Bona fide family partition with reciprocal property adjustment is not a deemed gift under the Gift-tax Act.

A bona fide partition arrangement involving reciprocal adjustment of family property rights was not treated as a deemed gift under section 4(1)(c) of the Gift-tax Act. Where the residential building could not practicably be divided and one brother retained it while the other received additional agricultural land, the allotment was viewed as a mutual exchange of rights supported by consideration within a family settlement, not a gratuitous transfer or colourable device. The gift-tax addition on the impugned allotment was therefore unsustainable.

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Issues: Whether the allotment of extra agricultural land to one brother on partition of the family property amounted to a gift under section 4(1)(c) of the Gift-tax Act, or was a bona fide exchange/adjustment of mutual rights in a partition arrangement.

Analysis: The arrangement was treated as a partition of the common property by metes and bounds, with the residential building retained by one brother because its division would have been impracticable and detrimental to its value. The other brother was compensated by allotment of additional agricultural land. On these facts, the transfer was not a colourable device or a gratuitous conferral of property, but a mutual exchange of rights and consideration within a bona fide family arrangement. Such a transaction did not fall within the mischief of the deemed-gift provision under section 4(1)(c) of the Gift-tax Act.

Conclusion: The transaction was not a gift; the addition made under the gift-tax provisions could not be sustained and the assessee succeeded on this issue.

Final Conclusion: The assessment of gift tax on the impugned allotment was set aside and the appeal was allowed.

Ratio Decidendi: A bona fide partition arrangement involving reciprocal adjustment of property rights, made to avoid impracticable division of property and supported by mutual consideration, does not constitute a deemed gift under section 4(1)(c) of the Gift-tax Act.

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