N.V.BALASUBRAMANIAN,J.
This is a reference under the Gift Tax Act, 1958, and in
pursuance of the direction of this Court, the Income-tax Appellate Tribunal
has stated a case and referred the following questions of law for our
consideration:-
1. Whether, on the facts and in the circumstances of the
case, the Appellate Tribunal is right in law and also had valid materials in
holding that transaction by which a self-acquired property of the assessee was
alienated in favour of her son by way of a partition deed is only a family
arrangement and therefore, is outside the purview of the Gift-tax Act?
2. Whether on the facts and in the circumstances of the case,
the Appellate Tribunal is right in law and also had valid materials in holding
that the transaction by which the assessee leased out the properties to her
husband and two daughters at a lease rent which is far below the annual income
of the property is only a family arrangement and is outside the purview of the
Gift-tax Act?
2. The assessee is an individual and the assessment year with
which we are concerned is 1988-89. The assessee is the owner of a half share
in the building known as 'SRM Lodge' at E.V.N. Street, Erode which consisted
of ground floor and first floor. She also owned a residential house at No.13,
Pumping Station Road, Erode and a building at No.29, Pumping Station Road,
Erode. The assessee's husband became an insolvent and the assessee along with
her son carried on the business and acquired certain properties jointly with
her son. On 9.5.1984, the assessee instituted a suit before the Subordinate
Judge's Court, Erode against her son for division of the property known as SRM
Lodge, Erode and the Suit ended in a compromise and a compromise decree was
passed on 7.8.1984 and under terms of the compromise, the assessee was
entitled to the shops in the ground floor and she was to discharge the loan of
Rs.98,000/- and the son of the assessee was entitled to life interest in the
lodge building situate in the first floor of the property, 'SRM Lodge' and
after him, the same should go to his male children. On 16.4.1987 the assessee
executed a deed of partition, at the intervention of panchayatdars, with a
view to settle the dispute with her son and under the deed of partition, the
assessee was allotted the property at Door No.29, Pumping Station Road, Erode
absolutely. She was also granted the life interest both in the shops in the
ground floor and the lodge in the first floor of the building, ' SRM Lodge'
which should go to her son absolutely after her death. Under the deed of
partition, the son of the assessee was allotted the property at No.13, Pumping
Station Road, Erode. On 1.8.1987 the assessee along with her son executed a
deed of lease in respect of the properties; (i) No.29, Pumping Station Road,
Erode, (ii) Ground Floor in SRM Lodge, and (iii) No.13, Pumping Station Road,
Erode in favour of the assessee's husband and her two daughters for a sum of
Rs.16,000/- per annum for a period of eight years.
3. The Gift-tax Officer was of the view that by the partition
deed dated 16.4.1987, the property at No.13, Pumping Station Road, Erode
absolutely belonging to the assessee was allotted to the assessee's son
which involved a gift of Rs.1,50,000/- being the value of the property. He
also held that the lease amount fixed was much lower than the rent which was
received during the earlier assessment years and brought the transaction to
gift-tax under section 4(1)(a) of the Gift-tax Act. The assessee preferred an
appeal before the Commissioner of Income-tax (Appeals) against the order of
assessment made under the Gift-tax Act. The assessee pleaded that there was a
family arrangement. The Commissioner of Income-tax (Appeals) held that there
was no reference to the family arrangement in the deed of partition and the
allotment of property in favour of the assessee's son could only be termed as
a gift. He also held that the lease amount fixed was less than the market
rent and in this view of the matter, he confirmed the order of the Gift-tax
Officer.
4. The assessee carried the matter in further appeal before
the Income-tax Appellate Tribunal. The Appellate Tribunal took into account
the nature of the dispute in the family of the assessee and the facts of the
case and also the circumstances which led to the execution of the partition
deed and lease deed, and held that only to solve the family dispute and to
bring harmony to the family, the transactions were entered into and there was
a family arrangement which did not constitute 'gift' within the meaning of
sections 2(xii) and 4(1)(a) of the Gift-tax Act. The Appellate Tribunal also
held that the transactions were involuntary in nature and therefore there was
no question of levy of gift-tax. In this view of the matter, the Appellate
Tribunal cancelled the order of assessment for the assessment year 1988-89
levying gift-tax and allowed the appeal preferred by the assessee. Against
the order of the Appellate Tribunal, the Revenue sought for a reference and
the Appellate Tribunal, on the basis of the directions of this Court, referred
the questions of law mentioned above.
5. The assessee was served, but, in spite of that, there is
no representation for the assessee. Mrs.Pushya Sitharaman, learned senior
standing counsel appearing for the Revenue submitted that the Appellate
Tribunal was not correct in holding that there was a family arrangement and
according to her, the assessee was the owner of the property at No.13, Pumping
station Road, Erode and the property was transferred in favour of the
assessee's son who had no pre-existing right in the property and the transfer
was without any consideration. Learned senior standing counsel submitted that
the assessee's son originally had no interest in the property at No.13,
Pumping Station Road, Erode and hence, the transaction is only a gift as the
transaction was entered into voluntarily and without consideration.
6. We have carefully considered the submissions of the
learned senior standing counsel for the Revenue. The essentials of a family
arrangement have been the subject matter of consideration in several decisions
of this Court as well as by the Supreme Court. The Supreme Court in KALE v.
