Assistant Commissioner of Gift Tax vs C. Krishnan and Ors.
Citation 109 TTJ 516 
 
'Chargeable gift'- Hindu law - Settlement of share of HUF on unmarried daughter
The assessee were members of an HUF known as CD family.'C' the karta died on 29 January 1987. Due to some disputes arising among family members, a family arrangement was made on 4 August 1988. As per the said arrangement/settlement one unmarried daughter 'J' was alloted a godown building. Later 'J' married on 8 November 1989. As per amendment to Hindu Succession Act 1956 by the Hindu Succession (Tamil Nadu Amendment) Act 1989 w.e.f 25 March 1989, the daughter was made a co-parcener like a son. The settlement being in accordance with Amendment Act, no gift tax was attracted.

s.29A of the Hindu Succession (T.N Amendment) Act 1989

ITAT, Chennai

Assistant Commissioner of Gift Tax vs C. Krishnan and Ors.

GTA Nos. 3/Mad/2002 and 3 to 8/Mad/2003; Asst. yr. 1990-91

Mahavir Singh, J.M and K.D. Ranjan, A.M

31 July 2006

Britto Madhavan for the Revenue
None for the Assessees

ORDER

Mahavir Singh, J.M -:

These appeals by the Revenue for the asst. yr. 1990-91 in the case of different assessees emanates out of different orders of the CGT(A). Though the Revenue has contested these appeals in the case of different assessees, the issue involved is common in all these cases. Hence, these appeals were clubbed and heard together and are being disposed of by this consolidated order.

2. The common issue for consideration in these appeals is against deletion of addition by the CGT(A) holding that Stridhan settlement dt. 8th Nov., 1999 conferred the property on Smt. D. Janaki and hence, the same does not attract gift-tax in terms of provisions of Gift-tax Act.

3. The briefly stated facts in these appeals are that these assessees are members of the family known as CD family, i.e., C. Duraisamy family. Shri C. Duraisamy and Shri C. Krishnan were brothers born to Shri M. Chinnappa Gounder and wife Smt. C. Elayammal and the family tree is as under :

Shri M. Chinnappa Gounder and wife C. Elayammal (Parents)

C. Doraisamy  C. Krishnan 
D. Kavery - wife  K. Susheela - wife 
K. Hamsavalli (married daughter)  K. Balasubramaniam 
D. Venkateswaran  K. Karthikeyan 
D. Janaki  K. Bharani 
D. Shanmugasundaram    

4. Shri C. Duraisamy passed away on 29th Jan., 1987 leaving behind legal heirs of the family being wife, one married daughter, one unmarried daughter and two sons. Shri C. Duraisamy and Shri C. Krishnan, were residing together in their house at 74, Park Road, Erode and after the death of Shri C. Duraisamy, Shri C. Krishnan took over the affairs of the family. The assessee was a business family and holding various assets belonging to the family in different names. In the family there started some dispute regarding the ownership of various assets and there was also some apprehensions in the minds of one or the other members of the joint family. To avoid possible dispute in the family, Shri C. Krishnan decided to make a family arrangement by which the entire properties were pooled together and reallocated to the various members of the family as per the family arrangement. So by means of a family settlement dt. 4th Aug., 1988 they entered into family settlement and all the members of the family are signatory to this deed. At that time one of the lady members, Smt. D. Janaki was unmarried and the family had decided to allot some property to her and as per this family settlement deed the godown building situated at Bhavani Road, Erode was allocated to her share. Actually this property was originally owned by the following six persons in 1/6 share.

