ITO, NCW - 1 (4), CHENNAI V. SMT. KAVYA SHARATH JAGANNATHAN, CHENNAI

ITA 2676/CHNY/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8832 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 18-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Gift; Question of law; Capital Gains
• Section: 143(3)

Judgement Text

आयकर अपीलीय अिधकरण ‘ए’ Ɋायपीठ चेɄई मŐ। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI माननीय ŵी वी. द ु गाŊ राव, Ɋाियक सद˟ एवं माननीय ŵी मनोज कु मार अŤवाल ,लेखा सद˟ के समƗ। BEFORE HON’BLE SHRI V. DURGA RAO, JUDICIAL MEMBER AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No.2676/Chny/2019 (िनधाŊरण वषŊ / Assessment Year: 2015-16) ITO Non-Corporate Ward-1(4), Chennai. बनाम/ Vs. Smt. Kavya Sharath Jagannathan New No.07, Bishop Garden Avenue, R.A. Puram, Chennai – 600 028. ̾थायी लेखा सं./जीआइ आर सं./PAN/GIR No. ARAPJ-6984-D (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) अपीलाथŎ की ओरसे/ Assessee by : Shri D. Anand (Advocate) – Ld. AR ŮȑथŎ की ओरसे/Revenue by : Shri Darzakhum Songate (Addl.CIT) – Ld. DR सुनवाई की तारीख/Date of Hearing : 28-06-2022 घोषणा की तारीख /Date of Pronouncement : 09-09-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by Revenue for Assessment Year (AY) 2015-16 arises out of the order of learned Commissioner of Income Tax (Appeals)-2, Chennai [CIT(A)] dated 08-07-2019 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 28-12-2017. 2. This appeal was heard along with appeal of a related assessee Ms. Anitha Kumaran vide ITA No.1164/Chny/2019 on the same day. It was admitted position that the facts and as well issues in both the ITA No.2676/Chny/2019 - 2 - appeals are pari-materia the same and adjudication in any appeal would have an equal application to the other appeal also. In fact, the impugned order before us has followed the first appellate of that assessee. 3. The appeal in the case of ACIT V/s Ms. Anitha Kumaran, ITA No.1164/Chny/2019 has been adjudicated by as under: - Our findings and Adjudication 7. From the facts, it emerges that during assessment proceedings, the assessee was confronted with the applicability of s.56(2)(vii) since the assessee purchased a property from GTPL for a consideration of Rs.10 Lacs as against its stamp duty value which was much higher. The assessee was show-caused as to why the market value of property as per s. 56(2)(vii) of the Act be not taken as ‘income from other sources’ and added to the income of the assessee. The assessee submitted that the provisions of Section 56(2)(vii) of the Act would not apply for any property received under a will or by way of inheritance. The question of taxability would not arise at the time of settlement or at the time of partition since the same is entrusted to the family members on the demise of other family member. 8. It could be noted that the assessee’s late Father Dr. B. Sivanthi Adityan expired on 19-04-2013 and this property was held by M/s. GTPL. This entity is family-owned entity and its entire shareholding was held by assessee’s father and brother, a fact which is undisputed since the same is evidenced by documents filed by GTPL to Registrar of Companies. It could be seen that the father was holding 95% shareholding whereas remaining 5% were held by the brother Shri S. Balasubramaniun. A fact to be noted is that GTPL is family promoted entity out of joint family funds. This is also clear from the recitals of Deed of declaration-cum- undertaking as executed by Shri S. Balasubramaniun on 09-12-2013 upon expiry of Dr. B. Sivanthi Adityan on 19-04-2013. 9. After the demise of the father, the family members decided to partition and settle their family properties including the movable and immovable properties. In terms of the said deed-cum-declaration dated 09-12-2013, the property devolved upon the assessee. However, since the property was held in the name of GTPL, such settlement could not be affected by GTPL, it being separate legal entity having separate legal existence. Accordingly, to settle the property, a sale deed was executed by GTPL at consideration of Rs.10 Lacs which was shown to meet the transfer expenses and was not a sale consideration since the stamp duty value was much higher figure of Rs.445 Lacs. On the basis of these facts, it was alleged by Ld. AO that the GTPL parted with the property at much less than market value and the assessee being recipient of the property, would be assessable for differential amount as ‘income from other sources’. However, this conclusion overlooks the basic fact that sale deed was executed pursuant to family settlement as agreed upon by the family members vide declaration-cum- undertaking. The genuineness of this document is not in doubt. ITA No.2676/Chny/2019 - 3 - 10. As rightly submitted by the assessee, a family settlement was nothing but an arrangement or an understanding between the members which resolves the family disputes and the rival claims of the members of the family are settled provided the settlement was bona-fide and fair in the allotment of properties amongst the members of the family. Settlement of bona-fide disputes, the purpose of which is to bring about harmony or maintaining peace or tranquility amongst family members would be sufficient consideration for a family settlement. Such settlement could not be termed as ‘transfer’ under the Income Tax Act. 11. The Hon’ble Supreme Court in the case Tek Bahadur Bhujil V/s Devasingh Bhujil AIR 1966 SC 292 has held that a family arrangement could be arrived at orally and its terms may be recorded in writing subsequently as memorandum of what has been agreed upon between the parties at an early date and such a document do not require registration. 