Reciprocal property transfers as exchange: real nature of same-day conveyances prevails over labels, defeating gift tax treatment.

Mutual transfers of immovable property executed on the same day may constitute an exchange under section 118 of the Transfer of Property Act, 1882 where the documents form part of one arrangement and show reciprocal conveyances. The court looked to the real substance of the transaction rather than the labels used by the parties, and held that a single document is not required for an exchange. The fact that the properties were of different values did not defeat the character of the arrangement as an exchange. On that basis, the transaction was not treated as a gift taxable under the Gift-tax Act, 1958, and the Tribunal's view was supported by the record.

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Issues: Whether the mutual transfers of immovable properties executed on the same day constituted a gift taxable under the Gift-tax Act, 1958, or an exchange within the meaning of section 118 of the Transfer of Property Act, 1882.

Analysis: Section 118 of the Transfer of Property Act, 1882 defines exchange as a mutual transfer of ownership of one thing for another and does not require that the transaction be embodied in a single document. Where two documents are executed on the same day as part of the same arrangement, the court may look at the entire transaction and not merely the form or nomenclature adopted by the parties. The contemporaneous deeds in the present case showed reciprocal transfers of property and recitals that they were executed at the request of the respective settlees. The fact that the properties were of different values did not prevent the arrangement from satisfying the requirements of an exchange. The Tribunal's view that the transaction was not a gift was therefore supported by the materials on record.

Conclusion: The transaction was an exchange and not a gift taxable under the Gift-tax Act, 1958; the answer was against the Revenue and in favour of the assessee.

Ratio Decidendi: A transaction of reciprocal conveyances executed as part of one arrangement may be treated as an exchange under section 118 of the Transfer of Property Act, 1882, and the legal character of the transaction is determined by its real nature rather than its label.

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