1995 (12) TMI 86 - AT - Income Tax

Family gifts not bona fide settlement, subject to gift-tax. Fair division and antecedent title required.

The Tribunal held that the gifts made by the appellants were not a result of a bona fide family settlement and were thus liable to gift-tax. The Tribunal ... Assessment Year, Bona Fide, Family Arrangement Issues Involved1. Whether the gifts made by the appellants are a result of family settlement and thus not liable to gift-tax.2. Whether the amounts transferred in the Memorandum of Understanding constitute a bona fide family arrangement.Issue-Wise Detailed AnalysisIssue 1: Whether the gifts made by the appellants are a result of family settlement and thus not liable to gift-tax.The Revenue's grievance was that the Commissioner of Gift-Tax (Appeals) [CGT(A)] erred in holding that the gifts made by the appellants were a result of family settlement and thus not liable to gift-tax. The appellants filed returns showing 'NIL' gift amounts, claiming exemption under the Gift-tax Act as the amounts were transferred in consideration of a family settlement. The Gift-tax Officer (GTO) rejected this claim and subjected the amounts to gift-tax, arguing that there was no genuine family arrangement as claimed by the assessee. The GTO noted that the Memorandum of Understanding (MoU) did not include the donees as parties and lacked a proper schedule of properties indicating their value and allocation.Before the CGT(A), it was argued that the family arrangement was made to avoid future disputes and ensure peace within the family. The CGT(A) accepted this argument and held that the transactions did not amount to gifts within the meaning of section 4(1)(a) of the Gift-tax Act, thus reversing the GTO's findings.Issue 2: Whether the amounts transferred in the Memorandum of Understanding constitute a bona fide family arrangement.The learned Departmental Representative (D.R.) argued that the MoU was created to bypass the Gift-tax Act provisions, pointing out that the donees were not parties to the MoU and had no antecedent title or claim in the properties owned by the donors. The D.R. cited various judgments to support the contention that a bona fide family settlement must resolve family disputes and involve fair and equitable division of properties among family members.The learned counsel for the assessee countered by emphasizing that an existence of a dispute is not necessary for a family arrangement and that the arrangement was validly entered into between different family members. The counsel cited several authorities to support the claim that the family arrangement was bona fide and thus the amounts transferred did not constitute gifts liable to gift-tax.The Tribunal considered the rival submissions and relevant case law, concluding that the issue was covered in favor of the Revenue. The Tribunal noted that the MoU involved two separate families and the donees were not parties to the MoU but only beneficiaries. It was further observed that there were no disputes between the family members and the MoU was entered into 'for increasing love and peace in the family.' The Tribunal concluded that the settlement was not bona fide and was intended to bypass the Gift-tax Act provisions.The Tribunal reversed the CGT(A)'s findings and restored those of the GTO, holding that the amounts transferred were subject to gift-tax.Conclusion:The Tribunal allowed the appeals, holding that the gifts made by the appellants were not a result of a bona fide family settlement and thus were liable to gift-tax. The Tribunal emphasized that the family arrangement must be bona fide, involve fair and equitable division of properties, and the parties must have some antecedent title or claim in the property.