KONDAIAH, J. -
(1.) THIS is a reference under s. 26(1) of the GT Act (hereinafter referred to as "the Act"), by the Tribunal, Hyderabad Bench, for the opinion of this Court on the following question :
"Whether, on the facts and in the circumstances of the case, the assessee was liable to gift-tax assessment on the value of the properties conveyed by him to his children under the settlement deed dated March 26, 1962 ?"
(2.) FOR a proper appreciation of the scope of the reference, it is necessary to refer to the material facts that gave rise to the question : One N. Durgaiah of Secunderabad (hereinafter referred to as "the assessee") executed a registered deed of settlement on March 26, 1962, conveying the schedule mentioned immovable properties to his five sons and two daughters out of whom one of the sons was a minor in whose favour item No. 2, a house worth Rs. 64,800, was settled. The assessee, who was called upon to file a gift-tax return in respect of the value of the properties settled by him on March 26, 1962, had filed a nil return contending, inter alia, that the provisions of the Act levying tax on gifts relating to agricultural lands and buildings were unconstitutional and ultra vires and the transaction was in the nature of a family arrangement which does not amount to a taxable gift under the Act. The GTO, rejecting the contentions raised on behalf of the assessee, assessed the net value of the gifts for the asst. yr. 1962-63 at Rs. 1,20,780 and raised a demand for the payment of gift-tax of Rs. 6,662.40. On appeal to the AAC, the assessee in addition to the pleas raised by him before the GTO, contended that the gift made to Sri N. Prakash, who was a minor son at the time of the settlement, should be exempt under the provisions of s. 5(1)(xii) of the Act as it was intended for his education. The appellate authority was of the view that the transaction was a gift and the recitals in the document do not disclose the intention of the donor to provide for the education of his minor son, Prakash, and there was no other evidence to support such a plea. Hence the appeal was dismissed. On further appeal to the Tribunal, the assessee reiterated his contentions but without success. Hence the reference at his instance.
The contention of Sri P. Ramachandra Rao, the learned counsel for the assessee, is two-fold :
(1) that the transaction is not a taxable gift under the Act but a family arrangement supported by consideration, the consideration according to the counsel being the very arrangement itself ; and (ii) that the gift in favour of the donor's minor son, Prakash, is exempt under s. 5(1)(xii) of the Act.
This claim of the assessee is resisted by Sri P. Ramarao, the learned counsel for the IT Department, contending, inter alia, that there is no merit in any of the pleas raised by the assessee.
It is now settled law that gift-tax under the Act is exigible in respect of gifts of agricultural lands as the transaction involves the transfer of property in the shape of agricultural lands but the very agricultural lands were not sought to be taxed under the Act. See Second GTO, Mangalore vs. D. H. Nazareth (1970) 76 ItR 713 (SC) and Jupudi Sesharatnam vs. GTO, Palacole (1960) 38 ItR 93 (AP).
(3.) WE shall now turn to the contention of Sri Ramachandra Rao that the transaction in question is a family arrangement not exigible to tax under the Act, In order to appreciate this contention of the learned counsel, it is necessary to refer to what is meant by family arrangement. What amounts to family arrangement has been considered in several decisions. Suffice it to refer to a recent decision of the Supreme Court in Pulliah vs. Narasimham AIR 1966 SC 1836, wherein the learned judge, Subba Rao J. (as he then was), who spoke for the Court, after reviewing the entire case law on the subject, has summed up the legal position succinctly thus :
"Briefly stated, though conflict of legal claims in praesenti or in future is generally a condition for the validity of a family arrangement, it is not necessarily so. Even bona fide disputes, present or possible, which may not involve legal claims will suffice. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement. If such an arrangement is entered into bona fide and the terms thereof are fair in the circumstances of a particular case, Courts will more readily give assent to such an arrangement than to avoid it."
The aforesaid dictum would establish beyond doubt that in order to constitute a family arrangement, there must be an agreement or arrangement amongst the members of the joint family who wish to avoid any plausible or possible disputes and secure peace and harmony amongst the members as well as the properties belonging to them. Unless and until the existence of an arrangement or arrangement is established, there can be no family arrangement. Where one of the parties executes a document styled as settlement deed whereunder some of the properties exclusively belonging to him as his self-acquired properties are settled in favour of the other members of the family, the terms of such document do not by any stretch of reasoning amount to a family arrangement. There is no agreement or arrangement amongst the members of the family which is the essence of a family arrangement in such a transaction as the same is only a unilateral one. Indisputably for such a document the other parties who are only beneficiaries cannot be called parties to the transaction in the sense that they have entered into such an agreement or arrangement.;