Income Tax Appellate Tribunal - Ahmedabad
Dr. K.M. Shah vs Assistant Commissioner Of Gift Tax on 15 March, 2004
Equivalent citations: (2004)83TTJ(AHD)721
ORDER
T.K. Sharma, J.M.
1. This appeal by the assessee is directed against the order dt. 25th March, 1999 passed by the learned CGT(A)-VIII, Ahmedabad for asst. yr. 1995-96.
2. The facts leading to the dispute involved are that the assessee who is an individual was disclosing property known as 'Mohan Nivas' consisting of subplots Nos. 417/1/1, 417/1/2 and 417/1/4 in the return of income filed in his individual status as self-occupied property. Similarly, for the purpose of wealth-tax also, the assessee was disclosing the said property in the wealth-tax returns, in the individual status as self-occupied property. The arbitration award was passed in respect of sub-plots, whereby this individual property was converted into property belonging to the HUF and this HUF was partitioned to come 1/3rd in the above property to the assessee and his two sons viz., S/Shri Mrugesh K. Shah and Bhadresh K. Shah. The AO found that on these facts Section 4(2) of the GT Act which deals with gift to include certain type of transfer is attracted, holding that the assessee is liable to gift-tax in respect of conversion, of individual property into HUF property. The arbitration award was given on 30th March, 1995. The AO adopted the market value of each plot at Rs. 1,80,99,105 as on 30th March, 1995 and computed the total gift of Rs. 3,61,98,210. In the wealth-tax assessments also for asst. yrs. 1991-92 to 1994-95 the AO included the value of two vacant sub-plots as "urban land" within the meaning of WT Act. In wealth-tax assessments, the AO valued the bungalow on sub-plot No. 417/1/1 as per Schedule in of the WT Act and rejected the plea of the assessee that sub-plots Nos. 417/1/2 and 417/1/4 be treated as "land appurtenant" to the bungalow constructed on sub-plot No. 417/1/1.
3. Aggrieved by the order of the AO, the assessee filed the wealth-tax appeal in respect of asst. yrs. 1991-92 to 1994-95 as well as the gift-tax appeal against the gift-tax assessment for asst. yr. 1995-96. The learned first appellate authority upheld the action of the AO in wealth-tax appeals as well as gift-tax proceedings vide consolidated order dt. 25th March, 1999.
4. Aggrieved by the said order of the CWT(A)/CGT(A), the assessee filed the wealth-tax appeals before the Tribunal and vide order dt. 9th Jan., 2001 in WTA Nos. 55 to 58/Ahd/1999, the Tribunal has upheld the order of the CWT(A). The present gift-tax appeal is directed against the said order dt. 25th March, 1999 passed by the learned CGT(A) for asst. yr. 1995-96.
5. For the year under appeal, viz. asst. yr. 1995-96, the assessee filed the return of gift declaring total gift at Rs. Nil on 21st March, 1996. The AO from the income-tax/wealth-tax records of the assessee noticed that the assessee was disclosing the property known as 'Mohan Nivas' on sub-plot No. 417/1/1 and two vacant plots Nos. 417/1/2 and 417/1/4 in the returns of income in individual capacity. Similarly, the above said property was also disclosed by the assessee in his wealth-tax returns in individual status as "self-occupied" property. The AO also noted that the arbitration award was passed in respect of sub-plots whereby this property was converted into property belonging to HUF and this HUF was partitioned to come 1/3rd share in the above property to the assessee and his two sons viz. S/Shri Mrugesh and Bhadresh.
6. The AO keeping in view the provisions of Section 4(2) of the GT Act, issued a show-cause notice dt. 11th Feb., 1998 to the assessee to show-cause why the assessee is not liable to gift-tax for the conversion of individual property into HUF property. In response to the show-cause notice, the assessee has replied as under :
".......I am in receipt of your letter No. Cir. 8(3)/GT/1997-98 dt. 11th Feb., 1998 proposing to levy of gift tax on sub-plot Nos. 417/1/1, 417/1/2 and 417/1/4 by stating that said Mohan Nivas property belonged to individual and assessee had transferred said property to HUF and ultimately assessee transferred said property in partition of HUF to himself and his two sons. In compliance to same we have to submit that plots Nos. 417/1/1, 417/1/2 and 417/1/4 does not belong to me in my individual capacity but it belongs to Dr. K.M. Shah (HUF), which is decided by civil Court in Civil Suit No. 5332/1994 decided on 18th July, 1995, I have to further submit when there was dispute among family members regarding the ownership of certain properties including Mohan Nivas and its surrounding land, one of the members of HUF of Dr. K.M. Shah took the objection that the property known as Mohan Nivas and surrounding lands belongs to HUF of Dr. Kantilal M. Shah and not only his individual property and objected to sign the papers, etc. The matter was carried to Court by one of the members of HUF Dr. K.M. Shah namely Bhadresh K. Shah son of Dr. K.M. Shah. The Hon'ble Judge of city civil Court had admitted the suit bearing Civil Suit No. 5332 of 1994 and after hearing the parties the Hon'ble Court had appointed an arbitrator, Mr. S.N. Soparkar, by an order dt. 25th Oct., 1994 to collect the necessary evidence and documents, etc. and to arrive at the legal ownership of properties belonging to individual of HUF of Dr. K.M. Shah.
Mr. Soparkar thereafter proceeded on the matter and held conferences on various dates with plaintiff and defendants. He had collected all necessary documents and evidences regarding the disputed properties right from the very beginning of the plot purchased. After scrutinising all such original documents and evidence, Mr. Soparkar held in issue No. 2 that the properties described in Schedule No. 1 belongs to HUF property which includes the property namely Mohan Nivas including plot Nos. 417/1/1, 417/1/2 and 417/1/4. Such award dt. 30th March, 1995 was granted on stamp paper of Rs. 50 and submitted to city civil Court. Mr. Soparkar had taken all the care and made the proper verification of documents and evidences put before him and according to his expert knowledge he gave such award, which had been totally accepted by the Judges of city civil Court. The Hon'ble Judge of city civil Court in Civil Suit No. 5332 of 1994 decided and gave the judgment that the property namely Mohan Nivas and its surrounding land belongs to HUF of Dr. K.M. Shah and not the individual property of Dr. K.M. Shah. The Hon'ble Court also specifically accepted the partition of HUF of Dr. K.M. Shah and also described the properties allotted to each of the members of HUF, Annex. II, III, IV of their order dt. 18th July, 1995.
In view of above, I have to submit that the Hon'ble city civil Court has accepted the partition of the properties of HUF of Dr. K.M. Shah. In fact, I have not transferred any property to the HUF of Dr. K.M. Shah but originally the nature of the properties described in Schedule I belongs to HUF of Dr. K.M. Shah but though inadvertently were considered in my individual return. I have, therefore, to submit that I have not transferred any property to HUF. But whatever is done is one according to the law as held by Hon'ble Judges of city civil Court in Civil Suit No. 5332 of 1994. I, therefore, strongly object to your proposed assessment under the gift-tax law for transferring the properties in my individual case. Please notice that property does not belong to me and no part of gift-tax is involved in my individual case. Please, drop the gift-tax proceedings...."
6.1 The AO framed the gift-tax assessment on 30th March, 1998 under Section 15(3) of the GT Act computing the net taxable gift at Rs. 3,61,98,210 observing as under :
"The assessee's contention that property known as Mohan Nivas consisting of plots Nos. 417/1/1, 417/1/2 and 417/1/4 is not belonging to him but belongs to his HUF in view of the arbitration award given by Shri S.N. Soparkar, advocate, Shri Soparkar was appointed by the Hon'ble city civil Court, Ahmedabad. On going through the arbitration award, it is seen that the arbitrator has not given basis or any finding of his holding that the property belongs to the HUF of Dr. K.M. Shah. In view of the above, a further letter dt. 20th March, 1998 is issued to the assessee to furnish the following details :
(a) Date of acquisition of property known as Mohan Nivas and its adjacent land.
(b) Source of acquisition of property. Please clarify it was inherited or acquired by you.
(c) Copies of documents submitted by you before arbitrator Shri S.N. Soparkar in arbitration proceedings.
(d) Reason for your agreement to the proposition that property belongs to HUF.
(e) Reason for your agreement to the proposal of arbitrator to pronounce his award without giving reason in support of award.
The assessee vide his letter dt. 24th March, 1998 submitted that so far as knowledge, the property, Mohan Nivas, and adjoining land was purchased on 6th Jan., 1954 and to the best of his knowledge and belief, it was acquired out of fund available from the ancestor property. However, he further stated that he is trying to collect the details and shall submit the same as soon as he will gather it. As regards the query Nos. B and E, the assessee submitted that Shri Soparkar is expert in legal matter and therefore; his award was accepted. He requested for further time to collect the documents from his legal advocate. The assessee's above reply considered and not found satisfactory as the assessee has failed to furnish any proof or documents in respect of query raised by this office letter dt. 20th March, 1998. As the assessment gets time-barred on 31st March, 1998, it is not possible to grant further time as requested by the assessee.
In view of the above, it is held that property belongs to Shri Dr. K.M. Shah, individual and not his HUF.
In view of the above and keeping in view the facts of the case, it is clear that the assessee is liable to pay gift tax for the above mentioned conversion of individual property into HUF property. The arbitration award was given on 30th March, 1995. The market value of each plot comes to Rs. 1,89,99,105 as on 31st March, 1995. Thus, the market value of above two sub-plots comes to Rs. 3,61,98,210. The said amount is treated as gift made by Shri K.M. Shah to his two sons.
In view of the above and after discussion and from data made available, total gift is worked out as under :
Total gift as discussed above 3,61,98,210 Less : Basic exemption 30,000 Net taxable gift 3,61,68,210"
7. In the impugned order, the learned CGT(A) held that the property in question belonged to Dr. K.M. Shah in his individual capacity. Regarding the question whether there was any gift by Dr. K.M. Shah to his two sons, the learned CGT(A) examined the issue in the light of finding that the property is that of an individual and following two alternatives possible in such situation :
(i) If the property in question is to be now treated as HUF property by virtue of the award and the decree of the Court, then it can be said that Dr. K.M. Shah had impressed his individual property with the character of an HUF property. In such a situation, the provisions of Section 4(2) of the GT Act would be applicable and in view of the said provisions, the appellant shall be deemed to have made a gift of 2/3rd share in the immovable property to his two sons.
(ii) If the award of the arbitrator and the decree of the Court is not to be taken into account for the limited purpose of the Direct Tax Laws, then it can be said that Dr. K.M. Shah sold his individual property and gave 2/3rd of the sale proceeds to his sons and as such made a gift of the said amount to his sons.
The CGT(A) held that under both the circumstances gift-tax is liable in respect of 2/3rd of the property.
8. Aggrieved by the order of the CGT(A), the assessee is in appeal before us and has raised the following grounds :
(1) That the learned CGT(A) ought to have held that the property in question belonged to "HUF" of Dr. K.M. Shah and not to him as "individual".
(2) Alleged gift not falling within period of asst. yr. 1995-96, entire order is illegal and bad in law.
