Holding

A gift of immovable property is valid under the Gift Tax Act only if the transfer complies with the Transfer of Property Act and the Registration Act; an unregistered document does not constitute a valid gift.

Summary

The respondent attempted to gift out‑houses attached to a building to his wife by an unregistered declaration dated 10 October 1966. The Gift Tax Officer rejected the claim, holding that Section 123 of the Transfer of Property Act, which requires a registered instrument for a gift of immovable property, was not complied with. The High Court reversed, reasoning that the definition of "gift" under the Gift Tax Act, 1958 is broader than under the Transfer of Property Act and that registration was not necessary. On appeal, the Supreme Court held that for a gift of immovable property to fall within Section 4 of the Gift Tax Act, the transfer must still satisfy the requirements of the Transfer of Property Act and the Registration Act, i.e., the instrument must be registered. Consequently, the High Court’s decision was set aside and the appeal was allowed. No costs were awarded.

Issues considered

Whether a gift of immovable property made by an unregistered instrument falls within Section 4 of the Gift Tax Act, 1958 and is a valid taxable gift.
Whether compliance with Section 123 of the Transfer of Property Act, 1882 and Section 17 of the Registration Act, 1908 is mandatory for a valid gift of immovable property under the Gift Tax Act.
How the definition of "gift" under the Gift Tax Act, 1958 relates to the definition under the Transfer of Property Act, 1882.

Legislation cited

Gift Tax Act, 1958s. 2(xii), s. 4(1)(c), s. 4(1)(d)
Registration Act, 1908s. 17
Transfer of Property Act, 1882s. 122, s. 123

Subjects

gift taximmovable propertyregistrationTransfer of Property ActRegistration Actdefinition of giftSection 4Section 123tax liability

Judgment

..

COMMISSIONER OF INCOME TAX, JAIPUR A
v.
SIREHMAL NA WALA KHA

AUGUST 16, 2001

[B.N. KIRPAL AND SHIVARAJ V. PATIL, JJ.] B

.Gift Tax Act, 1958: Sections 2(xii), 4(1) (c) and (d)-Gift of immovable
property by unregistered document-Held, for a valid gift under ;>ection 2
(xii) and (4) compliance with the provisions of Transfer of property Act and
Registration Act necessary-Transfer of Property Act, 1882--Sections 122 C
and 123-Registration Act, 1908--Sections 17.

Words & Phrases:

"Gift"-Meaning of in the context of Section 2(xii) of Gift Tax Act, 1958
and Section 122 of the Transfer of Property Act, 1882. D
Respondent, by an unregistered declaration sought to make a gift of
certain immovable property to his wife. The Gift Tax Officer held that no
valid gift had been made by respondent since the provisions of Section 123
of the Transfer of Property Act, 1882 had not been complied with. The said E
findings were affirmed by the Assistant Commissioner and the Tribunal.
However, on reference, the High Court observed that the definition of the
word 'gift' under the Gift Tax Act, 1958 was wider than the definition of 'gift'
in the Transfer of Property Act, and held that registration of document was
not necessary for a valid gift under Section 4 of the Act. Hence the present
appeal by Revenue. F
Allowing the appeal, the Court

HELD : 1.1. High court erred in coming to the conclusion that the
case fell within the provisions of Section 4 of the Gift Tax Act, 1958 and,
therefore, as it was a deemed gift it was not necessary that the document had G
to be registered.1619-H; 620-AI

1.2. There can be no doubt that certain transactions may not be
regarded as a gift for the purposes of the Transfer of Property Act but would
fall within the ambit of the expression 'gift' by virtue of Section 4 of the Gift
615
H
616 SUPREME COURT REPORTS (2001] SUPP. l S.C.R.

A Tax Act, but in each one of the cases which in certain circumstances is to
be regarded as a gift under Section 4 there has to be a transfer of immovable
property and a transfer by reason of Section 17 of the Registration Act can
only be by way of a registered document. Surrender or forfeiture of an
interest in immovable property as contemplated by Section 4(1) (c) or vesting
B of any property in another person as contemplated by Section 4(1) (d) in the
case of an immovable property would also attract the provisions of Section
17 of the Registration Act. (618-G-H; 619-A, B, Cl

1.3. In order that there could be a transfer of property by way of gift
as contemplated by the Transfer of Property Act, there has to be a registered
C document ifthe property sought to be transferred is immovable. The general
law did not stand abrogated and the requirement of complying with the
provisions of the Transfer of Property Act and the Registration Act had to
be fulfilled. (617-F, 619-G-H[

Commissioner of Gift Tax, Kera/av. R. Va/sala Am ma, 82 ITR 828 (SC),
D relied on.

