1. This appeal by the assessee is directed against the order of the Commissioner (Appeals). It relates to the assessment year 1973-74.
2. There are as many as six grounds of appeal. Ground Nos. 1, 3 and 5 relate to the value of the gifts. Ground No. 2 assails the findings of the lower authorities holding the family settlement as gifts. The submission is that it being a family settlement, no gift-tax was leviable. In ground No. 4 it is stated that the gift-tax authorities below have erred in law and on facts in deducting the amount of Rs. 73,891 only being the amount advanced during the year 1959-60 by the family members. Ground No. 6 is an alternative ground stating that the gift-tax authorities below have erred in not allowing exemption under Section 5(1)(vii) of the Gift-tax Act, 1958 ('the Act') to the extent of Rs. 50,000 being gift to the spouse.
3. First of all it is necessary to consider whether it is a gift at all and whether the transaction which had been treated by the GTO as gift was a family settlement and no gift-tax was attracted. To understand the implications of the issue involved it is necessary to state in brief the facts of the case.
4. Shri Banarsi Lal Aggarwal, the assessee, was being assessed to wealth-tax in the status of an individual. He owned a property styled as Banarsi Lal Aggarwal Rice & General Mills, Kaithal (rice sheller).
This property consisted of lands, building and machinery. This was constructed in the year 1959-60. This property has been shown ever since then in the wealth-tax returns of the assessee as an individual up to the assessment year 1972-73. For the assessment year 1973-74, only the value of one-fourth share in this property was shown in the net wealth return by the assessee and the remaining three-fourths was said to have been given to his wife and five sons equally in a family settlement which took place on 21-6-1972 by way of a Court decree in Suit No. 1175 of 1972 in the Court of Sub-Judge, First Class, Kaithal.
It was also the plea of the assessee that he could not arrange for the funds for the construction of rice seller in the year 1959-60 when it was constructed. His wife and four sons, therefore, contributed funds aggregating to Rs. 73,891 towards the construction of the said property as under : It was also contended before the GTO that certain lands belonging to sons Shri Subhash Chander, Suresh Kumar and Sat Narain were owned and income from these lands were also utilized for the acquisition of the above property. It was stated that the family settlement was arrived at as the assessee could not return the loans nor he could pay the interest thereon and ultimately the members of his family claimed the share in the property which was allowed through decree of the Court. It was, therefore, urged that it being a family settlement no gift-tax arose. The GTO observed that only his wife and four sons were said to have advanced certain loans to the assessee. The amounts of the loans taken by the assessee in the year 1959-60, when the property was brought into existence, have not been mentioned anywhere. He further observed that the wife and the sons of the "assessee could not claim share in the huge property of the assessee simply because they had advanced loans to the assessee. He also was of the view that the value of the three-fourths share of the property transferred to the family members was at Rs. 3,22,747 and deducting the loans of Rs. 73,891 the gift made to the family members worked out to Rs. 2,48,856 which was considered to be a deemed gift by the assessee in view of the provisions contained in Section 4(1)0) of the Act. After allowing basic exemption of Rs. 5,000, the GTO arrived at the value of the taxable gifts at Rs. 2,43,856 against the value returned at Rs. nil.
5. The Commissioner (Appeals) before whom the appeal was filed by the assessee has confirmed the order of the GTO. He has held it to be a case of gift and he has also confirmed the value as adopted by the GTO.The deduction allowed for loans at Rs. 73,891 has also been confirmed.
He also observed that deduction under Section 5(1)(viii) has also correctly been allowed and no further interference is called for. It may be pointed out here that in the order of assessment, no deduction under Section 5(1)(viii) of the Gift-tax Act was allowed by the GTO. It was through a subsequent order passed under Section 34 of the Act that the GTO considered the claim and allowed deduction of Rs. 5,400 only.
He took the view that the value of the gift falling to the share of the wife was at Rs. 53,791 against which the assessee had to pay her an amount of Rs. 48,391 and, therefore, the actual gift to the wife was only of Rs. 5,400. Deduction under Section 5(1)(viii) was, therefore, allowed to this extent only which was held by the Commissioner (Appeals) to have been correctly allowed. It is against the above background of facts that the appeal by the assessee has to be considered.
6. As pointed out earlier, the first point for determination is whether it is a family settlement and, therefore, no gift-tax is chargeable.
Alternatively, the argument of the learned counsel for the assessee was that even though it may be deemed as a gift, the gift being of an immovable property, it should have been registered in view of the provision contained in Section 123 of the Transfer of Property Act, 1882 and also in view of the decision of the Hon'ble Supreme Court in the case of Kale v. Dy. Director of Consolidation AIR 1976 SC 807. He submitted that this was not registered and, therefore, it was not a gift as defined in Section 2(xii) of Gift-tax Act wherein it is stated that 'gift' means 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.
7. The learned departmental representative, on the other hand, vehemently argued that it was a case of gift pure and simple. He further urged that it was not a case of family settlement as contended on behalf of the assessee. In support of this contention he also relied on the judgment of the Supreme Court in the case of Kale (supra), referred to above. He pointed out that the members who may be parties to the family arrangement must have some antecedent title, claim or interest, even a possible claim in the property which is acknowledged by the parties to the settlement. Relying upon the same judgment he further urged that such settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family. He further pointed out that the Court decree was a collusive one and it was only with the view to avoid tax. It was not a genuine arrangement. He further urged that the income-tax authorities could form their own view and they were not bound by the collusive decrees recognised by the civil courts. For this proposition he again relied upon the decision of the Supreme Court in the case of Narendrakumar J.Modi v. CIT  105 ITR 109. He also relied upon the decision of the Hon'ble Rajasthan High Court in the case of Dalichand Tejraj v. CIT  97 ITR 383 where it was held that the mere assertion on the part of the mother in the affidavit filed by her before the ITO that she separated from it having obtained a sum of Rs. 45,000 could not constitute a valid partition according to Mitakshara Hindu law inasmuch as she, being a Hindu female, had no right to claim partition of the joint family property. Nor was there evidence of partition having taken place.
