Everything you must know while making a Gift Deed

By Urvika Shah Sheth (Associate, Lex Services)

INTRODUCTION:

A Gift Deed is a legal document that records the act of giving a gift and is executed between a Donor and Donee. Section 122 of the Transfer of Property Act,1882[ The Transfer of Property Act,1882] (“TOPA”) defines a gift deed as a legal document that describes the voluntary transfer of gift from a donor to donee without any exchange of money. Though no monetary transaction is involved, it is still preferable to register the gift deed to make it valid. Section 17 of the Registration Act, 1908[ The Registration Act, 1908], makes it mandatory to register the Gift Deed when Donor wants to gift an immovable property.

WHO IS DONOR AND DONEE?

Donor: A person who is the owner of the property and who want to gift such property.

Donee: A person who accepts the gift. A minor can be a donee however, the gift would have to be accepted by Donee’s guardian on behalf of the donee.

WHAT CAN BE GIFTED?

An existing movable or immovable property
A transferable property
A tangible property

ESSENTIALS OF A VALID GIFT:

Following are essential prerequisites of Gift Deed:

There should be a Donor and Donee;
Donor shall have absolute ownership of the property;
Ownership must relate to a property which is in existence;
Transfer should be voluntary;
Transfer must be without any consideration;
Donor must be an adult and should be of a sound mind;
Donee must accept the property gifted during his lifetime.

TAX IMPLICATION ON GIFT DEED

Under Income Tax Act 1961[ The Income Tax Act 1961], Section 56(2)(x), where any person receives from any person after the 1st day of April 2017 and if the value exceeds 50,000/- (Rupees Fifty Thousand only) than the said amount will be taxable under the head “Income from other sources”. The given clause shall not apply to the following persons mentioned underneath: –

from any relative; or
on the occasion of the marriage of the individual; or
under a will or by way of inheritance; or
in contemplation of death of the payer or donor, as the case may be; or
from any local authority; or
from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
from or by any trust or institution registered under section 12A or section 12AA; or
by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or
by way of transaction not regarded as transfer under clause (i) / (iv) / (v) / (via) / (viaa) / (vib) / (vic) / (vica) / (vicb) / (vid) / (vii) of section 47; or
from an individual by a trust created or established solely for the benefit of the relative of the individual.
from such class of persons and subject to such conditions, as may be prescribed.

HIBA UNDER MOHAMMEDAN LAW

The concept of gift and registration under TOPA and Registration Act, 1908 is not applicable to Mohammedans. Under Mohammedan Law, a Gift is called a Hiba. Hiba can be either oral or written. An oral gift though if made shall be made in presence of a witnesses or a public declaration that the Donor has gifted the property to the Donee by putting such Donee in possession of the subject of the gift. Thus, there are 3 essentials for a valid oral gift and the same are:

Declaration of the gift by the Donor;
Acceptance of the gift by the Donee, expressed or implied, and
Delivery of possession of the subject of gift.
in contemplation of death of the payer or donor, as the case may be; or
from any local authority; or

Courts have consistently reiterated the above-mentioned essentials in various cases such as Mohammad Abdul Ghani and Anr. v. Fakhr Jahan Begam and Ors., Jubeda Khatoon v. Moksed Ali, Rasheeda Khatoon v. Ashiq Ali etc.

Further it is also not mandatory to register a Hiba. The same has been confirmed by the Apex Court in the matter Hafeeza Bibi and Ors. v. Farid (Dead) by L.Rs. and Ors. wherein the Apex Court has stated that if all the three essentials constituting a valid gift under Muhammadan Law are satisfied then the transaction of gift would not be rendered invalid merely because it is in writing but the same is not registered. Section 129 of TOPA protects the rule of Mohammedan Law and excludes it from the purview of Section 123 of TOPA.

CAN GIFT DEED BE CONDITIONAL?

The Apex Court vide its landmark judgment of S. Sarojini Amma v. Velayudhan Pillai Sreekumar clarified that “A conditional gift with no recital of acceptance and no evidence in proof of acceptance, where possession remains with the donor as long as he is alive, does not become complete during the lifetime of the donor. When a gift is incomplete and title remains with the donor the deed of gift might be canceled.” The Apex Court has outlined that stipulating conditions in a gift deed doesn’t make the gift deed invalid and that such gift shall be complete only upon fulfillment of the conditions and that before such fulfillment the Donor can cancel the gift deed.

The Apex court to conclude the S. Sarojini Amma case further stated “We are in agreement with the decision of this Court in Reninkuntla Rajamma, that there is no provision in the law that ownership in property cannot be gifted without transfer of possession of such property. However, the conditions precedent of a gift as defined in Section 122 of the Transfer of Property Act must be satisfied. A gift is transfer is transfer of property without consideration. Moreover, a conditional gift only becomes complete on compliance of the conditions in the deed.”

Thus, it can be said that gift deed can be conditional and such gift shall be complete only on attainment of all conditions in the gift deed.

CAN A GIFT DEED BE REVOKED?

Section 126 of TOPA deals with the revocation of the Gift. The Sections states that if the donor and donee has agreed that happening on any specified event which does not depend on the will of the donor a gift shall be suspended or revoked but a gift which the parties agree shall be revocable wholly or in part, at the mere will of the donor is void wholly or in part as the case may be. A gift may also be revoked in any of the cases in which if it were a contract it might be rescinded. Thus, a Gift Deed can be revoked in two modes: –

Revocation by Mutual Agreement between the parties;
Revocation by rescission as in the case of the contract.

CAN A GIFT DEED BE CHALLENGED?

The gift deed can certainly be questioned in the court of law by filling a suit for declaration. However, it will be challenged only on the following grounds:

Consent was caused by coercion and was not free consent
Gift Deed was executed under misrepresentation, fraud or was not as per the wish of the Donor
Gift Deed not executed and duly registered as per the provisions of TOPA and Registration Act, 1908,
Parties are not competent to enter into the contract
Consideration is paid
If the Gift is conditional and the condition is not fulfilled.

CONCLUSION

TOPA deals with the provisions relating to gift. In simple words, a gift deed shall be made by a competent person, voluntarily transferring a transferrable, tangible, existing property without any consideration and the same is accepted by the person to whom it is gifted to. The most important aspect of Gift Deed is that it has to be mandatorily be registered, however Hiba i.e. the gift made according to the Mohammedan Law is an exception to this rule. However, it is to be distinctly understood that the chief component of gift deed is that the transfer shall be without any consideration.

ENDNOTES

The Transfer of Property Act,1882
The Registration Act, 1908
The Income Tax Act 1961
Mohammad Abdul Ghani (since deceased) Vs. Fakhr Jahan Begam, 1922(49) IA 195
Jubeda Khatoon Vs. Moksed Ali, AIR 1973 Gauhati 105
Rasheeda Khatoon v. Ashiq Ali (2014) 10 Supreme Court Cases 459
Hafeeza Bibi and Ors. v. Farid (Dead) by L.Rs. and Ors, (2011) 5 Supreme Court Cases 654
S. Sarojini Amma v. Velayudhan Pillai Sreekumar, (2019) 11 Supreme Court Cases 391

DISCLAIMER

This article is the personal view and opinion of the author. This article is for information purpose only. This newsletter is not a substitute for professional advice. Lex Services disclaim all responsibility and accept no liability for consequences of any person acting or refraining from acting on the basis of any information contained herein.

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