Income Tax Appellate Tribunal - Hyderabad
Income-Tax Officer vs Smt. Sonabai on 9 June, 1989
Equivalent citations: [1989]31ITD31(HYD)
ORDER
R.D. Agrawala, Judicial Member
1. Following are the four grounds taken in this appeal preferred by the revenue pertaining to the assessment year 1982-83, in respect of the assessee by status an Individual:
(1) On the facts and in the circumstances of the case, the AAC erred in holding that the deed of family arrangement and settlement dated 21-3-1980 as a valid document and that the assessee is assessable only in respect of the income arising from the properties bearing Municipal No. 9-1-145 to 147.
(2) The AAC ought to have held that the family arrangement among the assessee, her sons and their families in respect of the subject properties made during the lifetime of the assessee contravenes the directions given in the will dated 24-10-1938 left by the assessee's grandfather and is invalid.
(3) The AAC ought to have noticed Smt. Sonabai had no powers to alienate the property, when she herself had only a limited interest whether as part of family settlement or otherwise.
(4) On the facts and in the circumstances of the case, the AAC erred in reducing the total income by Rs. 54,190 on the basis of his above decision.
2. We have heard in detail the rival submissions made both on behalf of the revenue as well the assessee.
3. Relevant facts are these : For the assessment year 1980-81, the appellant returned an income of Rs. 30,800 accrued to her from various properties. In the Note accompanying the return of income for 1982-83 filed in response to a notice Under Section 143(2) of the IT . Act returning a mere income of Rs. 3,000, it was stated that as a result of a family settlement dated 21-3-1980, duly registered, the appellant got absolute interest only in one house property bearing No. 9-1-145 to 147 from the aforesaid date used by the assessee substantially as her abode.
4. For the assessment year 1981-82, however, the assessee did not file any return of income. In respect of the assessment for the year under account, the assessee filed a copy of the Will to show how, the various properties had come to her. This document dated 24-10-1938 executed by the assessee's grandfather possessing several immovable properties at Secunderabad bequeaths life interest to the assessee in most of these properties.
5. It is noteworthy to reproduce below clause 9 of the Will :
I hereby devise and bequeath all the rest of my properties both movable and immovable, wheresoever and whatsoever whether mentioned here specifically or not, and not otherwise disposed of by this will or otherwise to Sona, Bai, the daughter's daughter of my sister Jasodha Bai and wife of Chunnilal. She will have only a limited life estate therein and shall be at liberty to enjoy the entire net income. After her death the whole of the said estate shall be taken absolutely by Shamlal her son a minor now aged about 7 years. May God forbid, if Shamlal is not alive at the time, the said Sona Bai's other sons or son if any, shall take my entire estate absolutely. If, however, at the time of Sona Bai's death the said Shamlal is not alive and she leaves no other son or sons, the said properties shall be taken absolutely by Chunnilal the husband of Sona Bai who is my executor. In case the said Chunnilal is not alive the whole of my property shall be given to the Dharmasala endowed by me and the income from the same shall be utilised in giving scholarships to poor students. The Trustees for the time being of the said dharmasala shall manage and administer the said estate and fund as Dart of the Dharmasala Trust.
6. Assessee claimed before the Income-tax Officer that vide a family arrangement and settlement dated 21-3-1980, the magna carta of the asseasee's case between her, between her two sons, their wives and her grandsons, duly registered on the same day, the properties bequeathed by late Rampershad vide Will dated 24-10-1938 had been divided amicably amongst all the abovesaid members of the family. Under this family arrangement property bearing Municipal No. 9-1-14-147, Sebastian Road, Secunderabad alone fell to her share meaning thereby that she was not assessable in respect of the income arising out of other properties which went to the other parties to this settlement.
7. The claim of the assesses did not find favour with the Income-tax Officer inter alia on the ground that the family arrangement vide document dated 21-3-1980 was a mere afterthought ; that the requisite motivation needed for such an arrangement never existed and that the assessee being possessed only of a life interest was not clothed with an absolute right over the immovable properties, subject-matter of the family arrangement to enter upon it ; as a result the assessee continued to have life interest in all the properties bequeathed to her in the erstwhile manner.
8. Aggrieved, the assessee filed an appeal and met with success. It is how the revenue is aggrieved by the order dated 12-3-1986 passed by the learned Appellate Asstt. Commissioner on grounds set out hereinbefore.
9. On behalf of the revenue it has been contended that the document dated 21-3-1980 was sham particularly as it did not spring out of any real necessity for a family arrangement and not occasioned in the facts and circumstances of the case. That the assessee who had only a life interest in terms of the will was legally precluded from entering upon such an agreement binding the reversioners to whom the property had to go after her demise. As against this, the learned counsel for the assessee submitted that the family arrangement was arrived at primarily with a view to maintain peace and harmony amongst the members of the family and to avoid any future disputes and discord anticipated particularly after the death of the assessee. That there was no premises on the basis of which the Income-tax Officer was justified to dub the arrangement as an afterthought ; bona fides of the parties to the arrangement were wholly unquestionable as was also evident from the fact that the document was registered with the Sub-Registrar on that very day and throughout acted upon. Elaborating it was contended that mutation of the municipal records in terms of the settlement was obtained and property taxes paid by the parties in respect of the properties which fell to their share as also wealth-tax returns filed by them accordingly and completed in a few cases.
