Punjab-Haryana High Court
Banarsi Lal Aggarwal vs Commissioner Of Gift-Tax on 20 May, 1997
Equivalent citations: [1998]230ITR114(P&H)
Author: Ashok Bhan
Bench: Ashok Bhan, Iqbal Singh
JUDGMENT Ashok Bhan, J.
1. At the instance of the assessee, the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as "the Tribunal"), has referred the following question of law, along with the statement of the case to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that there was no valid family settlement amongst members of the family and that the decree obtained from the civil court was collusive ?"
2. The facts relevant to the question of law referred, are :
Banarsi Lal Aggarwal, the assessee, was being assessed to wealth-tax in the status of an individual. He owned a property styled as Banarsi Lal Aggarwal Rice and General Mills, Kaithal, consisting of land, machinery and building. The mill was constructed in the year 1959-60. Ever since then, this property was shown as individual property in the wealth-tax return of the assessee up to the assessment year 1972-73. For the assessment year 1972-73, the value of 1/4th share in the net wealth return was shown by the assessee and the remaining 3/4ths share was said to have been given to his wife and four sons in a family settlement dated June 21, 1972, by way of a court decree in Civil Suit No. 1175 of 1972, passed by the Sub-Judge First Class, Kaithal. The case of the assessee was that as he could not arrange funds in the year 1959-60 for the construction of the said mill, his wife and four sons contributed funds aggregating to Rs. 73,891 towards the construction of the said property as under :
(Rs.) "1. Smt. Darshan Devi 48,391
2. Sh. Subhash Chander, son 3,000
3. Sh. Suresh Kumar 7,000
4. Sh. Sat Narain 7,000
5. Sh. Vishnu Bhagwan 8,500
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Total 73.891."
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3. As the assessee could neither repay the loans nor pay the interest thereon, the members of his family claimed a share in the property. A family settlement was arrived at on the basis of which, the court decree was passed. Before the Gift-tax Officer, it was urged that it being a family settlement, no gift-tax was leviable. The Gift-tax Officer did not accept the plea put forth before him by the assessee. It was held by him that the wife and the sons of the assessee could not claim shares in the huge property of the assessee simply because they had advanced certain loans to the assessee. He was of the view that the value of the 3/4ths share of the property transferred to the family members was at Rs. 3,22,747 and after deducting the amount of loans aggregating to Rs. 73,891, the gift made to the family members worked out to Rs. 2,48,856 which was considered to be a deemed gift by the assessee in view of the provisions contained in Section 4(l)(a) of the Gift-tax Act, 1958 (hereinafter referred to as "the Act"). After allowing the basic exemption of Rs. 5,000, the Gift-tax Officer arrived at the value of taxable gift at Rs. 2,43,856 against the value returned at Rs. nil.
4. The Commissioner of Gift-tax (Appeals), before whom an appeal was filed by the assessee, confirmed the order of the Gift-tax Officer and held it to be a case of gift. The value adopted by the Gift-tax Officer was confirmed. The assessee filed a further appeal before the Tribunal. On behalf of the assessee, the primary contention raised before the Tribunal was that a family settlement had, in fact, taken place and, therefore, no gift-tax was chargeable. Alternately, the argument of the assessee was that even if it was taken to be a deemed gift, the gift being of an immovable property, the same required registration in view of the provisions contained in Section 123 of the Transfer of Property Act, 1882. As the gift deed had not been registered, it was no gift within the meaning of Section 2(xii) of the Act. The Tribunal did not agree with the first submission of the assessee and rejected the claim of family settlement. It was also held that the civil court decree was not binding on the Income-tax Department as it had been obtained with a view to avoid payment of tax. The orders of the authorities below on this point were upheld. On the second point, the Tribunal took the view that in the absence of registration, the gift was not valid. On the basis of the finding recorded on the second point, the appeal was, ultimately, decided in favour of the assessee and against the Revenue.
5. On the finding recorded by the Tribunal on the second issue, i.e., whether in the case of an immovable property, the gift deed is required to be registered or not, the Revenue did not seek a reference. The finding recorded by the Tribunal on this point has been accepted by the Department.
6. The assessee filed a reference petition and proposed three questions. One question was declined and after combining the remaining two questions, one question of law, reproduced in the earlier part of the judgment, has been referred to this court for its opinion.
7. Counsel for the parties have been heard.
8. Mr. Hemant Kumar Gupta, learned counsel for the assessee, argued that it was a case of family settlement. As the assessee had failed to repay the loans as well as the interest thereon, the property in question partook of the character of Hindu undivided family property regarding which a family settlement could be arrived at within the family.
9. As against this, the submission of Mr. R. P. Sawhney, learned counsel appearing for the Revenue, is that the property was an individual property of the assessee in which the wife and the four sons of the assessee, to whom the property had been transferred, did not have any antecedent title, claim or interest and, therefore, there could be no partition between the assessee and the transferees. The decree being collusive to avoid payment of tax, was not binding on the Department of Income-tax.
10. After giving a careful consideration to the rival submissions of counsel for the parties, we find ourselves in agreement with the contentions raised by counsel for the Revenue.
11. The property was acquired by the assessee individually in the year 1959-60. He had been showing this property as an individual property right up to the assessment year 1972-73. Merely because the loans aggregating to Rs. 73,891 were not repaid by the assessee to his wife and sons, it could not create a title in them in the property which could entitle them to claim partition by way of family settlement of the property in question. The same could not create a title in these persons that the property belonged to them or that they had an interest in the property for which they could claim a family settlement. At best, the wife and the sons could sue the assessee in court for recovery of the loans along with interest. In the eventuality of the decree being passed, in execution of the same, they could proceed against the sale proceeds of the said property in case the assessee failed to pay the decreed amount. There was no antecedent title, claim or interest of the wife and four sons in the property. In the absence of such a title, claim or interest, there could be no family settlement. It was a case of transfer of self-acquired property by the assessee to the five persons concerned without adequate consideration and was, therefore, a case of deemed gift under Section 4(1)(a) of the Act.
12. The Supreme Court of India in Kale v. Deputy Director of Consolidation, AIR 1976 SC 807, has clearly laid down that the members of the family claiming family partition must have antecedent title, claim or interest in the disputed property. It was also held that the family settlement must be bona fide so as to resolve the family dispute.
13. In the present case, regarding the property in question, there could possibly be no dispute between the assessee on the one hand and his wife and four sons on the other because the property was an individual property of the assessee in which the wife and sons had no interest whatsoever. Mere advancement of loans by the five persons would not create an antecedent title, claim or interest in them in the property in question. The wife and sons did not have even a semblance of title which could be acknowledged by the parties to the settlement. The Tribunal rightly concluded that the court decree was collusive and obtained with a view to avoid payment of tax. The family settlement was not a bona fide and genuine arrangement and the same was a made-up affair with a view to avoid payment of tax.
14. For the reasons stated above, we answer the question referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee. No costs.