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Commissioner Of Wealth Tax v. Santokh Singh

Delhi High Court

Mar 19, 2001

Judgment

Subsequent
References

CaseIQ

Smart Summary (Beta)

Structured Summary of the Opinion (Arijit Pasayat, C.J.)

Factual and Procedural Background

This petition under section 26(3) of the Gift-Tax Act, 1958 concerns whether a memorandum of agreement dated 7 July 1979 effected a "gift" within the meaning of section 4(1)(c) of the Act for the assessment year 1978-79. The Assessing Officer and the Commissioner of Gift-tax (Appeals) concluded that the assessee had surrendered his share in certain properties (at two places in New Delhi) and that section 4(1)(c) applied. The Income-tax Appellate Tribunal (Delhi Bench "A") held that there was no gift because the arrangement was a bona fide family settlement. The Assessing Officer required the assessee to explain why the memorandum should not be treated as falling within section 4(1)(c). The Gift-tax Officer and the first appellate authority took the view that the assessee had surrendered his share and that the settlement was not bona fide, but the Tribunal disagreed, recording factual findings in favour of the assessee. The Tribunal also refused an application under section 26(2) on the ground that the issues raised were factual and did not give rise to questions of law.

Legal Issues Presented

Whether the transaction recorded in the memorandum of agreement amounted to a "gift" within the meaning of section 4(1)(c) of the Gift-Tax Act, 1958 for the assessment year 1978-79.
Whether the family arrangement/memorandum was a bona fide settlement (i.e., made in good faith and genuine) so as to avoid being treated as a gift under section 4(1)(c).
Whether the memorandum of agreement required registration (and, relatedly, whether lack of registration affected the bona fides of the settlement).

Arguments of the Parties

Revenue's Arguments

The assessee had abandoned his entire share in the properties; such abandonment cannot be regarded as a bona fide settlement and therefore falls within section 4(1)(c).
The memorandum ought to have been registered; absence of registration indicates that the transaction was not bona fide.
Reliance was placed on the Supreme Court decision in Kale v. Deputy Director of Consolidation ((1976) 3 SCC 119 : AIR 1976 SC 807) to support the contention regarding registration and essentials of family settlements.

Assessee's Arguments

The Tribunal recorded factual findings that the arrangement was bona fide (entered into to avoid disputes among co-owners), and such factual conclusions do not give rise to a question of law.
The Tribunal noted that the properties allotted on reallocation were in the possession of the respective allottees and title deeds were registered in their names; a separate formal deed was unnecessary because the title deeds already reflected the reallocation.
The assessee contended that, on the facts, the family settlement was genuine and bona fide and therefore not liable to be treated as a gift under section 4(1)(c).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Kale v. Deputy Director of Consolidation, (1976) 3 SCC 119 : AIR 1976 SC 807	Sets out propositions on family settlements, including when registration is necessary and when a written memorandum may not require registration (distinction between documents reducing terms into writing and mere memoranda of a previously arrived family arrangement).	The Court relied on Kale to conclude that registration is necessary only in certain circumstances; a memorandum that records an already-made family arrangement does not itself create or extinguish rights and, therefore, need not be registered.
R. v. Holl, [1881] 7 QBD 575 (CA)	Used for the meaning of "bona fide" — equating the phrase to "honestly" and explaining the concept's relevance to mental/motive facts.	The Court cited R. v. Holl in explaining the meaning of "bona fide" (as "honestly") when assessing whether a release/surrender is genuine; this informed the analysis of whether the family arrangement was bona fide.
Krishna Beharilal v. Gulabchand, (1971) 1 SCC 837 : AIR 1971 SC 1041	Explains that "family" has a wide connotation and a settlement need not be confined to persons recognised by law as having a right of succession; a family arrangement need not be limited to those with legal entitlement.	The Court referred to this case to support the view that family arrangements are broadly construed and that settlements between near relations can constitute family arrangements.
Ram Charan Das v. Girja Nandini Devi, AIR 1966 SC 323	Holds that "family" in the context of family arrangements is not to be narrowly construed; settlements between near relations can be regarded as family arrangements.	The Court cited this authority to reinforce the principle that family arrangements are given a broad meaning and are generally supported to preserve harmony.
S.S. Pillai v. K.S. Pillai, (1973) 2 SCC 312 : AIR 1972 SC 2069	States that courts are generally reluctant to disturb bona fide family settlements made to preserve family peace and to do justice among members.	The Court invoked this precedent to emphasise judicial deference to bona fide family arrangements and the reluctance to disturb them.
K. V. Narayanaswami Iyer v. K. V. Ramakrishna Iyer, AIR 1965 SC 289	Explains that family arrangements may be oral and that registration is required only if the arrangement is reduced into writing; a document that is merely a memorandum of an already made arrangement does not require registration.	The Court applied this principle to hold that the memorandum in the present case did not require registration because it was a record of an already-made family arrangement and not itself the instrument creating or extinguishing rights.

