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Gift-tax Officer Vs. Bhupati Veerabhadra Rao - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1984)9ITD618(Hyd.)
AppellantGift-tax Officer
RespondentBhupati Veerabhadra Rao
Excerpt:
.....and they are furnished as under :s. name of the value of share of doneesno. assessee gift gift 1 2 3 4 5 rs.1. b. audinarayana 47,659 30 per cent 3 married daughters (major huf) share in half of veerabhadra2. b. venkataraju 1,58,865 one-half share audinarayana brother (larger huf) in veerabhadra veerabhadrarao son talkies of audinarayana3. b. prasada rao 75,760 9 per cent 1. b. audinarayana share in son of venkata-4. b. veerabhadra rao 75,760 9 per cent share 1. b. audinara- in malleswari yana son of5. b. venkataraju 72,414 12 1/2 per cent 1. bh. audinara-(smaller huf) share in veera- yana son of bhadra picture kondaiah6. b. audinarayana 72,414 12 1/2 per cent 1. bh. audinara- share in veera- yana son of7. b. audinarayana 50,280 2 per cent share 1. bh. andinara-(smaller.....
Judgment:
1. These appeals by the revenue relate to gift-tax assessments. The assessment year involved in all these appeals is 1979-80. The assessees in all these appeals are co-owners of certain properties and they are also related to each other. Since the questions involved in all these appeals are common, they are taken up together and disposed of by this common order for the sake of convenience.

2. All the assessees filed their gift-tax returns showing the gift value as nil. The case of the assessees was that there was a family settlement on 31-3-1979 as a result of which the asseessee-HUFs were divided among the coparceners of the respective assessees' families and the married daughters. According to the GTO, the members of the respective assessee-families had foregone their share to an extent of 30 per cent in favour of the married female members. Therefore, the assessing authority was of the view that the assessees have foregone their share to an extent of 30 per cent in favour of the married female members and in view of the same there was an element of deemed gift under Section 4(1) of the Gift-tax Act, 1958 ('the Act'). The plea of the assessee before the GTO was that there was no element of gift and whatever share was foregone, that was in accordance with certain family settlement. This plea was not accepted and, consequently, the value of 30 per cent of share in each of the assessee's case was worked out and after giving the basic exemption the balance thereof was taxed by, treating the same as deemed gift under Section 4(1).

3. Aggrieved, the assessees filed appeals before the AAC contending that there was no element of gift and whatever share was foregone in favour of the married female members of the assessee-families that was in accordance with certain family settlement executed on 31-3-1979. As such, the inference so drawn by treating the surrender of share as a deemed gift was stated to be bad in law. It was also submitted that whatever family arrangement was made, that was based on pre-existing right of the parties who were connected with the said agreement and whatever they received that was in lieu of their right which were already existing and they mere acknowledged the said defined rights in the said settlement executed on 31-3-1979. As such, in the alternative it was also contended that if it is presumed that the family arrangement resulted in certain transfer, such transfer was based on sufficient consideration and on this basis the impugned gift-tax assessment was stated to be bad in law. The assessees also relied upon certain decisions of the Madras High Court in CGT v. Pappathi Anni [1981] 127 ITR 655 as also the Supreme Court's observation in Sahu Madho Das v. Mukand Ram AIR 1955 SC 481. Considering the facts and circumstances and also relying on the decisions on this point, the AAC accepted the plea put forward by the assessees and, accordingly, cancelled the assessments made by the GTO in the case of all the assessees.

4. Aggrieved, the department filed the present appeals before the Tribunal in the case of all the assessees. The common ground raised by the department in all these appeals was that the AAC ought to have upheld the gift-tax assessments made by the GTO. It was further submitted that the AAC should have applied the provisions of Section 4(1)(c) in the case of the transaction under which the assessees had foregone their rights in favour of other members of the family. For these reasons, it was stated that the assessments made by the GTO may be restored.

5. We have also heard the learned Counsel appearing for the assessees who supported the orders passed by the AAC. According to the facts of these cases, originally there was a HUF consisting of B. Audinarayana and his brother B. Venkataraju. Shri B. Audinarayana had two sons by name, B. Veerabhadra Rao and B. Prasada Rao. The said B. Audinarayana also had three married daughters by name, Smt. Sirangu Malleswari, Smt.

