Commissioner Of Gift-Tax vs S.N. Zaman And S.M. Elahi

Equivalent citations: 1996 221 ITR 842 Gauhati

Author: D Baruah

Bench: D Baruah, B S Neelam

JUDGMENT D.N. Baruah, J.

1. On the application of the Revenue under Section 26(1) of the Gift-tax Act, 1958 (for short, "the Act"), the following questions have been referred by the Income-tax Appellate Tribunal for opinion of this court : ' "1. Whether the Tribunal was justified in facts as well as in law in holding that so-called agreement dated December 5, 1979, is a valid family settlement, specially in view of the fact that it was made simply to avoid future disputes between the two sons of the late Rahim Buksh ?

2. Whether the Tribunal did not err in facts as well as in law in applying the ratio of the decision of the Gauhati High Court in the case of Ziauddin Ahmed v. CGT [1976] 102 ITR 253 especially in view of the fact that in that case there was a family dispute which took a serious turn in 1959 to put an end to which the settlement was made whereas in the instant case there is no such family dispute ?

3. Whether under the facts and circumstances of the case, the provisions of Section 2(xxiv)(d) of the Gift-tax Act, 1958, is not applicable ?"

2. For the purpose of answering the questions the facts may be narrated as follows :

Rahim Buksh, father of the assessees, started a business in his individual capacity. Subsequently, this business was converted into a partnership firm under a deed of partnership dated October 1, 1966, under the name, R.B. Stores, and was registered as such on October 24, 1967. In this partnership business, Rahim Buksh and his two sons were partners. Rahim Buksh held 40 per cent. share in the business. He also owned 1/4th share in the house property in the Police Bazar, Shillong. Remaining three fourths of the property had been acquired by his two sons out of their individual sources. On December 5, 1979, the said partnership firm was dissolved and the accounts were made up to that time. The capital of Rahim Buksh was Rs. 1,40,424. This was equally divided between the two sons. On the same day, i.e., December 5, 1979, a family agreement was made between Rahim Buksh and his two sons and was registered. On July 30, 1980, Rahim Buksh filed a gift-tax return showing Rs. 1,40,423 being the amount of capital in his name as on December 5, 1979, in the firm of R.B. Stores. The date of gift was shown as December 4, 1979. Rahim Buksh died on January 28, 1982. Thereafter his legal representative filed a gift-tax return showing the gift as nil. It was stated in the return that the share of the deceased in the firm of R. B. Stores and the property at Police Bazar, Shillong, had been given away to his sons, S.N. Zaman and S.M. Elahi, by way of family settlement dated December 5, 1979. The Gift tax Officer rejected the contention that there was no gift and that the properties had been transferred by virtue of family settlement dated December 5, 1979, and distinguished the decision in Ziauddin Ahmed [1976] 102 ITR 253 (Gauhati). The Gift-tax Officer, therefore, made an assessment on 40 per cent. share of the capital of the deceased in the firm, R.B. Stores and also included 1/4th share value of the property. On appeal, the Appellate Assistant Commissioner of Gift-tax upheld the contention of the assessees that the agreement dated December 5, 1979, was a family settlement, that the donees had filed a nil return for the transfer of property did not constitute a gift and that such transfer had taken place by a registered deed of family settlement. The Revenue preferred an appeal before the Tribunal. Before the Tribunal it submitted that there should be dispute between the parties in consequence whereof settlement should be made for mutual interest and this essential ingredient was not present in the present case. In support of its contention, the Revenue relied on the decisions of the Supreme Court in the case of CGT v. N.S. Getti Chettiar [1971] 82 ITR 599 and in the case of Ram Laxman Sugar Mills v. CIT [1967] 66 ITR 613. The Tribunal finding that all the ingredients for a valid family settlement were present in the present case and that the averments in the agreement dated December 5, 1979, having not been questioned, applying the ratio of the decision of this court in the case of Ziauddin Ahmed v. CGT [1976] 102 ITR 253 upheld the Appellate Assistant Commissioner's order dismissing the appeal filed by the Revenue. Thereafter, on the request of the Revenue, the above questions have been referred by the Tribunal for opinion of this court.

3. Heard Mr. G.K. Joshi, learned counsel assisted by Mr. U. Bhuyan, learned counsel appearing on behalf of the Revenue. None appears on behalf of the assessees.

4. Mr. Joshi submits that in order to constitute a family arrangement there must be an existing dispute and in the present case there was no dispute whatsoever at the time of family arrangement. The Tribunal, however, said that family arrangement was effected just to avoid future dispute.

5. In order to appreciate the submission of Mr. Joshi, it is to be seen what constitutes a family settlement. Family settlement is made just to avoid dispute to maintain the honour and dignity of a family. It is neither a partition nor an exchange. Now the question is whether the dispute must be in existence at the time of family settlement. The Supreme Court in Ram Charan Das v. Girja Nandini Devi, AIR 1966 SC 323 held thus (at page 329) :

"Courts give effect to a family settlement upon the broad and general ground that its object is to settle existing or future disputes regarding property amongst members of a family. The word 'family' in the context is not to be understood in a narrow sense of being a group of persons who are recognised in law as having a right of succession or having a claim to a share in the property in dispute."

6. In another decision in Maturi Pulliah v. Maturi Narasimham, AIR 1966 SC 1836, the Supreme Court held thus (at page 1841) ;

"Briefly stated, though conflict of legal claims in praesenti or in future is generally a condition for the validity of a family arrangement, it is not necessarily so. Even bona fide disputes, present or possible, which may not involve legal claims will suffice. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement. If such an arrangement is entered into bona fide and the terms thereof are fair in the circumstances of a particular case, courts will more readily give assent to such an arrangement than to avoid it."

7. From the observations of the apex court it is very clear that the dispute not only means the existing dispute, but also dispute which is possible or is likely to occur in future. This court also in Ziauddin Ahmed's case [19.76] 102 ITR 253 (Gauhati) quoting the decision of the Supreme Court in Ram Charan Das' case, AIR 1966 SC 323, held that family dispute includes future dispute. In a very recent decision in CIT v. Mrs. Bibijan Begum [19961 221 ITR 836 (Income-tax Reference No. 43 of 1990), this court held thus (at page 841) : "Family arrangement presupposes either an existing dispute likely to occur in future and to resolve those disputes such family arrangement can be made."

8. In view of the above, we answer question No. 1 in the affirmative, against the Revenue and in favour of the assessees and questions Nos. 2 and 3 in the negative, in favour of the assessees and against the Revenue.

9. A copy of this judgment under the signature of the Registrar and the seal of the High Court shall be transmitted to the Income-tax Appellate Tribunal, Guwahati.