1990 (7) TMI 171 - AT - Income Tax

Issues Involved:

1. Whether the purported partition of the properties on 25-9-1981 between the assessee and her adopted son amounted to a gift.
2. Whether the document of 25-9-1981 was in the nature of a family settlement and thus not a gift.

Issue-Wise Detailed Analysis:

1. Whether the purported partition of the properties on 25-9-1981 between the assessee and her adopted son amounted to a gift:

The primary contention from the assessee was that the properties were partitioned between her and her adopted son by a deed dated 25-9-1981, which should not be considered a gift. The Gift-tax Officer, however, held that this partition amounted to a gift, relying on the decision of the Andhra Pradesh High Court in CWT v. Smt. T. Yasodamma [1984] 146 ITR 445. According to this decision, when a female adopts a child after the Hindu Succession Act has come into force, the adoption does not divest her of the property already vested in her, and the adopted child does not gain any right in such property by virtue of the adoption. Consequently, the Gift-tax Officer concluded that the partition was invalid, and the property transferred by the deed would be treated as a gift under section 4(1) of the Gift-tax Act.

2. Whether the document of 25-9-1981 was in the nature of a family settlement and thus not a gift:

The assessee argued that the document was a family settlement, not a gift, and that she was under the bona fide impression that the property was joint family property in which her adopted son had a right, compelling her to agree to the partition. The learned Commissioner of Income-tax (Appeals) upheld the Gift-tax Officer's decision. In the appeal, the assessee's counsel contended that the transaction was not voluntary, which is essential for a gift, and cited the decision of the Madras High Court in CGT v. Pappathi Anni [1981] 127 ITR 655 and a decision of the Hyderabad Bench 'A' of the Tribunal in ITO v. Smt. Sonabai [1989] 31 ITD 31.

The Tribunal examined the nature of a family settlement, referencing several judicial decisions, including Sahu Madho Das v. Mukand Ram AIR 1955 SC 481, M.N. Aryamurthi v. M.L. Subbaraya Setty AIR 1972 SC 1279, and Ram Charan Das v. Mst. Girjanandani Devi AIR 1959 All. 473. These decisions emphasized that a family settlement is intended to preserve family property, maintain peace and security, and avoid litigation. The Tribunal found force in the assessee's submission that she was under a bona fide impression that the property was joint family property, and the partition was effected on the advice of elders.

The Tribunal noted that the document described as a partition deed should be interpreted based on its substance rather than its form. The relevant clause of the deed indicated that the partition was advised by elders and was intended to maintain the family line of the late husband of the assessee. The Tribunal concluded that the arrangement had all the characteristics of a family settlement, even though the properties had vested in the assessee and did not stand divested by the adoption of a son.

The Tribunal distinguished the authorities relied on by the revenue, such as N. Durgaiah v. CGT [1975] 99 ITR 477 (AP) and T. Ram Dulari v. CIT [1984] 150 ITR 569/17 Taxman 315 (Delhi), finding them inapplicable to the present case. The Tribunal held that the document in question, though described as a partition deed, was indeed a family settlement and not a gift.

Conclusion:

The Tribunal allowed the appeal, concluding that the document dated 25-9-1981 was a family settlement and not a gift, thereby exempting it from gift-tax.

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