(3) The award ought to have been accepted and could not have been termed as collusive and unenforceable on any count, especially when learned AO has adopted date of "award" as date of "gift".
(4) That impressing individual property as of HUF property could only be in the year-1954 and/or 1968 when the bungalow was constructed and the relevant amendment in Section 4(2) of the Act having been brought on statute book only from 1st April, 1972, no gift-tax could have been levied on the said count.
(5) That on facts of the case the decree of the Court is neither collusive nor unenforceable but can be said to be resultant into family arrangement as per tenor of award.
(6) That the land in question standing in the name of two sons right from 1954 and having executed gift deed to sisters in 1968, their interest in the property could not have been ignored:
(7) That the urban land ceiling proceedings are not taken into account, property wherein the High Court has also confirmed the right and interest of the two brothers in the said property with their father, (8) That all the recipients having paid capital gains at 20 per cent. a fixed rate of tax, there could not be any motive of tax evasion.
(9) Lastly, the valuation ought to have been made under Schedule II of the GT Act which in turn adopted Schedule III of the WT Act, 1957.
9. At the time of hearing before us, Shri K.C. Patel, the learned counsel for the assessee filed a paper book running into 369 pages and relying on arbitration award contended that the property in question belonged to HUF of Dr. K.M. Shah and not to him as an "individual". In support of this, the learned counsel submitted that the property in question stands in the names of two sons right from 1954 and having executed gift-deed to sisters in 1968, the interest of sons in the property cannot be ignored, The learned counsel also relied on urban land ceiling proceedings and contended that in urban land ceiling proceedings the property in question has been shown as family property. Continuing his arguments, the learned counsel also submitted that the city civil Court passed consent decree on 17th Aug., 1995. Therefore, gift-tax, if any, leviable in asst. yr. 1996-97 and not in asst. yr. 1995-96.
9.1 For valuation, the learned counsel submitted that valuation of the property in question should be under Schedule II of the GT Act, which in turn adopts Schedule I of the WT Act. The learned counsel also pointed out that it is a case of family arrangement for which gift-tax is not leviable. Reliance was placed on the decision of Hon'ble Madras High Court reported as CIT v. R. Ponnammal (1987) 164 ITR 706 (Mad). Elaborating his arguments, the counsel of the assessee submitted that two sons claimed that they had antecedent title in the property in question right from the dt. 6th Jan., 1954 on which date the sale deed in respect of property in question was executed in their favour.
9.2 The learned counsel concluded that the gift-tax assessments framed by the AO be quashed. As it is a case of family arrangement, there is no gift within the meaning of Section 2(xii) of the GT Act. Alternatively the learned counsel submitted that the valuation should be done under Section 7 r/w Schedule III of the WT Act, according to which the valuation of whole property could be only Rs. 22,593.
10. On the other hand, the learned Departmental Representative supported the orders of the authorities below. He submitted that from records, it can be seen that the arbitrator has not given any basis or any finding for holding that the property belongs to HUF of Dr. K.M. Shah. The AO issued a letter dt. 20th March, 1998 wherein he asked the assessee to furnish various details and same were not furnished. The assessee has also filed statement of wealth as well as assessment orders for asst. yrs. 1988-89 to 1994-95 (pp. 1 to 27 of the paper book) from which it can be seen that the property in question was declared by the assessee as individual property. The assessee has also shown liability to Dr. K.M. Shah (bigger HUF) in the wealth-tax returns for asst. yrs. 1988-89 to 1991-92. The liability amounts shown are Rs. 1,23,249 in asst. yr. 1988-89; Rs. 8,53,249 in asst. yr. 1989-90; Rs. 1,57,249 in asst. yr. 1990-91 and Rs. 1,58,849 in asst. yr. 1991-92. Not only this, in the wealth-tax return for asst. yr. 1993-94 the assessee has shown loans and advances to Dr. K.M. Shah, HUF Rs. 10,87,151. All this clearly indicates that all the assets belonging to Dr. K.M. Shah are kept separately and property in question has nothing to do with the property of HUF. The AO also issued a notice dt. 20th March, 1998 wherein he asked the assessee to furnish various details and same were not furnished. The assessee purchased the property in question in the names of two sons and investments were made by the assessee.
10.1 Regarding the framing of gift tax assessment in asst. yr. 1996-97, the learned Departmental Representative submitted that the award was given on 30th March, 1995 and city civil Court passed a consent decree on 17th Aug., 1995. The decree of city civil Court though passed on 18th July, 1995 relates back to date of award as provided in the Arbitration Act. In these facts of the case, the assessee has converted his individual property to that of HUF and Section 4(2) of the GT Act was rightly invoked by the AO. Regarding the family arrangement, the learned Departmental Representative submitted that certain decisions of apex Court relied in (1987) 164 ITR 706 (Mad) (supra) is not applicable to the facts of the case because here dispute was not bona fide. The AO wanted to verify the bona fide of dispute but details called vide letter dt. 20th March, 1996 were not furnished.
10.2 The learned Departmental Representative further submitted that the plot in question, i.e., final plot No. 417/1 was purchased by the assessee in the name of two minor sons S/Shri Mrugesh and Bhadresh. A layout plan was prepared which was approved by the Ahmedabad Municipal Corporation., on 26th Oct., 1967. In the layout plan, the said property was sub-plotted into four plots, i.e., 417/1/1, 417/1/2, 417/1/3 and 417/1/4. Sub-plot No. 417/1/3 was gifted to three daughters of K.M. Shah on 30th Aug., 1968 through gift deed executed on behalf of two sons of K.M. Shah. The learned Departmental Representative submitted that though the property in question was in the names of sons of the assessee, but under the WT Act, wealth-tax is leviable because the property belongs to the assessee. For this reason the assessee was declaring this property as separate property in the wealth-tax returns as well as in the income-tax returns. In asst. yrs. 1991-92 to 1994-95 also, in wealth-tax returns filed, the assessee has declared "Mohan Nivas" which was constructed on sub-plot No. 417/1/1. The AO in the wealth-tax assessment valued this house as per Schedule III. The AO has held that remaining two plots, i.e., sub-plot Nos. 417/1/2 and 417/1/4 fall under the category of "urban land". The assessee vide letter dt. 13th March, 1996 which is appearing at p, 30 of paper book filed by the assessee pointed out that the assessee has not shown in the return of wealth two vacant sub-plots, i.e., sub-plot Nos. 417/1/2 and 417/1/4. These two vacant plots are required to be valued as per Rule 8 of Schedule III of the WT Act. The property in question did not belong to the HUF as held by this Tribunal in WTA Nos. 53 to 58/Ahd/1999 for asst. yrs. 1991-92 to 1994-95 vide order dt. 9th Jan., 2001. The learned Departmental Representative also relied on the order of this Tribunal dt. 25th May, 2001 on miscellaneous application of the assessee being MA No. 13/Ahd/2001 wherein it has been stated that the following additional ground was not pressed by the assessee during the course of hearing of wealth-tax appeals relating to asst. yrs. 1991-92 to 1994-95.
"That learned CIT(A) erred in holding that the property in question belonged to Dr. K.M. Shah as an individual and not to his HUF consisting of himself and the two sons."
Regarding the reliance placed on urban land ceiling proceedings, the learned Departmental Representative submitted that the Department was not a party to urban land ceiling proceedings. Moreover, under the urban land ceiling proceedings, the concerned authorities were to see whether there is excess land. Under the IT Act the assessee was showing the property in question as individual property and in urban land ceiling proceedings the assessee was showing this property as property of family. Under the WT Act the property in question belonged to the assessee as an individual, as declared by the assessee himself in the return of income and wealth. The mere fact that in urban land ceiling proceedings the assessee has declared the individual property as that of family, the property will not become the property of family (HUF). The learned Departmental Representative accordingly submitted that just by mere declaration of individual property as family property in urban land ceiling proceedings, for the purpose of wealth-tax/income-tax, property will not become the property of HUF. The property in question became the property of HUF as per award of arbitration and AO in these circumstances is fully justified in invoking the provisions of Section 4(2) of the GT Act.
11. In rejoinder, the learned counsel for the assessee submitted that the property in question was purchased by the assessee in the names of two sons. The age of the assessee is over 80 years. One of the sons in whose name the property was purchased was claiming that this property, belonged to the HUF and he has filed a Special Civil Appln. No. 3949 of 1998 on 4th Nov., 1987. This suit was filed against the assessee and Dr. Mrugesh, the other son of the assessee has claimed 1/3rd share in the property at final plot No. 417/1. On 25th Oct., 1994 the assessee and his two sons agreed for arbitration. The counsel of the assessee explained that the assessee agreed for arbitration because he wanted to sell the property on which house is constructed and remaining two plots. Since these were in the names of two sons, these could not be sold without consent of both the sons. He further submitted that one plot No. 417/1/3 is gifted to two daughters and gift deed is executed by two sons. The buyer was insisting that sale deed should be executed by two sons in whose names the property is standing in the Revenue records. There was a dispute and assessee agreed for arbitration proceedings with a view to avoid any escalation in dispute which already existed. The counsel of the assessee also relied on the definition of "donee", "donor" and "gift" as contained in Section 2 of the GT Act and contended that on consideration of various definitions of the Act, it is clear that the gift for the purpose of Act means transfer of any property made voluntarily and without consideration by one person to another. Here the dispute was already in existence and in future there was every possibility of escalation of the said dispute. For this reason the assessee agreed for arbitration and/arbitration award is binding. The assessee agreed for arbitration under compelling circumstances and with a view to obtain whatever money he can get at this old age. Since the assessee agreed for arbitration proceedings for a consideration, i.e., both sons of the assessee will agree to sign the sale deed of property. Therefore there is no gift made by the assessee. The counsel of the assessee accordingly concluded that on this ground alone the gift tax assessment framed by the AO be quashed/cancelled.
12. After hearing both sides, we have carefully gone through the orders of the authorities below. Rival submission were also considered. The property in question did not belong to HUF of Dr. K.M. Shah. Dr. K.M. Shah has declared the property in question in his individual returns of income and wealth. In the wealth-tax assessment orders for asst. yrs. 1990-91 to 1994-95, the AO included the value of the property in question in the wealth of the assessee. The CWT(A) in wealth-tax assessment proceedings upheld the action of the AO. The Tribunal also upheld the view taken by the CWT(A) in wealth-tax appeals. Subsequently, the assessee filed a miscellaneous application wherein also it was contended that the additional ground, i.e., property in question belongs to HUF was not decided. This Tribunal vide order dt. 20th May, 2001 in MA No. 13/Ahd/72001 has stated in paras 4 and 5 that during the course of main appeals the counsel of the assesses did not press this additional ground, therefore, there is no mistake apparent from record. From the gift-tax assessment order also we found that the AO asked the assessee to furnish various details which include, inter alia, the source of acquisition of property. The AO also required the assessee to explain whether the property in question was inherited or acquired. Admittedly none of these details were furnished. The AO also required the assessee to explain the reasons for agreement to the proposition that the property in question belongs to HUF and reasons for agreement to the proposal of arbitrator to pronounce his award without giving reasons in support of award. All this clearly indicates that the property did not belong to the HUF of Dr. K.M. Shah but was of his individual. This was purchased by the assessee in the names of two minor sons and assessee from decades has been declaring the same as belonging to "individual". In the wealth tax returns, as mentioned in para 10 (supra) that assessee has shown liability amount as well as loan and advances to Dr. K.M. Shah, HUF, This clearly indicates that the assessee was keeping separate accounts of HUF. We therefore, reject, the plea of the assessee that the property in question belonged to HUF of Dr. K.M. Shah. This was separate property of assessee.