8. The learned departmental representative further went on to say that the property was acquired by the assessee individually in the year 1959-60. He has been showing this property as his individual property right up to the assessment year 1972-73. He further pointed out that merely because a small amount of loans aggregating to Rs. 73,891 were advanced by his wife and four sons could not create a claim by these persons that the property belonged to them or they had interest in the property for which they could claim family settlement. He urged that at best the wife of the assessee and his four sons could sue the assessee in a Court of law for recovery of the loans and on a decree being obtained against the father, they could press for the execution of the decree against sale proceeds of the said property in case the assessee failed to pay the decreed amount otherwise. He, therefore, urged that there being no antecedent title, claim or interest in the property by the wife of the assessee and his four sons, there could be no family settlement. It was, therefore, urged by him that the claim of family settlement had been rightly rejected by the authorities below. He further urged that it was a case of transfer of self-acquired property by the assessee to the five persons concerned without adequate consideration and, therefore, it was a case of deemed gift under Section 4(1)(a) in favour of the wife of the assessee and four sons who had given some paltry amounts of loans and a direct gift to the fifth son who was minor who had not given any loan to the assessee at all. He also supported the orders of the authorities below regarding valuation adopted by the GTO and also deduction allowed on account of loans as well as under Section 5(1)(viii).
9. Shri D.S. Gupta, the learned counsel for the assessee, reiterated that it was a case of family settlement as the assessee had failed to repay the loans as well as the interest and the property in question partook the character of an HUF property. He urged that it was a case of partial partition which was termed as family settlement.
10. We have given a very careful consideration to the rival submissions. Their Lordships of the Supreme Court in the case of Kale (supra), have clearly laid down the law that the members who may be parties to the family arrangement must have some antecedent title, claim or interest in the disputed properties. We do not find any such antecedent title, claim or interest of the six persons to whom properties have been transferred. Right from 1959-60 onwards up to the assessment year 1972-73, the assessee has been claiming and showing the property in question as his individual property in the net wealth returns filed by him. Nothing has been brought on record to show that the property was thrown into a common hotchpotch by the assessee whereby all the members acquired interest in the property. We are in agreement with the revenue that mere advance of paltry amounts of loans by five members would not create an antecedent title, claim or interest in the said property. At best they could recover these loans through a Court, of law from the assessee and on amount being decreed, they could move the Court for sale of the said property to meet the decreed amount in case of the assessee failing to pay the amount otherwise. There being no antecedent title, claim or interest in the said property by the six persons, we are in agreement with the lower authorities that it is not a case of family settlement. We have also gone through the Court decree which is only a collusive one. This decree may be binding on the members of the family for determining their civil rights but it is not binding on the Income-tax Department so long as it is with a view to avoid taxes.
11. The claim of the plaintiffs was readily agreed to by the assessee which only showed that it was not a genuine arrangement but only a made up affair through a Court of law. Their Lordships of the Supreme Court in the case of Kale (supra), referred to above, have held that the family settlement must be a bona fide one so as to resolve family disputes and rival claims. In our opinion, the dispute was only a made up affair and not a real one. In the ratio of the decisions of the Supreme Court aforesaid and also of the Rajasthan High Court referred to earlier, we have no hesitation in coming to the conclusion that it is only a made up affair and not a genuine arrangement. The claim of family settlement, in our opinion, therefore, deserves to be rejected.
Orders of the authorities below on this point are, therefore, upheld.12. No figures of actual deduction of loans other than those mentioned by the authorities below have been brought to our notice on behalf of the assessee. We, therefore, do not find any justification to interfere with the orders of the authorities below in allowing the debts owed at Rs. 73,891 only. We also consider the deduction allowed under Section 5(1)(viii) at Rs. 5,400 as correct after setting off the loan amount of Rs 48,391 by the wife of the assessee.
13. The issue regarding the value of the properties owned by the assessee came up for consideration before us in the case of the assessee for the assessment years 1971-72 to 1973-74 under the Act and vide our consolidated order dated 23-5-1985 in WT Appeal Nos. 107 to 109 of 1984, we have considered the value of the same property. For the detailed reasons given therein, we are of the opinion that the same value should be adopted for the property in question.
14. The only contention that now remains for consideration before us is whether in the absence of registration it is a valid gift. As pointed out earlier under Section 2(xii) 'gift' means 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, etc.
Section 123 of the Transfer of Property Act provides that 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. Their Lordships of the Punjab High Court in Mt. Parkash Wati v. Maya Devi AIR 1953 Punj. 304 (paragraph No. 4) (DB) has held that with regard to gift of immovable property, Section 123 of the Transfer of Property Act provides that irrespective of the value of the property, the transfer must be effected only by a registered instrument signed by or on behalf of the donor and attested by at least two witnesses. It is a common ground between the parties that the transfer has not been registered as provided under Section 123 of the Transfer of Property Act. In the absence of registration duly attested by at least two witnesses, the gift is not valid. That being the position, in our opinion, it cannot be termed as a gift within the meaning of Section 2(xii) so as to attract levy of gift-tax. The sum and substance of our above discussions is that it is neither a family settlement nor a gift within the meaning of Section 2(xii) read with Section 123 of the Transfer of Property Act and as such no gift tax is leviable. To this extent we reverse the order of the Commissioner (Appeals) as well as of the GTO.