Per Shri S. Rajaratnam, Accountant Member - This is an appeal filed by Haji M. Abdul Razack Saheb, Dharmavaram objecting to the order of the AAC, Anantpur in respect of gift-tax assessment for the assessment year 1972-73.
2. The assessee is an individual and had settled certain properties to his wife and sons by oral gift. After allowing exemption in respect of gift to wife and basic exemption of Rs. 5,000 the taxable gift was computed by the GTO at Rs. 1,27,780 by an order dated 26-3-1979 overruling the assessees objection that no taxable gift is involved. He had, however, allowed Rs. 20,000 as claims of sons against donor for services rendered by them. The assessee had filed appeal before the AAC and this was pending. meanwhile, the Commissioner of Income-tax acting under his powers under section 24(2) of the Gift-tax Act, 1958 (the Act) was of the view that the allowance of Rs. 20,000 was prima facie wrong on the ground that the services so rendered were not amenable for proper and certain valuation in money or monies worth. It was for this reason that he considered the order erroneous and prejudicial to the interests of the revenue. However, he did not enhance the assessment but only set aside the same by his order dated 4-3-1981 with direction to redo the same after hearing the assessee considering all evidence.
It was for this reason that assessee had not come up in appeal against the Commissioners order. The first appellate authority also did not deal with the assessee appeal questioning the inference of gift itself.
He had also not taken up an alternative ground for higher allowance. he considered the appeal itself to be infructuous as the assessment itself had been set aside. He, accordingly, dismissed the appeal by his order dated 10-8-1981 on the ground that the appeal is rendered redundant.
3. The GTO thereafter proceeded to redo the assessment. He completed the same on 12-2-1982 on the same value rejecting the assessees claim that it was only a family arrangement and not a gift. he withdrew the deduction of Rs. 20,000 originally allowed for the same reasons stated by the Commissioner in his order. It is this second assessment which is now the subject matter of dispute before us.
4. The assessee took up this second assessment again in first appeal.
The first appellate authority recorded the assessees arguments but considered himself incompetent to deal with this appeal. Though the original assessment had been merely set aside, he was of the opinion that the Commissioners finding that the alleged services rendered by the sons could not be evaluated was binding on him. though the Commissioner had not gone into the assessees claim that there was no gift but only a family arrangement, he did not deal with this aspect of the question also but had merely dismissed the assessees appeal in toto. However, he had given his opinion that the assessee could contest the matter before the Tribunal. The assessee is, therefore, in second appeal.
5. In second appeal, the learned counsel points out that the first appellate authority was mistaken in what he did. The original assessment having been only set aside, the first assessment was entirely before him. As for merits he reiterated the consistent claim that it was only a family arrangement. He pointed out to the letters addressed to the Tehsildar and Municipal Commissioner where in the assessee had clearly stated the circumstances under which the arrangement was made. According to him the facts which are undisputed would lead to the inference that there was only a family arrangement.
He claimed that it is well established that mere family arrangement cannot give rise to a gift. Alternatively he argued that the sons had done work for several years for the assessee without any remuneration and they were not bound to serve the assessee without salary. Hence the assessee was bound to remunerate them adequately. Accordingly the monies they received merely compensated them for their services and that there was no gift even for this reason inasmuch as there was consideration for the transfer. He contended that the consideration was also adequate. As a further alternative, he pleaded that the allowance originally granted by the GTO was itself inadequate and that suitable deduction should be allowed to offset the element of remuneration involved in the arrangement.
6. The learned departmental representative relied upon the orders of the authorities below. He pointed out that the properties were admittedly with the assessee long prior to the alleged engagement of his sons in the business. Hence there is no question of their having any prior right over them. In fact such a claim was also never made.
Since there was never any dispute or a claim by the sons to the property, there was, according to him, no possible inference of a family arrangement. He further contended that there was also no case for allowance of any amount as a remuneration to the sons for the reasons stated by the Commissioner that this could not be evaluated in money or monies. worth. Even otherwise, he argued that they were young and that the amount, if at all, could only be negligible.
7. We have carefully considered the records as well as the arguments.
it is the assessees case that he was going on Haji pilgrimage just before settlement. He has two sons and four daughters. All the daughters were married at the relevant time. One son was also married by this time. Both sons did not have higher education. Even in their teens they joined the assessees business. No remuneration was specified or claimed. But there was always an understanding that they should be compensated. The assessees wife was a T. B. patient for a long time.
The assessee, therefore, went alone. There was the compelling reason that he should, therefore, settle the right to properties so that there should not be any dispute. He, therefore, distributed the properties to his wife and two sons. He had informed the Tehsildar and Municipal Commissioner accordingly. These are the facts which have been stated in the petitions addressed to them. He has categorically stated in these letters both the sons have co-operated with me and lent their might in the management of the business and the improvement of the property. It is on the basis of this sentence that the assessees claim largely rests apart from the other circumstances mentioned herein before. The facts stated in this paragraph are the facts urged all along and have not been disputed. Our decision has to rest on these facts.