V. Manga Tayaramma and Smt. Y. Krishna Kumari. Similarly B. Venkataraju had three sons. It was made clear that in the initial stage there was certain partition of the HUF comprised of B. Audinarayana and his brother B. Venkataraju. This partition was stated to be taken place in 1952. Subsequently, another partition took place somewhere between 1964 and 1967 between one brother and his sons and also between the other brother and his sons. The partition so effected was disputed by the sons of B. Audinarayana as also by the members of the family of B.Venkataraju on the ground that whatever share was given to them was not reasonable and on the contrary it was on the lower side compared to the share to which they were entitled. On account of this the members of the family appears to have threatened the karta, B. Audinarayana, as also the members of B. Venkataraju's family. They also threatened to take this matter to Court and file certain suits in this regard. With a view to avoid litigation and preserve family peace and happiness and with a view to avoid differences and disputes among the family members, certain family settlement was entered into which was executed on 31-3-1979. As a result to this family settlement, the share of the different members of the assessee-families in the ancestral property and also in the property acquired subsequently with the aid of the ancestral nucleus were reallocated or redefined and it is on account of this some members of the assessee-families have foregone their share in favour of the donees.

6. Details of the shares that were foregone by the assessee-families in favour of the donees were compiled and filed by the learned departmental representative and they are furnished as under :S. Name of the Value of Share of DoneesNo. assessee gift gift 1 2 3 4 5 Rs.1. B. Audinarayana 47,659 30 per cent 3 married daughters (Major HUF) share in half of Veerabhadra2. B. Venkataraju 1,58,865 One-half share Audinarayana brother (Larger HUF) in Veerabhadra Veerabhadrarao son Talkies of Audinarayana3. B. Prasada Rao 75,760 9 per cent 1. B. Audinarayana share in son of Venkata-4. B. Veerabhadra Rao 75,760 9 per cent share 1. B. Audinara- in Malleswari yana son of5. B. Venkataraju 72,414 12 1/2 per cent 1. Bh. Audinara-(Smaller HUF) share in Veera- yana son of bhadra Picture Kondaiah6. B. Audinarayana 72,414 12 1/2 per cent 1. Bh. Audinara- share in Veera- yana son of7. B. Audinarayana 50,280 2 per cent share 1. Bh. Andinara-(Smaller HUF) in Malleswari yana son of Picture Palace Venkataraju8. B. Koteswara Rao 72,414 12 1/2 per cent 1. Bh. Audinara- share in Veera- yana son of9. B. Krishnarao 64,788 12 1/2 per cent 1. Bh. Audinara- share in Veera- yana son of10. S. Malleswari 36,400 10 per cent 1. Bh. Audinara- share in Malle- yana son of11.V. Mangatharayamma 36,400 10 per cent 1. Bh. Audinara- share in Malle- yana12. Y. Krishnakumari 36,400 10 per cent 1. Bh. Audinara- share in Malle- yana son of The submission of the learned departmental representative was that the members of the assessee-families had foregone their respective shares to the extent of 30 per cent in favour of the married female members.

What was the extent of the value of the share that was foregone in the case of each of the assessees was given in the assessment order. The contention of the learned departmental representative was that the assessees have foregone their respective shares to an extent of 30 per cent in favour of the married female members and in view of the same there was an element of deemed gift under Section 4(1). It was also the submission of the learned departmental representative that the assessee-families have not received any consideration from the persons to whom the respective shares have been transferred to an extent of 30 per cent. Therefore, according to him, there is deemed gift under Section 4(1). The learned departmental representative also relied upon a decision of the Madras High Court as in CGT v. K.V.K. Veerappa Chettiar [1980] 121 ITR 854 in support of his contention.

7. The submission of the learned Counsel appearing for the assessees was that there was no element of gift and whatever share was foregone in favour of the married female members of the assessee-families that was in accordance with certain family settlement executed on 31-3-1979.

Since there was unequal partition in the joint family properties, the prior partitions were reopened and with the help of the mediators a final settlement was arrived at in reallocating the shares to the members of the joint family. According to the learned Counsel appearing for the assessee, the two brothers who were the members of the original HUF as also the sons and daughters of both the brothers and their families executed a family arrangement with a view to avoid future litigation and preserve peace and happiness in their respective families. According to him, the memorandum of family arrangement executed on 31-3-1979 was accepted for income-tax and wealth-tax purposes by the department and assessments were made therein. It was also the case of the assessees that whatever family arrangement was made that was based on preexisting right of the parties who were connected with the said agreement and whatever they received was in view of their pre-existing right and by this agreement dated 31-3-1979 they have merely acknowledged and defined such rights. It was also submitted that even if the family arrangement resulted in certain transfer, such transfer was based on sufficient consideration in the mutual adjustment of the respective shares of the members in the joint family. Therefore, according to the learned Counsel appearing for the assessee, there is no element of deemed gift as contemplated under Section 4(1).

8. The learned departmental representative relied upon a decision of the Madras High Court in the case of K.V.K. Veerappa Chettiar (supra).

