TMI Blog1995 (12) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------------------------------------------------------------------------- 1. Bipinbhai Vadilal Mehta 4,25,000 Vimlaben Vadilal HUF 2. Bipinbhai Vadital Mehta 4,30,000 Suhas Chhaya Indl. Family Trust 3. Bipinbhai Vadilal Mehta 1,00,000 Vimlaben Vadilal 4. Priyambhai Bipinbhai 6,00,000 Vimlaben Vadilal Mehta 5. Nirmayaben B. Mehta 4,29,857 Suhas Chhaya Family Trust. ------------------------------------------------------------------------------------------------------------------------------------------------ A Memorandun of Understanding (pages 23 to 42 of the paper book) was executed between (1) Shri Bipinbhai Vadilal, (ii) Smt. Nirmayaben B. Mehta, and (iii) Shri Priyambhai B. Mehta on THE ONE PART ; and Shri Suhasbhai Vadilal Mehta and his wife Smt. Chhayaben Suhasbhai Mehta on THE OTHER PART. 3. The preamble to this Mermorandum reads as under : ' (1) Shri Vadilal Lallubhai Mehta and his wife Smt. Vimlaben Vadilal Mehta have two sons Shri Bipinbhai Vadilal Mehta and Shri Suhasbhai Vadilal Mehta, and four daughters--- (i) Smt. Mrudulaben Biharilal (ii) Smt. Veenaben Anilbhai (iii) Smt. Ilaben Anupambhai and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft-tax Officer rejected the claim of the assessees and subjected the amounts gifted by each member to gift-tax on the following grounds : (1) On going through the details of the preamble it is seen that there does not appear to be a family arrangement as claimed by the assessee. What is a family has not been defined either under the Gift-tax Act or any other direct tax Act like Wealth-tax Act and Income-tax Act. In the common parlance, a family means, a spouse and the legitimate children. The word ' family ' includes wife and legitimate children as was observed by the English Court in the case of Pigg v. Clark [1876] 3 Ch. D. 672. Though claimed in the Memorandum of Understanding, the assessee has not made any arrangement with the members of his family. (2) In fact, there are several families which are mentioned in the Memorandum of Understanding. One family is represented by the assessee (Indl)'s father Shri Vadilal Lallubhai Mehta, the other family is represented by the assessee's brother Shri Suhasbhai Vadilal Mehta and the third family is represented by the assessee himself as an individual. (3) It has been expressly mentioned in the Memorandum of Under standing that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner (Appeals)'s attention was drawn to clause 7 of the preamble to the Memorandum of Understanding (reproduced Reliance was placed on the following authorities : (1) Ramchandradas v. Girijanandan Devi AIR 1966 SC 323 (2) Arvind Chandulal v. CIT [1983] 140 ITR 241 (Guj.) (3) Kale v. Dy. Director of Consolidation 1976 SCC 119 (4) CIT v. R.Ponnammal [1987] 164 ITR 706 (Mad.) (5) Maturi Pullaiah v. Maturi Narasimham AIR 1966 SC 1836 (6) Ziauddin Ahmed v. CGT [1976] 102 ITR 253 (Gauhati). After considering the arguments put before him, the CGT(A) held that the entire arrangement had been made as a family settlement in order to avoid any difficulty that may arise in future. Since the amounts had been transferred in accordance with the family settlement, the assessees were not liable to gift-tax. He remarked " I fully agree with the ultimate conclusion drawn by the Hon'ble Gauhati High Court that the transactions does not amount to gift within the meaning of section 4(1)(a) of the Gift-tax Act." He accordingly reversed the finding of the GTO. 6. Shri Manoj Misra, the learned D.R. submitted that the entire arrangement by way of Memorandum of Understanding was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Suhasbhai Vadilal Mehta and Chhayaben Suhasbhai Mehta against any such claim, demand, action or cost in respect of anything done or omitted to be done by them or any one of them in the management of C.V. Mehta Pr. Ltd., and/or in connection with its business affairs and transactions. C.V. Mehta Pr. Ltd. shall, in a general meeting, adopt a resolution confirming this indemnity to the past Directors." "33. Bipinbhai Vadilal Mehta as the major shareholder of Sayaji Mills Ltd., shall be bound to see that Sayaji Mills Ltd., does not make any claim or demand of any kind whatsoever against Vadilal Lallubhai Mehta or Suhasbhai Vadilal Mehta or any other Director of Sayaji Mills Ltd., for anything done or omitted to be done by them or any one of them as Managing Director, Chairman or Director