Income Tax Appellate Tribunal - Hyderabad
B. vs K. S. Srinivasa Rao V. Assistant ... on 13 April, 1993
Equivalent citations: (1993)47TTJ(HYD)334
ORDER
A. VENKU REDDY, J. M. :
Since common issues arise for decision in these appeals filed by different assessee, both the appeals have been heard together for disposal by a common order.
2. The facts that led to the filing of the appeals are briefly as follows. One Smt. B. V. Subbayamma is the wife of Shri B. V. Kameswara Rao. They have a daughter by name M. Susheela (appellant in GTA No. 3/Hyd/92). Shri B. V. K. Srinivasarao (appellant in GTA No. 1/Hyd/92) is their adopted son. The said B. V. Subbayamma died intestate on 6th Dec., 1986 leaving behind certain properties including two buildings. On her death, her husband Sri B. V. Kameswara Rao, her daughter Suseela and her adopted son Srinivasarao each became entitled to a 1/3rd share in the properties left by her. The immovable properties left by her were valued at Rs. 8,25,000. The daughter and adopted son who are each entitled to an undivided 1/3rd share in the properties left by their mother executed a release deed dt. 20th June, 1987, relinquishing their rights in the immovable properties in favour of their father B. V. Kameswara Rao, after receiving a total consideration of Rs. 1 lakh from the latter. Thus, in effect the daughter and son each received a sum of Rs. 50,000 and relinquished their joint 2/3rd shares in the immovable properties left by their mother in favour of their father. The Assessing Officer by invoking the provisions of S. 4(1)(a) of the GT Act held that the value of the 1/3rd shares was Rs. 3,38,475, that the son after receiving Rs. 50,000 from his father relinquished his 1/3rd share in favour of his father and that the difference of Rs. 2,88,475 constituted the gift to father. Likewise, he held that the difference of Rs. 2,88,475 being the difference between the value of the 1/3rd share and the consideration of Rs. 50,000 constituted the gift by the daughter to their father. Accordingly, the Assessing Officer took the value of the gift in each case at Rs. 2,88,475 and assessed it to gift-tax after allowing the basic exemption. Aggrieved by it, both the assessee, i.e., the daughter and the son of the alleged donee preferred appeals before the first appellate authority contending inter alia that the transaction of release did not involve any element of gift, that it was only a family settlement intended to settle the rival claims peacefully and that the Assessing Officer erred in treating the difference between the value of the property and the value of the consideration received by each assessee as deemed gift. It would appears that late B. V. Subbayamma possessed 215 sovereigns of gold also in the form of jewellery. The said jewellery was divided among the daughter and the son even during the life time of the said Subbayamma. It was not the subject-matter of the release deed. Still the Assessing Officer included the value of the said gold jewellery also while computing the actual value of the gift in each case. The first appellate authority held that there was no element of gift involved in respect of the movable properties including the jewellery, that the GTO was not correct in taking the value of the gold jewellery of Rs. 2,92,400 in computing the assessable gift, and that the GTO should exclude the value of the movable properties while computing the assessable gift. However, the first appellate authority held that, inasmuch as, the appellants who owned 1/3rd share in the immovable property valued at Rs. 8,25,000 have relinquished their rights each taking a petty amount of Rs. 50,000, element of gift is involved in the said transaction. Hence, he held that the GTO was correct in treating it as a gift. He directed the GTO to compute the gift by taking the value of only the immovable property into consideration. Still aggrieved by it, the assessees preferred these appeals.
3. The learned counsel appearing for the appellants submit that the release deed in question came to be executed in pursuance of a family arrangement or settlement, that the bona fides of the release deed were never disputed by the Revenue, that when the bona fides of the transaction are not disputed, no question of treating the difference between the market value and the actual consideration as deemed gift arises, that in order to maintain peace and harmony in the family and on the advice of the elders and well wishers, the appellants executed the relinquishment deed in favour of their old father with the fond hope of getting back the property on the demise of their old father, and that the transaction does not involve any element of gift or deemed gift.
4. The learned Departmental Representative while refuting the submissions made on behalf of the appellants contended that the transaction in question falls under S. 4(1)(a) of the GT Act and, hence, we need not go into the bona fides of the transaction, that it is a case where only the question of adequacy of consideration has to be gone into and nothing else and that even a release deed in respect of immovable property amounts to transfer of property and that the assessments have been rightly made.