Late Sri C. Doraisamy  Father of Smt. D. Janaki 
Shri C. Krishnan  Uncle of Smt. D. Janaki 
Shri D. Venkateswaran  Brother of Smt. D. Janaki 
Shri D. Shanmugasundaram  Brother of Smt. D. Janaki 
Shri K. Karthikeyan  Cousin of Smt. D. Janaki 
Shri K. Balasubramaniam  Cousin of Smt. D. Janaki 

5. According to the family settlement deed i.e. family arrangement, the co-owners in this property have relinquished their share. Subsequently, Smt. D. Janaki was married on 8th Nov., 1989 and at that time a Stridhan agreement was executed. As per that Stridhan agreement the property already allocated to Smt. D. Janaki, i.e., godown building situated at Bhavani Road, Erode which was called Chettikkadu godown building. As per the claim of the assessee this is purely a family settlement and if any property is settled in consonance with this family settlement such an arrangement would not result in payment of gift tax. This Stridhan agreement was executed in order to give effect to the family settlement and to pass a clear title in the property mentioned above. However, this settlement is also towards satisfying the claim of Smt. D. Janaki regarding her right over the property of the family since she was unmarried at that time and even as per amended provisions of the Hindu Succession (Tamil Nadu Amendment) Act, 1989 any unmarried daughter has a right over the properties of the joint family.

6. The AO, during the course of income-tax proceedings, in the case of these assessees found that there is an audit objection proposing to treat the above family arrangement regarding transfer of this property, i.e., godown building by these co-owners without consideration as gift. Accordingly, the AO proposed to issue notice under s. 16 of the Gift-tax Act 1958 and wanted to assess the gift to tax. The AO started the proceedings and assessed the gift to tax as the transfer is without consideration. Aggrieved the assessees preferred an appeal before the CGT(A).

7. The CGT(A) after examining the issue held that the property bequeathed on Smt. D. Janaki by these assessees in view of the family settlement deed and Stridhan settlement dt. 8th Nov., 1989 cannot be treated as gift. Accordingly, he allowed the claim of the assessees. Aggrieved, now the Revenue is in appeal before us.

8. The Revenue's main contention is that in the family settlement dt. 4th Aug., 1988, it is clearly stated that the members who own the property at Bhavani Road will give the property. So the property given to Smt. D. Janaki amounts to gift as Smt. D. Janaki did not have any interest in the property prior to the family settlement deed. The Revenue contended that learned CGT(A) has held that obligation by way of Stridhan settlement has to be given by the family members of the family at the time of marriage. Hence, it is covered by Hindu Succession Act as passed by (Tamil Nadu Amendment) Act 1989. The Revenue in view of this, contended that the CGT(A) is incorrect as the family settlement deed dt. 4th Aug., 1988 has separately provided that at the time of her marriage, expenses and Stridhan money will be given to Smt. D. Janaki separately. It was the contention of the Revenue that since the family settlement deed dt. 4th Aug., 1988 was beyond the time contemplated by amendment to Hindu Succession (Tamil Nadu Amendment) Act passed in 1989, placing of reliance on this amendment by the CGT(A) is incorrect. The facts are not disputed. A family settlement deed was entered into by the family on 4th Aug., 1988 to avoid possible family dispute by which the entire property was pooled together and reallocated to the various members of the family and according to this family settlement the godown building situated at Bhavani Road which was called Chettikkadu godown building was allocated to Smt. D. Janaki. This property was owned by six co-owners in 1/6 share each as narrated above. Now the question arises whether Smt. D. Janaki is entitled to this property at the time of marriage on 8th Nov., 1989. In view of the amendment to the Hindu Succession Act 1956 by Hindu Succession (Tamil Nadu Amendment) Act 1989 wherein daughter of a joint family are made copartners in the HUF and they can also claim partition to the family property in the Mitakshara family. The Tamil Nadu Hindu Succession Amendment Act, 1989 was made effective from 25th March, 1989 and Smt. D. Janaki got married on 8th Nov., 1989 after the amendment came into effect. Now we will examine the amended provisions of Hindu Succession Act, 1956 by the Hindu Succession (Tamil Nadu Amendment) Act, 1989.

