1984 (3) TMI 175 - AT - Income Tax

Summary

Issues Involved:
1. Determination of whether the transfer of shares in favor of married female members constitutes a deemed gift under Section 4(1) of the Gift-tax Act, 1958.
2. Validity of the family settlement executed on 31-3-1979.
3. Adequacy of consideration in the family settlement.

Detailed Analysis:

1. Determination of whether the transfer of shares in favor of married female members constitutes a deemed gift under Section 4(1) of the Gift-tax Act, 1958:

The primary issue was whether the foregone shares by the assessees in favor of married female members constituted a deemed gift under Section 4(1) of the Gift-tax Act, 1958. The Gift-tax Officer (GTO) argued that the members of the respective assessee-families had foregone their share to an extent of 30% in favor of the married female members, thereby creating an element of deemed gift. The assessees contended that there was no element of gift, and the foregone shares were part of a family settlement executed on 31-3-1979. The Tribunal, after considering the facts and the arguments, concluded that the family arrangement was based on pre-existing rights and not a deemed gift. The Tribunal also noted that the family settlement was executed to avoid litigation and preserve family peace, which does not constitute a transfer or creation of interest.

2. Validity of the family settlement executed on 31-3-1979:

The family settlement executed on 31-3-1979 was scrutinized to determine its validity. The Tribunal noted that the family settlement was a result of a bona fide attempt to put an end to disputes among family members. The Tribunal referred to several Supreme Court judgments, including Ram Charan Das v. Girja Nandini Devi and Maturi Pullaiah v. Maturi Narasimham, which held that a family settlement entered into bona fide to avoid disputes is not a transfer and does not create an interest. The Tribunal also considered the judgment in Sahu Madho Das v. Mukand Ram, which supports the view that a family arrangement can be implied from long-standing dealings between parties. The Tribunal concluded that the family settlement was valid and binding on the parties.

3. Adequacy of consideration in the family settlement:

The Tribunal examined whether the family settlement involved adequate consideration. The assessees argued that the family arrangement was based on pre-existing rights and mutual adjustment of shares, which constituted sufficient consideration. The Tribunal referred to the judgment in Ziauddin Ahmed v. CGT, where it was held that a family settlement made to maintain peace and avoid disputes is not a transfer for inadequate consideration. The Tribunal also noted that the family settlement was accepted for income-tax and wealth-tax purposes by the department. The Tribunal concluded that the family settlement involved adequate consideration and did not constitute a deemed gift.

Conclusion:

The Tribunal upheld the orders passed by the Appellate Assistant Commissioner (AAC), which canceled the assessments made by the GTO. The Tribunal concluded that the family settlement executed on 31-3-1979 was valid, involved adequate consideration, and did not constitute a deemed gift under Section 4(1) of the Gift-tax Act, 1958. The appeals by the department were dismissed.