Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the deed of settlement dt. 1st April, 1981, was a deed of transfer and not a deed of family settlement ?

Counsel Appeared

Philip George, for the Applicant : C.V. Rajan, for the Respondent

JUDGMENT

MRS. A. SUBBULAKSHMY, J. :

At the instance of the assessee, the following question of law has been referred to this Court for opinion : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the deed of settlement dt. 1st April, 1981, was a deed of transfer and not a deed of family settlement ?”

2. The deceased assessee was an individual. He filed returns of his income for the asst. yr. 1982-83 declaring his income at Rs. 20,450. The ITO added an amount of Rs. 34,550 to this income under s. 64(1)(v) of the Act as an amount of Rs. 3,40,000 was received by the assessee’s son under a family settlement dt. 1st April, 1981 and it amounts to transfer without consideration and consequently a gift and so, the interest accrued on this gifted amount by the assessee to his minor son is liable to be added to the income of the assessee under s. 64(1)(v). The assessee appealed to the AAC and contended that the settlement would not amount to transfer and adding of interest accrued on this amount to the income of the assessee under s. 64(1)(v) is not justified. The AAC rejected the contention of the assessee and dismissed the appeal. On further, appeal to the Tribunal, the Tribunal held that the transaction would amount to transfer and not a family arrangement and the properties were the absolute properties of the assessee and the deed of the settlement was not a bona fide one as there was no dispute among the family members and so, this amount of Rs. 3,40,000 settled by the assessee on his minor son under the deed of settlement amounts to transfer. Accordingly, the Tribunal was of the view that the transfer is withoutconsideration and it amounts to a gift to the minor son of the assessee and consequently, the interest accrued on such gift should be added to the income of the assessee under s. 64(1)(v) and accordingly dismissed the appeal.

3. Counsel for the assessee submitted that the assessee had executed the family settlement among the members of his family under the deed of settlement dt. 1st April, 1981 giving this sum of Rs. 3,40,000 in favour of his minor son. The recital in that document is that, “it is hereby agreed that the party of the fourth part shall own and possess and enjoy as full and absolute owner of the monies amount to Rs. 3,40,000 as described in the Annexure and that nobody else has any claim……” This deed clearly provides that this amount of Rs. 3,40,000 is given to the minor son of the assessee. That document takes effect immediately.

4. Counsel for the assessee submitted that the family arrangements, of movable even when reduced to writing, need not be registered. He relies upon the decision Kale vs. Dy. Director of Consolidation AIR 1976 SC 807 which lays down that the family settlement must be bona fide. In that decision it is held that : “The family settlement must be a bona fide one so as to resolve family dispute and rival claims by a fair and equitable division or the allotment of properties between the various members of the family. The family arrangement may be even oral in which case no registration is necessary. The registration would be necessary only if the terms of the family arrangement are reduced into writing.” In the instant case, the deed executed by the assessee relates to movable property. So registration of the document does not arise. The assessee has executed the deed giving this amount of Rs. 3,40,000 to his minor son. This amounts to transfer within consideration. The Tribunal also found that, in fact, there is no existing dispute between the assessee and his minor son and other children with regard to the property which is the subject-matter of settlement and in the view of minor son and other children of the assessee not having any right over the property and in the absence of any dispute among the family members, it amounts only to transfer without consideration. The amount involved was the absolute property of the assessee. It is not the case of the assessee that there was any dispute among the family members and only due to rival claims, the family settlement had to be necessarily executed for fair and equitable division of the properties among the various members of the family. The above Court in Ram Charan vs. Girja Nandini AIR 1966 SC 323 has held that : “Courts give effect to a family settlement upon the board and general ground that its object is to settle existing or future disputes regarding property amongst members of a family. In this context the word ‘family’ is not to be understood in a narrow sense of being a group of persons whom the law recognises as having a light of succession or having a claim to a share in the disputed property. The consideration for a family settlement is the expectation that such a settlement will result in establishing or ensuring amity and goodwill amongst the relations. That consideration having passed by each of the disputants the settlement consisting of recognition of the light asserted by each other cannot be impeached thereafter.”

In the case of CIT vs. Ponnammal (1986) 54 CTR (Mad) 319 : (1987) 164 ITR 706 (Mad) : TC 35R.441, it has been held that : “in the instant case, it was found as a fact that the family arrangement had been brought about by the intervention of the panchayatders and this clearly showed that the sons and daughters of the assessee were laying claims to the property which the assessee got under the will of her father and it was not relevant at the time when the family arrangement was entered into to find out as to whether such claims if made in a Court of law would be sustained or not. If the assessee found it worthwhile to settle the dispute between herself, her sons and daughters by making the family arrangement, the said arrangement could not be ignored by a tax authority. In view of the finding of the Tribunal, the family arrangement, dt. 17th Dec., 1971, had to be held to be a valid piece of document and, hence, the Tribunal was right in its view that no transfer of property was involved within the meaning of s. 2(xxiv) of the GT Act and, hence, there was no liability to gift-tax either under s. 4(1)(a) or under s. 4(2) and consequently no question of inclusion of the income of the minor in the hands of the assessee would also arise.” In C.G.T. vs. S.N. Zahan & S.M. Elahi (1997) 137 CTR (Gau) 385 : (1996) 221 ITR 842 (Gau) : TC S35.3300 it has been held that : “A family settlement is made just to avoid disputes to maintain the honour and dignity of family. It is neither a partition nor an exchange. Dispute not only means existing dispute, but also a dispute which is possible or is likely to occur in future and that the family settlement was valid. The provisions of s. 2(xxiv)(d) of the GT Act, 1958, were not applicable.” In the decision reported in (1986) 54 CTR (Mad) 319 : (1987) 164 ITR 706 (Mad) : TC 35R.441 (supra), it was found that the family arrangement was brought about by the investigation of the panchayatdars and the sons and daughters of the assessee were laying claims over the property and so, the document regarding the family arrangement had to be executed and accordingly, it was held that there is no transfer of property. In the decision reported in (1997) 137 CTR (Gau) 385 : (1996) 221 ITR 842 (Gau) : TC S35.3300 (supra) it was held that the family settlement was made just to avoid disputes and to maintain honour and dignity of the family and accordingly it was held that the family arrangement was valid and the provisions of s. 2(xxiv)(d) of the GT Act, 1958 are not applicable.

The instant case does not fall under that category. There is immediate transfer of Rs. 3,40,000 by the assessee in favour of his minor son. There was also no existing dispute and rival claims. This settlement of Rs. 3,40,000 by the assessee on his minor son amounts to transfer without consideration and it clearly amounts to gift to the minor son by the assessee. So, the finding of the authorities below that the interest accrued on this gift to the minor should be added to the income of the assessee under s. 64(1)(v) of the IT Act is perfectly justified and the order passed by the Tribunal does not warrant any interference. We answer this question in the affirmative, in favour of the Revenue and against the assessee.

[Citation : 248 ITR 251]