1987 (8) TMI 167 - AT - Income Tax

Summary

Issues Involved:
1. Whether the settlement deed executed by the appellant constitutes a gift liable to gift-tax.
2. Whether the document should be construed as a will or a deed of settlement.
3. Application of relevant case laws and statutory provisions.

Issue-wise Detailed Analysis:

1. Whether the settlement deed executed by the appellant constitutes a gift liable to gift-tax:
The appellant contested the order of the AAC, which confirmed the gift-tax assessment on a settlement deed executed on 28-3-1981. The appellant argued that the deed did not constitute a gift in praesenti, and thus should not attract gift-tax liability. The appellant had initially admitted the value of the gift and the gift-tax payable but later claimed exemption under the Gift-tax Act, citing the Explanation to section 19 of the Transfer of Property Act and the decision in CGT v. C. Thiruvenkata Mudaliar. However, the GTO rejected these claims and assessed the value of the gift at Rs. 1,10,710, relying on decisions from the Andhra Pradesh High Court and the Madras High Court.

2. Whether the document should be construed as a will or a deed of settlement:
The appellant's representative argued that the document, despite being labeled a deed of settlement, should be considered a will because the son would acquire the property only after the settlor's lifetime. The representative emphasized that no rights were created in favor of the son during the settlor's lifetime, relying on clauses (1) and (2) of the document and the decision in C. Thiruvenkata Mudaliar. Conversely, the departmental representative argued that the deed constituted a gift under section 2(xii) of the Gift-tax Act, as it created a vested interest in praesenti, despite the postponed enjoyment of the property.

3. Application of relevant case laws and statutory provisions:
The Tribunal examined the settlement deed and found that it created a life interest in favor of the settlor and vested the remainder interest in the son. The document was stamped and registered as a deed of settlement, indicating its nature as such. The Tribunal referred to the decision in C. Thiruvenkata Mudaliar, which emphasized that the substance of the document, not its nomenclature, determines its character. The Tribunal also cited the case of Ramaswamy Naidu, which outlined tests to distinguish between a will and a settlement, such as the express dispositive words, the reservation of a life estate, and the irrevocability of the document.

The Tribunal concluded that the document created a vested interest in praesenti in favor of the son, despite the postponed enjoyment, aligning with the principles in Ramaswamy Naidu. The Tribunal also distinguished the case of P. Ayya Naidu, where the facts indicated no present vesting of interest, unlike the present case.

Conclusion:
Respectfully following the decisions of the Madras High Court, the Tribunal confirmed the gift-tax assessment on the appellant, holding that the settlement deed constituted a gift liable to gift-tax and dismissing the appeal.