13. In the grounds of appeal, the assessee has also took a ground that the assessee impressed the property in question as of HUF property in the year 1954 and/or 1968 when the building was constructed and the relevant amendment to Section 4(2) of the Act were brought on statute book from 1st April, 1972. This plea of the assessee also could not be accepted because conduct of the assessee in subsequent years, i.e., asst. yrs, 1973-74 onwards reveals that the assessee was disclosing this property as belonging to individual. Regarding the urban land ceiling proceedings also we found that in urban land ceiling proceedings Hon'ble High Court in decision delivered on 27th Jan., 1995 in Special Civil Appln. No. 3949 of 1998 has stated that father of two petitioners purchased the land in the names of his two sons. This clearly indicates that real owner was assessee. Moreover in urban land ceiling proceedings the concerned authorities did not examine the income-tax and wealth-tax records of the assessee.
14. In the impugned order the learned CIT(A) recorded the following reasons for holding that the property in question belonged to Dr. K,M. Shah in his individual capacity:
(i) As regards the sources of funds for investment in the -property way back in 1954, there is nothing to suggest that the property was purchased out of the HUF funds of the appellant. The fact that the property was purchased in the names of 2 minor sons by the appellant goes to suggest that it was an investment out of self-acquired funds of the appellant.
(ii) The property was divided into sub-plots Nos. 417/1/1, 417/1/2, 417/1/3 and 417/1/4 and one of the sub-plots, i.e., No. 417/1/3 measuring 585 sq. yds. had been gifted equally and jointly to Dr. Giraben, Dr. Leenaben and Dinaben, daughters of Dr. K.M. Shah in 1968. Had the property in question been the HUF property of the appellant, he even as a Karta of the HUF had no authority to make any gift out of the HUF property. Under no circumstances, the other 2 coparceners, namely, Dr. Mrugesh K. Shah and Bhadresh K. Shah (who was still a minor in 1968) could have gifted a part of the property to their sisters, as has been done in this case through the gift deed executed by these two persons.
(iii) Dr. K.M. Shah had all along maintained the stand before the IT authorities that the property in question was owned by him in his individual capacity. Even before the arbitrator he made such a claim.
(iv) It is only on account of the arbitrator that the property has now been declared as that belonging to Dr. K.M. Shah, HUF. The award gives no reasons for coming to the said finding and it is in fact stated that the parties to the dispute agreed before him that his award need not contain any reasons.
(v) Dr. K.M. Shah has not challenged the said award in the city civil Court but have simply accepted the same without any resistance. In fact there appears to have been no disagreement between the 3 parties to the dispute for which the award has been given.
(vi) The award appears to be more in the nature of family settlement, which in any case could have been arrived at between Dr. K.M. Shah and his two sons without reporting to the procedure of a civil suit having been filed in the Court.
(vii) The arbitrator give the award on 30th March, 1975 and agreement of sale for selling the entire property, i.e., final plot No. 417/1 was entered into by Dr. K.M. Shah, his sons and daughters with the proposed buyers on 1st April, 1975, i.e., without waiting for the decree of the city civil Court, which was passed in July, 1995. Only in a collusive agreement, the parties to the dispute could have entered into an agreement for disputed on the property without waiting for the final outcome of the civil Court.
(viii) The outcome of the award was pre-determined, Otherwise, the parties to the dispute could not have entered into an agreement of sales within 2 days of the award.
(ix) There was no HUF of Dr. K.M. Shah in existence prior to the award and there were no assets, properties or source of income belonging to such an HUF. The point as to from where or which source the HUF could have acquired the movable assets viz. shares and debentures of various companies, which have been declared to be belonging to the HUF seems to have been totally overlooked by the arbitrator.
(x) The arbitrator has exceeded his authority in as much as he has relocated even sub-plot No. 417/1/3 belonging to the 3 daughters of Dr. K.M. Shah, when the property in dispute comprised of only sub-plot Nos. 417/1/1, 417/1/2 and 417/1/4. How such an award would become acceptable to the 3 co-owners of sub-plot No. 417/1/3 is not known. Such a thing is possible only in a collusive deal when all the affected parties are in agreement.
(xi) Dr. K.M. Shah and his sons Dr. Mrugesh K. Shah and Bhadresh K. Shah had taken an entirely different stand before the Urban Land Ceiling Act Authority inasmuch as they all claimed ownership of the property to avoid action under the Urban Land Ceiling Act.
(xii) The movable assets comprising of shares and debentures of various companies have not been partitioned by the arbitrator and they have all been allotted to Dr. K.M. Shah without any reasons. If there had been any genuine dispute, the other two parties to the dispute would have also claimed their share in the said movable assets and would not have accepted the award silently.
15. The aforesaid findings of the learned CIT(A) were upheld by this Tribunal in WTA Nos. 55 to 58/Ahd/1999 vide order dt. 9th Jan., 2001. The aforesaid findings of the learned CIT(A), which have been confirmed by us, reveal that the award of arbitrator was pre-determined; otherwise the parties to dispute could not have entered into agreement of sale within two days of award. The arbitrator has exceeded his authority also as he has included the sub-plot No. 417/1/3 also which belonged to three daughters of Dr. K.M. Shah in respect of which there was no dispute, To sum up we fully agree with the CIT(A) that such a thing is possible only in a collusive deed when all the affected parties are in agreement. The decision of the Hon'ble Madras High Court in the case of CIT v. R. Ponnammal (supra) covers only family settlement, which are bona fide one. Looking to the aforesaid reasoning of CIT(A) which has been upheld by us in WT appeals, we are of the view that the settlement in this case is nothing but a collusive deed. Therefore, we are of the view that the provisions contained in Section 4(2) of GT Act are rightly invoked by the AO.
16. As per the AO, the assessee has converted his separate property, i.e., house "Mohan Nivas" on sub plot No. 417/1/1 and two vacant sub plots into HUF property and this HUF was partitioned to come to 1/3rd share in the property to the assessee. As per provisions contained in Section 4(2) of GT Act, the mode and manner in which or the documents by which such property has been converted into HUF property is indecisive so far as applicability of Section 4(2) of the GT Act is concerned. What is relevant is that the assessee has converted his individual property into property belonging to his family through the act by which he impressed his separate property with character of property belonging to his HUF. In such a situation the assessee (individual) shall be deemed to have made a gift of so much of property as the member of HUF other than himself, would entitle to it, if a partition or converting property has taken place immediately after such conversion. The valuation of property converted has to be done as per Schedule II as provided in Section 6(1) of GT Act which in turn adopted Schedule III of the WT Act, 1957. In the case of Bharat Hari Singhania and Ors. v. CWT and Ors. (1994) 207 ITR 1 (SC) the apex Court held that rule regarding valuation are mandatory, In the gift tax assessment order, the AO valued two plots at market value ignoring the DVO report as on 31st March, 1994, who valued these two vacant plots at Rs. 2,21,22,000. No other expert report on the date of gift is available. The assessee has converted Mohan Nivas a residential house as well as two vacant plots the value of which as adopted by the WTO as on 31st March, 1994 relevant to asst. yr. 1994-95 in wealth-tax assessment is Rs. 2,24,55,420. Out of this the assessee is entitled to 1/3rd. The deemed gift under Section 4(2) is only in respect of 2/3rd of the total value of the property converted. After allowing basic exemption under Section 5(2) of the GT Act taxable gift works out to Rs. 1,49,40,280 as under against Rs. 3,61,60,210 computed by the AO in the assessment order.
Rs
House on sub plot No. 417/1/1 known as Mohan Nivas 3,33,420
Two vacant plots as per valuation report 2,21,22,000
-----------
2,24,55,420
Less: Entitlement of assessee under Section 4(2)
1/3rd of Rs. 2,24,56,420 74,85,140
-----------
Deemed gift under Section 4(2) 1,49,70,280
Less: Basic exemption under Section 5(2) 30,000
-----------
Taxable gift 1,49,40.280
------------
In view of the foregoing we hold that Section 4(2) of the GT Act, has been rightly invoked by the AO but valuation of property converted was required to be done as per Section 6(2) of the WT Act. The AO is directed to adopt the value of total gift at Rs. 1,49,70,280 subject to deduction under Section 5(2) of GT Act as calculated above.
17. In the result, the appeal of assessee is partly allowed.
T.N. CHOPRA, AM.
November, 2002
1. I have carefully gone through the proposed order of the learned JM and find myself unable to concur with the finding of the learned JM that the assessee has converted his individual property into HUF property liable to be assessed as deemed gift as per the provisions of Section 4(2) of the GT Act, 1958 for asst. yr. 1995-96. Despite my best efforts, I am unable to persuade myself to accept the view that any transaction for transfer of individual property has been made by the assessee during the asst. yr. 1995-96 within the mischief of Section 4(2) of the GT Act.
2. It would be useful to set out at the outset factual matrix of the case bereft of details which are not relevant for the controversy before us.
2.1 On 6th Jan., 1954, the two minor sons of the assessee, namely Shri Bhadresh Kantilal Shah and Mrugesh Kantilal Shah purchased land through their father being final plot No, 417/1 of T.P. Scheme No. 3 in Mouje Changizpur, Taluka City, District Ahmedabad. The total area of the plot is 2970 sq. mtrs. The plot was purchased for an amount of Rs. 34,605 as per the sale deed placed at pp. 48 to 56 of the paper book filed by the learned counsel.
2.2 On 29th March, 1954, Revenue entry was made on village Form No. 6 record of right in the names of Bhadresh and Mrugesh as owners of the final plot No. 417/1 with the assessee shown as guardian of the two minors.
2.3 On 26th Sept., 1997 the Ahmedabad Municipal Corporation approved the plan of layout of final plot no. 417/1 into 4 sub-plots being 417/1/1, 417/1/2, 417/1/3 and 417/1/4.
2.4 On 30th July, 1968, the two sons of the assessee, Bhadresh and Mrugesh executed gift deed in relation to land measuring 604 sq. yds. i.e. 505 sq. mtrs. of plot No. 417/1/3 in favour of their three sisters, Dr. Giraben, Linaben and Dinaben. The gift deed is placed in the paper book at pp. 83 to 93. On behalf of the owners, the deed has been executed by Mrugesh Kantilal Shah and on behalf of the Bhadresh Kantilal Shah, who was a minor, the deed has been executed through his father and legal heir, the assessee:
2.5 On 4th Sept., 1976 Shri Bhadresh Kantilal Shah, son of the assessee filed Form No. 1 under Section 6(1) of the Urban Land Ceiling Act making a family statement that final plot no. 417/1 does not have any excess land. In this statement, persons holding ownership of the land have been shown as Bhadresh, Mrugesh, the assessee, his wife Chandrakanta and three daughters, Giraban, Linaben, Dinaben. The family statement has been filed under the signature of Bhadresh, son of the assessee.
