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Issues: Whether the transfer of Rs. 1.50 lakhs by the assessee to his grandsons in the course of a family settlement was liable to gift-tax.
Analysis: A bona fide family settlement entered into to avert future disputes and preserve amity is not treated as a transfer for gift-tax purposes. The surrounding circumstances showed that the assessee had originally intended to adopt one of his daughter's children, later changed his decision, and, to assuage the daughter's injured feelings and avoid family discord, settled the amounts in favour of her children. The fact that the original return had treated the amount as taxable did not control the true legal character of the transaction. A family settlement need not be confined to persons having strict legal title; even a possible claim or a semblance of claim arising from family relationship or affection is sufficient.
Conclusion: The transfer was part of a family settlement and was not liable to gift-tax.
Ratio Decidendi: A bona fide family settlement made to resolve or avert family disputes and promote family amity is not a transfer for gift-tax purposes, even where the beneficiaries have only a possible claim or a semblance of claim rather than an enforceable legal right.
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