The Tax PublishersTransfer by Gifts1. Prologue

Amongst the five modes of transfer contemplated by the Transfer of Property Act, namely, mortgage, sale, exchange, lease and gift, the last mode is the most popular. Chapter VII of the Act [Sections 122 to 129] relates to gifts. The detailed provisions in this respect are discussed herein below.

2. Gift--Definition [Section 122]

Section 122 of the Transfer of Property Act defines 'gift' as 'the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called donee, and accepted by or on behalf of donee.

Section 2(xii) of the Gift Tax Act, 1958 [Inoperative with effect from 1-10-1998] gives a wider definition of 'gift'. It defines 'gift' as the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer or conversion of any property referred to in section 4, deemed to be a gift under that section. Thus, the definition under the Gift Tax Act includes deemed gift within its fold. However, unlike the definition given under the Transfer of Property Act, there is no requirement as to acceptance of gift by the donee under this definition.

3. Essential ingredients of gift

The definition of 'gift' under the Transfer of Property Act contemplates the following essential ingredients of gift :

(i) subject-matter should be an existing one;

(ii) transfer without consideration;

(iii) transfer made voluntarily;

(iv) the donor;

(v) the donee; and

(vi) acceptance on behalf of the donee.

(i) Subject-matter of gift should be an existing one

It is essential that the subject-matter of gift must be an existing property whether movable or immovable. Secondly such a property must be capable of transfer. Section 6 of the Transfer of Property Act lays down that property of any kind may be transferred except as otherwise provided by the Act or by any other law for the time being in force. This section further provides certain properties which are not capable of transfer. A future property cannot be transferred by gift. Section 124 of the Transfer of Property Act makes the gift of future property void. As per this section where a gift comprises both existing and future property, it is void as to the latter. Under the Mohammadan Law also a gift of future property is prohibited.

(ii) Transfer without consideration

The most essential element of the gift is that it is a gratuitous transfer. A gift is made without consideration. The consideration for the gift is natural love and affection or service. Sometimes the gift is made in consideration of an expectation of spiritual or moral benefit. Such considerations are not contemplated by the definition of 'gift' under the Transfer of Property Act Debi Saran v. Nandilal 125 IC 127.

(iii) Transfer made voluntarily

A transfer by gift is made 'voluntarily' which means that there is an exercise of unfettered will by the donor. The definition requires that the donor should make the transfer voluntarily and without consideration. A gift induced by coercion, undue influence, fraud, misrepresentation or mistake as defined by the Indian Contract Act, is voidable at the option of the donor.

(iv) The donor

In a gift there must be two persons, one who makes the gift and the other who accepts the gift. The person who makes the gift is known as donor and the person who accepts the gift is known as donee. A person making gift of his property must be competent to do so under the law. For example, a minor is incompetent to transfer and a gift made by a minor is void.

(v) The donee

The person who accepts the gift is known as donee. Unlike a donor, the donee, even if not competent to make a contract, can accept a gift through a guardian. In other words, a gift can even be made in favour of a person who is no competent to contract. For example, a gift can be made to a minor. However, where the gift is an onerous one, i.e., it is burdened by an obligation, the donee in such case is not bound by the acceptance. The donee must be in existence at the time of making of gift and the legal representatives of a deceased person cannot accept a gift on behalf of such person Lampat v. Kennedy (1896) 71 LT 163. The donee must be a certain and ascertainable person.

(vi) Acceptance by or on behalf of donee

A gift is not complete under section 122 of the Transfer of Property Act unless accepted by the donee or on his behalf. Under the Hindu Law, the views as to acceptance were different under the two schools. Mitakshara considered the acceptance as necessary but Dayabhaga held otherwise. But under the Transfer of Property Act, the view of Mitakshara school has been adopted. The definition of gift does not say anything about the form of acceptance. The acceptance may be express or implied or it may be proved by the donee's possession of the property or of the deed of gift Balmukundi v. Bhagwan Das ILR 16 All 185. Sometimes even possession may not be necessary to prove acceptance. Thus, in Manikyamma v. Ruppala AIR 1971 Orissa 49, the donor and donee were closely related and they were living together. In this case a mere acceptance of gift by the donee was held sufficient for validity of the gift and the delivery of possession was not considered necessary.

Acceptance can be made by a person who is incompetent to contract through his guardian. However, a donee not competent to contract and accepting property burdened by any obligation is not bound by his acceptance unless after becoming competent to contract and being aware of the obligation, he retains the property given in gift [Section 127].