5. We have duly considered the rival submissions. Admittedly, one B. V. Subbayamma owner of the two buildings in question died intestate on 6th Dec., 1986 leaving behind her husband, her daughter and her adopted son. Those three persons each became entitled to an undivided 1/3rd share in the property left by Smt. B. V. Subbayamma who died on 6th Dec., 1986. There is no dispute regarding the fair market value of the said property. Its value was taken at Rs. 8,25,000. Admittedly, on 20th June, 1987, both the appellants executed a registered document relinquishing their joint 2/3rd share in the immovable property in question in favour of their father for a consideration of Rs. 1 lakh. The relevant portion of the said relinquishment deed executed by the appellants in favour of their father when translated into English runs as follows :
"You are our father. Your wife and our mother Smt. B. V. Subbayamma died intestate on 6th Dec., 1986 without making any written arrangement regarding her movable and immovable properties. On her death her entire property movable and immovable devolved on you and us under Hindu Succession Act as we being her class I legal heirs. We had already divided the gold, etc., amongst us.
As we felt that it would be more beneficial for us to receive some cash consideration from you and relinquish our joint right in the property in your favour than to enjoy the said property jointly alongwith you, we have approached you with the said proposal in the presence of the well wishers of our family and you have accepted our proposal. On our request at the time of the execution of this relinquishment deed, you have paid us each Rs. 50,000 through two Demand Drafts dt. 18th June, 1987 bearing Nos. 947120 and 947121 issued by the Indian Bank, Gandhinagar, Vijayawada. Thus, we both received a consideration of Rs. 1 lakh from you. Hence, we are hereby relinquishing our joint right in the property left by our mother in your favour."
Thus, it was a transaction between close kith and kin. Except one daughter and an adopted son, there was no other nearest relative for the alleged donee to think of.
Naturally, in order to satisfy the wishes and sentiments of that old man, his son and daughter executed the relinquishment deed after receiving a consideration of Rs. 1 lakh. The said relinquishment deed was the result of the advice given by the family well-wishers, relatives and friends as mentioned in the said document. It came to be executed obviously for maintaining peace in the family so that there may not be any disputes regarding the respective claims of the father, son and daughter. It is bona fide transaction entered into between the parties. No element of gift was involved in it since it was only in the nature of a bona fide family arrangement or a family settlement.
6. In Santok Singh vs. GTO (1986) 25 TTJ (Del) 95 : (1985) 14 ITD 445 (Del), the assessee therein had abandoned his share in two joint family properties by virtue of a family settlement amongst the owners. The Assessing Officer held that the surrender of properties constitutes a deemed gift attracting S. 4(1)(c) of the GT Act and the same was upheld by the Commissioner(A). The Delhi Bench of the Tribunal held that the assessee therein bona fidely abandoned his share in the properties in order to avoid disputes and misunderstandings add that it was a case of a bona fide and genuine family settlement with a view to keep family harmony and maintain peace amongst family members, and that no element of gift was involved in it. In the case of Trustees of Mt. Mapean Trust vs. First GTO (1987) 20 ITD 365 (Bom) the assessee-trust offered some of its properties for sale for a consideration of Rs. 8 lakhs. Accepting the said offer Shri V. K. Dubash purchased the said property for Rs. 8 lakhs. According to the GTO the value of the said property was about Rs. 76 lakhs. Hence, he brought the difference between the sale price and market price to tax by treating the same as deemed gift under S. 4(1)(a) and the same was upheld by the Commissioner(A). The Tribunal, Bombay Bench A held that the purchaser had been conferred the right to purchase the property by virtue of the trust-deed, that the market value even if it was higher than the stated consideration would be in satisfaction of his right as per the terms of the trust deed and not by operation of any transaction amounting to sale or gift and that the consideration of Rs. 8 lakhs for the sale could not in that situation be called inadequate and, hence, there was no deemed gift within the meaning of S. 4(1)(a) of the GT Act. Thus, we have to take into consideration, the circumstances that promoted the execution of the release deed also. In the case on hand, the person in whose favour the relinquishment was made was none else than the father of the appellants. They were all owning an undivided 1/3rd shares each in the two buildings. It was not convenient for them to divide each building into three shares. Hence, the elders and well-wishers advised the appellants to receive some cash consideration from their father and relinquish their rights in the property in favour of their father. Except the appellants, there was no other close relative for their father. Naturally, the appellants must have been hoping to get back the said property from their father on the latters demise. All those facts together go to constitute the consideration for the transaction.