9. In spite of issue of notice of hearing, the assessee shows (sic) remained absent on the date of hearing of these appeals. Hence, we proceed to decide these appeals on merits after hearing the learned Departmental Representative.

10. We have heard the learned Departmental Representative. A careful perusal of the judgment of the Hon'ble apex Court in the case of S. Sai Reddy vs. S. Narayanan Reddy and Ors. (1991) 3 SCC 647 reveals that what has been considered by the Hon'ble apex Court is the amendment by introduction of s. 29A in Hindu Succession Act, 1956 as amended by the State legislature by Hindu Succession (Andhra Pradesh Amendment) Act, 1986. Similar is the amendment of the Hindu Succession (Tamil Nadu Amendment) Act, 1989 as per Chapter IIA, succession by survivorship. The Hon'ble apex Court has laid down the principle regarding the concept of partition that the legislature has in mind cannot be equated with a mere severance of the status of the joint family which can be effected by an expression of a mere desire by a family member to do so. The partition that the legislature has in mind is a partition complete in all respects which has brought about an irreversible situation. If a partition of the property is effected by metes and bounds, the daughters cannot be deprived of the benefits conferred by the Act. The Hon'ble Supreme Court has held that the legislation is beneficial, and placed on the statute book with the avowed object of benefiting daughter which is a vulnerable section of the society in all its stratas, it is necessary to give a liberal effect to it. Further, as per the amended provisions in the Hindu Succession (Tamil Nadu) Act, the difference between daughter and son of the Mitakshara Hindu Family is removed and the daughter is conferred the coparcenary rights in the joint family property by birth in the same manner and to the same extent as the son. In view of the new provisions, daughter is entitled to claim partition of HUF.

11. The Hon'ble apex Court in the case law cited supra, held, that by way of amendment, s. 29A was introduced by Hindu Succession (Andhra Pradesh Amendment) Act, 1986. The Hon'ble apex Court has considered the newly inserted s. 29A and the same reads as under :

"29A. Equal lights to daughter in coparcenary property.Notwithstanding anything contained in s. 6 of this Act

(i) in a joint Hindu family governed by Mitakshara law, the daughter of a coparcener shall by birth become a coparcener in her own right in the same manner as the son and have the same rights in the coparcenary property as she would have had if she had been a son; inclusive of the right to claim by survivorship; and shall be subject to the same liabilities and disabilities in respect thereto as the son;

(ii) at a partition in such a joint Hindu family the coparcenary property shall be so divided as to allot to a daughter the same share as is allottable to a son :

Provided that the share which a predeceased son or a predeceased daughter would have got at the partition if he or she had been alive at the time of the partition shall be allotted to the surviving child of such predeceased son or of such predeceased daughter :

Provided further that the share allottable to the predeceased child of a predeceased son or of a predeceased daughter, if such child had been alive at the time of the partition, shall be allotted to the child of such predeceased child of the predeceased son or of the predeceased daughter as the case may be;

(iii) any property to which a female Hindu "becomes entitled by virtue of the provisions of cl. (i) shall be held by her with the incidents of coparcenary ownership and shall be regarded, notwithstanding anything contained in this Act or any other law for the time being in force, as property capable of being disposed of by her by will or other testamentary disposition ;

(iv) nothing in cl. (ii) shall apply to a daughter married prior to or to a partition which had been effected before the commencement of the Hindu Succession (Andhra Pradesh Amendment) Act, 1986."

