1. This is a reference under Section 26(1) of the Gift-tax Act (hereinafter referred to as ' the Act '), by the Income-tax Appellate Tribunal, Hyderabad Bench, for the opinion of this court on the following question :
' Whether, on the facts and in the circumstances of the case, the assessee was liable to gift-tax assessment on the value of the properties conveyed by him to his children under the settlement deed dated March 26, 1962 '
2. For a proper appreciation of the scope of the reference, it is necessary to refer to the material facts that gave rise to the question : One N. Durgaiah of Secunderabad (hereinafter referred to as ' the assessee ') executed a registered deed of settlement on March 26, 1962, conveying the schedule mentioned immovable properties to his five sons and two daughters out of whom one of the sons was a minor in whose favour item No. 2, a house worth Rs. 64,800, was settled. The assessee, who was called upon to file a gift-tax return in respect of the value of the properties settled by him on March 26, 1962, had filed a nil return contending, inter alia, that the provisions of the Act levying tax on gifts relating to agricultural lands and buildings were unconstitutional and ultra vires and the transaction was in the nature of a family arrangement which does not amount to a taxable gift under the Act. The Gift-tax Officer, rejecting the contentions raised on behalf of the assessee, assessed the net value of the gifts for the assessment year 1962-63 at Rs. 1,20,780 and raised a demand for the paymentof gift-tax of Rs. 6,662.40. On appeal to the Appellate Assistant Commissioner, the assessee in addition to the pleas raised by him before the Gift-tax Officer, contended that the gift made to Sri N. Prakash, who was a minor son at the time of the settlement, should be exempt under the provisions of Section 5(1)(xii) of the Act as it was intended for his education. The appellate authority was of the view that the transaction was a gift and the recitals in the document do not disclose the intention of the donor to provide for the education of his minor son, Prakash, and there was no other evidence to support such a plea. Hence the appeal was dismissed. On further appeal to the Tribunal, the assessee reiterated his contentions but without success. Hence the reference at his instance.
3. The contention of Sri P. Ramachandra Rao, the learned counsel for the assessee, is two-fold: (1) that the transaction is not a taxable gift under the Act but a family arrangement supported by consideration, the consideration according to the counsel being the very arrangement itself; and (ii) that the gift in favour of the donor's minor son, Prakash, is exempt under Section 5(1)(xii) of the Act. This claim of the assessee is resisted by Sri P. Ramarao, the learned counsel for the income-tax department, contending, inter alia, that there is no merit in any of the pleas raised by the assessee.
4. It is now settled law that gift-tax under the Act is exigible in respect of gifts of agricultural lands as the transaction involves the transfer of property in the shape of agricultural lands but the very agricultural lands were not sought to be taxed under the Act. See Second Gift-tax Officer, Mangalore v. D.H. Nazareth, : 76ITR713a(SC) and Jupudi Sesharatnam v. Gift-tax Officer, Palacole, : 38ITR93(AP) .
5. We shall now turn to the contention of Sri Ramachandra Rao that the transaction in question is a family arrangement not exigible to tax under the Act, In order to appreciate this contention of the learned counsel, it is necessary to refer to what is meant by family arrangement. What amounts to family arrangement has been considered in several decisions. Suffice it to refer to a recent decision of the Supreme Court in Puttiah v. Narasimham : AIR1966SC1836 wherein the learned judge, Subba Rao J. (as he then was), who spoke for the court, after reviewing the entire case law on the subject, has summed up the legal position succinctly thus :
' Briefly stated, though conflict of legal claims in praesenti or infuture is generally a condition for the validity of a family arrangement, itis not necessarily so. Even bona fide disputes, present or possible, whichmay not involve legal claims will suffice. Members of a joint Hindu familymay, to maintain peace or to bring about harmony in the family, enterinto such a family arrangement. If such an arrangement is entered into bona fide and the terms thereof are fair in the circumstances of a particular case, courts will more readily give assent to such an arrangement than to avoid it.'
