ORDER Per Shri Prakash Narain, Accountant Member - A complicated, though an interesting question of law and interpretation of document arises in this case. The assessee is an HUF whose karta is Shri Ram Murti Malhotra besides Shri Malhotra, the family consisted of his wife Smt. Motia Rani Malhotra, their Major Sons, Shri Satya Pal Malhotra, Shri Naresh Chandra Malhotra, Shri Subhash Chandra Malhotra, Mahesh Chandra Malhotra and two minors master Rakesh Chandra Malhotra and Kumari Sareeta Malhotra. The HUF filed a return of Gift-tax for the assessment year 1977-78 showing the value of gift at Rs. 50,000. It was, however, claimed as exempt under section 5(1) of the Gift-tax Act, 1958 (the Act). It was subsequently clarified that the exemption was claimed under clause (viii) of section 5(1). According to this clause of section 5(1), Gift-tax shall not be charged in respect of gifts made by any person to his or her spouse, subject to a maximum of Rs. 50,000 in the aggregate in one or more previous year. It was the claim of the assessee that since the gift was made by Shri Ram Murti Malhotra to his wife, Smt. Motia Rani Malhotra, it was exempt from tax under the above section.
2. The GOT examined the matter. He went through the gift deed itself and held that in this case the gift was made by the karta Shri Ram Murti Malhotra for and on behalf of the assessee-HUF, though with the concurrence of other members of the family and coparceners and, therefore, it did not earn exemption under section 5(1)(viii). On behalf of the assessee reliance was placed on the decision of the Andhra Pradesh High Court in Jana Veera Bhadrayya v. CGT [1966] 59 ITR 176. The GOT, on the other hand, relied on a later decision of the Punjab & Haryana High Court in CGT v. Harbhajan Singh & Sons [1979] 119 ITR 542. He finally held that the sum of Rs. 50,000 was liable to tax. After allowing the statutory deduction of Rs. 5,000, he subjected the balance of Rs. 45,000 to the above tax.
3. The assessee appealed to the AAC. It was contended before him that the ownership of the funds was not necessary for making the gift and the karta could dispose of the property of the family by any manner he liked. Before him, the counsel for the assessee relied on a decision of the Madras High Court in CGT v. K. B. Manickam Gupta [1981] 128 ITR 598. The AAC finally held that the gift had been made by Shri Malhotra in the capacity of the karta of the family to the lady and, therefore, the latter was not entitled to exemption under section 5(1)(viii).
4. The assessee is now in appeal before us. Before we proceed further, we will like to quote the memorandum of gift in full in order to appreciate the point of the parties :
"Memorandum of Gift This memorandum of gift made on this fifth day of February, one thousand nine hundred seventy six, by Shri Ram Murti Malhotra, son of late Shri Ram Sahai Malhotra, resident of 107/234, Nehru Nagar, Kanpur (hereinafter referred to as donor) in favour of his wife Smt. Motia Rani Malhotra (hereafter referred to as donee).
Whereas the said donor, Shri Ram Murti Malhotra is the karta of his joint Hindu family consisting of himself, his wife, abovenamed, major Sons Sarvashri Shri Satya Pal Malhotra, Naresh Chandra Malhotra, Subhash Chandra Malhotra, Mahesh Chandra Malhotra and minors a son and a daughter respectively Rakesh Chandra Malhotra and Kumari Sareeta Malhotra And whereas the said karta, here inabove referred to as the donor desired, with the consent of all the major male members of the family, to make a gift of the property equal to the value of Rs. 50,000 (Rupees fifty thousand only) out of coparcenary property held in the shape of two fixed deposit receipts of the State Bank of India, Transport Nagar, Kanpur, namely, F. D. R. No. E 849500, dated 19-1-1976, and F. D. R. No. E 849501, dated 19-1-1976, each for Rs. 25,000 in the joint names of Shri Ram Murti Malhotra and Smt. Motia Rani Malhotra.
Now this memorandum of gift witnesses that the said Shri Ram Murti Malhotra, in consideration of his natural love and affection, gave, with and by word of amount expressed himself to give to his wife the said Smt. Motia Rani Malhotra for her own use and benefit absolutely and delivered her the two Fixed Deposit Receipt Nos. E 849500 and E 849501 for Rs. 25,000 (Rupees twenty-five thousand only) each today and placed her in possession and control thereof and she at the same time accepted the said gift.
Signed in presence of the witnesses on this fifth day of February, 1976.
The consenting members of the Hindu undivided family mentioned above have also put their respective signatures on this memorandum of gift in token of their consent to the above gift in the above said manner."
On the above facts, it was submitted that the gift had actually been made by Shri Malhotra to his wife in the capacity of a husband and, therefore, the assessee was entitled to exemption under section 5(1)(viii). It was pointed out that the department was not concerned with the ownership of the amount, which was the subject-matter of gift or the status in which the return had been filed. Reliance, in this connection, was placed on the following authorities :
Jan Veera Bhadrayyas case (supra), CGT v. Hari Chand [1974] 95 ITR 308 (Punj. & Har.), Vadrevu Venkappa Rao v. CGT [1974] 95 ITR 313 (AP), K. B. Manickam Guptas case (supra) and M. S. P. Rajah v. CGT [1982] 134 ITR 1 (Mad.).