12. The Hon'ble apex Court has considered the issue regarding the preliminary decree which has already been passed prior to the amended provisions and the High Court committed an error in directing the trial Court to allot shares to the unmarried daughters. This was pleaded before the Hon'ble apex Court. The Hon'ble apex Court has admitted that under the unamended Act, unmarried daughters of a Hindu Mitakshara family were not entitled to any share in the joint family property. But the State of Andhra Pradesh removed the injustice to the daughters so far as that State was covered by newly introduced s. 29A in the Act and the Hon'ble apex Court has held in para 6 that by way of amendment, the daughter is conferred the coparcenary rights in the property by birth in the same manner and to the same extent as the son, para 6 of the j judgment reads as under :

"6. It is obvious that under the aforesaid provision, the difference between daughter and son of the Mitakshara Hindu family is removed and the daughter is conferred the coparcenary rights in the joint family property by birth in the same manner and to the same extent as the son. She is therefore, now entitled to claim partition and her share in the family property. The amending provision is a beneficial legislation which, among other things, is also directed towards eradicating social evils such as dowry and dowry deaths. It also achieves the constitutional mandate of equality between sexes."

The Hon'ble apex Court further has held in para 7 as under :

"7. The question that falls for our consideration is whether the preliminary decree has the effect of depriving respondents 2 to 5 of the benefits of the amendment. The learned counsel placed reliance on cl. (iv) of s. 29A to support his contention that it does. Clause (ii) of the section provides that a daughter shall be allotted share like a son in the same manner treating her to be a son at the partition of the joint family property. However, the legislature was conscious that prior to the enforcement of the amending Act, partitions will already have taken place in some families and arrangements with regard to the disposition of the properties would have been made and marriage expenses would have been incurred, etc. The legislature, therefore, did not want to unsettle the settled positions. Hence, it enacted cause (iv) providing that cl. (ii) would not apply to a daughter married prior to the partition or to a partition which had already been effected before the commencement of the amending Act. Thus if prior to the partition of family property a daughter had been married, she was disentitled to any share in the property. Similarly, if the partition had been effected before 5th Sept., 1985 the date on which the amending Act came into force, the daughter even though unmarried was not given a share in the family property. The crucial question, however, is as to when a partition can be said to have been effected for the purposes of the amended provision. A partition of the joint Hindu family can be effected by various modes, viz., by a family settlement, by a registered instrument of partition, by oral arrangement by the parties, or by a decree of the Court. When a suit for partition is filed in a Court, a preliminary decree is passed determining shares of the members of the family The final decree follows, thereafter, allotting specific properties and directing the partition of the immovable properties by metes and bounds. Unless and until the final decree is passed and the allottees of the shares are put in possession of the respective property, the partition is not complete. The preliminary decree which determines shares does not bring about the final partition. For, pending the final decree the shares themselves are liable to be varied on account of the intervening events. In the instant case, there is no dispute that only a preliminary decree had been passed and before the final decree could be passed the amending Act came into force as a result of which cl. (ii) of s. 29A of the Act became applicable. This intervening event which gave shares to respondents 2 to 5 had the effect of varying shares of the parties like any supervening development. Since the legislation is beneficial and placed on the statute book with the avowed object of benefiting women which is a vulnerable section of the society in all its stratas, it is necessary to give a liberal effect to it. For this reason also, we cannot equate the concept of partition that the legislature has in mind in the present case with a mere severance of the status of the joint family which can be effected by an expression of a mere desire by a family member to do so. The partition that the legislature has in mind in the present case is undoubtedly a partition completed in all respects and which has brought about an irreversible situation. A preliminary decree which merely declares shares which are themselves liable to change does not bring about any irreversible situation. Hence, we are of the view that unless a partition of the property is effected by metes and bounds, the daughters cannot be deprived of the benefits conferred by the Act. Any other view is likely to deprive a vast section of the fair sex of the benefits conferred by the amendment. Spurious family settlements, instruments of partitions not to speak of oral partitions will spring up and nullify the beneficial effect of the legislation depriving a vast section of women of its benefits."