Acceptance when to be made

The acceptance by the donee must be made during the lifetime of the donor and while he is still capable of giving. If the donee dies before acceptance, the gift is void [Section 122]. Where the gift has been accepted by the donee but the donor dies before registration of the gift deed, the transfer can be concluded by registration of such deed after the donor's death [In re Tilt, Lampet v. Kennedy (1896) 74 LT 163].

4. Kinds of gifts

The gifts are of three kinds, namely, gift inter vivos, gift mortis causa and gift by will. The Transfer of Property Act deals with gifts inter viovs only. It expressly excludes gift mortis causa from its purview by section 128 which lays down that nothing in Chapter VII relates to gifts of movable property made in contemplation of death, or shall be deemed to affect any rule of Muhammadan Law. A gift by will is also not within the scope of the Transfer of Property Act.

5. Transfer by gift how effected [Section 123]

Section 123 of the Transfer of Property Act provides the manner in which the transfer by gift is to be effected. As per this section for the purpose 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. Thus, where the gift is of immovable property, the transfer is required to be made by a registered instrument irrespective of the value of such property. Such an instrument must be signed by the donor or on his behalf and attested by at least two witnesses. There may be more witnesses but the minimum requirement is attestation by two witnesses.

As regards movable property, section 123 requires that for the purpose of making a gift of movable property the transfer may be effected either by a registered instrument or by delivery. when the transfer is made by registered instrument, such instrument is required to be signed by or on behalf of the donor. The delivery of property in this case may be made in the same way as goods sold may be delivered.

The provisions of section 123, being mandatory, are required to be followed strictly in case of all gifts.

6. Gift of existing and future property [Section 124]

A gift comprising both existing and future property is void as to the latter.

7. Immovable property cannot be gifted without registration

In CIT v. Sirehmal Nawalakha (2001) 23 DTC 353 (SC) : (2001) 251 ITR 108 (SC), the assessee was owner of the immovable property and by declaration he sought to give gift of certain out-houses attached to a building to his wife. The transaction was not registered. The assessing officer rejected respondent's claim that a valid gift had been made as, according to him, there had not been any compliance with provisions of section 123 of Transfer of Property Act. It was held that, in order that there should be a transfer 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.

8. Gift to several, of whom one does not accept [Section 125]

Section 125 of the Act deals with a situation when a gift is made to two or more donees one of whom one does not accept it. In such a case the gift is void as to the interest which such a person would have taken had he accepted the gift. For example, a gift is made in favour of A, B and C, and C does not accept the gift. Here as per section 125 of the Transfer of Property Act the gift does not fail in toto. It fails only in respect of C's share, i.e., one-third interest and valid in respect of the remaining two-third interest in favour of A and B.

9. Suspension or revocation of gift [Section 126]

The circumstances under which a gift may be suspended or revoked are given under section 126. A gift can be revoked or suspended through the following two ways only :

(i) By agreement

(ii) By rescission.

(i) By agreement

The donor and donee may agree that on the happening of any specified event which does not depend on the will of the donor, a gift shall be suspended or revoked [Section 126]. Thus, a gift can be suspended or revoked on happening of a specified event if the donor and the donee have agreed to do so. The essential thing is that the happening of such an event should not depend on the will of the donor. For example A gives a field to B, reserving to himself, with B's assent, the right to take back the field in case N and his descendants die before A. B dies without descendants in A's lifetime. A may take back the field of rupees to B, reserving to himself, with B's assent, the right to take back at pleasure Rs. 10,000 out of the take. The gift holds good as to Rs. 90,000, but is void as to Rs. 10,000 which continue to belong to A.

(ii) By rescission

The other way in which a gift may be suspended or revoked, provided by section 126 is that a gift may revoked in any of the cases [save want or failure of consideration) in which, if it were a contract, it might be rescinded. In other words, a gift may be revoked or suspended in all the cases in which a contract can be rescinded except in the case of want or failure of consideration. A contract can be rescinded when consent to an agreement is caused by coercion, fraud or misrepresentation or undue influence [See Sections 19 and 19A of Indian Contract Act]. In such a case, the agreement is a contract voidable at the option of the party whose consent was so caused. Thus, a donor who induced to make a gift by coercion or fraud or misrepresentation or undue influence can avoid a gift. In such a case, the donor can do so even before the deed is registered. However, no gift is voidable for want or failure of consideration since a gift is a voluntary act on the part of the donor and one of the essential elements of the gift is that it is made without consideration.

Except the above tow ways, a gift cannot be revoked in any other way.

