Dy. C.I.T.-1, Agra V. Shri Arving Kapoor, Agra

ITA 280/AGR/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9989 (ITAT-AGRA)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 30-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 30-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Gift; Salary income; Deemed to accrue or arise in india; Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBE R AND MRS. ANNAPURNA MEHROTRA, ACCOUNT ANT MEMBER ITA NO. 280/AGRA/2013 ASSTT. YEAR : 2008-09 D.C.I.T. -1, VS. SHRI ARVIND KAPOOR, AGRA. 64, SURYA NAGAR, AGRA. [PAN: ACNPK 8847 J] (APPELLANT) (RESPONDENT) APPELLANT BY : SH. WASEEM ARSHAD, SR. DR RESPONDENT BY : SH. SAHIB P. SATSANGEE, C.A. DATE OF HEARING : 04.02.2016 DATE OF PRONOUNCEMENT : 10.02.2016 ORDER PER BHAVNESH SAINI, JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE HAS BEEN DIRECTED AG AINST THE ORDER OF LD. CIT(A)-I, AGRA DATED 15.03.2013 FOR THE ASSESSMENT YEAR 2008-09, CHALLENGING THE DELETION OF ADDITION OF RS.4,51,85,011/- MADE O N ACCOUNT OF CAPITAL GAINS ARISING OUT OF THE TRANSFER OF BUSINESS SHARES WITH OUT APPRECIATING THE FACTS OF THE CASE THAT THE ASSESSEE HAD RECEIVED RS.5 CRORES FOR RELINQUISHING HIS BUSINESS INTEREST AND THE TRANSACTION WAS IN THE NA TURE OF TRANSFER U/S. 2(47) OF THE IT ACT. ITA NO.280/AGRA/2013 2 2. THE BRIEF FACTS, AS NOTED IN THE IMPUGNED ORDER ARE THAT IN THIS CASE ASSESSMENT ORDER UNDER APPEAL HAS BEEN PASSED U/S. 143(3) VIDE ORDER DATED 30.12.2010, DETERMINING THE ASSESSED INCOME AT RS.4 ,67,09,810/- AS AGAINST THE RETURNED INCOME OF RS.15,24,800/-. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAS SHOWN HIS INCOME FROM SALARY DERI VED FROM M/S. MAHIM PATRAN (P) LTD., INCOME FROM HOUSE PROPERTY FROM D- 3/4, SADAR BAZAR, AGRA AND INCOME FROM OTHER SOURCES IN THE FORM OF INTERE ST INCOME. DURING THE YEAR UNDER CONSIDERATION, THE AO FOUND THAT THE ASSESSEE HAS RECEIVED RS. 5 CRORE WHICH HAS BEEN EXPLAINED BY HIM AS RECEIVED ON FAMI LY SETTLEMENT. AFTER GOING THROUGH A DOCUMENT SUBMITTED BY THE ASSESSEE TITLED RECORDING OF FAMILY SETTLEMENT AS REPRODUCED IN THE ASSESSMENT ORDER, THE AO CONCLUDED THAT IT APPEARED THAT THE ASSESSEE HAD RELINQUISHED HIS RIG HTS IN FAMILY BUSINESS AND IN LIEU OF THAT HE RECEIVED RS. 5 CRORE. IN VIEW OF THE AO, AS THE TRANSACTION OF RECEIVING OF RS. 5 CRORES BY THE ASSESSEE IN LIEU O F RELINQUISHING THE BUSINESS RIGHTS IN FAMILY BUSINESS, IS IN