Family arrangement must rest on antecedent rights; sons' services can count as consideration for gift-tax valuation.

A transfer to a wife and sons is not excluded from gift-tax as a family arrangement unless there is a factual basis of antecedent rights, a bona fide settlement of family claims, or evidence of an actual family dispute; on the facts, that foundation was absent, so the exemption claim failed. Services rendered by the sons can constitute valuable consideration and may justify a reasonable remuneration deduction even without a prior wage agreement; the transfer was therefore not wholly gratuitous to that extent, and only the balance remained taxable as a gift. The allowable deduction was increased on the available material, reducing the taxable gift accordingly.

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Issues: (i) Whether the transfer of properties to the wife and sons could be treated as a family arrangement and therefore outside the ambit of gift-tax; (ii) Whether the sons' services to the assessee constituted consideration and, if so, what value was deductible while computing the taxable gift.

Issue (i): Whether the transfer of properties to the wife and sons could be treated as a family arrangement and therefore outside the ambit of gift-tax.

Analysis: A family arrangement ordinarily does not involve bounty and may be supported by antecedent title or bona fide settlement of family claims. On the facts, however, the sons had no pre-existing claim or title to the properties, were not shown to be parties to any family dispute, and no material was produced to establish that the transfer was meant to resolve any contested family right. The factual foundation necessary to characterise the transaction as a family arrangement was absent.

Conclusion: The claim of family arrangement failed and the transfer could not be excluded from gift-tax on that basis.

Issue (ii): Whether the sons' services to the assessee constituted consideration and, if so, what value was deductible while computing the taxable gift.

Analysis: Services rendered by the sons could be recognised as giving rise to an enforceable right to reasonable remuneration, and the absence of a prior wage agreement did not make valuation impossible. The transfer was therefore not wholly gratuitous to that extent. At the same time, the consideration was not equal to the value of the transferred properties, so the difference remained chargeable as a gift. On the material available, a reasonable remuneration was fixed at a higher figure than that adopted in the original assessment.

Conclusion: The sons were entitled to a higher deduction towards remuneration, and the taxable gift stood reduced accordingly.

Final Conclusion: The transfer was not a family arrangement, but the assessee succeeded to the extent that a larger allowance was warranted for the sons' remuneration, leaving only the balance liable to gift-tax.

Ratio Decidendi: A transfer is not exempt as a family arrangement unless the factual basis of antecedent rights or bona fide settlement of family claims is shown, and services rendered by transferees may constitute valuable consideration capable of reasonable estimation for gift-tax purposes.

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