Court's Reasoning and Analysis

The Court proceeded in the following analytical steps, based strictly on the material and reasoning contained in the opinion:

Statutory focus: The central statutory provision under consideration was section 4(1)(c) of the Gift-Tax Act, which deems to be gifts certain releases, discharges, surrenders, forfeitures or abandonments of interests in property "to the extent to which [they] has not been found to the satisfaction of the Assessing Officer to have been bona fide." Thus, the threshold inquiry is whether the transaction is bona fide; if it is, section 4(1)(c) will not operate to deem it a gift.
Meaning of "bona fide": The Court reviewed authorities and dictionary definitions (including R. v. Holl and various legal dictionaries cited in the opinion) to confirm that "bona fide" means acting in good faith, honestly and without fraud or deception — a concept primarily addressing the state of mind or motive of the parties.
Factual determination by the Tribunal: The Tribunal examined clauses of the family settlement, found that the assessee had bona fide abandoned his share to avoid disputes among co-owners, and noted supporting facts: the reallocated properties were in the possession of the respective allottees and title deeds were registered in their names. The Tribunal concluded that no further formal deed was necessary because the title deeds already reflected the allocations.
Standard of review for factual findings: The Court emphasized that the Tribunal's conclusion on bona fides was essentially a factual finding. Revenue was unable to demonstrate that those findings were perverse or otherwise legally vulnerable so as to raise a question of law. Consequently, the Tribunal was correct in rejecting the application for a reference under section 26(2) on the ground that the issues were factual and did not give rise to a question of law.
Registration issue: Addressing the Revenue's submission that lack of registration undermined bona fides, the Court relied on Kale and K. V. Narayanaswami Iyer to explain that registration is necessary only in certain circumstances — notably when the family arrangement is reduced into writing in a manner that creates or extinguishes rights. A memorandum that merely records an already concluded arrangement does not itself require registration. Applying those principles, the Court held that the document in question did not require registration and that the absence of registration did not establish a lack of bona fides.
Conclusion: Given the Tribunal's factual findings of bona fides, the absence of any demonstrated perversity in those findings, and the settled law on registration of family arrangements, the Court found no reason to direct a reference or to interfere with the Tribunal's conclusion.

Holding and Implications

PETITION DISMISSED

Direct effect on the parties:

The Tribunal's factual finding that the family arrangement/memorandum was bona fide stands, with the result that the transaction is not treated as a gift under section 4(1)(c) for the assessment year 1978-79.
The Court refused to direct any reference under section 26(2) because the matter involved factual conclusions recorded by the Tribunal and no question of law was shown to arise from those findings.
The petition under section 26(3) seeking interference with the Tribunal's decision was dismissed.

Broader implications: The opinion applies and reiterates existing principles (as reflected in the precedents cited) concerning the meaning of "bona fide" and the circumstances in which family settlement documents require registration. The Court did not purport to lay down any new law beyond applying those established principles to the facts of this case.

Show all summary ...

Arijit Pasayat, C.J:— This is a petition under section 26(3) of the gift-Tax Act, 1958 (in short “the Act”). The only question that was considered by the Revenue and the Income-tax Appellate Tribunal, Delhi Bench “A”, New Delhi (in short, “the Tribunal”), whether there was a gift in terms of section 4(1)(c) of the Act for the assessment year 1978-79. According to the Assessing Officer and the Commissioner of Gift-tax (Appeals) (in short, “the Commissioner”), there was a gift in terms of section 4(1)(c) of the Act, but the Tribunal held otherwise.

2. The dispute arises in the following background:

The assessee, an individual, was required by the Assessing Officer to show as to why the memorandum entered into on July 7, 1979, stipulating arrangement of properties settled amongst various co-owners should not be covered by section 4(1)(c) of the Act. According to the Assessing Officer, in terms of the memorandum of agreement, the assessee surrendered his rights as co-owner in respect of properties at two places in New Delhi. The assessee's stand was that the settlement arrived at between the co-owners was bona fide and as such the provisions of section 4(1)(c) of the Act were not attracted. The Gift-tax Officer held that the assessee had surrendered his share of properties in question, thereby attracting section 4(1)(c) of the Act. The first appellate authority was of the view that there was no bona fide settlement. The Tribunal referred to various clauses of the family settlement and held that the assessee had bona fide abandoned his share in the properties to avoid disputes, differences and misunderstandings which were likely to occur and arise amongst co-owners for all times to come. It was also noted that the properties which had been respectively allotted on reallocation were in the possession of the persons, to whom they were allotted and the title deeds were also registered in the names of the respective co-owners. No formal deed was considered necessary because the title deeds were already registered in the respective names. In the aforesaid background, it was held that the settlement was bona fide and genuine.