That was a case where a father executed settlement deeds in favour of his son and daughter. On facts, the Madras High Court found that there was a division of the joint family and the settlement in favour of son was not one in favour of the coparcener so as to be affected by any prohibition under the Hindu law, because the father has already made a declaration before the authorised officer appointed under the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961, that there was a partition in his family in 1955 and lands of an extent of 23 acres, had been given to his son. Therefore, inasmuch as the settlement deed was executed not in favour of a coparcener, the High Court came to the conclusion that it was a gift. Inasmuch as the facts and circumstances are different from what are appearing in K.V.K. Veerappa Chettiar's case (supra) we consider that the abovesaid decision of the Madras High Court will be of no help to the department.

9. The fact remains that there was constant threat by the members of the joint family in view of the fact that the partition that was already entered into between the parties was unequal and, therefore, in order to avoid the future litigation and to preserve the family peace and happiness, the family settlement was arrived at the instance of mediators on 31-3-1979. As a consequence to this family settlement, the shares of the different members of the assessee-families in the ancestral property and also in the property acquired subsequently with the aid of ancestral nucleus were reallocated and redefined. It is on account of this that some members of the assessee-families have necessarily foregone their share in favour of the donees. Accordingly, whatever share was foregone that was in accordance with the terms and conditions of the family settlement to which different members of the joint family were parties. It also remains to be seen that some shares were allotted to the married daughters of Shri B. Audinarayana because of the fact that what was given to them during the time of their marriage by way of pasupu kunkuma were insufficient and inadequate.

This was stated in the family arrangement executed on 31-3-1979. It is on account of this the learned Counsel appearing for the assessee contended that whatever family arrangement was made that was based on pre-existing right of the parties who were connected with the said agreement and whatever they received were in lieu of their right which were already existing. Therefore, according to him, the members of the family merely acknowledged and defined such rights in the later family arrangement.

10. The learned Counsel appearing for the assessee further relied upon a judgment of the Supreme Court in Ram Charan Das v. Girja Nandini Devi AIR The transaction of a family settlement entered into by the parties who are members of a family bona fide to put an end to the dispute among themselves, is not a transfer. It is not also the creation of an interest. For, in a family settlement each party takes a share in the property by virtue of the independent title which is admitted to that extent by the other parties. Every party who takes benefit under it need not necessarily be shown to have, under the law, a claim to a share in the property. All that is necessary to show is that the parties are related to each other in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other ground as, say, affection.

In arriving at this conclusion, the Supreme Court relied upon the decisions in Mt. Hiran Bibi v. Mt. Sohan Bibi AIR 1914 PC 44, Khunni Lal v. Gobind Krishna Narain ILR 33 All. 356 (PC) and Rangaswami Gounden v. Nachiappa Gounden AIR 1918 PC 196. The Supreme Court also considered the decision in Sureshwar Misser v. Maheshrani Misrain AIR 1921 PC 107.

11. The learned Counsel appearing for the assessee also relied on a decision of the Supreme Court in the case of Maturi Pullaiah v. Maturi Narasimham AIR 1966 SC 1836. In that case the Supreme Court held as under : Although conflict of legal claims in praesenti or in future is generally a condition for the validity of a family arrangements, it is not necessarily so. Even bona fide disputes present or possible, which may not involve legal claims would be sufficient. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement. If such an arrangement is entered into bona fide and the terms thereto are fair in the circumstances of a particular case, the Courts will more readily give assent to such an arrangement than to avoid it. In England also the Courts are averse to disturb family arrangements but try to sustain them on broadest considerations of the family peace and security.

Another judgment that was brought to our notice was that in Sahu Madho Das's case (supra). This judgment is an authority for the proposition that a family arrangement can, as a matter of law, be implied from a long course of dealings between the parties. The learned Counsel appearing for the assessee also drew support from a judgment of the Gauhati High Court in Ziauddin Ahmed v. CGT [1976] 102 ITR 253. In that case it was held that-- Where, at a family settlement, a father transferred some shares to some of his sons at a consideration which was less than the market value, as he wanted to have peace in the family and the transaction was bona fide, the transaction was not a transfer. In order to bring a case within the scope of Section 4(1)(a) of the Gift-tax Act, 1958, there must be a transfer for consideration and such consideration must have been found to be inadequate. Therefore, the provisions of Section 4(1)(a) were not attracted to the facts and circumstances of the case.

