Bona fide family settlement held outside gift-tax where property relinquishment resolved family disputes and equalised shares.

A bona fide family settlement executed to resolve existing and potential disputes, supported by a memorandum of understanding, affidavits and surrounding circumstances, was treated as a family arrangement rather than a transfer in the nature of a gift. The assessee's relinquishment of his share in property in favour of his sons was aimed at preserving peace, harmony and equalisation of family shares. On those facts, the relinquishment did not constitute a deemed gift under the Gift-tax Act and was outside the charge of gift-tax.

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Issues: Whether the relinquishment of the assessee's share in the property in favour of his sons under a family settlement constituted a transfer exigible to gift-tax under the Gift-tax Act, 1958, or a bona fide family arrangement not amounting to a gift.

Analysis: The record showed a memorandum of mutual understanding supported by affidavits and surrounding circumstances indicating continuing family disputes and an attempt to preserve peace and harmony within the family. The arrangement provided for equalisation of shares among the family members and was entered into to resolve existing and potential disputes. A bona fide family settlement made to settle such disputes is treated as a family arrangement and not as a transfer in the nature of a gift. On the facts, the lower authorities erred in treating the relinquishment as a deemed gift.

Conclusion: The relinquishment did not amount to a gift and was outside the charge of gift-tax.

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