12. Further, Hon’ble Supreme Court in the case of Ram Charan Das V/s Girja Nandini Devi AIR 1965 SC 323 held that bona-fide family settlement amongst family members to put an end to disputes between themselves would not amount to ‘transfer’ and it is also not the creation of an interest. In a family settlement, each party would take a share in the property by virtue of independent title which is admitted to the extent by the other party. All the members of the family have a sole right for equitable division of properties. If any dispute arises, it may involve family arrangement which is nothing but a device by which disputes or foreseeable disputes between the family members as to their respective property rights are settled. The settlement only defines pre-existing joint-interest as separate interest and hence, there would be no conveyance. 13. The decision in CIT V/s Shanthi Chandran 241 ITR 371 also support the case of the assessee wherein it was held that where an asset is acquired on a family arrangement then it is at par with an asset acquired on partition or any other succession. 14. Further, in the decision of Hon’ble Supreme Court in Rangasami Gounden V/s Nachiapa Gounden (AIR 1918 PC 196) it was held that family settlement was nothing but realignment of interest among the family members and such an arrangement would not amount to ‘transfer’. 15. The Hon’ble High Court of Madras in CIT V/s AL Ramanathan (245 ITR 494), considering the principle laid down by Hon’ble Supreme Court in Kale V/s Deputy Director of Collection (1976 AIR 807), held as under: - 2. A perusal of the records goes to establish that the dispute arose in that family and the family arrangement was arrived at in consultation with the panchayatdars and accordingly re-alignment of interest in several properties had resulted. The family arrangement was arrived at in order to avoid continuous friction and to maintain peace among the family members. The family arrangement is an agreement between the 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. So, family arrangements are governed by principles which are not applicable to dealings between strangers and the family arrangement among them is for the interest of the family, for the harmonious way of living. So, such re-alignment of interest by way of effecting a family arrangement among the family members would not amount to transfer. ITA No.2676/Chny/2019 - 4 - 3. This court has held in CIT v. R. Ponnammal [1987] 164 ITR 706 that (headnote): ". . . the family arrangement had been brought about by the intervention of the panchayatdars and this clearly showed that the sons and daughters of the assessee were laying claims to the property which the assessee got under the will of her father and it was not relevant at the time when the family arrangement was entered into to find out as to whether such claims if made in a court of law would be sustained or not. If the assessee found it worthwhile to settle the dispute between herself, her sons and daughters by making the family arrangement, the said arrangement could not be ignored by a tax authority. In view of the finding of the Tribunal, the family arrangement dated December 17, 1971, had to be held to be a valid piece of document and, hence, the Tribunal was right in its view that no transfer of property was involved within the meaning of Section 2(xxiv) of the Gift- tax Act and, hence, there was no liability to gift-tax either under Section 4(1)(a) or under Section 4(2) and consequently no question of inclusion of the income of the minor in the hands of the assessee would also arise." 4. It is the settled law that when parties enter into a family arrangement, the validity of the family arrangement is not to be judged with reference to whether the parties who raised disputes or rights or claimed rights in certain properties had in law any such right or not. In Maturi Pullaiah v. Maturi Narasrmham, AIR 1966 SC 1836, the Supreme Court has observed that (page 1841) ; "Briefly stated, though conflict of legal claims in praesenti or de 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." 5. In Kale v. Deputy Director of Consolidation, , the Supreme Court has laid down the propositions which are the essentials of a family arrangement that (page 812): "(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 ;" 6. The Tribunal, on the facts, found that the family arrangement involved in this case appears to be a bona fide one inasmuch as it has been shown to have been made voluntarily and not induced by any fraud or collusion and the conduct of the parties referred to by the Revenue is consistent with the bona fide family arrangement particularly when it was arrived at in the presence of panchayatdars. So, the family arrangement is a bona fide one and it was effected to dissolve the family dispute. 