THE NATURE OF TRAN SFER U/S. 2(47) OF THE IT ACT AND ACCORDINGLY ISSUED SHOW CAUSE NOTICE AS TO WHY THE SAME AMOUNT SHOULD NOT BE TAKEN AS SALE CONSIDERATION FOR COMPUTATION OF CAPITAL GAINS, AS THE ASSESSEE HAS TRANSFERRED HIS SHARES IN THE BUSINESS TO HIS BROTHER SHRI MADHUKAR KAPUR. ITA NO.280/AGRA/2013 3 3. THE ASSESSEE FILED WRITTEN SUBMISSIONS BEFORE TH E AO EXPLAINING THE BACKGROUND AND CIRCUMSTANCES, UNDER WHICH THE FAMIL Y SETTLEMENT WAS DONE AMONG THE TWO BROTHERS, I.E., THE ASSESSEE AND SHRI MADHUKAR KAPUR AND THEIR MOTHER, SMT. NIRMALA KAPUR. IT HAS BEEN EXPLAINED T HAT THE FAMILY SETTLEMENT WAS DONE TO SETTLE ALL THE DISPUTES AMONG TWO BROTH ERS AND THEREFORE, IT HAS BEEN DECIDED TO BIFURCATE/DIVIDE THEIR BUSINESS/PRO PERTIES ASSETS ETC. TO ACHIEVE FAMILY PEACE AND LONG RELATIONSHIP OF FAMIL Y. THE FAMILY SETTLEMENT WAS DRAWN AS PER A DOCUMENT, ACCORDING TO WHICH THE BUSINESS OF THE FAMILY CONSISTING OF PRINTING & ICE CREAM BUSINESS IN THE NAME OF VARIOUS ENTITIES INCLUDING MAHIM PATRAN (P) LTD., MANAK SHEETAL (P) LTD., NIRMALA REALTORS (P) LTD, NIRMITI ASSOCIATES (P) LTD., MADHU MUDRAK ETC. SHALL FALL IN THE SHARE OF SHRI MADHUKAR KAPUR AND IN LIEU OF TRANSFERRING OF BUSINESS TO HIM, RS. 5 CRORE TO BE PAID TO THE ASSESSEE. AFTER EXPLAINING THE FU LL DETAILS OF FAMILY SETTLEMENT, THE ASSESSEE RELIED ON THE DECISIONS IN THE CASE OF CIT VS. PONNAMMAL, 164 ITR 706 (MADRAS) AND CIT VS. KAY AAR ENTERPRISES, 299 I TR 348 (MADRAS) AND ARGUED THAT IN THE MATTER OF TAXATION, FAMILY SETTL EMENT/ARRANGEMENT HAS BEEN HELD NOT TO GIVE RISE TO ANY LIABILITY TO CAPITAL G AIN TAX. 4. THE ASSESSEE ALSO MADE ANOTHER SUBMISSION GIVING DETAILS OF DISTRIBUTION OF ASSETS AMONG ALL THREE MEMBERS, I.E ., THE ASSESSEE, SHRI ITA NO.280/AGRA/2013 4 MADHUKAR KAPUR AND SMT. NIRMALA KAPUR AS PER TERMS OF FAMILY SETTLEMENT AND IT HAS BEEN CONTENDED THAT DISTRIBUTION OF ASSE TS ON THE TOTAL OR PARTIAL PARTITION OF A HINDU UNDIVIDED FAMILY SHOULD NOT BE CONSIDERED AS TRANSFER FOR THE PURPOSE OF CAPITAL GAIN AS PROVIDED IN SECTION 2(47) OF THE ACT. IT WAS SUBMITTED THAT THERE IS NOTHING WHICH HAS BEEN DONE BY THE ASSESSEE ACCORDING TO HIS OWN WILL OR ACCORD OR FOR THAT NO OTHER MEMBER HAS RECEIVED OR PARTED WITH ANYTHING WILLINGLY. ALL TRANSFER OF ASSETS, MONEY ETC. IS UNDER COMPULSION ENFORCED BY THE FAMILY SETTLEMENT AND TH E CONSENT OF THE MEMBERS TO FAMILY SETTLEMENT WAS FORCED. BUT FOR THIS, THER