13. Now, we will go through the Hindu Succession (Tamil Nadu Amendment) Act which came into force on 25th day of March, 1989 and the Hindu Succession Act, 1956 as applicable to the State of Tamil Nadu amended by Hindu Succession (Tamil Nadu Amendment) Act 1989. Chapter II-A Succession by survivorship as amended reads as under :

"29A. Equal rights to daughter in coparcenary property : Notwithstanding anything contained in s. 6 of this Act

(i) in a joint Hindu family governed by Mitakshara law, the daughter of a coparcener shall by birth become a coparcener in her own right in the same manner as a son and have the same rights in the coparcenary property as she would have had if she had been a son, inclusive of the right to claim by survivorship; and shall be subject to the same liabilities and disabilities in respect thereto as the son;

(ii) at a partition in such a joint Hindu family the coparcenary property shall be so divided as to allot to a daughter the same share as is allowable to a son.

Provided that the share which a predeceased son or a predeceased daughter would have got at the partition if he or she had been alive at the time of the partition shall be allotted to the surviving child of such predeceased son or of such predeceased daughter :

Provided further that the share allowable to the predeceased child of a predeceased son or of a predeceased daughter, if such child had been alive at the time of the partition, shall be allotted to the child of such predeceased, child of the predeceased son or of the predeceased daughter, as the case may be :

(iii) any property to which a female Hindu becomes entitled by virtue of the provisions of cl. (i) shall be held by her with the incidents of coparcenary ownership and shall be regarded, notwithstanding anything contained in this Act or any other law for the time being in force, as property capable of being disposed of by her by will or other testamentary disposition :

(iv) nothing in this Chapter shall apply to a daughter married before the date of the commencement of the Hindu Succession (Tamil Nadu Amendment) Act, 1989.

(v) nothing in cl. (ii) shall apply to a partition which had been effected before the date of the commencement of the Hindu Succession (Tamil Nadu Amendment) Act, 1989.

Interest to devolve by survivorship on death : 29B. When a female Hindu dies after the date of the commencement of the Hindu Succession (Tamil Nadu Amendment) Act, 1989, having at the time of her death, an interest in a Mitakshara coparcenary property by virtue of the provisions of s. 29A, her interest in the property shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with this Act :

Provided that if the deceased had left any child or child of a predeceased child, the interest of the deceased in the Mitakshara coparcenary property shall devolve testamentary or intestate succession, as the case may be, under this Act and not by survivorship."

In view of the above discussions, considering the provisions of Hindu Succession Act, 1956 as amended by Hindu Succession (Andhra Pradesh Amendment) Act, 1986, introduction of s. 29A which was confirmed by the Hon'ble apex Court in the case of S. Sai Reddy (supra) and also the amendment of Hindu Succession Act. 1956 by the Hindu Succession (Tamil Nadu Amendment) Act 1989, which are the provisions similar to the Hindu Succession (Andhra Pradesh Amendment) Act, 1986 we are of the considered opinion that the difference between daughter and son of the Mitakshara Hindu Family is removed and the daughter is conferred the coparcenary rights in the joint family property by birth in the same manner and to the same extent as the son. Daughter is entitled to claim partition and her share in the joint family property i.e. HUF property, is without dispute. After the amendment of Hindu Succession (Tamil Nadu Amendment) Act, 1989 vide cl. (i) and (ii), the daughter in HUF shall by birth become a coparcener in her own right in the same manner as the son and have the same rights in the coparcenary property as she would have, had if she had been a son inclusive of the right to claim by survivorship and shall be subject to liabilities and disabilities in respect thereto as the son. She is entitled to partition of a joint Hindu family coparcenary property and in such partition, Hindu Family coparcenary property shall be so divided to a daughter as to allot the same share as is allottable to a son. The amendment brought out w.e.f. 25th March, 1989 has removed the distinction as regards to a son or a daughter in respect thereto, coparcenary property of joint Hindu family as governed by Mitakshara law and daughters are clearly treated as coparceners.