10. We have given our utmost consideration to the relevant facts obtainable and taken into account the rival submissions.
11. The first and foremost question needs to be considered is as to what is a family arrangement and who could be the parties contracting it. The issue has been subject-matter of consideration before the Summit Court on a number of occasions.
12. In Sahu Madho Das v. Mukund Ram AIR 1955 SC 481. Their Lordships of the Supreme Court while considering the ingredients of a family arrangement held as under :
It is well settled that a compromise or family arrangement is based on the assumption that there is an antecedent title of some sort in the parties and the agreement acknowledges and defines what that title is, each party relinquishing all claims to property other than that falling to his share and recognising the right of the others, as they had previously asserted it, to the portions allotted to them respectively. That explains why no conveyance is required in these cases to pass the title from the one in whom it resides to the person receiving it under the family arrangement. It is assumed that the title claimed by the person receiving the property under the arrangement had always resided in him or her so far as the property falling to his or her share is concerned and therefore no conveyance is necessary. But, the principle can be carried further and so strongly do the Courts lean in favour of family arrangements that brings about harmony in a family and do justice to its various members and avoid, in anticipation, future disputes which might ruin them all, that they have no hesitation in taking the next step (fraud apart) and upholding an arrangement under which one set of members abandons all claim to all title and interest in all the properties in dispute and acknowledges that the sole and absolute title to all the properties resides in only one of their number (provided he or she had claimed the whole and made such an assertion of title) and are content to take such properties as are assigned to their shares as gifts pure and simple from him or her, or as a conveyance for consideration when consideration is present.
13. Spelling out the conditions which will admit of the existence of such an arrangement, the Court held that a family arrangement can as a matter of law be implied from a long course of dealings between parties. Further the conduct of the various members of the family is relevant to show that their actings, viewed as a whole, suggest the existence of the family arrangement. It was, further, held that at a great distance of time gaps in evidence that would otherwise be available have to be filled in from Inferences that would normally have little but corroborative value.
14. In another decision in M.N. Aryamurthy v. M.L. Subbaraya Setty AIR 1972 SC 1279, dealing with the essential requisites of a family arrangement, their Lordships of the Apex Court held as under :
These are : (i) there must be an agreement amongst the various members of the family intended to be generally and reasonably for the benefit of the family, (ii) the agreement should be with the object either of compromising doubtful or disputed rights or for preserving the family property, or the peace and security of the family by avoiding litigation, or for saving its honour, (iii) being an agreement, there is consideration for the same, the consideration being the expectation that such an agreement or settlement will result in establishing or ensuring amity and goodwill amongst the relations.
15. On behalf of the assessee reliance was placed to bring his point home on a decision of the Allahabad High Court in Ram Charan Das v. Mst. Girjanandani Devi AIR 1959 All. 473 wherein describing what a family arrangement is and its nature, the Hon'ble High Court held as under :
A family arrangement is a transaction between members of the same family which is for the benefit of the family generally, as, for example, one which tends to the preservation of the family property, to the peace and security of the family and the avoiding of family disputes and litigation or to the saving of the honour of the family.
A family arrangement to be good need not necessarily be a compromise of doubtful rights : AIR 1980 All. 687 and AIR 1943 All. 101 (FB) Foll. ; AIR 1926 All. 194, Not foll. AIR 1938 Oudh 97, Doubted.
Where in order to preserve the peace of the family and the avoidance of disputes and litigation and to save the honour of the family a deed of settlement between the members of a family was entered into, the family settlement would be binding on the parties, even though the title of one of the parties to the litigation was not in dispute.
15.1 The Court further held as under :
The true nature of a family settlement is that it does not involve any sort of transfer. The converting of an expectancy to a certainty and avoiding chance of litigation in future is good consideration for a family arrangement : AIR 1930 All. 687 and AIR 1939 All. 689 (FB) Rel. on.
Hence, a family arrangement to which reversioners under Hindu law are parties is not prohibited by Section 6(a) T.P. Act.
16. In fact M. N. Aryamurthy's case (supra) has also been relied on by the Income-tax Officer which has been discussed by the learned first appellate authority appropriately and we agree that the view taken in that; case that on a consideration of all the facts, the document in question was inoperative both as Will or as a family arrangement, does not help the revenue. The Supreme Court arrived at this finding as the document in question that is the Will nor the pleadings nor the evidence brought on record demonstrated that there was any occasion for agreeing to a family arrangement or that the motivation which is necessary for a family arrangement was ever present in the mind of the testator and his sons when the Will was executed. Moreover, one of the signatories being a minor son of the executant, it was not a binding arrangement.
17. As is, therefore, manifest, the facts being entirely different, they have no application to the present case. As for ratio decidendi of this case is concerned, various principles were expounded by the highest Court which have been reproduced above and we find ourselves in agreement with the learned first appellate authority that they apply to the facts of the present case with full force as we also would be analysing in detail hereinafter.
