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1. The two questions which are the subject-matter of these two references, one under section 26(1) of the Gift-tax Act, 1958 (T.C. No. 186 of 1979) and the other under section 256(1) of the Income-tax Act, 1961 (T.C. No. 141 of 1978) arise out of the same set of facts. One Sri Ranga Konar, who was the paternal grandfather of the assessee, executed a will of his property on September 11, 1930, by which he bequeathed his property to five of his sons. After the death of Sri Ranga Konar, the five sons, experiencing some difficulty in partitioning the property according to the will, decided to ignore the will and effected a partition by a duly drawn up partition deed dated December 3, 1934. As a result of the partition, Chinna Venkatachala Konar, one of the sons of the deceased, Sri Ranga Konar, received some property in respect of which he executed a will on March 11, 1938, bequeathing his property to his wife and daughter, Smt. Ponnammal, the assessee. Chinna Venkatachala Konar died on March 31, 1955, leaving behind the two legatees, namely, the widow and the daughter. There were some disputes raised by the brothers of the deceased, Chinna Venkatachala Konar, with regard to the property bequeathed by him by the will. They claimed that Chinna Venkatachala Konar had no right to make a will in respect of the property which he got at the partition. The dispute which became the subject-matter of a suit, O.S. No. 294 of 1962 in the Court of the Subordinate Judge, Coimbatore, filed by the brothers of the deceased, Chinna Venkatachala Konar, finally came to an end by the decision of the Supreme Court on February 6, 1964, and it was held that Chinna Venkatachala Konar had obtained the property absolutely and was entitled to bequeath the property in favour of his wife and daughter.

4. This order of the Gift-tax Officer was set aside by the appellate authority. The Revenue took the matter on appeal to the Income-tax Appellate Tribunal. The Tribunal recorded a finding that a situation of a possible dispute or at least an apprehension in the mind of the assessee of a possible dispute and disharmony in the family regarding the properties bequeathed to her under the will was created as a result of the claims made by the sons and daughters of the assessee. The Tribunal further found :

"Such an apprehension in the mind of the assessee is well founded in view of the tortuous course adopted for establishing the validity of the will by taking up the matter right up to the Supreme Court.

Viewed in this background, there is some basis for a genuine apprehension in the mind of the assessee of a possible dispute regarding the nature of the estate in the properties bequeathed to her under the will and to avoid litigation and preserve the family peace and harmony, she thought it fit to part with a portion of the properties received by her under a will in favour of her sons and daughters and secure for herself recognition and consent of her sons and daughters that she is the absolute owner of the properties bequeathed to her under the will."

8. The decision of both the questions must necessarily depend on whether the finding recorded by the Tribunal that the document dated December 17, 1971 was a family arrangement can or cannot be sustained. The learned counsel appearing on behalf of the Revenue, at whose instance the reference has been made, has urged before us that even prior to the date of the family arrangement, the exclusive title of the father of the assessee to the property bequeathed by him was upheld by the Supreme Court and since the family arrangement has been entered into after the Hindu Succession Act came into force, it was clear that the property which was bequeathed in favour of the assessee by her father had, as a result of the provisions of section 14 of the Hindu Succession Act, become her absolute property at the time of the family arrangement. If this was in law the correct position, according to the learned counsel, there was no necessity for the assessee to part with her property and if she has under the family arrangement parted with some property, that would clearly result in a transfer of property as contemplated by section 2(xxiv). This argument, in our view, ignores 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 whether the parties who raised disputes or rights or claimed rights in certain properties had in law any such right or not.