1989 (6) TMI 94 - AT - Income Tax

Issues Involved:
1. Validity of the family arrangement and settlement deed dated 21-3-1980.
2. Contravention of the will dated 24-10-1938 by the family arrangement.
3. Authority of Smt. Sonabai to alienate the property.
4. Reduction of total income by Rs. 54,190 by the AAC.

Issue-wise Detailed Analysis:

1. Validity of the Family Arrangement and Settlement Deed Dated 21-3-1980:
The Appellate Tribunal examined whether the deed of family arrangement and settlement dated 21-3-1980 was a valid document. The assessee claimed that the family settlement, duly registered, granted her absolute interest in one house property, Municipal No. 9-1-145 to 147. The Income-tax Officer rejected this claim, arguing that the arrangement was an afterthought and that the assessee, having only a life interest, could not enter into such an agreement. However, the Tribunal upheld the family arrangement, citing Supreme Court judgments that emphasize the importance of family arrangements in maintaining peace and harmony and avoiding future disputes. The Tribunal concluded that the arrangement was valid as it was registered, acted upon, and aimed at preserving family peace and security.

2. Contravention of the Will Dated 24-10-1938 by the Family Arrangement:
The Tribunal considered whether the family arrangement contravened the will dated 24-10-1938 executed by the assessee's grandfather. The will granted Smt. Sonabai a limited life estate and stipulated that the estate would pass to her son Shamlal after her death. The Tribunal noted that the family arrangement included all potential heirs, including those not born at the time of the will's execution. The Tribunal found that the arrangement was made to avoid future disputes and was in line with the principles of family arrangements as outlined by the Supreme Court. Therefore, the arrangement did not contravene the will.

3. Authority of Smt. Sonabai to Alienate the Property:
The Tribunal examined whether Smt. Sonabai had the authority to alienate the property when she had only a limited interest. The Tribunal referred to the will, which granted her a life interest with the estate passing to her son Shamlal after her death. The Tribunal found that the family arrangement was made with the consent of all potential heirs, including Smt. Sonabai's sons and their families. The arrangement aimed to avoid future disputes and ensure family harmony. Therefore, the Tribunal concluded that Smt. Sonabai had the authority to enter into the family arrangement.

4. Reduction of Total Income by Rs. 54,190 by the AAC:
The Tribunal considered the reduction of total income by Rs. 54,190 by the Appellate Assistant Commissioner (AAC) based on the family arrangement. The Tribunal upheld the AAC's decision, finding that the family arrangement was valid and that the assessee was only assessable in respect of the income arising from the property bearing Municipal No. 9-1-145 to 147. The Tribunal dismissed the revenue's appeal, concluding that the family arrangement was valid and fully acted upon.

Conclusion:
The Tribunal upheld the validity of the family arrangement and settlement deed dated 21-3-1980, finding that it did not contravene the will dated 24-10-1938 and that Smt. Sonabai had the authority to enter into the arrangement. The Tribunal also upheld the reduction of total income by Rs. 54,190 by the AAC. The revenue's appeal was dismissed.

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