Vested heirship shares and family settlement: relinquishment of separately vested property share was treated as taxable gift

On the death of a Hindu intestate, the heirs acquired vested shares immediately in the self-acquired estate, so the daughter's relinquishment of her separately vested share was treated as a gift and not a genuine family arrangement. The purported dispute in the deed was not accepted as bona fide for those properties, and the transfer remained liable to gift-tax. In contrast, as to the joint family properties, a possible dispute over the quantum of the daughter's share was recognised, so the settlement was accepted to that limited extent. The document was also found to have been procured under undue influence, and both the assessee's appeal and the Department's cross appeal were dismissed.

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Issues: Whether the relinquishment deed amounted to a valid family settlement for gift-tax purposes, and whether the assessee's shares in the self-acquired and joint family properties of her father were liable to gift-tax.

Analysis: On the facts, the purported dispute recited in the deed was not accepted as genuine in relation to the self-acquired properties. The succession to the father's estate was held to have opened immediately on his death, and under the Hindu Succession Act the son and daughter took definite shares in the self-acquired properties as separate properties. A transfer by the daughter of her share in such properties was therefore treated as a gift and not as a family arrangement. As regards the joint family properties, however, the possibility of dispute over the quantum of the daughter's share was recognised, and the arrangement was accepted as a bona fide family settlement to that extent. The document was also found to have been brought about under undue influence.

Conclusion: The deed was not a valid family settlement in respect of the self-acquired properties and the transfer relating to those properties remained liable to gift-tax, while the settlement was accepted only in relation to the joint family properties. The assessee's appeal and the Department's cross appeal were both dismissed.

Final Conclusion: The appellate order sustaining taxability only to the extent indicated by the lower authority was upheld, with no further interference.

Ratio Decidendi: On the death of a Hindu intestate, the heirs acquire vested shares immediately, and a relinquishment of a separately vested share in the guise of a family settlement is taxable as a gift unless it is supported by a bona fide dispute and valid family arrangement.

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