ORDER
R.C. Sharma, A.M.
1. This is an appeal filed by the assessee against the order of CGT, dt. 18th Nov., 2002, for the asst. yr. 1992-93, in the matter of order passed under Section 15(3) read with Section 16 of the GT Act.
2. The rival contentions have been heard and records perused. The only grievance of appeal is against the determination of deemed gift of the value of Rs. 1,77,680. In the assessment order, the AO stated that the assessee along with his brother, Shri Hiralal, purchased a plot in which assessee was having 50 per cent share. The assessee’s three sons purchased the portion of the property belonging to his uncle, Shri Hiralal. On 1st April, 1991, the assessee relinquished his 50 per cent share in the said property in favour of his three sons, who were otherwise the co-owners of the 50 per cent share of the said property. Consequently, there were four co-owners in the said property, each having 25 per cent share. While relinquishing the 50 per cent share out of 50 per cent share belonging to the assessee to the said sons, according to the AO, there was a transfer as per Section 4 of the GT Act, 1958. The value of the property relinquished was taken at Rs. 1,77,680 as declared in the return of income. The assessee claimed the same to be exempt relying on the decision of the Supreme Court in the case of CWT v. Her Highness Vijayaba Dowager Maharani Saheb of Bhavnagar Palace and Ors. . The AO was of the opinion that the claim of the assessee was not acceptable on the ground that the decision of the Supreme Court was distinguishable on facts from assessee’s case, secondly, the assessee did not furnish any details regarding nature of dispute in the family. It was submitted by the assessee that there was a dispute in existence in his family and to purchase peace, he relinquished 50 per cent of his right in the said property in favour of his three sons only as a family settlement. However, the AO did not agree with the assessee’s contention and held that the relinquishing of property by father to his three sons was deemed gift and, therefore, the assessee is liable to gift-tax thereon.
3. By the impugned order, the CIT(A) confirmed the order of the AO.
4. We have considered the rival contentions carefully, gone through the orders of the authorities below and find from the records that the assessee and his family members have recorded by way of a memorandum of mutual understanding already arrived at by them in terms of witness agreement dt. 1st April, 1991. As per the memorandum; of agreement for mutual understanding, there was a dispute among the family members since last sometime and consequently, there was difference of opinion and quarrels were going on between the family members consisting of assessee, his wife and three sons. As the disputes were going on, the same could not be resolved by means of inter se dialogues and discussions, the same were, therefore, resolved as per the advise and intervention of the close relatives and well-wishers. The terms of the memorandum further provided that one of the sons of the assessee, Shri Narendra Kumar, should go to reside separately by separating himself from the family with his wife and children. Similarly, Shri Rajendra Kumar, other son of the assessee and party of the fourth part of this memorandum, should go to reside separately by separating himself from the family with his wife and children within six months of this family arrangement. The remaining parties, i.e., the assessee, his wife and the youngest son have to reside jointly/together, and in consideration whereof, the ownership of the parties at Sl. Nos. 1, 3, 4 and 5 over the aforesaid plot should be equal, i.e., Nos. 1, 3, 4 and 5 each will have 25 per cent share therein. Therefore, as and when the construction over the said plot is made in any manner or the same is sold, gifted or mortgaged or transferred in any other mode, parties at Sl. Nos. 1, 3, 4 and 5 shall have equal shares therein. We had also carefully gone through the affidavit executed by the witnesses of this memorandum, who are close relatives/friends of the assessee. As per the affidavit, there was serious disputes among the members of the family about the property and partition thereof. In the affidavit, Shri Dhami Jawahar Amarchand further stated that he was asked by Shri Navalchand and his sons to intervene in the matter of settlement and in reference thereto. Accordingly, he made attempt for bringing settlement between them in the year 1981-82 after hearing all of their talks but the disputes between the assessee. Shri Navalchand, and his sons were severe and the assessments of the value of all of their properties were different from each other to such an extent that he had not been able to bring the settlement at that point of time. Thereafter, in 1987-88, the health of Shri Navalchand became very much bad and because of the age factor, health was also not remaining good and, therefore, considering the circumstances at that time, Shri Dhami Jawahar Amarchand and the assessee again decided for partitioning the plot owned by the assessee and his sons in joint ownership, wherein the assessee was having 50 per cent share and his three sons, Shri