It was also submitted before us that it was open to a karta of a family to make a gift of the property of the family with the consent of the other family members. In this connection, reliance was placed on a decision of the Bombay High Court in Tatoba Ganu v. Tarabai AIR 1957 Bom. 280.
5. The learned departmental representative, on the other hand, made three submissions. His first submission was that since the return had been filed in the status of an HUF, the question of applying the provision of section 5(1)(viii) did not arise. He contended that although the word person used in the above section had been defined under section 2(xviii) of the Act as including an HUF but in the context of the thins it could refer only to an individual. He contended that section 5(1)(viii) referred to his or her spouse, which could mean that the gift had to be made either by a male or by female and not by an HUF. He argued that if this position was accepted, then the assessee, being an HUF could not seek exemption under the above section. His second contention was that a reading of the memorandum of gift went to show that the gift had been made by Shri Ram Murti Malhotra on behalf of the family to his wife Smt. Motia Rani Malhotra, who was also a member of the family. According to him, the present was not a gift by Shri Malhotra in the capacity of a husband to his wife, but it was a gift in his capacity as the karta of the family to another member of a family.
6. The third submission of the learned departmental representative was that normally if a family would have made a gift to one of its members, it would have been subjected to tax under the act and it was only to avoid such a tax that the above device had been planned showing gift made by a husband to his wife and that such avoidance of tax was not permissible in view of the principle laid down by the Honble Supreme Court in their lates case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148. He also referred to certain authorities, in particular, the decision of the Punjab and Haryana High Court in Haribhajan Singh & Sons case (supra).
7. The learned counsel for the assessee, in reply, submitted that filling of the return in the status of a family could not deprive the benefit of section 5(1)(viii). He contended that similar position was available in the cases cited by him also. He further contended that a reading of the memorandum of gift went to show that it was a gift by a husband to his wife. In this connection, he invited our attention to paragraph 3 of the preamble of the memorandum, which refers to karta as the donor. He pointed out that in paragraph 1 of the preamble of the memorandum, the donor was Shri Ram Murti Malhotra and not the HUF. About the third submission of the learned departmental representative, he contended that McDowell & Co. Ltd. case (supra) had not application to present situation as in this case the assessee had acted within the four walls of the provisions of law in making gift out of the property of the family to his wife.
8. We have given our careful thought to various submissions placed before us. We will first deal with the question whether the exemption under section 5(1)(viii) can be availed by an HUF in its own return. In this connection, we will first refer to the decision of the Supreme Court in CIT v. Rameshwarlal Sanwarmal [1971] 82 ITR 628. It was held in this case that the same person could be taxed both as an individual as well as the karta of his family. However, the two capacities are totally different. the individual and the HUF are totally different units of taxation; they are two different assessees. A similar view was taken by the Allahabad High Court in the case of CWT v. J. K. Srivastava & Sons [1983] 142 ITR 183. In this case, the tribunal held that an association of persons was an entity different from an individual and a voluntary return filed in the individual. It was held that if the WTO was of the opinion that the correct status of the assessee was that of an individual, he should have issued a notice requiring it to file a return. In view of these authorities, the irresistible conclusion that can be drawn is that an individual is different from an HUF. Section 5(1)(viii) by its very nature will apply only in the case of an individual as it is only an individual, who can have spouse. However, we do not consider necessary to go into this matter again as in various cases cited before us at the bar, the benefit of the above section has been allowed even when the return has been filed in the status of HUF. Respect fully following those decisions, we hold that the relief is permissible at the assessee-HUF, also, if otherwise it is entitled to it.
9. We now come to the question whether the gift has been made by an individual to his wife or by a karta of the family on behalf of the family to a lady member of the family. This, therefore, requires interpretation of the memorandum of gift. There is no dispute that for the purpose of interpretation the document has to be read as a whole. It is in this context that we have quoted the said memorandum in full in our this order. Paragraphs 1 of the preamble to the memorandum no doubt states that the gift is by Shri Malhotra in favour of his wife. However, paragraph 2 of the preamble immediately gives the capacity of Shri Malhotra. It states that he is the karta of his joint hindu family, which consists of several members stated above. Paragraph 3 of the preamble then states the nature of the gift. It states that the karta of the family desired with the consent of all the major male members of the family, to make a gift of the property equal to the value of Rs. 50,000 out of coparcenary property held in the shape of two fixed deposit receipts with a bank. This part to the preamble is very important for our purpose. It gives the capacity of the donor as the karta of the family. It gives the nature of the property as coparcenary property. The gift has further been made with the consent of the major male members of the family. Seeking of the consent of other male members in the family, in our opinion, is vital to the case of the assessee. Such a consent became necessary only because the karta wanted to make a gift of apart of the coparcenary property in favour of a female member of the family. Had he been thinking of gifting a part of the property to which he might have been entitled, perhaps it was not necessary to seek the consent of other major male members of the family. The other cases in the memorandum refer that the gift had been made in consideration of the natural love and affection of Shri Malhotra held towards Smt. Motia Rani Malhotra. However, it is the preamble which generally governs the intention and purpose of a deed. In our opinion, therefore, the only conclusion that can be drawn is that the case of a gift by a karta on behalf of the family to a member of the family.
