Income Tax Appellate Tribunal - Madras
M.S. Mariappa vs Gift-Tax Officer on 26 November, 1987
Equivalent citations: [1988]25ITD53(MAD)
ORDER
T.N.C. Rangarajan, Member
1.These appeals are directed against the orders of the AAC/CGT (Appeals) confirming the gift-tax assessments made in respect of a composition deed dated 3-3-1976. That deed recited that the two assessees before us as well as another person who were related to the partners of a firm, M/s. V.S. Murugesa Mudaliar & Co. have conveyed their properties in trust to certain trustees to be held for the benefit of the creditors of the firm to discharge certain debts incurred by the partners. According to the revenue, since the conveyance of the properties belonging to the assesses was not in discharge of any debt incurred by themselves it was without consideration and hence assessable as gifts. According to the assessees this conveyance amounted to a family arrangement to save the honour of the family and hence it was not without consideration and could not be regarded as a gift. The assessees relied on the decision of the Supreme Court in the case of Ram Charan Das v. Girja Nandini Devi AIR 1966 SC 323. But the CGT (Appeals) rejected the claim on the ground that the document made no reference to saving of honour of the family or not even a reference to the family and that it only amounted to a parting of the property by a person which being the substance of the transaction it was to be assessed as a gift. In the further appeal before us it was submitted on behalf of tine assessees that the authorities below have not appreciated the fact that it is only for saving the family honour that the composition deed was executed and that the family arrangement was a transaction which preceded it orally and thus provided the consideration for the conveyance of the property. Reliance was placed on the decision of the Supreme Court, cited supra. It was further pointed out that the properties were subsequently sold and the debts discharged and the authorities below had taken the date of sale as the date of gift in one case whereas the date of the composition deed is taken as the date of gift in the other case so that if this controversy is resolved in one of the assessments the transaction will be outside the previous year in respect of which the assessment was made. On the other hand, it was contended on behalf of the revenue relying on the decision in the case of CIT v. R. Ponnammal [1987] 164 ITR 706 (Mad.) that the essential ingredients of a family settlement would include a dispute and a settlement thereof among the family members whereas the present composition deed was not among the family members and did not reveal any settlement of even a possible dispute. It was submitted that it remained a conveyance of property without consideration to discharge the debt of the donees and, therefore, the gift-tax assessments should be upheld.
2. On a consideration of the rival submissions, we are of the opinion that the assessees are entitled to succeed. The essentials of a family settlement and the principles governing the existence of the same have been succinctly summarised in Halsbury's Laws of England, Vol. 17, Third Edition, pp. 215-216 as follows :
A family arrangement is an agreement between members of the same family, intended to be generally and reasonably for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour.
The agreement may be implied from a long course of dealing, but it is more usual to embody or to effectuate the agreement in a deed to which the term 'family arrangement' is applied.
Family arrangements are governed by principles which are not applicable to dealings between strangers. The court, when deciding the rights of parties under family arrangements or claims to upset such arrangements, considers what in the broadest view of the matter is most for the interest of families and has regard to considerations which, in dealing with transactions between persons not members of the same family, would not be taken into account. Matters which would be fatal to the validity of similar transactions between strangers are not objections to the binding effect of family arrangements.
This statement of the law has been affirmed by our Supreme Court in the case of Kale v. Dy. Director of Consolidation [1976] 3 SCC 119.
3.In the light of this statement of law, we have to analyse the facts of the present case. Here we have a family, some members of which, are partners in business and are deeply in debt. The other members of the family have come to their rescue and created a trust for the benefit of the creditors with their properties. The question is : is it a normal human contract to give substantial properties to discharge the debts of another unless there was an actual obligation ? Obviously not. The irresistible inference is that the partners had some possible claim to the property of the assessees and that was the reason why the asses-sees have agreed to part with some of the property so that the rest of their properties will not be attached by the creditors. As pointed out by the Supreme Court every party who takes benefit under a family arrangement need not necessarily be shown to have, under the law, a claim to a 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. In the present case it is not in dispute that the assessees are related to the donees and the necessary implication of the transaction is that in the normal course of human conduct the assessees have discharged what in their minds was their obligation to meet the debts of the other members of the family. There need not actually be any litigation but the apprehension of litigation by the creditors with the assessees and the avoidance of such litigation and the saving of the honour of the family by reason of this transfer of property would certainly amount to a family arrangement. 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. Family arrangements are such which can be arrived at orally as recognised by the Supreme Court in the case, cited above. Therefore, it seems to us to be abundantly clear that the composition deed was the culmination of the family arrangement and effected a compromise between the conflicting claims of the donees and the assessees whose properties might be vulnerable to the discharge of the debts of the family members. It follows that the transfer of property by the assessees to the trustees of the creditors was not a transfer without consideration and hence it cannot be regarded as a gift exigible to gift-tax. We, accordingly, annul the gift-tax assessments.
4.The appeals are allowed.