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[2007] 291 ITR 322 (MAD.) HIGH COURT OF MADRAS Commissioner of Gift tax v. Smt. Sarada Nedungadi P. D. DINAKARAN AND MRS. CHITRA VENKATARAMAN, JJ. TAX CASE (REFERENCE) NO. 314 OF 2001 JANUARY 22, 2007 Section 2(xxiv) of the Gift-tax Act, 1958 - Deemed Gift Application of Marumakkattayam law of inheritance [Assessment year 1985-86] The assessee's father, who had married a lady governed by Marumakkatayam law, settled, by way of a settlement deed dated 24-2-1944, his properties on the assessee reserving the life interest in favour of his wife. The father of the assessee was a Brahmin and he had married a lady governed by the Marumakkattayam law and hence, as per the provisions of the Marumakkattayam Act, the assessee was governed by the said Act. After the death of the assessee's mother, the assessee sold some of the properties and later, by a deed of settlement dated 1-10-1984, retaining 3/8ths share in the remaining properties, settled 5/8ths share in the said properties on her sons, daughter and grandson to the extent of 1/8th each. The assessee contended that she was not liable to pay gift tax as the assessee's mother and the assessee were governed by the Madras Marumakkattayam Act, 1932 in respect of the immovable properties, that the assessee constituted a 'tavazhi' and that the 'tavazhi' could hold the property with all the incidents of the Marumakkattayam Act. The Assessing Officer rejected the assessee, case holding that the assessee was not dividing the 'tavashi' property and what she was doing was to divide and gift the property to various children presumably with the object of avoiding tax burden. Held that in Bhaskaran Thirumulpad v. Kavunni Thirumulpad [1967] 16 L. W 455, a Division Bench of Madras court has laid down three principles, viz. : (i) that a person governed by the Marumakkattayam law can make a gift to an entity called a 'tavazhi', in which case the members of the said 'tavazhi' take the property with all the incidents of tarwad property ; (ii) when a gift is made to a wife and her children, or to all the children or the entire group constituting the 'tavazhi', a presumption is drawn that the gift is for the 'tavazhi' ; and (iii) if the…

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