ORDER
B.L. Chhibber, Accountant Member
1. This appeal by the Revenue is directed against the order of the Commissioner of Gift-tax (Appeals)-II Rajkot.
2. The assessee is an individual assessed to income-tax and wealth-tax by the Assessing Officer, Ward-2, Jamnagar. The assessee filed return of gift on 4-7-1985 declaring chargeable gift of Rs. 25,000 for assessment year 1985-86. The learned GTO noted that the assessee had, during the year under appeal, transferred 1252 equity shares of M/s. New Bharat Engineering Works Ltd., Jamnagar and a plot of land measuring 12510 sq.ft. to his family members. The assessee explained before the learned GTO that the plot of land and 1252 equity shares were transferred to the various members of the family as per family settlement deed dated 11-2-1985. The assessee further contended that since the aforesaid assets were transferred under a bona fide settlement deed arrived at among the different members of the family, the provisions of Gift-tax Act, 1958 were not applicable in this regard. In support of his contention, reliance was placed on the judgment of Hon’ble Gauhati High Court in the case of Ziauddin Ahmed v. CGT [1976] 102 ITR 253 and the judgment of Hon’ble Madras High Court in the case of CGT v. Pappathi Anni [1981] 12 7 ITR 655. The learned GTO was not satisfied with the explanation furnished and held that the above noted two assets had been transferred by the assessee without any consideration and hence constituted gift. He noted that “on the basis of the information given by the assessee, the value per share comes to Rs. 174”. Accordingly he valued 1252 equity shares at Rs. 2,17,848. The learned GTO then proceeded to work out the value of the plot of land measuring 12510 sq.ft. He noted that the immovable property was situated in Patel Colony, near Kasturba Vikas Grah, where fast development had taken place. He noted that it was one of the best area considered to be in Jamnagar and the market value even before 1984 was not less than Rs. 100 per sq.ft. Since the arrangement had been made on 11-2-1985 regarding the passing over of the title over the land, he valued the property at Rs. 10,00,800 at the rate of Rs. 80 per sq.ft. Thus, he computed the value of taxable gift of Rs. 12,38,650 as against the declared value of Rs. 20,000.
3. On appeal, the learned CGT(A) held that the assessee had executed deed of family arrangement on stamp paper of Rs. 30 on 11-2-1985 and according to this deed of family arrangement the conveyancing in respect of immovable property had taken place and accordingly the assessee was not liable to gift-tax in respect of the transfer of above noted two assets. In support of his finding, he relied upon the aforesaid two judgments in the cases of Ziauddin Ahmed (supra) and Pappathi Anni (supra).
4. Shri A.K. Hajela, the learned DR submitted that there was no justification on the part of the CGT(A) for deleting the additions of Rs. 2,17,848 and Rs. 10,00,800. He submitted that the family settlement entered into among the various members of the family of the assessee was not a bona fide one and in any case did not absolve the assessee of the charge of gift. In support of his contention he relied upon the order of the ITAT Hyderabad Bench ‘A’ in the case of Smt. Krovvidi Subba lakshmi v. GTO [1987] 22 ITD 235 wherein it has been held that there could be no dispute about self-acquired properties and therefore, there could be no family settlement in respect of assessee’s share in such properties after the Hindu Succession Act came into operation. The learned DR submitted that there was no dispute among the different members of the family of the assessee; the properties transferred by the assessee were self acquired and hence the assessee was liable to pay gift-tax on such transfer of assets. The learned DR further submitted that Hon’ble Gauhati High Court judgment in the case of Ziauddin Ahmed (supra) is not applicable to the facts of the present case as in that case the assessee belonged to the Muslim community who had children from different wives “not having good relations and there were family quarrels”. When the matter took serious turn in 1959, certain family arrangements were devised as a result of which certain shares were transferred by the assessee and his children to other children. The learned DR submitted that it was under these circumstances and peculiar background that the Gauhati High Court held that it was a bona fide family arrangement; but in the case before us there was no real dispute among the various members of the family. The learned DR further submitted that reliance placed on the decision of Madras High Court in the case of Pappathi Anni (supra) is misplaced because the facts are distinguishable. That was a case where ancestral property was involved and the dispute was between the mother and the son and when the document was entered into, both parties genuinely and bona fidely thought that the son had a right to a half share in the properties left by his father and it was on this that the document was executed and hence it was held that there was no gift liable to gift-tax because the allotment of property to the son was not without consideration. In the case of the assessee, the learned DR submitted, there was no consideration whatsoever and hence the CGT(A) erred in relying upon the aforesaid decision of the Madras High Court.