Smt. Padma lalchand Mirchandani v. Commissioner of Income Tax,
New Delhi, 128 ITR 174 (Delhi); Commissioner of Gift-tax, Som.bay Ill v.
Matilda Ferreira, 112 ITR 934 (Bombay); K. Madhavakrishnan v.
Commissioner of Gift-tax, Tamil Nadu, 124 ITR 233 (Madras) and Darbar
E Shivrajkumar v. Commissioner ofGift-tax, Gujarat-IV, 131 ITR 647 (Gujarat),
approved.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6725 of
1994.

F From the Judgment and Order dated 12.2.1985 of the Rajasthan High
Court in Income Tax Ref. No. 27/75.

B.B. Ahuja, K.C, Kaushik, Rajiv Tyagi, R.R. Dwivedi and B.V. Bairam
Das for Ms. Sushma Suri for the Appellant.

G N.M. Ranka, Sushi! Kumar Jain and Raj Kumar Yadav for the Respondent.

The Judgment of the Court was delivered by

KIRPAL, J. The respondent was the owner of immovable property and
by declaration dated I Oth October, 1966 he sought to give a gift of certain
H out-houses attached to a building to his wife.
C.I.T. v. SI REH MAL NA WALAKHA [KIRPAL, J.] 617
The declaration which was made was not registered. The Gift Tax Officer A
rejected the respondent's claim that a valid gift had been made as, according
to him, there had not been any compliance with the provisions of Section 123
of the Transfer of Property Act. The Assistant Commissfoner and the Tribunal
took the same view and thereafter following question of law was referred to
the High Court by the Tribunal :
B
"Whether on the facts and circumstances of the case, the Tribunal
was justified in law in holding that no valid gift of out-houses of the
building named as "Deep Shikha" was made by the assessee to his
wife in terms of the Gift-tax Act, 1958?"

By the impugned judgment the High Court answered the question of C
law in favour of the respondent. It came to the conclusion that the definition
·of the word 'gift' under the Gift Tax Act was wider than the definition of 'gift'
in the Transfer of Property Act and many acts and transactions which may
not amount to gift under the Transfer of Property Act shall still amount to
a gift under the Gift Tax Act especially by virtue of the the provisions of D
Section 4 of the Gift Tax Act. It, accordingly, came to the conclusion that it
was not necessary that a document should be registered· in order that there
should be a valid gift.

Section 122 of the Transfer of Property Act defines 'gift', inter a/ia, as
meaning the transfer of immovable property made voluntarily and without E
consideration from one person to another. Section 123 provides that for
purposes of making a gift of immovable property the transfer must be effected
by a registered instrument signed by or on behalf of the donor and attested
by at least two witnesses.

There can be little doubt that in order that there should be a transfer F
of property by way of gift as contemplated by the Transfer of Property Act,
there has to be a registered document if the property sought to be transferred
is immovable.

Section 2 (xii) of the Gift Tax Act defines 'gift' as meaning a transfer G
by one person to another of any existing movable or immovable property
made voluntarily and without consideration and would include the transfer of
a property deemed to be a gift under Section 4. The heading of Section 4 is
"Gifts to include certain transfers". The said Section reads as follows :-

"4. Gifts to include certain transfers. - (I) For the purpose of this Act,- H
618 SUPREME COURT REPORTS [2001) SUPP. I S.C.R.