14. Accordingly we find no infirmity in the Stridhan settlement deed dt. 8th Nov., 1989 by virtue of which Smt. D. Janaki was assigned a share in the property of joint Hindu family. This is in accordance with the family settlement deed dt. 4th Aug., 1988 and further this is in accordance with Hindu Succession (Tamil Nadu Amendment) Act, 1989. In view of this we hold that the property given to Smt D. Janaki will not attract gift-tax as it is not a gift rather the property was divested in view of the amended provisions of Hindu Succession (Tamil Nadu Amendment) Act, 1989. Even otherwise Smt. D. Janaki can have a claim in the joint family property as given to her in view of the family settlement deed and Stridhan settlement deed dt. 8th Nov., 1989. Accordingly CGT(A) has rightly held that the same will not attract the provisions of gift-tax so as to bring into the ambit of Gift-tax Act, 1958.

15. Even otherwise the assessee's claim is that, whether property divested on Smt. D. Janaki by way of Stridhan settlement deed dt. 8th Nov., 1989 on the basis of family settlement dt. 4th Nov., 1989 will attract capital gain or not.

16. The brief facts are that the family settlement deed dt. 4th Aug., 1988 was made keeping in view the possible dispute in the family and, Shri C. Krishnan decided to make a family arrangement by which the entire property were pooled together and are reallocated to the various members of the family as per the family arrangement. Accordingly, various members of the family settlement dt. 4th Aug., 1988 was entered into by all the members of the family and are signatory to this family settlement deed. At that point of time the family had decided to allot some property to Smt. D. Janaki, being the only unmarried daughter and as per this family settlement deed, the godown building situated at Bhavani Road, Erode was allocated to her. As narrated above in para-3 actually this property was originally owned by six co-owners. They are either father or uncle or brothers of Smt. D. Janaki. We will discuss the issue as to whether by way of family settlement in the joint family, property can Be reallocated among family members to avoid possible dispute.

17. First of all we will go through case law of Maturi Pullaiah vs. Maturi Narasimham AIR 1966 SC 1836, wherein the Hon'ble apex Court held as under :

"Although conflict of legal claims in prasenti or in future is generally a condition for the validity of family arrangement, it is not necessarily so. Even bona Me disputes, present or possible, which may not involve legal claims, would be sufficient. 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 tide and the terms thereto are fair in the circumstances of a particular case, the Courts will more readily give assent to such an arrangement than to avoid it. In England also the Courts are averse to disturb family arrangements but try to sustain them on broadest considerations of the family peace and security.

The family arrangement will need registration only if it creates any interest in immovable property in prasenti in favour of the parties mentioned therein. In case however no such interest is created the document will be valid despite its non-registration and will not be hit by s. 17 of the Registration Act". In this apex Court judgment, the principles of family arrangement are depicted at paras 9 and 17 which read as under :

(9) A brief summary of the nature of family arrangements and the conditions for their validity is found in Halsbury's Laws of England 3rd Edn., Vol. 17 at pp. 215-216.

"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 applied."

The principles the Courts should bear in mind in appreciating the scope of such family arrangement are stated thus :

'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 consideration 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 passage indicates that even in England, Courts are averse to disturb family arrangement but would try to sustain them on broadest considerations of the family peace and security. This concept of a "family arrangement" has been accepted by Indian Courts but has been adapted to suit the family set up of this country which is different in many respects from that obtaining in England. As in England so in India, Courts have made every attempt to sustain a family arrangement rather than to avoid it, having regard to the broadest considerations of family peace and security.

Briefly stated, though conflict of legal claims in prasenti 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."

18. Further, the Hon'ble Supreme Court in the case of Kale vs. Dy. Director of Consolidation AIR 1976 SC 807 has held as under :

"Before dealing with the respective contentions put forward by the parties, we would like to discuss in general the effect and value of family arrangements entered into between the parties with a view to resolving disputes once for all. By virtue of a family settlement or arrangement members of a family descending from a common ancestor or a near relation to seek to sink their differences and disputes, settle and resolve their conflicting claims or disputed titles once for all in order to buy peace of mind and bring about complete harmony and goodwill in the family. The family arrangements are governed by a special equity peculiar to themselves and would be enforced if honestly made. In this connection, Kerr in his valuable treatise 'Ken on Fraud' at p. 364 makes the following pertinent observations regarding the nature of the family which may be extracted thus :

The principles which apply to the case of ordinary compromise between strangers, do not equally apply to the case of compromises in the nature of family arrangements. Family arrangements are governed by a special equity peculiar to themselves, and will be enforced if honestly made, although they have not been meant as a compromise, but have proceeded from an error of all parties, originating in mistake or ignorance of fact as to what their rights actually are, or of the points on which their rights actually depend.

