Indian Kanoon - Search engine for Indian Law

"Merely because a gift is voidable or void, it does not follow that gift tax is not leviable. In this case, the fact remains that the donees had assented to the gift and acquiesced in the transaction. The avoidance or revocation of a gift is only a means to resume control over the subject matter of the gift. In this case, the donor had died and the donees have acquiesced in the gift. The gift is therefore operative and would be chargeable to gift-tax."

On the appeal failing and on the application of the assessee, the following questions were referred for the decision of this court under section 26(2) of the Indian Gift-tax Act.

"(1) Whether the properties owned by Basaviah Gowder as a member of the Hindu undivided family could validly be gifted by him to his brother two sons and daughter ?

(2) If such a gift was void initially, whether other circumstances could make the legal representatives of the donee liable to the payment of gift-tax ?"

Section 3 of the Gift-tax Act brings levy of tax gifts made by persons during the previous year. "Gift" is defined under section 2(xii) as :

"The transfer by one person to another person of any existing movable or immovable property made voluntarily and without consideration in money or moneys worth and includes the transfer of any property deemed to be a gift under section 4."

It must accordingly follow from the above discussion that the transaction by Basaviah Gowder did not result in a taxable gift. Nor did the circumstances that the legal representatives did not protest or even acquiesced make any difference to that conclusion.

Learned counsel for the department has referred to a comment by Sri Sampath Ayyangar in his commentary upon the Gift-tax Act :

"Merely because a gift is voidable or void, it does not follow that gift tax is not leviable. The avoidable or revocation of a gift is only a means to resume control over the subject-matter of the gift."

This passage has been extracted by the Tribunal in its appellate judgment without giving it the appearance of a quotation. We do not agree with the learned author that a void gift can give rise to a taxable transaction under the Gift-tax Act. The distinction between a void and voidable transaction is substantial. In the former case the transaction is non est in the eye of law and in the latter while there may no doubt be the incident of a transfer of property made voluntarily and without consideration, the transaction is liable to be set aside. But till that is done, the gift is good in the eye of law. To equate a voidable transaction with a void transaction seems to us to offend against the foundations of the principles of jurisprudence.