2008 (2) TMI 818 - HC - Income Tax

Family Settlement Exempt from Gift Tax: High Court Decision

The High Court upheld the Tribunal's decision in a case concerning gift tax liability on the transfer of property in a family arrangement. The court found ... Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no element of gift in transfer of half portion of the property owned by the assessee independently without having any nexus with HUF in favour of her daughter without any consideration when the other half of the portion had been transferred to the same transferee for a consideration of ₹ 18 lakhs ? Held that:- The relationship between the assessee and her daughter has been accepted by the Revenue being mother and daughter. It is also clear from the records that the daughter of the assessee had dragged her mother to a court of law for a partition and that suit ultimately ended into a compromise, whereby half share of house No. 646 had fallen to the share of the daughter of the assessee. In the said compromise the other co-owners had also given their no objections for entering into a compromise. Since it was a family dispute and ultimately good sense prevailed amongst them, thus this compromise was entered into. The other co-owners specifically mentioned in their no objections filed before the civil court that since all are well off and, therefore, they are not interested to have their share in the property. In such an event, the circumstances under which half of the share fell to the daughter of the assessee can only be said to be a family arrangement, but it cannot be said that such a device was adopted by the assessee so as to avoid payment of gift-tax. In fact, the Tribunal has also proceeded on the aforesaid ground only and found that for such a transaction no gift tax could have been levied. We are in full agreement with the findings recorded by the Tribunal and there is no reason to doubt the correctness of the compromise decree entered into between the parties. Appeal dismissed. Issues:Interpretation of gift tax liability on transfer of property in a family arrangement.Analysis:The case involved a dispute regarding the gift tax liability on the transfer of property between a mother and daughter as part of a family arrangement. The Revenue challenged the order of the Income-tax Appellate Tribunal, contending that the transfer of half of the property without consideration amounted to a gift. The facts revealed that the daughter initiated a partition suit which culminated in a compromise decree where she acquired half share of the property. The Tribunal and the High Court examined the circumstances and concluded that the transfer was part of a family arrangement and not a device to evade gift tax. The co-owners, including the daughter, had no objections to the compromise, indicating a mutual understanding among family members. The High Court upheld the Tribunal's decision, emphasizing that the transfer did not attract gift tax as it was a genuine family settlement.In the absence of any evidence suggesting a fraudulent intention or tax avoidance scheme, the High Court found the transfer to be a legitimate family arrangement. The court highlighted that the compromise decree was entered into after due consideration by all parties involved, signifying a resolution to a family dispute. The court noted that the circumstances surrounding the transfer indicated a genuine division of property rights among family members, rather than a gift made for tax evasion purposes. Consequently, the High Court dismissed the Revenue's appeal, affirming that the transfer did not give rise to any gift tax liability. The judgment clarified that the transfer was a result of a family settlement and did not warrant the imposition of gift tax, as determined by the Tribunal and upheld by the High Court.