A (a) where property is transferred otherwise than for adequate
consideration, the amount by which the value of the property as on
the date of the transfer and determined in the manner laid down in
Schedule II exceeds the value of the consideration shall be deemed
to be a gift made by the transferor ;

B Provided that nothing contained ir. this clause shall apply in any case
where the property is transferred to the Government or where the
value of the consideration for the transfer is determined or approved
by the Central Government or the Reserve Bank of India;

(b) where property is transferred for a consideration which, having
C regard to the circumstances of the case, has not passed or is not
intended to pass either in full or in part from the transferee to the
transferor, the amount of the consideration which has not passed or
is not intended to pass shall be deemed to be a gift made by the
transferor;

D (c) where there is a release, discharge, surrender, forfeiture or
abandonment of any debt, contractor other actionable claim or of any
interest in property by any person, the value of the release, discharge,
surrender, forfeiture or abandonment, to the extent to which it has not
been found to the satisfaction of the Assessing Officer to have been
bonajide, shall be deemed to be a gift made by the person responsible
E for the release, discharge, surrender, forfeiture or abandonment;
(d} where a person absolutely entitled to property causes or has
caused the same to be vested in whatever manner in himself and any
other person jointly without adequate consideration and such other
person makes an appropriation from or out of the said property, the
F amount of the appropriation used for the benefit of the person making
the appropriation or for the benefit of any other person shall be
deemed to be a gift made in his favour by the person who causes or
has caused the property to be so vested;"

G There can be no doubt that certain transactions may not be regarded
as a gift for the purposes of the Transfer of Property Act but would fall within
the ambit of the expression 'gift' by virtue of Section 4 of the Gift Tax Act,
but in each one of the cases referred to in Section 4 there has to be a transfer
of immovable property which in certain circumstances is to be regarded as a
gift. For instance, cases falling under clause (a) of Section 4 where the
H property is transferred for less than adequate consideration such a transfer
C.l.T. v. SIREHMAL NAWALAKHA [KIRPAL, .I.] 619

would not be regarded as a gift under the Transfer of Property Act but would A
• be regarded as a gift under the Gift Tax Act. What is, however, important is
that there has to be a transfer of property and a transfer by reason of Section
I 7 of the Registration Act can only be by way of a registered document.

The respondent seeks to bring the case within the provisions of clause
(c) or (d) of Section 4. There can be no doubt in our mind that surrender or B
forfeiture of an interest in immovable property as contemplated by clause (c)
of Section 4 or vesting of any property in another person as contemplated
by clause ( d) of Section 4 in the case of an immovable property would attract
the provisions of Section 17 of the Registration Act. What is important is that
there has to be a valid transfer of property and whether that transfer amounts C
to a gift or not would bring in to question the applicability of the provisions
of the Gift Tax Act.

As we have already observed, there may be certain transactions of
transfer which may not amount to a gift within the meaning of Section 122
of the Transfer of Property Act but would be regarded as gifts for the purpose D
of subjecting such transfers to the levy of gift tax. In this behalf, reference
may usefully be made to Commissioner of Gift Tax, Kera/a v. R. Valsala
Amma, 82 !TR 828 (SC) wherein this Court at page 830 observed that "the Gift-
tax Act did not change the general law relating to the rights of property''. The
general law would take into its ambit not only the provisions of the Transfer
of Property Act but would also require application of the provisions of the E
Registration Act. It is not necessary for us to refer to the decisions of the
High Courts in this behalf except to note that the consistent view of the High
Courts has been that for effecting a transfer th~ provisions of the Transfer
of Property Act and/or the Registration Act have to be complied with. [See
Smt. Padma lalchand Mirchandani v. Commissioner of Income Tax, New F
Delhi, 128 ITR 174 (Delhi); Commissioner ofGift-tax, Bombay/// v. Matilda
.-
Ferreira, 112 ITR 934 (Bombay); K. Madhavakrishnan v. Commissioner of
Gift-tax, Tamil Nadu, 124 ITR 233 (Madras) and Darbar Shivrajkumar v.
Commissioner ofGift-tax, Gujarat-IV, 131 ITR 647 (Gujarat).
.- In the instant case, the High Court did not even refer to the provisions G
of the Registration Act and, therefore, fell in error in coming to the conclusion
that the case fell within the provisions of Section 4 of the Gift Tax Act and,
therefore, as it was a deemed gift it was not necessary that the document had
· to be registered. In our view, the general law did not stand abrogated and the
requirement of complying with the provisions of the Transfer of Property Act
and the Registration Act had to be fulfilled. The High Court, therefore, erred H
620 SUPREME COURT REPORTS [2001] SUPP. I S.C.R.

A in answering the question of law in the negative and against the Revenue.
For the aforesaid reasons, this appeal is allowed, the judgment of the
High Court is set aside and the question of iaw is answered in favour of the
appellant. No costs.

B S.VK Appeal allowed.

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