E WOULD HAVE BEEN DESTRUCTION OF THE PEACE, PROPERTY AND BUSINESS. TH EREFORE, THERE WAS NO TRANSFER AND NO CAPITAL GAIN WAS CHARGEABLE IN THE CASE OF ASSESSEE. IT WAS SUBMITTED THAT THE ASSESSEE ENTERED INTO THE GENUIN E FAMILY SETTLEMENT AND IN VARIOUS CASES REFERRED TO ABOVE, IT WAS HELD THAT N O CAPITAL GAIN IS CHARGEABLE ON ACCOUNT OF AMOUNT RECEIVED THROUGH FAMILY SETTLE MENT. 5. THE AO, HOWEVER, DID NOT ACCEPT THE CONTENTION O F THE ASSESSEE AND HELD THAT THE ASSESSEE RECEIVED RS.5 CRORE AS CONSIDERAT ION IN LIEU OF HIS RELINQUISHING HIS RIGHTS IN THE BUSINESS. THEREFORE , CAPITAL GAIN TAX IS CHARGEABLE. THE AO HAS HELD THAT THE ASSESSEE HAS R ECEIVED RS. 5 CRORE ON TRANSFER OF HIS SHARES IN THREE COMPANIES, I.E., MA HIM PATRAN (P) LTD., NIRMITI ITA NO.280/AGRA/2013 5 ASSOCIATES (P) LTD. AND NIRMALA REALTORS (P) LTD. T O SHRI MADHUKAR KAPUR AND WAS LIABLE TO CAPITAL GAIN TAX ON SUCH TRANSFER OF SHARES. THE ISSUE OF VALUATION OF SHARES WAS ALSO DISCUSSED, WHICH IS NOT IN CONSI DERATION IN THIS APPEAL. THE AO, AFTER DISCUSSING THE ENTIRE ISSUE WITH REGARD T O TRANSFER OF IMMOVABLE PROPERTIES AND DISTRIBUTION OF MOVABLE PROPERTIES, COMPUTED THE LONG TERM CAPITAL GAINS AT RS.4.51 CRORE AND ADDED THE SAME T O THE INCOME OF THE ASSESSEE. IT MAY BE NOTED THAT IN RESPECT OF DISTRI BUTION OF MOVABLE ASSETS, NO ADVERSE INFERENCE WAS DRAWN AGAINST THE ASSESSEE. 6. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A). THE LD. CIT(A) FIRST OF ALL EXAMINED THE ISSUE OF GENUINENE SS OF FAMILY SETTLEMENT AND NOTED THE BACKGROUND OF FAMILY BUSINESS CREATED BY FATHER OF THE ASSESSEE, LATE SHRI H.K. KAPUR WHICH WAS LATER INHERITED BY THE AS SESSEE AND HIS BROTHER, SHRI MADHUKAR KAPUR AND HIS MOTHER SMT. NIRMALA KAPUR AN D IT WAS FOUND THAT THE FAMILY SETTLEMENT WAS ARRIVED AT IN THE PRESENCE OF THEIR GURUJI SWAMI MAHESHANAND JI GIRIJI MAHARAJ AT MOUNT ABU TO PRESE RVE THE FAMILY PROPERTY FOR THE PEACE AND SECURITY OF THE FAMILY BY AVOIDIN G LITIGATION WITH THE INTENTION TO MAINTAIN AMITY AND GOODWILL AMONGST TH E BROTHERS AND THEIR FAMILY MEMBERS. THE LD. CIT(A) DISCUSSED VARIOUS PR OPERTIES HELD BY THE FAMILY, MOVABLE AND IMMOVABLE AND HOW THEY HAVE BEE N SETTLED ON MAKING ITA NO.280/AGRA/2013 6 PAYMENT TO THE ASSESSEE AND HIS MOTHER. THE LD. CIT (A) ALSO NOTED THAT EVEN THE AO HAD ADMITTED AT MANY PLACES IN THE ORDER THA T THE FAMILY SETTLEMENT ENTERED INTO BETWEEN THE PARTIES WAS