The object of the arrangement is to protect the family from long drawn litigation or perpetual strifes which mar the unity and solidarity of the family and create hatred and bad blood between the various members of the family. Today when we are striving to build up an egalitarian society and are trying for a complete reconstruction of the society, to maintain and uphold the unity and homogeneity of the family which ultimately results in the unification of the society and therefore, of the entire country, is the prime need of the hour. A family arrangement by which the property is equitably divided between the various contenders so as to achieve an equal distribution of wealth instead of concentrating the same in the hands of a few is undoubtedly a milestone in the administration of social justice. That is why the term 'family' has to be understood in a wider sense so as to include within its fold not only close relations and legal heirs but even those persons who may have some sort of antecedent title, a semblance of claim or even if they have a spes successions so that future disputes are sealed for ever and the family instead of fighting claims inter se and wasting time, money and energy on such fruitless or futile litigation is able to devote its attention to more constructive work in the larger interest of the country. The Courts have, therefore, leaned in favour of upholding a family arrangement instead of disturbing the same on technical or trivial grounds. Where the Courts find that the family arrangement suffers from a legal lacuna or a formal defect the rule of estoppel is pressed into service and is applied to shut out plea of the person who being a party to family arrangement seeks to unsettle a settled dispute and claims to revoke the family arrangement under which he has himself enjoyed some material benefits. The law in England on this point is almost the same. In Halsbury's Laws of England, Vol. 17, 3rd Edn., at pp. 215-216, the following apt observations regarding the essentials of the family settlement and the principles governing the existence of the same are made which is already reproduced in para 17 above.

In other words, to put the binding effect and the essentials of a family settlement in a concretised form the matter may be reduced into the form of the following propositions :

(1) The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family.

(2) The said settlement must be voluntary and should not be induced by fraud coercion or undue influence.

(3) The family arrangements may be even oral in which case no registration is necessary.

(4) It is well-settled that registration would be necessary only if the terms of the family arrangements are reduced into writing. Here also a distinction should be made between a document containing the terms and recitals of a family arrangement made under the document and a mere memorandum prepared after the family arrangement had already been made either for the purpose of the record or for information of the Court for making necessary mutation. In such a case, the memorandum itself does not create or extinguish any rights in immovable properties and, therefore; does not fall within the mischief of s. 17(2) (sic) s. 17(1)(b) of the Registration Act and is, therefore, not compulsorily registrable.

(5) The members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner then the antecedent title must be assumed and family arrangement will be upheld and the Courts will find no difficulty in giving assent to the same.

(6) Even if bona tide disputes, present or possible, which may not involve legal claims or settled by a bona tide family arrangement which is fair and equitable the family arrangement is final and binding on the parties to the settlement. The Hon'ble apex Court relying on the decision in the case of Shanmugam Pillai vs. K. Shanmugam Pillai AIR 1972 SC 2069 after an exhaustive consideration of the authorities on the subject, observed as under :

"Equitable principles such as estoppel, election, family settlement, etc. are not mere technical rules of evidence. They have an important purpose to serve in the administration of justice. The ultimate aim of the law is to secure justice. In the recent times in order to render justice between the parties, Courts have been liberally relying on those principles. We would hesitate to narrow down their scope."