10. When gift cannot be revoked or suspended?

Now the question arises as to whether a transferee of gift property for consideration affected by the revocation of the gift. Section 126 of the Act provides the answer that the revocation or suspension of gift under section 126 shall not affect the rights of transferees for consideration without notice. For example A gifts a house to B on the condition that B should send his son to England for Bar instead of sending his son to Bar, B sells the house to C who is not are of the condition imposed by A on the gift property. Here C takes an absolute title and A cannot recover the property from C on revocation of the gift. However, if C had the notice of the said condition and revocation on its breach, A would certainly have power of revocation against B or C as the case may be Ali Miji v. Zir Ali Sheik ILR 1938 Cal 157.

11. Onerous gift [Section 127]

A gift can be of one thing or several things at one time to a single person. There may arise a situation when one of things is burdened by an obligation. Now, the question is whether the donee can accept the gift or things which are not burdened with the obligation. Section 127 makes it mandatory for the donee to either accept or reject the gift in full. As per this section where a gift is in the form of a single transfer to the same person of several things of which one is, and the others are not, burdened by an obligation, the donee can take nothing by the gift unless he accepts it fully. For example A has shares in X, a prosperous joint-stock company and also shares in Y, a joint-stock company in difficulties. Heavy calls are expected in respect of the shares in Y. A gives B all his shares in joint-stock companies. B refuses to accept the shares in Y. he cannot take the shares in X.

The essential conditions for application of the above rule are as follows :

(i) the gift must be in the form of a single transfer;

(ii) the gift must be of several things of which one is burdened by an obligation; and

(iii) the gift must be made to the same person.

In the above situation, the donee has to accept the gift fully otherwise he takes nothing by the gift. The above rule is based on the principle that he who accepts the benefit of a transaction must also accept the burden of the same.

(i) Non-applicability of rule when gift is by separate or independent transfers

However the rule of election has no application when a gift of several things is made by separate or independent transfers. Section 127 further provides that where a gift is in the form of two or more separate and independent transfers to the same person of several things, the donee is at liberty to accept one of them and refuse the others, although the former may be beneficial and the latter onerous. In such a case, since each transfer is an independent transaction standing by itself, the question of election does not arise.

For example A, having a lease for a term of years of a house at a rent which he and his representatives are bound to pay during the term, and which is more than the house can be let for, gives to B the lease, and also, as a separate and independent transaction, a sum of money. B refuses to accept the lease. He does not by his refusal forfeit the money.

The rule of election laid down under section 127 of the Act is applicable to Hindus as well as Mohammadans [Abdul Sattar v. Satyabhusan ILR 35 Cal 767].

(ii) Onerous gift to disqualified person

A donee not competent to contract and accepting property burdened by any obligation is not bound by his acceptance. But if, after becoming competent to contract and being aware of the obligation, he retains the property given, he becomes so bound [Section 127]. For example, a minor or a person of unsound mind is not competent to contract, therefore, such a person while accepting the gift burdened by an obligation, is not bound by his acceptance. However, after attaining majority or becoming a person of sound mind, such person becomes competent to contract. In such a case, if such person being aware of the obligation retains the property burdened with an obligation, then he is bound by the acceptance.

12. Universal donee [Section 128]

The term 'Universal donee' occurs in Hindu Law when a person after retiring from the world becomes an ascetic. Universal donee is a person who receives the whole property of the person who becomes an ascetic. Thus, he becomes personally liable for all the debts due by and liabilities of the donor to the extent of property of the donor. Section 128 of the Act enacts a rule in this regard. As per this section, subject to the provisions of section 127, where a gift consists of the donor's whole property, the donee is personally liable for all debts due by and liabilities of the donor at the time of the gift to the extent of the property comprised therein.

The essential condition to hold the universal donee liable for the debts and liabilities of the donee is that whole property of the donor should constitute the gift. The liability of the donee is limited to the extent of the property comprising the gift. The rule under section 128 is based on the principle that he who accepts the benefit of a transaction must also accept the burden of the same.

Application of the rule to a disqualified person

The rule laid down under section 128 being subject to section 127, it is not applicable if the donee is a disqualified person such as minor or person of unsound mind. Thus, a universal donee, who is a minor, cannot be held liable unless he retains the property after attaining the majority.

This rule is also applicable to Mohammadans.

13. Donations mortis causa [Section 129]

Chapter VI of the Transfer of Property Act is not applicable to gifts of movable property made in contemplation of death. This chapter also does not affect any rules of Mohammadan Law [Section 129].

A gift made in contemplation of death is known as donation mortis causa. It is a gift of personal property by a person on the point of death. Such gifts being treated in the nature of gifts by will, they are governed by section 191 of the Indian Succession Act, 1925.

Gifts made by Mohammadans are also exempted from the applicability of provisions of Chapter VII of the Transfer of Property Act so far as they are inconsistent with the rules of Mohammadan Law.

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