8. As regards liability relating to gift-tax vis-a-vis family arrangement, we should imagine, even as pointed out by the learned counsel, that there could not ordinarily be an inference of gift in a family arrangement. In order to presume a deemed gift in a family arrangement there should, normally, be an element of bounty which is not present in a family arrangement. This Tribunal had occasion to consider the law on the subject in Smt. A. Omera Parvez v. GTO  3 ITD 250 (Mad) to which one of us was a party. it was pointed out therein that the Supreme Court in the case of Sahu Madho Das v. Pandit Mukund Ram  2 SCR 22 had held that a family arrangement is based on the assumption that there is an antecedent title on the part of the parties and the arrangement merely acknowledges and defines what that tile is. This decision, it was pointed out, has been relied upon by the Madras High Court in the case of CGT v. Pappathi Anni  127 ITR 655 which held that even where property rights were assigned to a party who did not have a share in the same, there was no element of gift in such a family arrangement between the parties because the bona fide belief that there was right constituted adequate consideration and took it out of the gift-tax liability. It was this reason that this Tribunal in the case allowed the assessees claim that there was no gift. But having accepted the legal position stated by the learned counsel, we find ourselves still unable to accede to his claim because the factual foundation for establishing the claim that it is simple family arrangement has not been laid. The sons had never acquired or claimed any right in these properties themselves. In fact they were all inherited by the assessee and were owned and enjoyed by him well before the sons were born or were engaged in the assessees business. It is not any ones case that the properties had to be given because they had a right or claim over them their right was a right, if any. The sons were also never active parties to the assessees arrangement. It is reasonable to presume that they would have been parties, if the arrangement was intended to silence them as regards any dispute over title. There is also no material brought on record by the assessee at both the stages of assessment (original as well as second) or the various appeals in the proceedings before the AAC (twice), the Commissioner of Income-tax and Tribunal on this point. There is not even a statement on behalf of the sons stating that they had staked their claim to title or that it was an arrangement to settle family dispute. There is not an iota of evidence which would justify an inference that there has been any family arrangement. Hence, this claim of the assessee has to fail.
9. The conclusion in the preceding paragraph brings us to the assessees alternative claim that the sons had a right for remuneration for services rendered by them to the assessee in his business and that to this extent, there has been consideration. We have first to ascertain whether there is such a right. We should imagine that unlike Hindu families where the sons may be expected to assist the father without any specific remuneration because they already have pre-existing right in family business conducted by the father, there is no such obligation or expectation on the part of the assessees sons since they are not Hindus. In fact, the revenue itself had not seriously disputed that they had such right to be remunerated. The ITO in the original assessment had recognised such right and he valued the same at Rs. 20,000. The Commissioner has interfered with his order only because he was of the view that such services are not amenable for proper and certain valuation in money or monies worth. It was for this reason only that he questioned the allowance and considered the order to be adverse to revenue. The facts themselves had not been questioned the allowance and considered the order to be adverse to revenue. The facts themselves had not been questioned. Even to this inference of the Commissioner that the services cannot be measured, the assessee had objected. The Commissioner did not give and specific finding on the assessees objection but had merely set aside the assessment sos that the assessee could be heard further on the matter. This only shows that the initial inference that the services cannot be measured was only tentative for the purpose of his jurisdiction. We are also not in a position to agree with him that services rendered by a person would not be amenable to valuation in money or monies worth. If it were so, no person who takes up services without the salary terms being agreed to will be entitled to remuneration. We have no doubt the reasonable salary cannot be denied for service rendered merely because their is no prior agreement as regards the amont of salary. There may be difficulty in valuation, but that does not mean that it cannot be valued at all. In fact the ITO himself had also valued it at Rs. 20,000 in the original assessment.
Such valuation involved an estimate or approximation. But that does not mean that the valuation cannot be made at all or that the mere difficulty in valuation should come in the way of recognition of the legal right of the sons to the remuneration or the fathers obligation to remunerate them. It may be that in view of the close relationship, they had not chosen to stipulate the salary or had no intention to treat the matter in legal terms. But that does not mean that the sons had no right. We have to find that they had such right to receive remuneration for service rendered. The fact that their services had been specifically mentioned in the letters written by the assessee prior to his departure on Haj pilgrimage clearly suggested that it was certainly a matter which weighted with the assessee. He had categorically stated even as noticed earlier both the sons have co-operated with me and lent their might in the management of the business and the improvement of the property. The assessee had made this statement at a time when the gift-tax liability was probably unanticipated. If he had, he would have probably taken greater care to avoid the liability altogether or to have its impact reduced. The statement, in our opinion, clearly indicates an obligation on his part to his sons for the services rendered by them. We are also of the opinion that his right is an actionable one and should be evaluated and considered as consideration to the extent of the the value of such right. It cannot be treated as full consideration because the gift-tax law has its own definition of gift in section 4 of the Act. Where the consideration is not equal, the difference can be deemed to be a gift.
In this case, there is no dispute as to the value of the properties received by the sons. The value is Rs. 1, 26,781. As for the right of the sons, they were aged only 20 and 19 at the relevant time. The GTO in the original assessment had found that the sons had worked for four and three years respectively. The assessee had claimed salary of Rs. 500 per month on average so that the amounts of Rs. 12,000 and Rs. 8,000 aggregating to Rs. 20,000 would represent the value of such right. We are of the view that an average of rs. 300 per month in the case of each of the sons for the entire period can be treated as a reasonable remuneration. This would mean that the amount eligible for deduction would be Rs. 25,200 as against Rs. 20,000 in the original assessment. Needless to say that the assessee will be further eligible for the basic exemption.