5. Shri M.P. Sarda, the learned counsel for the assessee submitted that the assessee and his wife were 82 years old. The assessee and his wife have of age ranging between 62 years and 37 years and one daughter and large number of grand children and great grand children. The assessee’s family has been joint at home and also in business. The family members through their combined efforts and luck/fortune developed business and created wealth, However, the immovable and movable properties acquired through joint efforts of the assessee and his family members were in the individual names of family members. As a result there was imbalance between efforts put in terms of years, physical and qualitative contribution and net assets in the name of individual family members which resulted in claims and counter claims amongst family members where age difference between youngest and eldest was also of over 75 years. The learned counsel for the assessee further submitted that the assessee’s two elder sons have worked with him in business for over 45 years. The younger sons have also worked with him in business for over 30 years and 20 years. In other words all four sons have significantly contributed in creation of assets/wealth of the family. According to the learned counsel the above noted peculiar facts of the family and background of social culture of typical rural based farmer community of Patels of Saurashtra are noteworthy. Explaining the objects of family arrangement, the learned counsel submitted as under :
(1) The family arrangement was made by and between the assessee & his wife and other family members in the light of the above noted peculiar facts of the family and its social background of typical rural based farmer community.
(2) The family arrangement was intended to ensure prevention of long drawn disputes between family members when the appellant and his wife were not alive and thereby to ensure preservation of prestige and honour of the family in the society.
(3) The family arrangement was arrived at under the positive influence of elder family members over younger generation and thereby continuation of loving and affectionate relations inter se.
The learned counsel for the assessee further drew our attention to the following features of family arrangement :
(1) Each party has taken the property allotted to him/her within independent title which is admitted by other parties. In other words each party has taken independent title to his properties and has admitted independent title of others in respect of their assets.
(2) The family arrangement has in effect recognised, quantified and indentified share of family member/members in assets of the family in creation of which there was contribution of combined efforts/fortune.
(3) The family arrangement has resulted into confirmation by each family member about the absolute ownership of every family member in respect of his/her respective assets.
(4) The family arrangement also reduces in writing the undertaking by all family members that they will not raise any dispute about the disposal of other assets by the appellant and his wife through their will.
(5) The appellant and his wife in fact have made their respective wills on 22-5-1985 in continuation of the family arrangement and their is reference to family arrangement in their wills.
(6) The family arrangement also include sacrifice by a son of a part of his land to make provision for common passage road for various allottees.
(7) The family arrangement is acted upon by all parties.
The learned counsel for the assessee submitted that on the above facts, circumstances and material on record it was clear that this was a case of bona fide family arrangement and as such there is no transfer/gift in a bona fide transaction of family arrangement. The G.T.O. erred in charging the gift-tax. In support of his contentions the learned counsel relied upon the judgment of the Gauhati High Court in the case of Ziauddin Ahmed (supra), Sahu Madho Das v. Mukand Ram AIR 1955 SC 481 and unre-ported judgment of Madras High Court in the case of CIT v. R. Ponnammal [Tax Case No. 141 of 1978].