In another case, the Supreme Court while dealing with wealth-tax matter in the case of CWT v. H.H. Vijayaba, Dowager Maharani Saheb of Bhavnagar Palace [1979] 117 ITR 784 held that : ... on the facts, that this was a case of a family settlement or family arrangement binding on the parties ; the assessee agreed to purchase peace for the family and to pay her son, S, the amount which fell short of Rs. 50 lakhs if her elder son, V, did not pay him and such a consideration was good consideration which brought about an enforceable agreement between the parties ; Section 25 of the Contract Act did not hit this ; Lastly, the learned Counsel appearing for the assessee brought to our notice a judgment of the Madras High Court as in the case of Pappathi Anni (supra). According to the facts in that case : S and his son, T, effected a partition of the ancestral properties between themselves on April 8, 1953. On the death of S, intestate, on December 14, 1953, his widow and his son, T, applied for and obtained succession certificates. On November 12, 1959, a deed styled as a deed of partition was drawn up between S's widow and her son, T, under which there was an equal division of the properties left by S. The widow and her son, T, also effected settlements jointly of some of the lands obtained by them under the said deed.

The High Court in CIT v. S.S. Thiagarajan [1963] 49 ITR 581 (Mad.) held that the properties left by S were taken by his widow entirely to the exclusion of T. Consequent on the decision of the High Court, the GTO initiated reassessment proceedings for the assessment year 1960-61, and held that the properties allotted to T in the partition between himself and his mother was liable to gift-tax in the hands of the mother.

...at the time when the document was entered into, both parties genuinely and bona fide thought that the son had a right to a half share in the properties left by S and it was on this basis that the document dated 12-11-1959, was executed. Consequently, there was no gift liable to gift-tax because the allotment of property to T was not without consideration.

12. Our attention was also drawn to a passage occurring in Mulla's Hindu Law, 14th edn. The said passage runs as under : Family Arrangement or Family Settlement - In 192 and 193 the subject of family arrangement and compromise by a widow has been dealt with.

Family Arrangement or Family Settlement as it is sometimes termed, generally meets with approval of the Court and the Court always leans in favour of a transaction relating to any such arrangement which ensures peace and goodwill among the family members. This does not rest on any special rule of Hindu law but flows from general principles and policy of law. Though conflict of legal claims in praesenti or in future is generally regarded as a condition for the validity of a family arrangement it is not necessarily so. Even bona fide dispute, present or possible, which may not involve future claims will suffice. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement. The transaction is not the creation of an interest. In such an arrangement ordinarily, each party take a share or interest in the property by virtue of the independent title which is admitted to that extent by the other parties. But every party who takes benefit under it need not necessarily be shown to have, under the law, a claim to a share in the property. All that is necessary to show is that the parties are related to each other in some way and have a possible claim or even a semblance of a claim or some other ground as, say affection, A similar question has also come up for consideration before the Tribunal, Madras Bench 'C' in the case of Smt. A. Omera Parvez v. GTO [1983] 3 ITD 250. In that case also the Tribunal held as under : In order to presume a deemed gift in a family arrangement, the element of bounty as well as its extent should be spelt out clearly and distinctly. The authorities had not clearly established in this case that there was such a demonstrable element of bounty. The difference sought to be suggested could well be attributed to the vagaries involved in the valuation of the immovable properties located in different places, especially when valuation of interest in co-owned property was even less capable of precision. This apart, the decided cases on the issue had made it clear that there could be no gift in a family arrangement, especially when, on facts, the title to the claim was not only 'legal' but also undisputed as in this case. The assessees were, therefore, entitled to succeed merely on the ground that the family arrangement was bona fide.

This view was also reiterated by the Tribunal in the case of GTO v.Smt. Chinthamani Achi [1983] 4 ITD 237 (Mad.). There also the Tribunal held that in a family arrangement no transfer is involved and, therefore, there was no deemed gift liable to tax under Section 4(1).

13. Thus, we have seen that Courts have given effect to a family settlement upon the broad and general ground that the object is to settle existing or future disputes regarding property amongst members of a family. A family settlement entered into by the parties who are members of a family bona fide to put an end to disputes among themselves is not a transfer. It is not also the creation of an interest. For in a family settlement, each party takes a share in the property by virtue of the independent title which is admitted to that extent by the other parties. Every party who takes benefit under it need not necessarily be shown to have under the law, a claim to a share in the property. All that is necessary to show is that the parties are related to each other in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other ground as, say, affection. Considering all these facts the learned AAC came to the conclusion that there is adequate consideration for realignment and reallocation of the shares and if as a consequence to this, certain share was foregone by the assessees in favour of the married daughters, the same could not have been treated as involving element of deemed gift. In arriving at this conclusion the learned AAC also followed the decision of the Andhra Pradesh High Court in N. Durgaiah v. CGT [1975] 99 ITR 477. Considering the facts and circumstances and also the evolution of law on this subject, we are of the opinion that the orders passed by the AAC are in order in the cases of the assessees in appeal before us. Accordingly, we are not inclined to interfere with the orders passed by the AAC.


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