2.6 On 18th Dec., 1982, the Addl. Collector and competent authority passed an order under the Urban Land Ceiling Act declaring 465 sq. mtrs. of land as excess land in respect of final plot No. 417/1. Sons of the appellant, namely, Bhadresh and Mrugesh filed appeal before the Urban Land Tribunal which was dt. 18th Dec., 1982. The appeal was dismissed by the said Tribunal vide order dt. 30th July, 1987.
2.7 On 4th Nov., 1987 the sons of the assessee, Bhadresh and Mrugesh, filed Special Civil Application before the Gujarat High Court.
2.8 On 12th Oct., 1994, Bhadreshbhai, son of the assessee filed Civil Suit No. 5332 of 1994 in the Ahmedabad city civil Court against the assessee and Dr. Mrugesh, other son of the assessee for claiming 1/3rd share of the property situated under final plot No. 417/1.
2.9 On 25th Oct., 1994 the assessee and his two sons, Bhadresh and Mrugesh, agreed for arbitration for resolution of the dispute as to the ownership of the properties including final plot No. 417/1. The city civil Court appointed Shri S.N. Soparkar as sole arbitrator on 29th Oct., 1994 to resolve the dispute between the assessee and the two sons.
2.10 On 27th Jan., 1995 the Gujarat High Court set aside the orders dt. 10th Dec., 1982 and 30th July, 1987 directing the competent authority under the Urban Land Ceiling Act to decide the entire issue concerning excess land afresh.
2.11 On 30th March, 1995 Shri S.N. Soparkar, the sole arbitrator made his award holding that the disputed properties including final plot No. 417/1 are HUF property from the date of its acquisition and partitioned the property by metes and bounds.
2.12 On 1st April, 1995 the assessee and his two sons and three daughters entered into an agreement for sale of the property, namely, Mohan Nivas in final plot No. 417/1.
2.13 On 18th July, 1995 the said civil Court passed the consent decree in terms of the arbitration award placed at p. 213 of the paper book.
2.14 On 29th April, 1996 the assessee along with his two sons and daughters executed sale deed for sale of the property at final plot No. 417/1 with the promoters of Sugam Shops and Housing Co-operative Society Ltd., etc.
3. At this stage, it is relevant to mention that the assessee has been filing his return of wealth for various assessment years declaring therein Mohan Nivas property situated on plot No. 417/1 as his individual property: Copies of the wealth-tax return as well as assessment orders passed by the WTO from asst. yr. 1988-89 onwards are placed in the paper book from pp. 1 to 27. These returns filed by the assessee have been heavily relied upon by the Revenue authorities in support of the conclusion that the Mohan Nivas property situated at 417/1 plot belong to the assessee in his individual capacity.
4. In the backdrop of the aforementioned factual perspective, the AO initiated gift-tax proceedings on the ground that the assessee is liable to be assessed for the deemed gift made during the asst. yr. 1995-96 under the provisions of Section 4(2) of the GT Act, Before the AO the assessee explained that the Mohan Nivas property all along stood in the name of his two sons, namely, Bhadresh and Mrugesh, right since 1954 and that the gift deed in favour of assessee's daughters in 1967 was executed by the two sons as donors. According to the assessee, even in the Urban Land Ceiling Act proceeding, the High Court upheld the claim of ownership of the property vesting in the two sons and, therefore, there was no question of the assessee making any gift of his individual property to the HUF. According to the assessee, since he intended to sell the property and the property being in the name of the two sons, the intending purchaser insisted that conveyance deeds be executed by the registered owners of the property. According to the assessee, the sons of the assessee raised serious disputes about the ownership of the property and refused to execute the sale deed and the assessee was constrained to accept the award granted by Shri S.N. Soparkar so that the property could be sold under an amicable family arrangement. The AO, however, rejected the explanation of the assessee holding that the award of Shri Soparkar as well as civil suit filed were collusive. Since the arbitration award was given on 30th March, 1995, the AO preceded to assess the market value of the two sub-plots received by sons of the assessee at Rs. 3,61,98,210 as deemed gift under Section 4(2) of the GT Act for asst. yr. 1995-96.
5. Aggrieved, the assessee carried the matter in appeal before the CGT(A) who upheld the findings of the AO and sustained the assessment. In support of his conclusion that the arbitration award was collusive, the CGT(A) observed, inter alia, at p. 9 of the appellate order as under:
"(vi) The award appears to be more in the nature of family settlement, which in any case could have been arrived at between Dr. K.M. Shah and his two sons without resorting to the procedure of a civil suit having been filed in the Court."
6. Aggrieved, the assessee has come up in appeal before the Tribunal.
7. Shri K.C. Patel, learned counsel for the assessee essentially made two-fold contentions. Firstly, he argued that no transaction or event has taken place during the period relevant for asst. yr. 1995-96 which may form the basis for assessing the deemed gift by invoking the provisions of Section 4(2) of GT Act. Learned counsel argued that the action of the tax authorities in making the arbitration award as the basis for invoking the provisions of Section 4(2) of the GT Act in the assessment year under reference is factually and legally unsustainable. According to Shri Patel, merely because arbitration award has been given by Shri Soparkar on 30th March, 1995 would not by itself amount to conversion of individual property into HUF property. He argued that the AO on the one hand treats the arbitration award as collusive and made-up affair and on the other hand makes the same as the basis for invoking the provisions of Section 4(2) for the asst. yr. 1995-96 under reference. According to the learned counsel, an arbitration award given by an arbitrator is opened to challenge by either party to the dispute and such an award would not by itself convert individual property into HUF property. Learned counsel further contended that it was only on 18th July, 1995 that the said civil Court passed consent decree in terms of arbitration award with the consent of parties to the disputes. Learned counsel pleaded that if the award and the suit are to be the basis for invoking the provisions of Section 4(2) of the GT Act, the relevant assessment year for action under the GT Act shall be the asst. yr. 1996-97 and not 1995-96.
8. Secondly, Shri Patel argued that even if the arbitration award is to be construed as a form of family settlement or family arrangement, Section 4(2) would not apply inasmuch as there was no transfer of property involved within the meaning of Section 2(xxiv) of the GT Act under the family arrangement and hence there was no liability to gift-tax under Section 4(2) of the GT Act. In support of his contentions, learned counsel placed reliance on the following decisions :
(i) CIT v. R. Ponnammal (1987) 164 ITR 706 (Mad)
(ii) Maturi Pullaiah v. Maturi Narasimham AIR 1966 SC 1836
(iii) Kale v. Dy. Director of Consolidation AIR 1976 SC 807
(iv) Arvind Chandulal v. CIT (1982) 140 ITR 241 (Guj) Learned counsel further argued that the antecedent title of the sons of theassessee in the property in question has been amply supported by voluminousdocumentary evidence placed in the paper book filed by him. In this connection, he invited our attention to the following documents in the paper books :
(i) Sale deed dt. 6th Jan., 1954 in the name of two sons of the assessee, S/Shri Bhadresh and Mrugesh placed at pp. 48 to 67;
(ii) Record of right in village Form No. 6 in the name of two sons at pp. 81 and 82;
(iii) Gift deed dt. 30th July, 1968 executed by two sons of the assessee in favour of the three sisters placed at pp. 83 to 93 of the paper book;
(iv) Documents pertaining to proceedings under the Urban Land Ceiling Act placed at pp. 101 to 183 whereunder the property in question has been shown as family property by the two sons of the assessee. In this connection, learned counsel specifically referred to judgment of Gujarat High Court dt. 27th Jan., 1995 in Special Civil Appln. No, 3949/1998 placed at pp. 151 to 155;
(v) Documents relating to civil suit filed in civil Court placed at pp. 134 to 239; and
(vi) Agreement to sell dt. 1st April, 1995 by all the parties including the assessee and his two sons placed at pp. 355 to 368.
On the basis of the aforesaid documents and evidence, learned counsel strongly urged that the finding reached by the Revenue authorities that the arbitration award as well as the civil suit are collusive and non-genuine is based on conjectures and surmises. According to the learned counsel, except declaring the Mohan Nivas property in his tax returns as individual property, there is nothing on record to say that the assessee had undisputed title of ownership over the property. He further contended that the property has been purchased by the two minor sons and stand in their names. Even before the Urban Land Ceiling authorities, two sons of the assessee have successfully claimed joint ownership over the property as upheld by the Hon'ble Gujarat High Court. In such circumstances, the stand taken by the Revenue authorities that the assessee had uncontested and undisputed title of ownership over the property is without any basis.
9. The learned Departmental Representative on the other hand, placed reliance on the order of the Tribunal dt. 25th May, 2001 in WTA Nos. 55 to 58/1999 whereby the property in question has been held as belonging to the assessee as his individual property for wealth-tax purposes for asst. yrs. 1991-92 to 1994-95. Learned Departmental Representative argued that the issue is thus concluded by the earlier order of the Tribunal and the impugned gift-tax assessment sustained by the learned CGT(A) deserves to be upheld.
10. The learned JM in the proposed order has approved and endorsed the reasoning and conclusions of the learned CGT(A) holding that provisions of Section 4(2) of the GT Act are applicable and the property has been converted into the HUF property by the assessee during the asst. yr. 1995-96. Learned JM, in upholding the impugned assessment, has further observed that the arbitration award as well as the consent decree of the civil Court are collusive and the individual property of the assessee has been converted by him as the HUF property during the period relevant for asst. yr. 1995-96, thus bringing the case within the mischief of deemed gift under the provisions of Section 4(2) of the GT Act.
11. I have given my thoughtful consideration to the rival contentions and also gone through the documents and material placed before us. Various judicial pronouncements cited during the hearing have also been carefully gone through by me. I have carefully perused the proposed order of the learned JM. With great reluctance, I am constrained to record my dissenting opinion on the issue. I have no hesitation in my mind to say that there has been no transfer or conversion of the individual property into the HUF property during the asst. yr. 1995-96 under reference which may be deemed to be a gift under Section 4(2) of the GT Act. The basic question which falls for consideration is whether the consent decree or the arbitration award can be construed as conversion of individual property to HUF property of the assessee liable to be construed as deemed gift under Section 4(2) of the GT Act. If so, whether such a conversion by the assessee has taken place during the period relevant for asst. yr. 1995-96 which is the year under question.