7. Applying the principles laid down in the decisions cited supra, we hold that the family arrangement involved in this case does not amount to transfer. The Tribunal is perfectly justified in taking the view that the transaction of the assessee being a family arrangement did not amount to ITA No.2676/Chny/2019 - 5 - transfer and therefore, there was no chargeable capital gain arising from that transaction. So, the transaction of the assessee did not amount to transfer and there was no chargeable capital gain arising from that transaction. 8. We answer the question of law in favour of the assessee and against the Revenue. No costs. This case law also support the case of the assessee. 16. This Tribunal in the case of SKM Shree Shivkumar vs. ACIT in ITA No.2278/Mds/2012 & 1965/Mds/2011 dated 17-07-2014, has held that when there is any distribution of assets pursuant to family arrangement or HUF partial / total partition, such transactions will not amount to ‘transfer’ of asset attracting tax liability in the hands of the recipient under the provisions of the Act. In that case, on piercing the corporate veil with respect to the two private limited companies viz. M/s. SKM Animals Feeds and Foods (India) Ltd. and M/s. SKM Siddha and Ayurvedic Medicines India Pvt Ltd., it was held that the entire Intermingled transactions could be seen only as the family settlement arrived at through Arbitration Award amongst Hindu family members. Further there would be no transfer of assets with respect to the public limited company M/s. SKM Egg Products Exports (India) Ltd. Finally, it was held that the provisions of section 2(22)(e), 2(24)(iv) or Sec.56(2)(vi) could not be invoked and the Assessing Officer's addition was deleted. This decision has been arrived at after considering various binding judicial precedents of higher judicial authorities. 17. We find that the ratio of all the above binding judicial precedents applies to the case of the assessee. 18. The Ld. Sr. DR has submitted that the corporate entity has separate legal existence and therefore, it could not enter into family settlement. However, considering the facts as noted by us in preceding paragraph that entire investment in properties was made out of joint family funds and the entire shareholding of GTPL was held by the family members, GTPL was to be considered as family- owned entity. Any transaction made pursuant to family settlement was to be looked at from that angle only and lifting of corporate veil could be resorted in such cases. 19. The Ld. Sr. DR has referred to the decision on Hon’ble High Court of Bombay in B.A. Mohota Textile Traders Pvt. Ltd. V/s DCIT (ITA No.73 of 2002 dated 12.06.2017). However, this case law is not applicable since it deals with a situation wherein the assessee being a corporate entity held shares in other corporate entities which were transferred pursuant to arbitration award amongst a family. The family held only 80% of shareholding in the assessee company and it was not a case of family-owned entity. Further, in that case the dispute was with respect to taxability of capital gains in the hands of assessee company which was not fully owned by the family. It was the case of the revenue that the transfer of shares by the assessee would give rise to capital gains. Therefore, this case law does not address the situation as prevailing before us. Rather it is the finding of Hon’ble Court in para-9 that family arrangement / settlement would not amount to transfer. 20. The case law of Ahmedabad Tribunal in Gyanchand M.Bardia v/s ITO (ITA No.1072/Ahd/2016) is in the context of gift received by HUF which is not the case here. Similarly the decision in Kusumben Kantilal Shah V/s ITO (1995-LL- 0728-8) is factually different since in that case the assessee offered capital gain and the dispute was with respect to quantum only. ITA No.2676/Chny/2019 - 6 - 21. The case law of Hon’ble High Court of Madras in New Ambadi Estates Private Ltd. V/s JCIT (2013-LL-0813-30) deal with a situation where there was transmission of shares by the assessee to its subsidiary company at Book Value and the addition pertain to Gift Tax Act. The Hon’ble Court in concluding para observed that the transaction has to be seen in the context of provisions of gift tax act and not under the provisions of Income Tax Act. Therefore, this case law is not applicable. 22. Finally, on entirety of facts and circumstances, we would hold that the property was received by the assessee under a will / by way of inheritance and therefore, the provisions of s.56(2)(vii) would not apply to the case of the assessee. Hence, the impugned order could not be faulted with. The regular grounds of appeal as well as additional ground of appeal as filed by the revenue stand dismissed. 23. The appeal stand dismissed. Facts as well as issue being pari-materia the same, our findings as well as adjudication therein shall mutatis mutandis apply to this appeal also. Consequently, we confirm the impugned order. 4. In the result, the appeal stands dismissed. Order pronounced on 09 th September, 2022 Sd/- (V. DURGA RAO) Ɋाियक सद˟ /JUDICIAL MEMBER Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद˟ / ACCOUNTANT MEMBER चेɄई / Chennai; िदनांक / Dated : 09-09-2022 EDN/- आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकर आय ु Èत (अपील)/CIT(A) 4. आयकर आय ु Èत/CIT 5. ͪवभागीय ĤǓतǓनͬध/DR 6. गाड[ फाईल/GF