6. The aforesaid dictum would establish beyond doubt that in order to constitute a family arrangement, there must be an agreement or arrangement amongst the members of the joint family who wish to avoid any plausible or possible disputes and secure peace and harmony amongst the members as well as the properties belonging to them. Unless and until the existence of an arrangement or arrangement is established, there can be no family arrangement. Where one of the parties executes a document styled as settlement deed whereunder some of the properties exclusively belonging to him as his self-acquird properties are settled in favour of the other members of the family, the terms of such document do not by any stretch of reasoning amount to a family arrangement. There is no agreement or arrangement amongst the members of the family which is the essence of a family arrangement in such a transaction as the same is only a unilateral one. Indisputably for such a document the other parties who are only beneficiaries cannot be called parties to the transaction in the sense that they have entered into such an agreement or arrangement.
7. Applying the aforesaid principles, the transaction in question cannot be held to be a family arrangement. It is a simple settlement or a gift executed by the father in respect of his self-required properties in favour of his children out of love and affection. There is no consideration for such document by the father in the instant case. The settlor was anxious to settle the said properties during his lifetime in favour of his beneficiaries with a view to provide for them. The terms and recitals of the document establish beyond doubt that the beneficiaries are not the executants of the document along with the father and they have no say in the transaction. 'Gift' is defined under Section 2(xii) of the Act 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'. Admittedly, there is a transfer of the existing immovable property in which the donor had existing right, voluntarily and without consideration in money or money's worth. Any consideration other than money or money's worth is not contemplated under Section 2(xii). Where the transaction is made voluntarily and without any consideration in money or money's worth, it must be held to be a gift within the meaning of Section 2(xii). All the requisites of a valid gift defined under Section 2(xii) have been satisfied in the instant case. Hence, we are satisfied that the transaction evidenced by the document is only a settlement or a gift made by the father out of love and affection in favour of his childrenwithout any consideration in money or money's worth, exigible to tax and, hence, there is no substance in this submission of Sri Ramachandra Rao.
8. The only point that survives for decision is whether the gift of item No. 2, a house situate in Maredpally, by the assessee in favour of his then minor son, Prakash is exempt under Section 5(1)(xii) of the Act which reads thus :
'(1) Gift-tax shall not be charged under this Act in respect of gifts made by any person--...
(xii) for the education of his children to the extent to which the gifts are proved to the satisfaction of the Gift-tax Officer as being reasonable having regard to the circumstances of the case.'
9. Section 5 exempts certain gifts specified therein. Where the gift is made by any person for the education of his children, it is exempt if it is proved to the satisfaction of the Gift-tax Officer as reasonable having regard to the circumstances of the case. In order to obtain the exemption under Section 5(1)(xii), the assessee must establish that the gift was made for the education of his minor son, Prakash. Whether a particular gift is or is not made by any person for the education of his children is a question of fact depending upon the facts and circumstances of each case. The claim sought to be made by the assessee under Section 5(1)(xii) being in the nature of exemption, the burden is on the assessee to establish the requisite ingredients for the claim so as to bring his case within the exemption. Where there is no evidence positively in favour of intention of the donor to gift a particular property for the education of his children, he must fail in obtaining the exemption under this provision. It is not the duty of the Gift-tax Officer to establish by independent evidence the contrary position that the assessee is not entitled for the claim. The intention of the donor that the gift was for facilitating or providing for the education of his children must normally be gathered from the very terms and recitals of the gift deed. In the instant case, the document is silent about this aspect. Sri Ramachandra Rao relies upon the following passage in support of his plea :
' .... beneficiaries above named who are all his children and dependants and for whom he is under an obligation to make provision.'
10. The aforesaid passage which appears to have been made by Way of preamble is common to all the gifts and, hence, this will not assist the plea of the assessee to claim exemption under Section 5(1)(xii) of the Act. However, there is no specific mention of the fact that to the minor son was gifted the house property with a view to provide for his education. Nowhere in the document any such reference has been made, nor the same can be gathered from the document. That apart, this claim was not raised at the earliest instance before the Gift-tax Officer. For the first time, this claim was raised before the Appellate Assistant Commissioner who rejected it. We may also refer to the statement made by the Appellate Assistant Commissioner to the effect that there is no other evidence which would go to show that the gift was intended for the purpose of education of his minor son. The same view has been endorsed by the Tribunal who are of the view that there was no basis for such a claim. On the facts and in the circumstances, we are in entire agreement with the view expressed by the Tribunal that the assessee was not entitled for a claim under Section 5(1)(xii).
11. For all these reasons, we, therefore, answer the question in the affirmative and against the assessee who shall pay the costs of this reference to the Commissioner of Gift-tax. Counsel's fee is fixed at Rs. 250.