19. Further, the Hon'ble Supreme Court in the case of S.K. Sattar S.K. Mohd Choudhari vs. Gundappa Ambadas Bukate (1996) 6 SCC 373 has held in respect of family arrangement as under :

"Sec. 5 contemplates transfer of property by a person who has a title in the said property to another person who has no title. A family arrangement, on the contrary, is a transaction between the members of the same family for the benefit of the family so as to preserve the family property, the peace and security of the family, avoidance of family dispute and litigation and also for saving the honour of the family. Such an arrangement is based on the assumption that there was an antecedent title in the parties and the arrangement acknowledges and defines what the title is. It is for this reason that a family arrangement by which each party takes a share in the property has been held as not amounting to a 'conveyance of property' from a person who has title to it to a person who has no title".

20. Further, we have gone through the decision of the Hon'ble Madras High Court in the case of CIT vs. AL. Ramanathan (2000) 159 CTR (Mad) 255 : (2000) 245 ITR 494 (Mad) wherein it was held (under the headnote) as follows :

"The assessee was an HUF. The Karta of this joint family was one R, the son of A. There was a partition in the joint family of which A was the Karta and his three sons, L, P and R, were the other coparceners. Disputes arose in the family and an interim arrangement was entered into on 19th Aug., 1980, under which the assessee's side was to receive a certain sum of money and certain lands and in return they were required to transfer half of their shareholding in certain companies. On 20th Aug., 1981, a final agreement was drawn up and there was again a realignment of family properties. The assessee claimed that the agreements dt. 19th Aug., 1980, and 20th June, 1981, were in pursuance of a family arrangement and, hence, the capital gains from these transactions could not be assessed to capital gains tax. The ITO took the view that the transactions amounted to transfer of title in respect of which capital gains was exigible to tax. The Tribunal came to the conclusion that the transaction was a family arrangement and did not involve any transfer of title of properties. On a reference :

Held, that the dispute arose in the family and the family arrangement was arrived at in consultation with the panchayatdars and, accordingly, realignment of interest in several properties resulted. The family arrangement was arrived at in order to avoid continuous friction and to maintain peace among the family members. The family arrangement was governed by the principles which were not applicable to dealings between strangers. So such realignment of interest by way of effecting family arrangements among the family members would not amount to transfer. The Tribunal found that the family arrangement was a bona fide one inasmuch as it was made voluntarily and not induced by any fraud or collusion and the conduct of the parties was consistent with the bona fide family arrangement particularly when it was arrived at in the presence of panchayatadars. The family arrangement involved in the above case did not amount to transfer. Therefore, no capital gains arose."

21. From the above case laws it is clear that a 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 with 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. These observations do not mean that some title must exist as a fact in the persons entering into a family arrangement. They simply mean that it is to be assumed that the parties to the arrangement had an antecedent. It is also to be noted that a family arrangement by which the property is equitably divided into the various contenders so as to achieve equal distribution of wealth instead of concentrating the same in the hands of a few, is undoubtedly a milestone in the administration of social justice. That is why the term 'family settlement' has to be understood in a wider sense so as to include within its fold not only close relations or legal heirs but even those persons who may have some sort of antecedent title, a semblance of a claim or even if they have a spes successions so that future disputes are sealed for ever and the family instead of fighting claims Inter se and wasting time, money and energy on such fruitless or futile litigation is able to devote its attention to more constructive work in the larger interest.

22. In the present case by way of family settlement and subsequently by way of Stridhan settlement at the time of marriage of one of the daughters of the family Smt. D. Janaki, the family property which was settled in her favour was owned by six co-owners. This divesting of property to Smt. D. Janaki by way of family arrangement and subsequently by way of Stridhan settlement that is purely in view of the family arrangement. As discussed, we fairly feel that divesting of this property does not attract the provisions of Gift-tax Act and accordingly this cannot be termed as 'gift' for the purpose of charging of gift-tax. Accordingly on this aspect also we allow the claim of the assessees.

23. In the result, these appeals by the Revenue are dismissed.