Bona fide family compromise on a disputed claim was not a taxable gift under the Gift-tax Act.

A compromise of a disputed family claim was not treated as a gift under section 4(1)(c) of the Gift-tax Act, 1958 because the assessee accepted a lesser sum in full discharge of a bona fide claim rather than surrendering a settled property right without consideration. The arrangement followed long-standing disputes, partial payments and mediation by relatives, and the relevant test was the genuineness and value of the claim at the date of settlement, not a later Supreme Court ruling on the mother's liability. On those facts, the compromise was genuine and the discounted value of the claim was said to be below the settlement amount, so no taxable gift arose and the addition was deleted.

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Issues: Whether the settlement entered into by the assessee with his mother in 1962, by which he accepted a lesser amount in full discharge of his claim, amounted to a gift attracting tax under section 4(1)(c) of the Gift-tax Act, 1958.

Analysis: The settlement was reached after long-standing family disputes, partial payments over several years, and intervention by relatives and friends. The assessee was seeking immediate realisation of a disputed claim rather than abandoning a settled and certain right. The Supreme Court's later decision on the mother's liability did not alter the character of the 1962 compromise, because the relevant question was the value and genuineness of the claim at the date of settlement. On the facts, the compromise was held to be genuine and bona fide, not a surrender of property without consideration. The discounted value of the claim was also stated to be less than the amount settled for, leaving no taxable element of gift.

Conclusion: The settlement did not constitute a gift and section 4(1)(c) of the Gift-tax Act, 1958 was not attracted; the addition was deleted in favour of the assessee.

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