12. Insofar as the first question is concerned, the Revenue authorities have proceeded on the footing-and the learned JM has concurred with the same--that the property in question belongs to the assessee as his individual property and the arbitration award as well as the consent decree are merely collusive events. Obviously the conclusion regarding the collusive nature of the award or the civil suit is based on the assumption that the assessee had uncontested, undisputed and unassailable right to ownership over the property. I find myself unable to subscribe to this view. Facts are undisputed that the property in question has been purchased by the sons of the assessee, Bhadresh and Mrugesh, and it stands registered in their names as legal owners of the properties. This property has been purchased by the two sons for a sum of Rs. 37,605 on 6th Jan., 1954. At that time, the two sons were minors and, therefore, the assessee as the father and natural guardian executed the sale deed on behalf of the purchasers. In Revenue records, the property has been shown as owned by the two sons of the assessee. On 30th July, 1968, sons of the assessee executed gift deed in relation to land measuring 505 sq. mtrs. of subplot No. 417/1/3 in the Mohan Nivas property in favour of their three sisters, Dr. Giraben, Linaben and Dinaben. Furthermore, even before the Urban Land Ceiling authorities, the property has been shown as owned by two sons of the assessee. In these circumstances, I feel that there is absolutely no justification for the Revenue authorities to conclude that the assessee having undisputed title of ownership over the property converted the same into the HUF property through collusive award or collusive suit. In so far as legal ownership of the property is concerned, at the most what the assessee can claim is that his two sons, Bhadresh and Mrugesh, were his benamidars in the purchase of the property in January, 1954. In the situation, Benami Transactions (Prohibition) Act, 1988 would come into play which would seriously jeopardise the title of ownership vesting with the assessee. Section 4(1) of the Benami Transactions (Prohibition) Act, 1988 clearly provides that no suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property has been held or against any other person shall lie, by or on behalf of a person claiming to be the real owner. This naturally relates to past transactions as well. The decision of Hon'ble Supreme Court in Mithilesh Kumari and Anr. v. Prem Behari Khare (1989) 177 ITR 97 (SC) may be cited in support of this proposition. The Supreme Court held that the expression "any property held benami" is not limited to any particular time, date or duration. In other words, in its sweep, Section 4 envisages past benami transaction also within its retroactivity. Thus, the statute for prohibition of benami transactions as a result erodes interest, title or claim of the assessee over the property which has been purchased in the name of his sons and has all along been accepted and admitted as belonging to the sons of the assessee before to the Urban Land Ceiling authorities or Municipal Corporation of Ahmedabad or electricity authorities, etc. Needless to say, the filing of wealth-tax returns by the assessee showing the property as his individual property would not ipso facto clothe the assessee with the ownership of the property. The property is registered in the name of his sons and mere inclusion of such property in wealth-tax returns would not alter the legal position regarding the ownership of the property. Filing of returns by the assessee is a unilateral act of the assessee and merely because the assessee chooses to include any property as his property would not confer title of ownership over the property on the assessee, It is significant to note that the two sons of the assessee, Bhadresh and Mrugesh, have at no point of time abrogated their title interest or claims in the property. On the contrary, the two sons have all along, by their conduct and actions, have indicated that they were the owners of the. property. As already indicated hereinbefore, when a sub-plot No. 417/1/3 was to be gifted to the three sisters in July, 1968, the gift deed was executed by the two sons as donors which clearly indicates that they were the accepted and acknowledged owners of the property in the family of the assessee. In my opinion, the facts and evidence brought on record clearly bring out the two sons of the assessee held valid title of ownership over the property and in case of dispute and litigation between the assessee and his two sons, scales are titled heavily against the assessee. This is particularly so when the learned counsel points out that the assessee is an old ailing man of 80 years eager to sell the property and lacked energy and patience for protracted litigation with his sons. It was in these circumstances that the assessee was possibly driven to enter into compromise over the issue of ownership with his two sons. In my opinion, there is, therefore, no justification whatsoever to say that the consent decree of the civil Court or the arbitration award were collusive and made up affairs. Learned CGT(A) has construed the arbitration award as a sort of family arrangement and the learned JM has concurred with the view. When parties enter into a family arrangement, the validity of the family arrangement is not to be adjudged with reference to whether the parties who raised disputes or rights or claims in certain properties had in law any such right or not. The members of a joint family, may, in order to maintain peace and bring about harmony in the family, enter into a family, arrangement and if the arrangement is entered into bona fide and the terms thereof are fair, Courts will normally give assent to such an arrangement rather than avoid it. Even if a party to the settlement has no title under the arrangement but the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld. In support of the view being expressed by me, reliance is placed on the decision of the Madras High Court in CIT v. R. Ponnammal (supra) cited by the learned counsel. In the said decision, their Lordships have cited the Supreme Court decisions reported in AIR 1966 SC 1836 (supra) and AIR 1976 SC 807 (supra). The High Court observed at p. 713 of the report :
"It was not relevant at the time when the family arrangement was entered into whether such claims, if made in a Court of law, could 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 as contained in the documents dt. 17th Dec., 1971, that family arrangement cannot be ignored by the tax authorities."
Applying the aforesaid propositions to the facts of the instant case, I am of the view that, if the assessee found it worth while to settle the dispute between him and his sons by agreeing to the family arrangement, the said arrangement could not be ignored by a tax authority. Now, coming to the provisions of Section 4(2) of the GT Act, this sub-section has been inserted by the Finance (No. 2) Act, 1971, w.e.f. 1st April, 1972 with a view to closing loophole for avoidance of gift-tax liability by using the device of converting self-acquired property into HUF property. Under the amendment to Section 4, it has been provided that when a member of a HUF converts his separate property into joint family property, he shall be deemed to have made a gift in favour of the family. The definition of the term "gift" in Section 2(xii) has also been modified so as to cover the transfer or conversion of any property referred to in Section 4 deemed to be a gift under that section. However, the provision of Section 4(2) would not be applicable in the case of family settlement, as held by the Madras High Court above, since no transfer of property was involved within the meaning of Section 2(xiv) under the family arrangement or family settlement. Therefore, provisions of Section 4(2) are not, in my opinion, attracted in the instant case.
13. Without prejudice to my finding as above, I feel that no transfer or conversion of property by the assessee during the year under assessment has taken place which may be liable to be assessed as deemed gift under Section 4(2) of the GT Act. Section 4(2) reads as under (relevant portion for our purposes taken) :
"When, in the case of an individual being a member of an HUF, any property having been the separate property of the individual has been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family.... the individual shall be deemed to have made a gift of so much of the converted property as the members of the HUF other than such individual would be entitled to, if a partition of the converted property had taken place immediately after such conversion."
The section envisages a deliberate and conscious act on the part of the assessee whereunder the individual property is converted into the HUF property or is thrown into the common stock. The act of the individual should be voluntary, of its own volition and without consideration. Viewed in the backdrop of the aforesaid provision in the GT Act, I do not see any such deliberate act, voluntary or otherwise, performed by the assessee during the asst. yr. 1995-96 for converting his property into HUF property. Merely because an arbitration award has been given by Shri S.N. Soparkar on 30th March, 1995 which falls in the asst. yr. 1995-96 would not amount to an act of conversion by the assessee. It is only in July, 1995 that the assessee gave his consent to the award and if the giving of consent is to be construed as an act of conversion by the assessee, such an act has taken place in asst. yr. 1996-97 and not in the asst. yr. 1995-96 which is the year under appeal. Sections 15 and 16 of the Arbitration Act lay down under which circumstances an award might be corrected and modified or remitted for reconsideration. Section 30 gives the grounds on which it may be set against the award. If the Court refuses to set aside the award, it shall by a separate order pronounce judgment according to the award and upon the judgment so pronounced, a decree shall follow. The decree conclusively determines the rights of the parties with regard to matters in controversy. In the instant case, the decree has been passed on 18th July, 1995 and therefore, the property in question has been held to be HUF property on 18th July, 1995 which falls in the asst. yr. 1996-97. The award made by the arbitrator on 30th March, 1995 does not represent the final determination of the dispute regarding the title of the property. On this ground also, I feel that the impugned gift-tax proceedings are liable to be quashed.
14. For the aforesaid reasons, I am of the considered view that the action of the tax authorities in invoking the provisions of Section 4(2) of the GT Act for 1995-96 under reference is not sustainable on facts and law and the same is, therefore, cancelled.
15. In the result, the appeal of the assessee is allowed.
REFERENCE UNDER S. 23(11) OF GT ACT, 1958 R/W S. 255(4) OF THE IT ACT, 1961 T.N. Chopra, AM.
20th Nov., 2002
1. Since there has been a difference of opinion amongst the Members who constituted the Division Bench, the following point of difference is hereby referred to Hon'ble President under Section 23(11) of the GT Act, 1958 r/w Section 255(4) of IT Act, 1961 :
"Whether the action of the tax authorities in invoking the provisions of Section 4(2) of GT Act for asst. yr. 1995-96 under appeal for bringing to tax the deemed gift is sustainable in the facts and circumstances of the case?"
T.K. Sharma, J.M. 3rd Dec., 2002
1. In this appeal there is difference of opinion between the Members, I have carefully gone through the separate orders of learned AM as well as question referred by him to Hon'ble President under Section 23(11) of GT Act. In my opinion, in addition to the question referred by learned AM, following further issues are also required to be referred and therefore hereby referred.
(1) Whether on the facts and circumstances of the case, learned AM is correct in taking the view in para 13 of separate order that on 18th July, 1995 property in question was held to be HUF which falls in the asst. yr. 1996-97 particularly, when :--
(i) Arbitrator in his award dt. 30th March, 1995 held that the property in question is of HUF and in his award itself the arbitrator made complete partition of the property.
(ii) On the valuation dt. 31st March, 1995 relevant to the asst. yr. 1995-96 assessee Dr. K.M. Shah, individual, did not declare the same in his individual return of wealth on the basis of arbitration award given by Shri S.N. Soparkar on 30th March, 1995 and two sons of the assessee declared the property allocated by arbitrator in their return of wealth for the asst. yr. 1995-96 and subsequent years.
(iii) On 1st April, 1995, assessee and his two sons and three daughters without waiting for decree of Court on arbitration award entered into an agreement for sale of the property in question namely; "Mohan Nivas" in final plot No. 417/1.
(iv) In view of the finding given by Tribunal in assessee's own case in WTA Nos. 55 to 58/Ahd/1999 for asst. yrs, 1991-92 to 1994-95 and MA No. 31/Ahd/2002 of the assessee dismissed vide order dt. 25th May, 2001.
2. Whether the decision of Hon'ble Madras High Court in the case of CIT v. R. Ponnammal (1987) 164 ITR 706 (Mad) is applicable to the facts of the assessee's case when the first test laid down by Hon'ble Madras High Court is that "the family settlement must be bona fide"
(please see p. 712 of the report of ITR 164) which Tribunal decided against the assessee in his appeal in wealth-tax appeals for asst. yrs. 1991-92 to 1994-95.
3. Whether the Tribunal has option to hold that arbitration award pronouncing that "Mohan Nivas" is property of HUF, when the finding of learned CIT(A) in wealth-tax appeal that "it is collusive deals" is upheld by Tribunal in wealth-tax appeals of the assessee pertaining to the asst. yrs. 1991-92 to 1994-95."