6. Without prejudice to the submissions that there is no transfer/gift in a transaction of bona fide family arrangement; the learned counsel for the assessee submitted that whatever transfer is there is for adequate consideration in the form of mutual admission of independent titles of family members and undertaking to preserve family prestige and honour by not raising or creating disputes. The learned counsel further submitted that even if there is a transfer and that too without adequate consideration the value adopted by the GTO is arbitrary and without considering various aspects affecting determination of value of alleged gift chargeable to tax. The learned counsel for the assessee further submitted that the actual conveyance of immovable property involved in this case had taken place on 22-5-1985 i.e. in assessment year 1986-87 and since the gift of immovable property takes place only on its conveyance by a registered document, the gift of immovable property, if any, should have been subjected to tax in the assessment year 1986-87 and not in the assessment year 1985-86 as done by the GTO.
7. As a rejoinder to the submissions of the assessee’s counsel, the learned DR submitted that the ratio laid down in the unreported judgment of Madras High Court in the case of R. Ponnammal (supra) will not apply as in that case also there were disputes which were prevailing in the family and in the context to the said disputes the Hon’ble High Court held that distribution of the assets was not liable to gift-tax as the same was the family arrangement. The learned DR submitted that if future disputes are to be taken note of for family settlement, the provisions of Gift-tax Act will become redundant. The learned DR further submitted that the provisions of Section 53A of the Transfer of Property Act will apply only if there is consideration and since there was no consideration in this case, such provisions will not apply and the gift of immovable property has to be treated as gift made during the year under appeal and not in the assessment year 1986-87.
8. We have considered the rival submissions and perused the facts on record. The Gift-tax Act, 1958 was brought in the statute book in the year 1958 with a specific purpose. While introducing the Finance Bill, 1958, the then Hon’ble Finance Minister explained “the object of imposing gift-tax” said as under :
The idea of a Gift-tax is not new. Many Honourable Members have stressed both in this House and the other House the need for introducing such a measure at an early date. The transfer of properties through gifts to one’s near relations or associates is one of the commonest forms of avoidance of not only Estate Duty but also of Income-tax, Wealth-tax and even Expenditure-tax. The only way of effectively checking this practice is to levy a tax on gifts. Such a tax is already being levied in other countries, for example, U.S.A., Canada, Japan and Australia. The Taxation Enquiry Commission also had accepted the Gift-tax as theoretically an attractive proposition.
In the context of the intention (supra) of the Legislature we proceed to examine the act of transferring the aforesaid two assets by the assessee to his family members.
9. We find that the assets transferred by the assessee were self acquired assets. The other members had no rights over such assets. In this context it is to be seen whether the family arrangement entered into between different numbers was bona fide. In our view, when read as a whole, the deed of settlement was to by pass the provisions of the Gift-tax Act. There was no dispute amongst the members of the family and everything was going on fine when the assessee perhaps due to his old age, thought of transferring the aforesaid two assets to some of his family members without consideration. In our view, the family settlement must be bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between various members of the family and that the said settlement must be voluntary and should not be induced by fraud, coercion or undue inference. Further, the members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties in the settlement. In the case before us the family of the assessee as per the deed of settlement consisted of as many as 28 members but the benefits of the so called arrangement went to only a few, as is evident from the following :-
(i) 1250 fully paid equity shares of M/s. New Bharat Engineering Works, Jamnagar to one daughter-in-law viz. Smt. Sarojben Mansukhlal Patel and her two sons.
(ii) Similarly 1252 fully paid equity shares to M/s. New Bharat Engineering Works, Jamnagar were allotted to the HUF of another son Shri Jaiprakash Shamjibhai Patel, his wife and minor children (pages 7 & 8 of the deed).
(iii) The plot of land was divided into three portions. One plot measuing 479.68 sq.mtr. was allotted to Shri Kirtikumar Mohanlal Patel and his sons. The second plot No. 6-p-2 measuring 294.84 sq.mtr. was allotted to Jayeshkumar Vallabhdas Patel. The third plot No. 6-p-3 measuring 312.50 sq.mtrs. was allotted to Shri Harshadray Vallabhdas Patel. All these persons are grand sons of the eassessee; the first being son of Mohanlal Shamjibhai Patel and other two are sons of Vallabhdas Shamjibhai Patel.
