9 ac. 94 cents of wet land to Ms married daughter and 10.40 acres of wet land to his unmarried daughter. The matter came up before the High Court. The High Court held that the reasonableness of the property settled upon a daughter married or unmarried is to be judged in the light of the circumstances of a given case, the circumstances to be considered are like number of daughters, the totality of the property held by the father, etc. The Hon'ble High Court also held that "Giving property to an unmarried daughter as incident to maintenance was a legal obligation cast on the father or any person receiving the property of the father except a purchaser for valuable consideration without notice of the said right of the daughter. Equally, giving a reasonable portion of the property at the time of the marriage or subsequently in the discharge of that legal obligation is not, thereby, a voluntary gift made by the father but is in compliance with his legal obligation. Any instrument executed by the father in discharge of that legal obligation or any settlement of a reasonable portion of the property in fulfilment of the existing legal claims of a married or unmarried daughter is not without consideration of money or money's worth as contemplated under the Act nor can it be said to be a voluntary one. Equally, the promise made at the time of the marriage of a daughter to give a reasonable portion of the property or a settlement or a gift made long after the marriage is in fulfilment of the pre-existing legal obligation of the father under the general Hindu Law. Therefore, it ceases to be a voluntary act nor is it to be labelled as without consideration but is one in the discharge of a pre-existing" legal obligation. Therefore, it is neither an alienation nor a transfer, attracting Section 2(xii) of the Gift-tax Act, but is a family settlement." Therefore, the assessee was held not liable to pay gift-tax.
10. In this case Shri Adinarayana, Reddy was divided from his other coparceners and the whole property held by him represented ancestral property. Sri M. Adinarayana Reddy filed a declaration along with his wife claiming to be holding 14 acres 22 cents of single crop wet land and another extent of 2 acres 72 cents under one source and also 51 acres 61 cents of dry land. Sri Adinarayana Reddy was held to be having a total extent of 2.2893 standard holdings as per the Land Reforms Tribunal, Nellore, in CC Nos. 172 and 173/GDR/75 by its order dated 9-11-1979. The Land Reforms Appellate Tribunal on the other hand, determined the total extent at 2.2172 standard holdings and the legal representative of Sri Adinarayana Reddy was asked to surrender 1.217 standard holdings. We have already adverted to the High Court's order declaring that the illatom son-in-law had half share in the total holdings held by Sri Adinarayana Reddy under the terms of illatom adoption deed dated 25-5-1970. In view of all the above it is easy for us to conclude that the gifts made are reasonable and they are in consideration of the promises made at the time of marriages of the daughters of Sri Adinarayana Reddy. Therefore, they must be considered to be family settlements and hence they are exempt from gift-tax as held by the AP High Court noted above. The gift in favour of wife was already exempted by the GTO, whereas, the gift in favour of the second son-in-law was held to be taxable and it was confirmed by the first appellate authority and no appeal was preferred against that portion of the order. Hence, the gift in favour of the second son-in-law was held to be taxable.
11. In the result the appeal filed by the Department is dismissed.