10. We will now refer to some of the authorities cited at the bar. In the case of Jana Veera Bhadrayya (supra) it was found that the gift was by the husband to the wife. The Court observed : "Having regard to the tenor and language of the document, it cannot be denied that the gift in question is by the husband to the wife." (p. 177). The Court again observed : "We are not here concerned with the question whether it is open to the manager of a joint family to make a gift of the joint family property to his wife, nor are we concerned with the question whether it should be allotted to his share." (p. 177) Thus, this case was decided on the language of the gift document from which it was interpreted that it was the case of a gift by the husband to the wife. On those facts, it was held that the assessee was entitled to the exemption provided in section 5(1)(viii).
11. The case of the Andhra Pradesh High Court in Vadrevu Venkappa Raos case (supra) is much more clear on the point. In this case, it was held that if the coparceners have a right to partition in the joint family property, or incur debts or make their share of the property liable, they could also individually gift joint family property to their spouses. In other words, in this case, the court was thinking in terms of the share of a coparcener having been gifted to his spouse. The question again in this case was the same, namely, whether, in fact, the gift had been made by an individual to the spouse. The court in this case followed their earlier decision in the case of Jana Veera Bhadrayya (supra). This decision was relied on by the Punjab and Haryana High Court in the case of Hari Chand (supra). To the same effect was the decision of the Madras High Court in K. B. Manickam Guptas case (supra). In this case, it was found by the tribunal that it was a gift by Manickam Gupta to his wife and that there was no evidence at all to suggest that the computation of the assessee did not reflect the real state of affairs. Even the ITO in his assessment order had referred to the gift made to the wife. On these facts, the court held that exemption under section 5(1)(viii) was allowable. The decision of the Madras High Court in M. S. P. Rajahs case (supra) is clearly distinguishable on its own facts, as pointed out by the learned departmental representative. In this case, the joint family consisted of only one male member and the other members were females or the only male member was the sole surviving coparcener. The Court held that the said male member was entitled to dispose of the coparcenary or family property as if it were his separate property. The court held that when the sole surviving member gifted the property in favour of his wife, it was in his capacity as an individual with all the powers vested in him for the disposition of joint family property as if it were his separate property. accordingly, in the opinion of the court, he should be deemed to have acted in his individual capacity while making the gift in favour of his wife.
12. Some of the above decisions were distinguished by the Punjab and Haryana High Court in a later decision in Harbhajan Singh & Sons case (supra). Here it was found by the AAC that the gift in question had been made by Shri Harbhajan Singh in his capacity as karta of the family and not in his capacity as an individuals. On the basis of this fact, it was held that if the gift was made as karta of the HUF, then the provisions of section 5(1)(viii) were not attracted because there could not be any spouse of the HUF as such as contemplated therein.
13. A persual of the above authorities clearly goes to show that the section 5(1)(viii) applies only to a case where the gift has been made by an individual to his spouse or when it is made in the capacity of a husband to the wife. We have already stated above that our reading of the memorandum of gift goes to show that it was made by Shri Malhotra as karta of the family to a female member of the family. the gift in question was not made by Shri Malhotra as an individual to his wife. Obviously, therefore, section 5(1)(viii) does not apply to such a case. The claim of the assessee has, therefore, rightly been rejected by the lower authorities.
14. We will now embark upon another and a much more important issue now covered by the decision of the Honble Supreme Court in McDowell & Co. Ltd.s case (supra) that if the gift is made by an HUF or by the karta on behalf of the HUF to a female member of the family, it has to be subjected to tax and the exemption provided in section 5(1)(viii) will not apply to such a case. The assessee obviously planned to bypass the legal provisions and tried to make out a device to avoid the gift-tax. With a view to show that although the property which was the subject of gift belonged to the family or was a part of the coparcenary property, the gift had been made by Shri Malhotra in his capacity as the husband to his wife. Such an avoidance of tax is now not permitted in view of the principle laid down in McDowell Co. Ltd.s case (supra). The court held that tax planning may be legitimate provided it is within the framework of the law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is a honorable to avoid the payment of tax by dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. The court held that the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed liberally or liberally nor whether the transaction is not unreal and not prohibited by the transaction is such that the judicial process may accord its approval to it. According to the court it is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and to expose the devices for what they really are and to refuse to give judicial benediction.
15. It was contended by the learned counsel for the assessee that McDowell & Co. Ltd.s case (supra) could not be applied if the law itself permitted avoidance of tax. Without going into this question, we may straightway say that there is no express sanction of law to divert a portion of the HUF property in favour of a female member without paying Gift-tax. This has been made possible only by adopting a device, which is nothing else but to avoid gift under the act. We, therefore, respectfully following the principle laid down in the case of McDowell & Co. Ltd. (supra) also hold that the assessee is not entitled to exemption under section 5(1)(viii) on the facts stand above.
16. In the result, the appeal is dismissed.