7. At this juncture it would be relevant to refer to the decision of the Tribunal, Madras Bench C in the case of Second GTO vs. V. S. C. Balasubramanian (1984) 20 TTJ (Mad) 107. In that case, the assessee had released his undivided 1/4 share in a residential house for a consideration of Rs. 25,000. In that case, the total value of the building was taken at Rs. 2,25,000 and the assessees 1/4 share was valued at Rs. 57,000. The difference between the said value and the consideration stated in the release deed was taken as the value of the deemed gift. The first appellate authority cancelled the assessment holding that there was no element of gift involved in it. Tribunal upheld the view taken by the first appellate authority observing as follows :
"The Revenue is not able to assail the finding of the fact that it was a single residential unit which could not be divided and sold separately and the asset transferred was in fact only an indivisible 1/4th interest. The Revenue also has no evidence to show that either the transaction was in any way mala fide or that the consideration of Rs. 25,000 paid thereon was in any way inadequate. Since it has not been established that the transfer was otherwise than for adequate consideration the AAC was Justified in holding that there was no deemed gift under S. 4(1)(a) for which an assessment could be made."
In the case on hand, each of the two appellants owns an undivided 1/3rd share in each of the two house properties. Each of these house properties cannot be divided into three portions and enjoyed conveniently. That was the reason why the appellant and their father at the instance of the well-wishers of their family thought if fit to bring into existence the relinquishment deed in question by way of a family settlement with a view to maintain peace and harmony in the family and to avoid possible disputes and rival claims in future.
8. In Ziauddin Ahmed vs. CGT (1976) 102 ITR 253 (Gau), the Gauhati High Court held that a family settlement entered into by the parties who were members of a family, bona fide to put an end to disputes among themselves is not a transfer, and that Courts give effect to a family settlement upon the broad and general ground that the object is to settle existing or future disputes regarding property amongst members of a family. In that case, a father transferred some shares to his sons at a consideration which was far less than the market value as he wanted to have peace in the family. The transaction was bona fide. The Gauhati High Court held that the said transaction was not a transfer but only a family arrangement, that in order to bring a case within the scope of S. 4(1)(a) of the GT Act, there must be a transfer for consideration and such consideration must have been found to be inadequate and that the provisions of S. 4(1)(a) were, therefore, not attracted to the facts of the said case. The ratio of the said decision equally applies to the facts on hand. The decision equally applies to the facts on hand. The decision in S. S. Bhai vs. CIT (1985) 156 ITR 509 (SC) relied on by the learned Departmental Representative has no application to the facts on hand. In our considered opinion, the transaction covered by the relinquishment deed in question is only a bona fide family arrangement and no element of gift direct or deemed is involved in it. Even otherwise the consideration cannot be stated to be inadequate. Adequacy of the consideration is to be looked into by taking into consideration all the surrounding circumstances. Here it is a case where father, daughter and son were each having a 1/3rd share in the property which cannot be conveniently divided for convenient enjoyment. Taking into consideration the surrounding circumstances, the consideration cannot be said to be inadequate. In CGT vs. Indo Traders & Agencies (Madras) Pvt. Ltd. (1981) 131 ITR 313 (Mad) the Madras High Court while considering a case arising under S. 4(1)(a) of the GT Act held that if the consideration which passed between the parties can be considered to be reasonable or fair it cannot be said to be inadequate, that adequate consideration is not necessarily what is ultimately determined by someone else as market value and that unless the price was so low to shock the conscience of the Court it would not be possible to hold that the transaction is otherwise than for adequate consideration.
9. Seen from any view of the matter, the gift-tax assessments made by the GTO against the appellants are unjustified and are liable to be set aside. Accordingly, the said assessments are cancelled.
10. In the result, both the appeals are allowed.