Release Deed in Estate Planning

In estate planning, a release deed is particularly relevant when legal heirs of an inherited immovable property decide to settle their claims amicably. One or more heirs (releasors) may release their share in favour of one or more remaining heirs (releasees), facilitating a family settlement and avoiding future disputes.

• This deed is not a sale or gift, but a relinquishment of rights among parties with pre-existing interest.
• It is often executed to consolidate ownership and simplify property management or transfer.

Equal Release Among Multiple Releasees

When there are multiple releasees, the release must be equal in favor of all. Unequal release is not permissible under the principle of co-ownership and natural justice unless explicitly agreed upon and supported by consideration.

While there is no specific statutory provision mandating equal release, courts have interpreted Section 44 of the Transfer of Property Act, 1882 and Section 10 of the Indian Contract Act, 1872 to imply that:

• A release must be clear, voluntary, and equitable.
• If the release is without consideration and intended as a family settlement, equal treatment among co-heirs is presumed unless otherwise documented.

Statutory Compliance & Registration

To be legally valid and enforceable, a release deed must comply with the following:

• Written Format: Must clearly identify the parties, property, and nature of release.
• Stamp Duty: Varies by state. In Maharashtra, it is typically ₹200 for family settlements under Article 52 of the Maharashtra Stamp Act.
• Registration: Mandatory under Section 17 of the Registration Act, 1908 if it pertains to immovable property. It must be registered with the Sub-Registrar of Assurances.
• Witnesses: At least two witnesses are required for execution.
• Consideration Clause: If applicable, must be clearly stated.

Bombay High Court Judgment: Recognition by Housing Societies

In a landmark ruling, the Bombay High Court held that once a registered release deed is executed among co-heirs, it constitutes a valid family settlement, and the releasor ceases to have any claim in the property. The Court emphasized:

“Once a co-sharer executes a release deed in favour of another, he divests himself of ownership completely and cannot later claim partition of the same property.”

This judgment further clarified that housing societies must recognize such release deeds for the purpose of transferring membership rights to the releasee(s), thereby streamlining post-inheritance property administration.

Tax Treatment of Release Deeds in Family Settlements

When a release deed is executed among family members to settle inherited property claims, it typically qualifies as a family arrangement. Under the Income Tax Act, 1961, such arrangements are not considered “transfers” for capital gains purposes if they meet certain conditions.

Key Legal Exemptions

• Section 47(iii) of the Act excludes from capital gains any transfer of a capital asset under a gift or will or an irrevocable transfer to a relative.
• Courts have consistently held that genuine family settlements, even if they involve mutual relinquishment or consideration, are not commercial transactions and hence do not attract capital gains tax.

Judicial Precedents

• In Y. Shanmuga Durai v. ACIT, the ITAT Chennai ruled that mutual release deeds between brothers were part of a bona fide family settlement and exempt under Section 47(iii).
• In Govind Kumar Khemka v. ACIT, ITAT Delhi held that even if the releasors received monetary consideration, the transaction was not taxable as it was part of a non-commercial family arrangement.

 Consideration Within Family

Even if releasors receive money or assets from releasees to balance the settlement:

• It is not treated as income or capital gain.
• Section 56(2)(x) does not apply if the parties are relatives and the transaction is part of a genuine family settlement.