18. It is very pertinent to mention here that at the time the Will was executed by the late Ram Pershad on 24-10-1938, Shri C. S. Suresh party No. 5 to the family arrangement was not born. As is clear from clause 9 of the Will reproduced above, the testator created a limited life estate for Sona Bai, the daughter's daughter of his sister and demised the said estate absolutely in Sona Bai's son Shamlal to take effect after Sona Bai's death. Further if Shamlal was not to be alive at the time of Smt. Sona Bai's death, then sons or son, if any of Smt. Sona Bai would be the absolute owner of the estate. Now, at the time the Will was executed, Smt. Sona Bai had only one son, minor Shamlal. C. S. Suresh was born to her later on. If we go through the family arrangement, we will find that there are seven parties to it. They are Smt. Sona Bai, Shri Shamlal, his wife and son Shri C. S. Suresh and his wife and son.
19. Following are two important stipulations found in the family arrangement :
(i) The Fifth Party has been insisting since quite some time through the well wishers of the family for a Family Settlement of the properties and with the help of their good offices the mutual claims of the members of the family have been settled as per the Deed of Family Arrangement & Settlement (Fifth Party is C. S. Suresh).
(ii) Further it is also the desire of the First Party that all the members of her family namely the remaining parties to this Deed of Family Arrangement and Settlement should enjoy the Schedule 'A' properties during her lifetime itself. She is desirous of maintaining peace and harmony among the members of her family and to avoid any future discord among the members of her family because under the terms of the WILL, in case the Second Party survives the First Party then the Fifth Party, Sixth Party and Seventh Party will not inherit any properties and in the unfortunate event of the Second party predeceasing the First Party then the Third Party and the Fourth Party will not inherit any properties. She is therefore desirous of converting an expectancy of inheriting property into a certainty for all the members of her family so that there will be peace and harmony and avoidance of any future discord. The Second Party and the Fifth Party also desire that the properties that fall to their respective shares absolutely should be distributed between the members of their families even during their mother's lifetime so that their mother's desire to maintain peace and harmony in the family is achieved even during her lifetime.
20. Now if the parties with a view to avoid discord in the family have arrived at a family arrangement wherein all of them have followed the policy of give and take, we do not find any reason to discard such an arrangement. The obvious consideration for this arrangement is to avoid litigation and dissensions in the family and harmonisation of inter se relationship. Such an arrangement surely and has in fact satisfied all the possible successors to the property-present, future or remote. It will have the effect of saving the family frame from being battered and shattered.
21. There is yet another aspect. Smt. Sona Bai was bestowed by the will only with a life interest. After her death, the properties had to be enjoyed by Shri Shamlal. If the latter has predeceased the former it would be going to Shri C. S. Suresh according to the stipulations of the Will. Now if instead of locking horns and taking into account the imponderables about the life and death cycle not knowing as to who will predecease whom and instead of articulating their grievances publicly and averting the danger of hostility looming large, all of them by sitting across the table have ironed out their differences and reached a settlement which satisfies all concerned, we are unable to appreciate as to how such an arrangement does not constitute a valid family arrangement, to be frowned upon in any manner whatsoever. A family arrangement has a wider amplitude and as held by the Summit Court it should be inter alia with the object either of compromising doubtful or disputed rights or for preserving the family property or peace and security of the family by avoiding litigation or for saving its honour. In our opinion, it should be interpreted liberally and in a broad based manner so as to give a meaningful effect, except when something fraudulent or intention to cheat etc. such as tax evasion, is made out, striking at its very existence.
22. In the case in hand, we are of the considered view that all these ingredients demonstrably exist showing that the mother, elder and the younger brother and their families instead of openly breaking their heads and without wasting time, energy and money on litigation chose to tackle the situation amicably following the policy of give and take and arrive at an arrangement. This arrangement cannot be doubted also for the reason that it was immediately acted upon inasmuch as it was registered on the day of its execution, mutation in the municipal records obtained and wealth returned by the parties only in respect of shares which fell on them according to this document.
23. In view of this, the argument advanced on behalf of the revenue that this arrangement did not spring out of any real necessity and was not occasioned in the facts and circumstances of the case does not at all commend itself to us. Is it not that in the facts and circumstances of the case, the younger brother C.S. Suresh could have justifiably questioned his mother Sona Bai and elder brother Shamlal as to why should he be deprived of any share in the property bequeathed by their ancestor Earn Pershad particularly when such intention of the testator could not be inferred or evidenced primarily for the reason that C. S. Suresh was not even born at the time of the execution of the Will to be argued that he was intentionally and consciously excluded from getting any share out of the huge estate ? The mother or elder son were luckily able to see beyond their nose and persuade themselves to enter upon an arrangement in the existing form and thus save a situation that might have taken a catastrophic turn, besides being ostensibly inequitable.
24. In the result, we are wholly unable to find any blemish in the view taken by the learned first appellate authority holding the family arrangement dated 21-3-1980 as a valid document and since fully acted upon. Revenue fails. Appeal is dismissed.