R.P. Garg, Vice President (As Third Member):
28th Nov., 2003
1. On a difference of opinion between the Members who heard this appeal, the following questions have been referred to me by the President under Section 23(11) of the GT Act, 1958 r/w Section 255(4) of the IT Act, 1961 for my opinion as Third Member :
Per AM "Whether the action of the tax authorities in invoking the provisions of Section 4(2) of GT Act for asst. yr. 1995-96 under appeal for bringing to tax the deemed gift is sustainable in the facts and circumstances of the case?"
Per JM (1) Whether, on the facts and circumstances of the case, learned AM is correct in taking the view in para 13 of separate order that on 18th July, 1995 property in question was held to be HUF which falls in the asst, yr. 1996-97 particularly when--
(i) Arbitrator in his award dt. 30th March, 1995 held that the property in question is of HUF and in this award itself the arbitrator made complete partition of the property.
(ii) On the valuation dt. 31st March, 1995 relevant to the asst. yr. 1995-96 assessee Dr. K.M. Shah, individual, did not declare the same in his individual return of wealth on the basis of arbitration award given by Shri S.N. Soparkar on 30th March, 1995 and two sons of the assessee declared the property allocated by Arbitrator in their returns of wealth for the asst. yr. 1995-96 and subsequent years.
(iii) On 1st April, 1995, assessee and his two sons and three daughters, without waiting for decree of Court on arbitration award, entered into an agreement for sale of the property in question namely, "Mohan Nivas", in final plot No. 417/1.
(iv) In view of the finding given by Tribunal in assessee's own case in WTA Nos. 55 to 58/Ahd/1999 for the asst. yrs. 1991-92 to 1994-95 and MA No. 31/Ahd/2002 of the assessee dismissed vide order dt. 25th May, 2001.
(2) Whether the decision of Hon'ble Madras High Court in the case of CIT v. R. Ponnammal (1987) 164 ITR 706 (Mad) is applicable to the facts of the assessee's case when the first test laid down by Hon'ble Madras High Court is that "the family settlement must be bona fide one" (please see p. 712 of the report of ITR 164) , which Tribunal decided against the assessee in his appeal in wealth-tax appeals for asst. yrs. 1991-92 to 1994-95.
(3) Whether the Tribunal has option to hold that arbitration award pronouncing that "Mohan Nivas" is property of HUF, when the finding of learned CIT(A) in wealth-tax appeal that "it is collusive deal" is upheld by Tribunal in wealth-tax appeals of the assessee pertaining to the asst. yrs. 1991-92 to 1994-95."
2. The difference in this appeal between the two Members is thus broadly on the point whether there was a gift within the meaning of Section 4(2) of the GT Act, 1958 and, if so, was it taxable in the year under consideration?
3. The learned JM wrote the leading order and held that the property "Mohan Nivas" and the surrounding land was not the HUF property but the individual property of the assessee; and that by converting that individual property into HUF property, the assessee made a gift under Section 4(2) of the GT Act. He rejected the claim of the assessee that the transaction was a settlement by way of family arrangement by holding that the settlement was not bona fide, it being predetermined and a collusive deal as held by the Tribunal in wealth-tax proceedings of the assessee for asst. yrs. 1991-92 to 1995-96.
4. The learned AM, on the other hand, held that there was a dispute about the ownership of the property and the two sons of the assessee held valid title of ownership over the property and in case of dispute and litigation between the assessee and his two sons, the scale was tilted heavily against the assessee. The assessee is an ailing man of 80 years eager to sell the property and lacked energy and patience for protracted litigation with his sons. In such circumstances, the settlement thereof by way of family arrangement was a bona fide family settlement and therefore, there was no transfer, which could attract the provisions of Section 4(2) of the Act. In any case, there was no gift in the year under consideration at all as it is the date of the consent decree passed by the High Court on which conversion could take place and that date being 18th July, 1995, the transaction fell in asst. yr. 1996-97 and not in this year and, therefore, the gift-tax assessment was liable to be quashed.
5. Section 4(2) of the GT Act reads as under:
"4(2) : Where, in the case of an individual being a member of an HUF, any property having been the separate property of the individual has been converted by the individual into property belonging to the family through the act impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family (such property being hereafter in this sub-section referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, for the purpose of computation of the taxable gifts made by the individual, the individual shall be deemed to have made a gift of so much of the converted property as the members of the HUF other than such individual would be entitled to, if a partition of undivided family property had taken place immediately after such conversion."
6. On a perusal of this sub-section, it is evident that it deems the individual to have made a gift of so much amount of the converted property as the member of HUF other than such individual would be entitled to if a partition of the converted property had taken place immediately after such conversion. The pre-requisite for the application of this sub-section is that the individual should convert his separate property into property belonging to the HUF through the act of--(i) impressing such separate property with the character of the property belonging to the family; and (ii) throwing such separate property into common stock of the family. It, therefore, requires an act, by the assessee either to impress such property with the character of HUF property or throw such property into common stock of the family. It may be stated that before the introduction of this sub-section, the conversion was not subject to gift-tax as there was no transfer of property by conversion of such property into HUF property in view of the Supreme Court decision in the case of Goli Eswariah v. CGT (1970) 76 ITR 675 (SC). This loophole was plugged by Finance (No. 2) Act, 1971 by inserting Sub-section (2) in Section 4 aforesaid. However, the requirement still remains that it should be an act of the assessee to impress or throw the property.
7. The assessee in this case entered into a family arrangement and the property which was hitherto being declared as individual property in his wealth-tax and income-tax returns was settled to be the HUF property through the arbitration proceedings and 1/3rd thereof was allotted to the assessee on partition. These proceedings, in my opinion, cannot be said to be amounting to impressing the property with that of HUF property or throwing the same into the family hotchpotch to which Section 4(2) of the Act could be applied. In a case of a family arrangement as held by the Supreme Court in the case of Ram Charan Das v. Girja Nandini Devi and Ors. AIR 1966 SC 323, each party takes a share in the property by virtue of the independent title which is admitted to that extent by the other party. Every party who takes benefit under it need not necessarily be shown is that parties are related to each other in some way and have a possible claim to the property or even a semblance of a claim on some other ground as say, affection. A similar case has come up before the Madras High Court in the case of CIT v. R. Ponnammal (1987) 164 ITR 706 (Mad) wherein the exclusive right of the father of the assessee to the property bequeathed by him was upheld by the Supreme Court and as a result of provisions of Section 14 of the Hindu Succession Act the property became absolute property of the assessee at the time of family arrangement. In these circumstances, it was contended by the Revenue that there was no necessity for the assessee to part with her property and if she had under the family arrangement parted with some property, that would clearly result in transfer of property as contemplated under Section 2(xxiv) of the Act. This argument was rejected by the Court by stating that it ignored the settled law that, when parties enter into a family arrangement, the validity of the family arrangement is not to be judged with reference to the way the party who raised disputes or rights or claimed rights in certain properties had in law any such right or not. If the assessee found it worthwhile to settle the dispute between herself, her sons and daughters by making the family arrangement as contained in the document, that family arrangement cannot be ignored by tax authorities. The Court, accordingly, upheld the order of the Tribunal in holding that the documents constituted a valid arrangement and there was no transfer of property involved within the meaning of Section 2(xxiv) and there was no liability to gift-tax either under Section 4(1)(a) or under Section 4(2) of the GT Act.
8. From the facts brought on record, the position on the first dispute, whether Mohan Nivas property was individual property or the property of two sons of HUF property, is not very clear. Nothing can be said in clear terms. Various conflicting stands emerging are :
(i) One fact is that the property, Mohan Nivas, was purchased in 1954 by the assessee as guardian in the name of his two sons Mrugesh and Bhadresh who were minors at that time. But what is the source of the acquisition of the property is not known. A part of the property so purchased was gifted to the three daughters of the assessee on 30th July; 1968 by executing the deed of gift by Mrugesh who became major by that time and by the assessee as guardian of Bhadresh who continued to be minor on that day. This gives an impression that it was originally a joint property of the two sons of the assessee and after getting a part therefore the three daughters of assessee also became the part owners.
(ii) Second position is that the value of Mohan Nivas property was being declared by the assessee in his individual return of wealth-tax and the income from house property was also being shown in individual return of income-tax right up to asst. yr. 1994-95. In the wealth-tax proceedings for asst. yrs. 1991-92 to 1994-95 (WTA Nos. 55 to 58/Ahd/1999), the assessee raised an additional ground claiming that the property belonged to HUF but the same was not pressed, hence rejected. In misc. application again the assessee sought rectification on the ground that his aforesaid additional ground was not decided. The (MA), however, was rejected by the Tribunal by pointing out the fact that the said additional ground was not pressed at the time of hearing MA No. 13/Ahd/2001, dt. 25th April, 2001. This gave an impression that it was individual property of the assessee and held in the benami names of the two sons.
(iii) In 1976, in the proceedings under Urban Land Ceiling Act, 1976, a third position was depicted, i.e., the property was shown as owned by Mrugesh, Bhadresh, the assessee, the assessee's wife Chandrakanta and his three daughters to whom a part of the land in the property was gifted in 1968. This statement was filed in these proceedings under the signature of Bhadresh.
(iv) The fourth position taken is by Bhadresh in 1994, when he filed a suit in the city civil Court against the assessee and his second son Mrugesh claiming one third share in the property.
9. Can, therefore, on these facts, it be said that the property was of the assessee alone; or it was joint property of two sons, or two sons and three daughters; or the assessee and his two sons and three daughters or the assessee and his two sons of the assessee, his wife, two sons and three daughters? It is not necessary also for disposal of these appeals to determine as to who really owns the property in the eye of law. For the purpose of making a settlement by way of a family arrangement, the possibility of a dispute as to ownership or title to the property itself is sufficient and there need not be a real dispute or an effective one in the eye of law. The sons of the assessee have openly challenged the sole ownership of the assessee. The property even though it was being shown in the return of income-tax and wealth-tax, in fact, stood in the name of the two sons and three daughters. On these facts, in my opinion, it would not be correct to say that the property belonged to the assessee absolutely or that there was no actual or possible dispute amongst the family members of the assessee. When the property is not in the name of the assessee, chances of his being declared as owner or absolute owner were bleak or almost nil. On the contrary, the chances were that he could have been deprived in toto and/or declared not be entitled even to any part thereof.