3. We have heard learned counsel for the parties. Learned counsel for the Revenue submitted that the assessee had abandoned his entire share in the properties and this cannot by any stretch of imagination be considered to be a bona fide settlement. Additionally, it is submitted that the memorandum ought to have been registered and that having not been done, clearly the transaction was not one which involved bona fide action on the part of the concerned parties. Reliance is placed on a decision of the apex court in Kale v. Deputy Director of Consolidation, (1976) 3 SCC 119 : AIR 1976 SC 807, to substantiate the plea. Learned counsel for the assessee, on the other hand, submitted that a factual finding has been recorded by the Tribunal that the arrangement was bona fide. That being the position, no question of law arises. It is to be noted that an application in terms of section 26(2) of the Act was rejected by the Tribunal on the ground that the findings of fact have been recorded giving rise to no question of law. section 4(1)(c) of the Act essentially reads as follows:

“4. Gifts to include certain transfers— (1) For the purposes of this Act,—…

(c) where there is a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge, surrender, forfeiture or abandonment to the extent to which it has not been found to the satisfaction of the Assessing Officer to have been bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment.”

4. A bare reading of section 4(1)(c) makes it clear that the transactions enumerated therein are encompassed only if such transaction resulting in release or surrender, etc., is not made bona fide. The Assessing Officer has to reach a satisfaction in that regard. The object is to give credence to real and genuine transactions. Bona fide means something which is done in good faith, genuine, real. Per Bramwell L.J in R. v. Holl, [1881] 7 QBD 575 (CA), the equivalent of the phrase is “honestly”. As stated in Stroud's Judicial Dictionary, the correct province of the phrase is, therefore, to qualify things or actions that have relation to the mind or motive of the individual; and it has no meaning when joined to things or actions common to all mankind, though sometimes it is thus used in a figurative, but inaccurate, sense. A fact completely within physical apprehension can neither be bona fide nor mala fide; a mental fact may be either. According to Tomlin's Law Dictionary, the expression means in good faith, without fraud or deception; honestly, as distinguished from bad faith, openly, sincerely. According to Black's Law Dictionary, it means in or with good faith; honestly, openly and sincerely, without deceit or fraud; truly, actually, without simulation or pretence; innocently, in the attitude of trust and confidence. According to Wharton's Law Lexicon, bona fide means good faith, implying the absence of all fraud, unfair dealing or acting; whether it consists in simulation or dissimulation.

5. As has been rightly submitted by learned counsel for the assessee, the question to be decided on the facts is whether the arrangement was bona fide. The Tribunal after referring to various aspects came to hold that the arrangement was bona fide. The conclusion is essentially factual. It could not be shown to us by learned counsel for the Revenue as to how the conclusions are perverse, giving rise to a question of law. Therefore, the Tribunal was right in rejecting the prayer for making a reference.

6. We may deal with the other submission made by learned counsel for the Revenue about registration. In the very judgment relied upon by learned counsel for the Revenue, i.e, Kale's case, (1976) 3 SCC 119 : AIR 1976 SC 807, the requirement of registration in certain circumstances have been highlighted. In paragraph 10 of the judgment, it has been observed by the apex court as follows:

“10. In other words to put the binding effect and the essentials of a family settlement in a concretized form, the matter may be reduced into the form of the following propositions:

(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) (section 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. In Krishna Beharilal v. Gulabchand, (1971) 1 SCC 837 : AIR 1971 SC 1041, it was pointed out that the word “family” had a very wide connotation and could not be confined only to a group of persons who are recognised by law as having a right of succession or claim to have a share. It was observed that to consider a settlement as a family arrangement, it is not necessary that all the members should belong to one family. Reference was also made to the decision in Ram Charan Das v. Girja Nandini Devi, AIR 1966 SC 323, where it was observed that the word “family” in the context of a family arrangement is not to be understood in a narrow sense of being group of persons who are recognised in law as having a right to succession or having a claim to share in the property in dispute. If the dispute, which is settled, is one between near relations, the settlement of such dispute can be considered as a family arrangement. The court leaned strongly in favour of the family arrangements to bring about harmony in a family and to do justice to those various members and avoid in anticipation few disputes which might ruin them all. In S.S Pillai v. K.S Pillai, (1973) 2 SCC 312 : AIR 1972 SC 2069, it was observed that if in the interest of the family, properties and family peace, the close relations settle their dispute amicably, this court (the apex court) will be reluctant to disturb the same. The courts generally lean in favour of the family arrangements.

8. The above being the position, the document in question did not require registration. As was indicated by the apex court in K.V Narayanaswami Iyer v. K.V Ramakrishna Iyer, AIR 1965 SC 289, a family arrangement could be arrived at even orally and registration would be required only if it was reduced into writing. Where a document was no more than a memorandum of what had been agreed to the same did not require registration. In view of the above, we find no reason to direct a reference.

9. This petition is dismissed.