Family settlement and deemed gift: inter se rights adjustment without proved bounty does not attract gift-tax liability.

A family arrangement among co-owners was examined for deemed gift liability under the Gift-tax Act. The text states that a deemed gift arises only if the element of bounty, and its extent, is clearly established; on the stated facts, the arrangement merely adjusted inter se rights and no demonstrable bounty was shown. It further notes that the valuation differences relied on by the revenue were too imprecise to sustain a gift-tax charge. The settlement was treated as a bona fide family arrangement recognising and defining pre-existing rights, and was said not to attract gift-tax liability.

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Issues: Whether the rights adjusted under the family arrangement among co-owners amounted to a deemed gift under section 4(1) of the Gift-tax Act, 1958.

Analysis: For a deemed gift to arise in a family arrangement, the element of bounty and its extent must be clearly established. On the facts, the arrangement only sorted out the inter se rights of the co-owners in the properties, and no demonstrable bounty was shown. The valuation differences relied upon by the revenue were not sufficiently precise to support a gift-tax charge. The arrangement was also treated as a bona fide family settlement recognising and defining pre-existing rights, which did not attract gift-tax liability.

Conclusion: The transaction did not give rise to a deemed gift, and the additions made on that basis could not stand; the assessees succeeded.

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