10. The only fact that was stated to be in favour of holding the assessee to be the owner and on which the Revenue is heavily relying upon, is that the assessee had been showing in his income-tax returns, income from this property, in his income return and that the value was being declared in his wealth-tax returns right from beginning to asst. yr. 1994-95, the year before the settlement. But, that was his own creation, a unilateral acknowledgement without consent of anybody, persuaded probably by his dominating position in family as guardian or head of the family. It was at his own peril. Further, that by itself, in my opinion, could not make the assessee owner of the property in view of more weighty material on record against him namely, property stands in the names of the two sons and three daughters and the provisions of Benami Transactions (Prohibition) Act, 1988 barring any suit, claim or action to enforce any right in respect of any property held benami against the person in whose name it stands or who claims through him-see in this connection the provisions of that Act and the two Supreme Court decisions. Section 4 of the Benami Transactions (Prohibition) Act, 1988 provided that "no suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property". The Supreme Court in the case of Mithilesh Kumari and Anr. v. Prem Behari Khare (1989) 177 ITR 97 (SC) considering this section observed "this naturally relates to past transactions as well. The expression "any property held benami" is not limited to any particular kind, date or duration. Once the property is found to have been held benami, no suit, claim or action to enforce any right in respect thereof shall lie." These observations of the Division Bench in the case of Mithilesh Kumari (supra) were upheld by the Full Bench decision in the case of R. Rajgopala Reddy and Ors. v. Padmini Chandrashekhar (1995) 213 ITR 340 (SC) wherein the Court observed, "the plaintiff's right to that effect if sought to be taken away and any suit to enforce such a right after coming into force of Section 4(1), i.e., 19th May, 1988, shall not lie." The Full Bench also observed "the view expressed by Division Bench in the case of Mithilesh Kumari's case (supra) that Section 4(1) would apply even to pending suits which were already filed and entertained prior to the date when the section came into force and it was the effect of destroying the then existing rights of the plaintiff in connection with the suit property cannot be sustained in face of the clear language of Section 4(1). On the express language of Section 4(1) any right inheriting in real owner in respect of any property held benami would be affected once Section 4(1) operates, even if such transactions had been entered into prior to the coming into operation of Section 4(1) and hence once Section 4(1) appeals, no suit can lie in respect of such a past benami transaction. To that extent, the section may be retro-active. The next step that, therefore, then existing rights can be destroyed and even though suits by real owners filed prior to coming into operation of Section 4(1) they would not survive does not logically follow." On the basis of the aforesaid provisions and the two decisions, the assessee has lost right to make a claim on that property, Mohan Nivas as his own after the introduction of the Benami Transactions (Prohibition) Act, 1988 w.e.f. 19th May, 1988.
11. In such circumstances, it was rather wise on the part of the assessee to have a family settlement by which he got at least 1/3rd share. It was at a time when one of the sons filed a suit claiming 1/3rd share in the property, as his share. It cannot be a sham or bogus transaction. Not contesting the proceedings for arbitration or agreeing to settlement without recording reasons by the arbitrator was also on the contrary, a wise thing on the part of the assessee, lest he be not exposed that his claim for entire property or to even a part thereof was devoid of any merits. In my opinion, neither the conduct of the assessee nor any material on record show any doubt that he had any predetermined bad motive in agreeing to refer the matter for settlement through the intervention of the Court which appointed the sole arbitrator, a person being a leading advocate of the time. Looking to the precarious position about the rights in the property, particularly when the property stood in the name of the assessee and the provisions of Benami Transactions (Prohibition) Act depriving him to claim any right in such property. It cannot be said that his agreeing to the position that the property be treated as HUF property was collusive or pre-determined, because in any case he is getting 1/3rd property as against almost nil chances or his getting anything.
12. In the Tribunal's order in wealth-tax proceedings for asst, yrs. 1991-92 to 1994-95, the issue as to whom the property belonged, was not there as is evident by the ground extracted in para 2.6 of the aforesaid order. The following were the questions, stated to have been raised before the Tribunal:
"2.6 Aggrieved by the order of the learned CWT(A), assessee is in appeal before us and the common grounds of appeal are as under:
(1) That the learned CWT(A) ought to have accepted as established on evidence that the entire property comprising of sub-plots 417/1/1, 417/1/2 and 417/1/4 was residential house with lands appurtenant thereto and was used by Dr. K.M. Shah, his wife and two sons and unmarried daughters as a single unit and as such was exempted under Section 5(1)(iv) and or (vi) of the WT Act.
(2) The learned CWT(A) failed to see that, apart from the bungalow erected on sub-plots 417/1/2 and 417/1/4 as part of the construction of the bungalow for the purpose of using the same as a single unit by the entire family of Dr. K.M. Shah and used as such.
(3) That the learned CWT(A) wrongly highlighted certain points in para 8.3 of her order as the same were not conclusive nor indicative of the other sub-plots being vacant urban lands and, therefore, subject to wealth-tax.
(4) That the remaining adopted by the CWT in this behalf is totally untenable and the assessee's case fully falls within the principles laid down by the Madras High Court [CIT v. Smt. M. Kalpagam (1997) 227 ITR 733 (Mad)] and the Andhra Pradesh High Court [CIT v. Zaibunnisa Begam (1985) 151 ITR 320 (AP).
(5) That the decision of the CWT(A) holding the two sub-plots as vacant urban land is wholly untenable and unsupportable on the evidence on record, especially in absence of any proof in rebuttal.
(6) That the learned CWT(A), therefore, erred in coming to the conclusion that the property could be valued at the market price and was assessable to wealth-tax as such and ignoring the valuation given by the assesses, under Schedule III of the WT Act in respect of the said property."
13. There is, obviously, also no finding by the Tribunal in absence of any ground which is also evident from the order of the Tribunal in the aforesaid wealth-tax case as contained in para 2.9 which reads as under:
"2.9 We have carefully gone through the orders of the authorities below as well as on various details and documents placed before us at the time of hearing. The sub plots. Nos. 417/1/1, 417/1/2 and 417/1/4 are, in our opinion, independent residential plots on which as per approval of Municipal Corporation independent residential house can be built up. We are, therefore, of the opinion that the learned CWT(A) is fully justified in holding that assessee is entitled to exemption under Section 5(1)(iv) and or under Section 5(vi) of the WT Act, in respect of bungalow constructed on plot No. 417/1/1. The remaining two sub-plots namely plot No. 417/1/2 and 417/1/4 cannot be treated as land appurtenant to even as per principle laid down by Hon'ble Madras High Court and Madhya Pradesh High Court (supra). On this remaining plots independent bungalows/residential houses can be built; these are having separate approach roads, duly approved by Municipal Corporation as plots for separate residential units. Therefore, in our opinion, learned CWT(A) is fully justified in holding that these two sub-plots are urban land within the meaning of WT Act. Looking to the totality of the facts and circumstances of the case and reasons recorded by learned CWT(A) in her impugned order, we are of the opinion that her order is legally and factually correct and no interference is called for. We, therefore, decline to interfere."
14. It seems that before the CWT(A) the dispute was raised as to whether the entire land was one and appurtenant to the bungalow "Mohan Nivas" which was claimed to be exempt under Section 5(1)(iv)/5(1)(v) of the WT Act. In that connection, the assessee's submission was that the entire plot or land was one property and the CWT(A) gave a 12 point finding thereon. Though the Tribunal agreed that it was not a single unit, it did not deal with or conform to the finding of the CWT(A) as to whom the property really belonged; namely, whether to HUF or individually to the assessee. In my opinion, rightly so, as the question was not in dispute before the Tribunal and that fact is further evident by the order in MA No. 13/Ahd/2001 dt. 25th April, 2001 wherein it is specifically stated that the issue was though raised before the Tribunal by way of additional ground but was not pressed.
15. Let me examine the effect of the above 12 point finding of the CWT(A) :
(i) The first point only suggests that there was no evidence as to the fact that the property was purchased out of HUF funds. It does not suggest that the sources were of the individual either.
(ii) The second point is that the gift made by the assessee could not have been made by him as Karta if that was an HUF property. Gift was made in 1968 when Mrugesh was major and, therefore, the gift deed was signed by him along with the assessee who signed the deed as guardian of Bhadresh. This fact as stated above, does not suggest that it was individual property of the assessee. On the contrary, it may suggest that it could be the property of Mrugesh and Bhadresh.
(iii) The third point is that the assessee had been showing the property in his individual return as his property but that also by itself is not conclusive proof of the fact compared to other weighty evidence namely the property stood in the names of two sons and three daughters and the prohibition of any claim being made by the assessee under the Benami Transaction (Prohibition) Act, 1988.
(iv) The fourth point is that it was only after the award, which was agreed by the parties to be given without reasons, the property was declared HUF property. There is specific provision of law contained in Section 31(3) of the Arbitration Act and also a Supreme Court decision in the case of Bungo Steel Furniture (P) Ltd. v. Union of India AIR 1967 SC 378 not requiring the reasons to be recorded. Section 31(3) of the Arbitration Act suggests that reasons are to be given unless agreed to by the parties otherwise. That is the reason the arbitrator incorporated a clause in the award which reads as under :
"As the parties have agreed before me that my award need not contain any reason, I refrain from giving the same in support of the award."
(v) The fifth point is that the assessee agreed to the award without challenge by any of the parties. That is, insofar as the assessee is concerned, was a wise decision, lest he be not exposed to have any right in the said property.
(vi) The sixth point confirms it to be a family settlement which could have been without recourse to Court proceedings. Family settlement excludes the transaction out of the concept of transfer and deemed gift under Section 4(2) of GT Act. Intervention of the Court is a subtle way of settling disputes without future retractions and fallouts.
(vii) The seventh point is that the award was given on 30th March, 1995 and the property was sold on 1st April, 1995 within two days even without waiting for the award being confirmed by the Court which, according to the CWT(A), happens only in collusive transaction. When the dispute was settled amongst the parties by way of settlement, there is no scope of its being not approved and made rule of the Court and if the parties agree to sell the property at the earliest opportunity to expedite the deal and the realisation thereof, no inference could be drawn from this fact that it was a collusive agreement or an inference that it happens only in collusive agreement.
(viii) The eighth point is that the agreement for sale within two days suggests that the outcome of the award was pre-determined. By the very existence of the agreement by way of settlement, the outcome of the award was naturally to follow. No inference therefrom can be drawn this way or that way and surely not an adverse one.
(ix) The ninth point states that there was no HUF in existence prior to the award, in absence of any assets, property or sources of income and, therefore, as to wherefrom it could acquire movable properties was a fact overlooked by the arbitrator. When the award is made a rule of the Court, it is binding not only on the parties but even to the third parties as well except only in those cases where it is reopened in accordance with the procedure laid down in the law. Again, as aforesaid, it could only be a ground for saying that the movable assets were not the property of the HUF for which there is no dispute either in the wealth-tax proceedings or these gifts-tax proceedings.
(x) The tenth point is that the arbitrator has exceeded his jurisdiction as he has reallocated even the gifted property to the three daughters of the assessee which could happen only in case of a collusive deal. Firstly, when the parties have agreed by way of a family settlement and the award is made a rule of the Court it would not be warranted to say that it was a collusive deal and factually also the allocation is made of the property mentioned in Schedule I admeasuring 2454 sq. mtrs. of non-agricultural land along with existing bungalow constructed therein known as Mohan Nivas bearing private sub-plot No. 417/1/1, 417/1/2 and 417/1/4 forming part of the bigger plot No. 417/1. The gifted property was of 505 sq. mtrs. (604 sq. yards) was bearing property subplot No. 417/1/3 and was not included in the award given by the arbitrator. Therefore, factually also the observation of the CWT(A) was not correct and that is evident by Schedule I attached to the award.