DY. DIRECTOR OF CONSOLIDATION (AIR 1976 S.C. 807) laid down the following
principles essential for family arrangement:-
"1. The family 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;
2. The said settlement must be voluntary and should not be
induced by fraud, coercion or undue influence;
3. The family arrangements may be even oral in which case no
registration is necessary;
4. It is well settled that registration would be necessary
only if the terms of the family arrangement are reduced into writing. Here
also, a distinction should be made between a document containing the terms and
recitals of a family arrangement made under the document and a mere memorandum
prepared after the family arrangement had already been made either for the
purpose of the record or for information of the court for making necessary
mutation. In such a case the memorandum itself does not create or extinguish
any rights in immovable properties and therefore does not fall within the
mischief of section 17(2) (sic) (Sec.17(1)(b)?) of the Registration Act and
is, therefore, not compulsorily registrable;
5. 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. Even if
one of the parties to the settlement has no title but under the arrangement
the other party relinquishes all its claims or titles in favour of such a
person and acknowledges him to be the sole owner, then the antecedent title
must be assumed and the family arrangement will be upheld and the courts will
find no difficulty in giving assent to the same;
6. Even if bona fide disputes, present or possible, which may
not involve legal claims are settled by a bona fide family arrangement which
is fair and equitable the family arrangement is final and binding on the
parties to the settlement."
7. The Supreme Court in Sk. Sattar Sk. Mohd. Choudhari v. Gundappa Amabadas Bukate (1 996) 6 SCC 373) has held that there is no transfer in the case of
a family arrangement and laid down the law as under:-
A family arrangement, on the contrary, is a transaction
between members of the same family for the benefit of the family so as to
preserve the family property, the peace and security of the family, avoidance
of family dispute and litigation and also for saving the honour of the family.
Such an arrangement is based on the assumption that there was an antecedent
title in the parties and the agreement acknowledges and defines what that
title is. It is for this reason that a family arrangement by which each party
takes a share in the property has been held as not amounting to a 'conveyance
of property' from a person who has title to it to a person who has no title.
8. The Supreme Court in the case of LAKSHMI AMMAL v.
CHAKRAVAHTHI (AIR 1999 S.C.3363) has laid down the basic features of a family
arrangement. Applying the principles laid down by the Supreme Court in the
above cases, it is clear that the assessee's husband was declared an insolvent
and after that, the assessee along with her son carried on the business and
acquired certain properties. Though one of the properties was acquired in the
joint names of the assessee and her son, a dispute seems to have arisen and it
is stated that the assessee's son was a chronic drunkard and he was picking up
quarrels in the family and he ultimately died on 8.11.1990 when he was 38
years old. The Appellate Tribunal held that the conduct of various members of
the family showed that the family members intended to maintain peace in the
family and to bring harmony in the family and they also wanted to avoid
possible disputes by the heirs of the assessee at a later date. Therefore a
panchayat was convened and a family arrangement was arrived at. The Appellate
Tribunal has found that the family arrangement was a bona fide one.
9. As far as the property which is subject matter of
partition is concerned, we hold that the proposition No.5 laid down by the
Supreme Court in Kale's case (AIR 1976 SC 807) would apply and the Supreme
Court held that even if one of the parties to the settlement had no title, but
under the arrangement the other party relinquished all his claims or titles in
favour of such a person and acknowledged him to be the sole owner, then the
antecedent title must be assumed and the family arrangement would be upheld.
Further, it was held that even a semblance of claim in the property by a
member would be sufficient to validate the family arrangement. It is clear
from the facts of the case that the assessee had recognised the rights in
favour of her son in the property allotted in his favour in the partition.
10. The Supreme Court in LAKSHMI AMMAL v. CHAKRAVAHTHI (AIR
1999 SC 3363) has held that it is not necessary that the parties being the
members of the family and claiming right in the property are in law entitled
to some share and once the basic features of family arrangement, viz.,
disputes have been raised by the parties and settled in a panchayat and the
parties have also been put in possession of the property in question, the
document should be held to be a valid family arrangement, though the document
may be termed as a deed of partition. It is also well settled that it is not
necessary that the arrangement should be among all members of the family
arrayed one against the other and the prime factor is that it should be in the
interest of the family (vide: Mulla Principles of Hindu Law (18th Edition,
Vol.I), paragraph 248B at page 446).
11. We find that the Appellate Tribunal has found that there
was a bona fide family arrangement to resolve the family dispute and the
principle laid down by the Supreme Court in Kale's case (AIR 1976 SC 8 07) is
that the antecedent title of the son must be assumed and the family
arrangement should be upheld. We therefore hold that the fact that there was
a panchayat in which the disputes between the members of the family were
settled clearly shows that the arrangement entered into between the assessee
and her son was a family arrangement and consequently, we hold that the
Appellate Tribunal was right in holding that there was a valid family
arrangement to resolve the disputes in the family and to bring harmony to the
family. Similarly, we are of the view that no exception could be taken to the
opinion arrived at by the Appellate Tribunal in respect of the lease deed
executed by the assessee and her son in favour of the assessee's husband, who
was adjudged as insolvent, and her two daughters for a sum of Rs.16,000/- per
annum for eight years. The lease deed was found to have been executed in
order to avoid any possible dispute by the heirs to whom nothing was allotted
in the family arrangement and in order to have a harmony among the family
members. Hence, the transaction did not constitute a gift within the meaning
of section 2(xii) and 4(1)(a) of the Gift-tax Act as the transactions were
entered into not voluntarily and there was no transfer of property involved in
the transactions.
12. Accordingly, we answer both the questions of law referred
to us in the affirmative, against the Revenue and in favour of the assessee.
Index:Yes
Website: Yes
na.
To
1. The Assistant Registrar,
Income-tax Appellate Tribunal,
Rajaji Bhavan, Besant Nagar,
Chennai 600 090 (five copies with records)
2. The Secretary,
Central Board of Direct Taxes, New Delhi (3 copies)
3. The Commissioner of Gift-tax,
Coimbatore.
4. The Commissioner of Income-tax (Appeals),
Coimbatore.
5. The Gift-tax Officer,
Ward I(2), Erode.