Narendrabhai, Rajendrabhai and Shri Nileshbhai, were jointly having remaining 50 per cent share. By way of settlement, it was agreed that all the four of them will be having 25 per cent share equally and on 1st April, 1991, one memorandum of agreement for such understanding was entered into declaring that each of them is having 1/4th share therein. We had also gone through carefully the affidavits of Shri Vala Pratapsinn Naranbhai, Shri Rasiklal Chhaganlal Salot, stating therein similar facts as narrated in the affidavit of Shri Dhami, as discussed hereinabove. Close scrutiny of all these documents clearly revealed that an internal dispute among the family members of the assessee and his three sons was going on, who were staying together. By executing the memorandum of settlement, which is a family arrangement, in writing by way of memorandum of agreement for mutual understanding, dt. 1st April, 1991, 50 per cent share held by the assessee in the said plot of land was reduced to 1/4th and 1/6th share each in the said plot held by the assessee’s sons was enhanced to 1/4th each and two sons, Shri Narendrabhai and Shri Rajendrabhai, agreed to start living apart from the family separately within six months. The family settlement is evidenced by a deed of family settlement between the family members and is duly supported by affidavits of three well-wishers and mediators. All the prerequisites/essentials of a valid family settlement are duly fulfilled in this case and there is no question of any transfer of property involved in such family arrangements. The CIT(A) has confirmed the action of the AO merely on the ground that there is no evidence regarding existence of any dispute in the family, whereas the material on record and the family settlement entered into by the assessee with his sons clearly demonstrate (that) the dispute was very much there among the family members and to resolve all these disputes this settlement was made bona fide to put an end to dispute in the family. The Hon’ble Gauhati High Court in the case of Ziauddin Ahmed v. CGT have held that allocation of shares held by the deceased assessee and his son allotted to different members of family to resolve the existing and future disputes was family arrangements and not a transfer, therefore, provisions of Section 4(1)(a) cannot be invoked. Similar view has been taken in the case of COT v. S.N. Zaman & S.M. Elahi .
5. In order to appreciate the submission of Mr. Patel, it is to be seen what constitutes a family settlement. Family settlement is made just to avoid dispute to maintain the honour and dignity of a family. It is neither a partition nor an exchange. Now, the question is whether the dispute must be in existence at the time of family settlement. The Supreme Court in Ram Charan Das v. Girja Nandini Devi held thus :
“Courts give effect to a family settlement upon the broad and general ground that its object is to settle existing or future disputes regarding property amongst members of a family. The word ‘family’ in the context is not to be understood in a narrow sense of being a group of persons who are recognised in law as having a right of succession or having a claim to a share in the property in dispute.”
6. In another decision in Maturi Pulliah v. Maturi Narasimham AIR 1966 SC 1836, the Supreme Court held thus :
“Briefly stated, though conflict of legal claims in praesenti or in future is generally a condition for the validity of a family arrangement, it is not necessarily so. Even bona fide disputes, present or possible, which may not involve legal claims will suffice. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement. If such an arrangement is entered into bona fide and the terms thereof are fair in the circumstances of a particular case, Courts will more readily give assent to such an arrangement than to avoid it.”
7. From the observations of the apex Court, it is very clear that the dispute not only means the existing dispute, but also dispute which is possible or is likely to occur in future. This Court also in Ziauddin Ahmed’s case (supra) quoting the decision of the Supreme Court in Ram Charan Das case (supra), held that family dispute includes future dispute. In a very recent decision in CIT v. Mrs. Bibijan Begum IT Ref. No. 43 of 1990, reported at , the Court held thus :
“Family arrangement presupposes either an existing dispute or likely to occur in future and to resolve those disputes such family arrangement can be made.”
8. In view of above discussion, we are persuaded to agree with the submissions of the learned Authorised Representative, Mr. M.K. Patel, that memorandum of mutual understanding was entered between the assessee and his family members comprising of his wife and three sons for achieving peace and harmony amongst the members of the family. Thus, the arrangement was essentially a family arrangement to resolve the existing and future dispute. We are, therefore, inclined to reverse the findings of lower authorities to the effect that relinquishment of share in the plot of land by the assessee further in favour of his three sons does not amount to gift, but was essentially a family arrangement.
9. In the result, the appeal of the assessee is allowed.