Law:

Section:

Section 2(xii) of the Gift-tax Act, 1958 - Gift - Petitioners' father settled certain properties in their favour in his capacity as karta of HUF - Properties covered by settlement deed were described as ancestral properties and there was no evidence to show that properties were self-acquisitions of settlor - Whether settlement could not be treated as gift and, therefore, levy of gift-tax on said transaction was not valid - H eld, yes FACTS The petitioners' father purported to execute a settlement deed in their favour. Several items of properties in two different villages were given to the petitioners. This settlement was treated by the GTO as a gift coming within the purview of the Act and an order of assessment was passed after giving notice to the petitioners' father as donor. Subsequently efforts were made to recover the tax from the donor but as the amount could not be recovered from him, proceedings were initiated by the TRO against the petitioners as donees. On writ, the petitioners challenged the recovery proceedings on the ground that the settlement deed executed by their father was invalid in law and that no rights could flow from the father to the petitioners under that document. According to them the properties covered by the settlement deed were all ancestral properties and their father, even in his capacity as the karta, could not execute a settlement deed or a gift deed in relation to the same. HELD It was true the father of the petitioners had remained silent and inactive at the stage of the assessment proceedings but the assessment order passed by the GTO could be sustained only if the properties dealt with under the settlement deed were the self-acquired properties of the settlor. In view of the fact that the properties covered by the settlement deed were described as ancestral properties and that there was no other evidence to show that the properties were the self-acquisitions of the settlor, the levy of gift-tax on the said transaction was not valid and the subsequent recovery proceedings to recover the tax on the basis of the settlement deed being treated as a gift deed could not also be sustained. Note : The case has been decided in favour…

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