Bona fide family settlement excludes deemed gift where relinquishment of undivided property serves to avoid disputes.

A relinquishment deed by close family members in favour of their father, executed for cash consideration as part of a bona fide family settlement, was treated as outside the gift-tax net. Where the properties had devolved in equal undivided shares and were not conveniently divisible, the surrounding family circumstances and the object of preserving peace and avoiding disputes supported the character of a genuine family arrangement. In that setting, no element of direct or deemed gift arose, and the consideration could not be treated as inadequate merely because it was below market value.

---

---

Issues: Whether the relinquishment deed executed by the son and daughter in favour of their father, on receipt of cash consideration, constituted a deemed gift chargeable to gift-tax under section 4(1)(a) of the Gift-tax Act, or was a bona fide family arrangement outside the scope of gift-tax.

Analysis: The properties had devolved on the father, daughter and adopted son in equal undivided shares, and the house properties were not conveniently divisible. The relinquishment was executed between close family members pursuant to advice of elders and well-wishers, with the object of maintaining peace and avoiding disputes. The consideration cannot be viewed in isolation from the surrounding family circumstances, and the transaction was held to be a genuine family settlement. In such a bona fide arrangement, no element of gift, direct or deemed, arises, and the consideration received cannot be said to be inadequate merely because it was below the market value.

Conclusion: The transaction was not a deemed gift and the gift-tax assessments were unsustainable.

---