10. The above distribution of assets is unequitable and cannot be called a bona fide family arrangement.
11. Coming to the judgments relied upon by the assessee’s counsel, we agree with the contention of the learned DR that the facts are distinguishable. In all the judgments relied upon by the assessee’s counsel there were real disputes and bona fide family settlements were arrived at so as to resolve such disputes and rival claims by a fair and equitable division. We therefore hold that the reliance placed by the assessee’s counsel on the judgments cited supra is of no assistance to the assessee.
12. As regards the contention of the learned counsel for the assessee that even if there is a transfer and too without adequate consideration the value adopted by the GTO is arbitrary and without considering various aspects. We do not find any merit in it. The equity shares have been valued by the GTO as per information provided by the assessee. Similarly, the land has been rightly valued at the rate of Rs. 80 per sq.ft. after taking into consideration the prevalent market rate of the land in the locality i.e., Patel Colony, near Kasturba Vikas Grah, Jamnagar.
13. As regards the contention of the assessee’s counsel that whatever the transfer is there is for adequate consideration in the form of mutual admission of independent titles of family members and undertaking to preserve family prestige and honour by not raising or creating disputes, we do not find any merit in it. As already held by us, there were no real disputes between the family members and the family arrangement was arrived at just to by pass the provisions of the GT Act.
14. Coming to the last submission of the assessee’s counsel that the gift, if any, in respect of immovable property should be assessed in assessment year 198687 and not in assessment year 1985-86, we do not find any merit in it. The assets were transferred as a whole by the deed of family arrangement which was not compulsorily registerable document. The terms of the deed were acted upon so far as the immovable properties are concerned because it was divided into three plots and possession handed over to the members of the family the details of which have been given by us in para 9 (supra). As such, the gift cannot be partitioned into two portions, because what is material is the date of family arrangement which reflects the intention of the family members. In our view, therefore, the date of transfer of assets movable and immovable, is the date mentioned in the deed of family arrangement which falls during the year under appeal and accordingly the GTO is justified in assessing both the assets as gifts during the year under appeal. The benefits of provisions of Section 53A of the Transfer of Property Act will not be available to the assessee because such provisions will apply only if there is consideration and since there was no consideration in this case such provisions will not apply and the gift of immovable property has to be treated as gift made during the year under appeal and not in the assessment year 1986-87.
15. As stated above, the assets gifted by the assessee are self-acquired properties and since the same were transferred after the enactment of Hindu Succession Act, the ratio laid down by the Hyderabad Bench of the Tribunal in the case of Smt. Krovvidi Subbalakshmi (supra) will squarely apply to the facts of this case and the assets so transferred will fall within the purview of GT Act.
16. For the reasons discussed above, we reverse the findings of the CGT(A) and restore that of the GTO.
17. Before we part with this appeal, we may state that the assessee in all transferred 2502 fully paid equity shares of M/s. New Bharat Engineering Works as per the details given at page 5 of the deed of family settlement. Out of these shares as per recital at page 7, 1250 fully paid equity shares were transferred to Smt. Sarojben M. Patel and her two minor sons and further 1252 fully paid equity shares were allotted to the HUF of Shri Jayprakash Shamjibhai Patel and Smt. Rajeshreeben Jayprakash Patel and minor Shri Samirkumar Jayprakash Patel as per recital at page 8 of the deed. This fact, we have taken note of in para 9 (supra). We find that the GTO has brought to tax only the value of 1252 shares whereas the total shares transferred stood at 2502. This appears to be a lapse on the part of the GTO. He may verify this factual position and take necessary action to bring to tax the value of shares as given in the deed of family arrangement.
18. In the result, the appeal is allowed.