1994 (7) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Gift-tax Act, 1958 on the transfer of assets under a family settlement deed.
2. Bona fide nature of the family settlement.
3. Valuation of the transferred assets.
4. Assessment year applicable for the gift of immovable property.

Detailed Analysis:

1. Applicability of Gift-tax Act, 1958:

The primary issue was whether the transfer of 1252 equity shares and a plot of land by the assessee to family members under a family settlement deed dated 11-2-1985 constituted a gift under the Gift-tax Act, 1958. The assessee contended that the transfer was part of a bona fide family settlement and hence not subject to gift tax, citing judgments from Gauhati High Court (Ziauddin Ahmed v. CGT) and Madras High Court (CGT v. Pappathi Anni). However, the GTO disagreed, holding that the transfer was without consideration and thus taxable as a gift.

2. Bona fide Nature of the Family Settlement:

The CGT(A) initially ruled in favor of the assessee, stating that the family arrangement was executed on a stamp paper and was intended to prevent future disputes, thus not liable to gift tax. However, the Revenue argued that the family settlement was not bona fide, as there were no pre-existing disputes among family members, and the properties were self-acquired by the assessee. The Tribunal agreed with the Revenue, emphasizing that a bona fide family settlement must resolve existing disputes and involve an equitable division of property. The Tribunal found the distribution of assets unequitable and not a bona fide family arrangement, noting that only a few family members benefited.

3. Valuation of the Transferred Assets:

The GTO valued the 1252 equity shares at Rs. 2,17,848 and the plot of land at Rs. 10,00,800, based on the market rate of Rs. 80 per sq.ft. in Patel Colony, Jamnagar. The assessee argued that these valuations were arbitrary. However, the Tribunal upheld the GTO's valuations, stating that they were based on information provided by the assessee and the prevalent market rates.

4. Assessment Year Applicable for the Gift of Immovable Property:

The assessee contended that the actual conveyance of the immovable property took place on 22-5-1985, falling in the assessment year 1986-87, and should be taxed accordingly. The Tribunal rejected this argument, stating that the family arrangement deed dated 11-2-1985 reflected the intention to transfer the assets, making the transfer effective in the assessment year 1985-86. The Tribunal further noted that the deed was acted upon, with possession handed over to family members.

Conclusion:

The Tribunal concluded that the family arrangement was not bona fide and aimed to bypass the Gift-tax Act. It reversed the CGT(A)'s findings, restoring the GTO's assessment of the transferred assets as taxable gifts. Additionally, the Tribunal noted a lapse by the GTO in not taxing the value of all 2502 transferred shares and directed verification and necessary action.

Judgment:

The appeal by the Revenue was allowed, and the findings of the CGT(A) were reversed, restoring the GTO's assessment. The Tribunal also directed the GTO to verify and tax the value of all transferred shares as per the family arrangement deed.