(xi) The eleventh point is that the assessee and his two sons have taken different stands in urban land ceiling proceedings. This fact is not against the assessee but on the contrary, it goes in favour of the assessee, i.e., the real position about the ownership was fluid and not certain a valid ground for entering into a family settlement or an arrangement.
(xii) The twelfth point is that the arbitrator instead of allocating movable property to all, allocating only to the assessee which shows that there was no genuine dispute. The dispute was for the claim in Mohan Nivas property and that was main dominant and substantial part of the property in which they have taken 1/3rd share. If they did not take any share in the small property of insufficient value, it does not matter much or make the award invalid which is again an agreed one without any dissent,
16. In view of the above, in my opinion, the discussion in wealth-tax proceedings is of no help in determining the issue about the absolute ownership of the assessee and in holding on that basis that there was a gift within the meaning of Section 4(2) of the Act. It only throws some light that it was not HUF property before settlement through arbitration award. On the contrary, it definitely gives conflicting positions the parties have taken at various occasion and that there was a cloud upon the absolute right of the assessee over the property and that too rather more in view of the other family members.
17. On the facts and circumstances of the case, in my opinion, it is a case of family settlement through arbitration award. In the case of Ram Charan Das v. Girja Nandini Dew and Ors. (supra) the question was for determining the legal effect of the deed similarly described in the paper book as a deed of partition.
The Court held that the compromise entered into, by the parties to the previous suit and embodied in the decree was in substance a family arrangement and, therefore, binding on all the parties to it. It observed that 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 consideration for a family settlement is 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 right asserted by each other cannot be impeached thereafter. It was also held that the transaction of a family settlement entered into by the parties who are members of a family bona fide to put an end to the dispute among themselves, is not a transfer. It is not also a creation of an interest. For, in a family settlement each party takes a share in the property by virtue of the independent title which is admitted to that extent by the other parties. Every party who takes benefit under it need not necessarily be shown to have, under the law, a claim to share in the property.
All that is necessary to show is that the parties are related to each other in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other ground as say, affection. This case is on all fours with the case of the assessee.
18. In the case of S. Shanmugam Pillai and Ors. v. K. Shanmugam Pillai and Ors. AIR 1972 SC 2069 it was even held that although conflict of legal claims in presenti or in futuro is generally a condition for the validity of family arrangements, it is not necessarily so. Even bona fide disputes present or possible which may not involve legal claims would be sufficient. Members of an HUF may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement, if such an agreement is entered into bona fide and the terms thereto are fair in the circumstances of a particular case, the Courts would more readily give assent to such an agreement than to avoid it.
19. In the case of Kale and Ors. v. Dy. Director of Consolidation and Ors. AIR 1976 SC 807, the Supreme Court held that family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties, between the various members of the family, that the said settlement must be voluntary and should not be induced by fraud, coercion or undue influence and that 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. Here also, a distinction should be made between a document containing the terms and recitals of a family arrangement made under the documents and a mere memorandum prepared after the family arrangement had already been made either for the purpose of the record or for information of the Court for making necessary mutation. In such a case the memorandum itself does not create or extinguish any rights in immovable properties and is, therefore, not compulsorily registrable. Para 28 of this order reads as under :
"28 There is yet one more intrinsic circumstance which shows that the compromise was an absolutely bona fide transaction. It would appear that, at the time of compromise, respondent 5, Ram Pyari, was faced with a situation when her marriage in 1955 was not so far proved. If she was absolutely certain that her marriage had taken place in 1955, she would not have agreed to the terms at all. On the other hand, if she thought that she might not be able to prove that her marriage took place in 1955 and if it was shown that she had married before 1955 then she would be completely disinherited and would get nothing at all with the result that the appellant, Kale, would get the entire property. On the other hand, the appellant must have similarly thought that a bird in hand is worth two in the bush. So long as Ram Pyari was alive he would not be able to enjoy the property and would have to wait till her death. It was, therefore, better to take half of the property immediately as a permanent tenure holder and give the half to the daughters of Lachman, namely, Har Pyari and Ram Pyari. Thus under the terms of the compromise both the parties got substantial benefits and it was on the whole a very fair and equitable bargain. In these circumstances, therefore, the parties struck a just balance and a fair and beneficial settlement which put an end to their disputes."
20. A similar situation was appearing in this case before the family settlement. The assessee was faced with a situation when the property did not stand in his name. It stood in the name of his two sons. Benami Transactions (Prohibition) Act, 1988 debarred him from claiming any right therein, if he was able to prove that the sons were benami holders of the property. In these circumstances, when he wanted to dispose of the property he had no alternative but to agree for settlement, more so when one of the sons had already moved to the Court. By this settlement he at least had 1/3rd right in immovable property and the entire movable property to his credit. No mala fide, therefore, can be implied.
21. This issue directly came up in connection with tax proceedings before the Madras High Court in the case of CIT v. R. Ponnammal (supra) wherein the High Court held as under:
"When the parties enter into a family arrangement, the validity of the family arrangement is not to be judged with reference to whether the parties who raised disputes or rights of claims in certain properties had in law any such right or not. The members of a joint family may, in order to maintain peace and bring about harmony in the family, enter into a family arrangement and if the arrangement is entered into bona fide and the terms hereof are fair, Courts will normally give assent to such an arrangement rather than avoid it. Even if a party to the settlement has no title under the arrangement but the other party relinquishes all its claims or title in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld.
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 panchayatdars 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 with the meaning of Section 2 (xxxiv) of the GT Act and, hence, there was no liability to gift-tax either under Section 4(1)(a) or under Section 4(2) and consequently no question of inclusion of the income of the minor in the hands of the assessee would also arise."
22. I am, therefore, of the opinion that it was bona fide case of family settlement and, therefore, does not amount to transfer and consequently, the provision of Section 4(2) of the GT Act, 1958 would not be applicable.
23. The second issue made out by the learned AM is that the assessment is to be quashed even on the ground that the gift in any case did not take place in the year under consideration in view of the consent given by the assessee to the award and decree passed by the Court on 18th July, 1995, which conclusively determines the rights of the parties. The learned JM has not given any specific finding on this. However, as he has upheld the assessment order levying of gift-tax for asst. yr. 1995-96, it gives rise to a difference as to whether the gift-tax if leviable at all, is leviable for asst, yr. 1995-96 or asst. yr. 1996-97. It is true that a consent decree was passed by the Court on 18th July, 1995 which falls in asst. yr. 1996-97 but one should not forget about the facts that the arbitration reference was by consent of the parties and award was given without reason by the consent of the parties. Thus, the consent of the assessee and other parties was already there on 30th March, 1995, which fell in asst. yr. 1995-96. Furthermore, more clinching issue is that the award was acted upon by the parties before 31st March, 1995 when the parties have taken this position in their respective returns showing only the allocated share in the property and also incorporated this fact in agreement for sale dt. 1st April, 1995 and the registered sale deed dt. 20th April, 1996; I, therefore, hold that if there was a gift at all, arising out of this transaction of family settlement, it was in the previous year relevant to asst. yr, 1995-96 and for asst. yr. 1996-97 as elaborately stated in the question No. 1 a separate point of difference prepared by the learned JM stating that (i) arbitrator in his award dt. 30th March, 1995 held that the property in question is of HUF and in this award itself the arbitrator made complete partition of the property; (ii) the valuation dt. 31st March, 1995 relevant to the asst. yr. 1995-96 assessee Dr. K.M. Shah, individual did not declare the same in his individual return of wealth on the basis of arbitration award given by Shri S.N. Soparkar on 30th March, 1995 and two sons of the assessee declared the property allocated by arbitrator: in their returns of wealth for the asst. yr. 1995-96 and subsequent years, and (iii) On 1st April, 1995 assessee and his two sons and three daughters without waiting for decree of Court on arbitration award entered into an agreement for sale of the property in question namely; "Mohan Nivas" in final plot No. 417/1.
24. As regards the second and third questions proposed by the learned JM, in my opinion, the issue stands covered by the Madras High Court decision in the case of R. Ponnammal (supra). As discussed above, as the family settlement was a bona fide one and not a collusive deal nor was so upheld by the Tribunal in wealth-tax appeals of the assessee. The reference to the Tribunal order in wealth-tax appeals for asst. yrs. 1991-92 to 1994-95 in the question by the learned JM, in my opinion has no bearing as this issue was not decided in wealth-tax proceedings as discussed above.
25. In the results, in my opinion, the appeal is to be allowed.
MISC. Appln. No. 53/Ahd/2004 R.P. Garg, Vice President 10th Feb., 2004
1. By this miscellaneous application, the Revenue sought rectification of the order of the Third Member dt. 18th Nov., 2003 by stating that the finding of the CWT(A) that the family settlement was collusive deal was upheld by the Tribunal in wealth-tax proceedings and consequently the order of the Third Member suffers from a mistake which requires to be rectified.
2. The Third Member decision has already referred to the order of the CWT(A) in wealth-tax proceedings as also the Tribunal's order in appeal there against and after taking that into consideration it was held there was no finding by the Tribunal in absence of any ground which is also evident from the order of the Tribunal in wealth-tax proceedings vide para 2.9 which was extracted in para 13 of the Third Member's order. Not only that, in para 15, the 12-point finding of the CWT(A) has been discussed at great length and opined that the discussion in the wealth-tax proceedings was of no help in determining the issue about the absolute ownership of the assessee and in holding on that basis that there was a gift within the meaning of Section 4(2) of the GT Act. In these circumstances, the miscellaneous application is misconceived. It has no merit and is, accordingly, rejected.
3. The miscellaneous application is dismissed.
T.K. Sharma, J.M. 15th March, 2004
1. As there was difference of opinion, the points of difference were referred to the Third Member by Hon'ble President of the Tribunal to resolve the controversy. The Hon'ble Vice President, Ahmedabad Zone, taking into consideration the totality of the facts and circumstances vide his opinion dt. 28th Nov., 2003 concurred with the view of the AM gift-tax, if leviable at all, it is leviable in the asst. yr. 1995-96 and not in the asst. yr. 1996-97 as held by the AM. However, the learned Third Member allowed the appeal of the assessee on the ground that it was a bona fide family settlement, therefore, does not amount to transfer and consequently the provisions of Section 4(2) of the GT Act, 1958 would not be applicable. Subsequently, the Revenue filed a miscellaneous application dt. 28th Jan., 2004 contending therein that "the finding of the learned CWT(A) that family settlement was a "collusive deal" has been upheld by the Hon'ble Tribunal in wealth-tax proceedings, then it is incorrect to hold in "gift-tax" appeal that Tribunal had not held the family settlement as collusive deal in wealth-tax proceedings." In support of this, reliance was placed on the decision of apex Court in the case of CIT v. K.V. Pillai and Sons (1967) 63 ITR 411 (SC). This miscellaneous application of the Revenue was dismissed by the learned Third Member vide order dt. 19th Feb., 2004.
2. We, therefore, in accordance with the majority view hold that it is a bona fide family settlement and, therefore, does not amount to transfer and consequently the provisions of Section 4(2) of the GT Act, 1958 are not applicable.
3. In the result, the appeal of the assessee is allowed.