Law:

Section:

Section 2(xxiv), read with sections 2(xii) and 5 of the Gift-tax Act, 1958 - Transfer of property - Assessment year 1972-73 - After independence of India State of Patiala through its respective rulers entered into a covenant with Central Government whereby rulers received payment towards privy purse as quid pro quo for surrender of ruling powers and dissolution of States and privileges by rulers - During previous year relevant to assessment year, one late 'M', erstwhile rulers of State of Patiala, transferred agricultural lands and also created trusts out of said privy purse in favour of his wife and his children - Son of 'M' filed gift tax return and raised a claim that privy purse as well as agricultural land formed ancestral impartible estate which belonged to Hindu undivided family (HUF) of 'M' and, thus, gifts made out of same were in nature of family arrangement of joint family property which did not involve any transfer and, thus, were not liable to gift tax - Commissioner (Appeals) allowed assessee's claim in respect of agricultural land but disallowed his claim in respect of privy purse - Further, Tribunal allowed assessee's claim in respect of privy purse also holding that gifts made were in nature of family arrangement of joint family properties and, thus, did not involve any transfer or any element of gift - Whether Tribunal was right in holding that privy purse of 'M' formed a part of his ancestral impartible estate and, thus, was property of Hindu undivided family - Held, no - Whether although Tribunal was right in holding that agricultural land out of which gifts had been made, being part of ancestral impartible estate, belonged to HUF of 'M', yet it fell in error in holding that even though members of family did not have either right to partition or the right to restrain alienation, said gifts were only in the nature of a family settlement and were not to be treated as gifts - Held, yes FACTS After Independence of India, the State of Patiala through its respective rulers entered into a covenant with the Central Government whereby rulers received a payment towards privy purse as quid pro quo for surrender of ruling powers and dissolution of…

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