Family settlement for unmarried daughters' maintenance and education was not a gift under the Gift-tax Act

A sole surviving coparcener may deal with coparcenary property as separate property, so a transfer to unmarried daughters was not void merely because it came from joint family assets. The amounts set apart for the daughters' education were treated as a valid family arrangement and partial partition, made in discharge of the legal obligation to maintain and educate them. Because the transfer was supported by legal consideration and was not a voluntary disposition without consideration in money or money's worth, it did not constitute a gift or deemed gift under the Gift-tax Act.

---

---

Issues: (i) whether the transfer of Rs. 3 lakhs by the sole surviving coparcener out of joint family property in favour of his three daughters was void ab initio; (ii) whether the declaration setting apart the for the daughters' education amounted to a family settlement or partial partition and not a gift; (iii) whether the transaction constituted a gift or deemed gift under the Gift-tax Act, 1958.

Issue (i): whether the transfer of Rs. 3 lakhs by the sole surviving coparcener out of joint family property in favour of his three daughters was void ab initio.

Analysis: A sole surviving coparcener has absolute power to deal with coparcenary property as if it were separate property. The existence of an adopted son with a claimed undivided interest did not prevent the assessee from dealing with the property allotted to the smaller HUF, and the daughters' possible claim to maintenance did not curtail that power. The transfer was therefore not void merely because it was made out of joint family property.

Conclusion: The transfer was not void ab initio.

Issue (ii): whether the declaration setting apart the funds for the daughters' education amounted to a family settlement or partial partition and not a gift.

Analysis: A family settlement does not require strict antecedent title if the parties are related and have a possible or semblance of claim. Unmarried daughters had a right to maintenance from joint family property, and maintenance includes education. The amount set apart was made in discharge of that family obligation. On those facts, the declaration was treated as a unilateral but valid family arrangement resulting in a partial partition of the relevant property.

Conclusion: The transaction was a family settlement and partial partition, not a gift.

Issue (iii): whether the transaction constituted a gift or deemed gift under the Gift-tax Act, 1958.

Analysis: A gift under the Act requires a voluntary transfer without consideration in money or money's worth. A provision made for the maintenance and education of unmarried daughters in discharge of a legal obligation is not voluntary in the relevant sense and is supported by consideration in law. Since the transaction was a family settlement made to discharge an obligation of maintenance, it did not fall within the definition of gift and could not be treated as a deemed gift either.

Conclusion: The transaction was neither a gift nor a deemed gift.

Final Conclusion: The addition to gift-tax could not be sustained and the assessee succeeded in the appeal.

Ratio Decidendi: A settlement made by a sole surviving coparcener out of joint family property in discharge of the legal obligation to maintain and educate unmarried daughters is not a gift, because it is neither a voluntary transfer in the relevant sense nor one made without consideration in money or money's worth.

---