of the said Company and Bhipinbhai Vadilal Mehta hereby agrees to indemnify and always keep indemnified Vadilal Lallubhai Mehta and Suhasbhai Vadilal Mehta and the Directors of Sayaji Mills Ltd., against any such claim, demand, action or cost by Sayaji Mills Ltd., in respect of any thing done or omitted to be done by them or any one of them in the management of the said Company or in connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mjibhai Patel's case the assessee, an individual, had, during the relevant year, transferred without any consideration some equity shares of a limited company and a plot of land to certain members of his family, and claimed that he was not liable to be assessed to gift-tax on such transfer as the same was effected in pursuance to a family arrangement. The GTO held that the said transfer constituted gift as the same was made without consideration and that the family arrangement was a self-serving arrangement. On appeal, the CIT(A) held that the assessee has executed a deed of family arrangement under which the conveyancing in respect of immovable property had taken place and accordingly the assessee was not liable to gift-tax in respect of transfer of the assets involved. On appeal, the Tribunal held as under : "In the instant case the assets transferred by the assessee were self acquired assets. The other members had no rights over such assets. When read as a whole, the deed of settlement was to bypass the provisions of the Act. There was no dispute amongst the members of the family and everything was going on fine when the assessee, perhaps due to his old age, thought of transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced in para 7.1, held as under : " 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 agreement 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 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." In Kale's case, the Hon'ble Supreme Court has laid down the following propositions in the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g paragraphs. Every family arrangement has to be scanned in the light of such guidelines, the most important of which is that the family arrangement must be bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between various members of the family and that the members who may be parties to the family arrangement must have some antecedent title, claim or interest or even a possible claim in the property which is acknowledged by the parties to the settlement. In the instant cases before us, Shri Bipinbhai Vadilal Mehta transferred a sum of Rs. 4,25,000 out of HUF funds to his mother Smt. Vimlaben Vadilal. Obviously the funds belonged to the HUF of which Bipinbhai Vadilal Mehta was the Karta and Smt. Vimlaben Vadilal did not have any claim or interest or even a possible claim in the property of the HUF. Similariy, Shri Bipinbhai Vadilal Mehta transferred a sum of Rs. 1,00,000 to his mother Vimlaben Vadilal from his individual funds which were his self-acquired assets and Smt. Vimlaben Vadilal Mehta had no antecedent title, claim or interest therein. Again Shri Bipinbhai Vadilal Mehta transferred a sum of Rs. 4,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Finance Minister explained " the object of imposing gift-tax " said as under : "The idea of a gift-tax is not new. Many Honourable Members have stressed both in this House and the other House the need for introducing such a measure at an early date. The transfer of properties through gifts to one's near relations or associates is one of the commonest forms of avoidance of not only Estate Duty but also of Income-tax, Wealth-tax and even Expenditure-tax. The only way of effectively checking this practice is to levy a tax on gifts. Such a tax is already being levied in other countries, for example, U.S.A., Canada Japan and Australia. The Taxation Enquiry Commission also had accepted the gift-tax as theoretically an attractive proposition." In our considered opinion the provisions of the Gift-tax Act must be interpreted in consonance with the avowed aims and objects of the Legislature in enacting these provisions and to further these and not to defeat these provisions. The whole arrangement entered into by the assessees by way of enacting a Memorandum of Understanding is to defeat the provisions of the Gift-tax Act. 9. While reversing the findings of the GTO, the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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