1990 (7) TMI 170 - AT - Income Tax

Summary

Issues Involved:
1. Liability to gift-tax on the transfer of Rs. 1.50 lakhs.
2. Validity of the family settlement claim.
3. Consideration of the family settlement as a transfer.

Issue-wise Detailed Analysis:

1. Liability to Gift-Tax on the Transfer of Rs. 1.50 Lakhs:

The assessee made gifts of Rs. 1.50 lakhs to his two grandsons on 28th April 1980 and initially admitted this amount in his tax return, paying the gift-tax in advance. However, in a revised return filed on 24th March 1986, the assessee claimed that no gift-tax was liable on the amount based on Supreme Court decisions in Ramcharan Das vs. Girja Nandini Devi & Ors. and Tej Bahadur vs. Debisingh. The assessee argued that the transfer was part of a family settlement to avoid future disputes.

2. Validity of the Family Settlement Claim:

The GTO rejected the assessee's contention, stating that the family settlement deed was not filed with the original return and was not mentioned in the partition deed with the adopted son. The GTO concluded that the claim of a family settlement was an afterthought and that the gifts were made when the assessee had absolute disposing power over the properties.

Upon appeal, the CIT(A) upheld the GTO's decision, stating that the family settlement was fabricated to avoid tax and that the gifts were made in the assessee's individual capacity, not as part of any family dispute resolution.

The assessee contended before the Tribunal that the non-mention of the family settlement in the original return was due to ignorance of the law. The assessee provided evidence, including a letter from Smt. Nancharamma, advising the assessee's daughter to avoid controversy regarding the adoption of her son. The assessee argued that the transfer was to pacify the daughter and avoid family disputes, thus qualifying as a family settlement.

3. Consideration of the Family Settlement as a Transfer:

The Tribunal found that the assessee's initial declaration of the gift as taxable due to ignorance should not be held against him. The Tribunal noted that the family settlement deed was mentioned in the revised return and supported by Supreme Court decisions. The Tribunal concluded that the family settlement was genuine and aimed at avoiding future disputes, thus not constituting a taxable gift.

The Tribunal referenced the Supreme Court's ruling in Ram Charan Das, which stated that a family settlement is not a transfer and can involve parties without legal claims over the property, provided it aims to ensure amity and goodwill among relations. The Tribunal also cited the Madras High Court's decision in CIT vs. N. Ponnammal, which supported the validity of family arrangements even if parties had no legal claims.

The Tribunal concluded that the transfer of Rs. 1.50 lakhs was part of a bona fide family settlement to avoid disputes and should not be taxed as a gift. The appeal was allowed, reversing the lower authorities' decisions.

Conclusion:

The Tribunal allowed the appeal, holding that the sum of Rs. 1.50 lakhs transferred by the assessee to his grandsons was part of a family settlement to avoid future disputes and, therefore, not liable to gift-tax. The orders of the lower authorities were reversed, and the amount was excluded from the taxable gifts of the year.