Complete transfer under a settlement deed and rental valuation accepted for substantially tenanted property

An outright settlement deed that divests the transferor of the property for life is treated as a complete transfer for gift-tax purposes, and maintenance or residence clauses do not, by themselves, show retention of an interest in the whole property. A later rectification deed does not undo the original settlement, so the gift-tax liability attaches in the year of the original transfer rather than on a protective basis in a later year. Where the property is substantially let out and only part is self-occupied, the rental method is the proper basis for valuation, and an approved valuer's return may be accepted as fair and reasonable.

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Issues: (i) Whether the settlement deed dated 5-12-1969 effected a complete transfer of the house property for gift-tax purposes, making the gift-tax assessable in the earlier assessment year and not on a protective basis. (ii) Whether the valuation of the gifted property should be adopted on the rental method as returned by the assessee or enhanced on the land-and-building method.

Issue (i): Whether the settlement deed dated 5-12-1969 effected a complete transfer of the house property for gift-tax purposes, making the gift-tax assessable in the earlier assessment year and not on a protective basis.

Analysis: The deed of settlement had already been the subject of earlier consideration, and the transferor had divested himself of the property for his lifetime. The maintenance allowance and residence clauses did not show retention of an interest in the entirety of the property. The subsequent rectification deed did not cancel or undo the original settlement. A valid trust, once created, was not displaced by later conduct of the author. On these facts, the transfer was complete and the gift-tax liability arose in the year of the original transfer.

Conclusion: The transfer was a complete transfer and the protective assessment for the later year could not stand.

Issue (ii): Whether the valuation of the gifted property should be adopted on the rental method as returned by the assessee or enhanced on the land-and-building method.

Analysis: The property was mostly tenanted and only a portion was occupied by the assessee for residence. In such circumstances, the rental method was the proper basis of valuation and the return supported by an approved valuer was accepted as fair and reasonable. Enhancement by the land-and-building method was not justified on the facts found.

Conclusion: The valuation returned by the assessee on the rental method was accepted.

Final Conclusion: The assessment for the later year was annulled, the earlier assessment was treated as regular, and the assessee succeeded on valuation as well.

Ratio Decidendi: Where a settlement deed effects an outright transfer without retention of an interest in the property as a whole, later rectification or ancillary residence and maintenance clauses do not make the transfer incomplete for gift-tax purposes; and where the property is substantially let out, rental basis is the appropriate mode of valuation.

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