GENUINE. THE L D. CIT(A) CONSIDERED SEVERAL JUDGMENTS ON THIS POINT AND NOTED THAT IT W AS A BONAFIDE FAMILY SETTLEMENT. THE REMAND REPORT FROM THE AO WAS ALSO CALLED ON THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE. THE WRITTEN SUBM ISSIONS OF THE ASSESSEE AND REMAND REPORT OF THE AO HAVE BEEN DISCUSSED IN DETAIL IN THE IMPUGNED ORDER. THE LD. CIT(A) ALSO DISCUSSED THAT IN LIEU O F FAMILY SETTLEMENT, SMT. NIRMALA KAPUR GOT RS.50 LACS AND THE ASSESSEE GOT R S. 5 CRORE. THE LD. CIT(A) ALSO DISCUSSED THE SHARE HOLDING PATTERN HELD BY TH E ASSESSEE AND HIS BROTHER IN VARIOUS COMPANIES AND IN THE LIGHT OF VARIOUS JU DGMENTS FOUND THAT A GENUINE FAMILY SETTLEMENT WAS ENTERED INTO BETWEEN THE PARTIES. THE ASSESSEE ALSO EXPLAINED BEFORE THE LD. CIT(A) THAT FAMILY SE TTLEMENT WAS ARRIVED AT TO SETTLE ALL THE DISPUTES BETWEEN THE FAMILY AND THER E WAS NO FRAUD OR COLLUSION OR TAX PLANNING TO DEFRAUD THE REVENUE AND RELIED U PON SEVERAL DECISIONS IN SUPPORT OF THE CONTENTION THAT ON TRANSFER OF BUSIN ESS INTEREST AND SHARES AS PER FAMILY SETTLEMENT, THERE WAS NO TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT AND AS SUCH, NO CAPITAL GAIN TAX I S LEVIABLE. THE LD. CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE IN THE LIGHT OF FAMILY SETTLEMENT, HISTORY OF THE FAMILY BUSINESS, MATERIAL ON RECORD AND IN THE LIGHT OF SEVERAL ITA NO.280/AGRA/2013 7 DECISIONS CITED BEFORE HIM, HELD THAT THERE WAS A G ENUINE FAMILY SETTLEMENT/ARRANGEMENT IN THIS CASE, UNDER WHICH TH E ASSESSEE RECEIVED RS.5 CRORE FOR TRANSFER OF HIS BUSINESS INTEREST TO HIS BROTHER SHRI MADHUKAR KAPUR AND SUCH TRANSACTION DOES NOT ATTRACT PROVISIONS OF CAPITAL GAIN. THEREFORE, LONG TERM CAPITAL GAIN OF RS.4.51 CRORES ADDED TO T HE INCOME OF THE ASSESSEE WAS DELETED AND THE APPEAL OF THE ASSESSEE WAS ALLO WED. THE FINDINGS OF THE LD. CIT(A) FROM PARA 10.1 TO 11.5 OF THE APPELLATE ORDER IS REPRODUCED AS UNDER : 10.1 I HAVE CONSIDERED ALL THE FACTS RELATING TO T HE ISSUE OF FAMILY SETTLEMENT PERTAINING TO THIS CASE AS DISCUSSED IN THE ASSESSM ENT ORDER AND ALSO BROUGHT BEFORE ME DURING THE COURSE OF HEARING OF APPEAL PR OCEEDING IN THE WRITTEN SUBMISSION FILED BY THE LD. AR AS WELL AS THE REMAN D REPORT OF THE AO AND FURTHER REJOINDER FILED BY THE LD. AR AND ALSO THE ORAL DIS CUSSION HELD WITH THE LD. AR AND THE AO WHO HAS PASSED THE ASSESSMENT ORDER AS WELL AS THE PRESENT AO AS DISCUSSED FROM PARA NO. 3 TO 9 OF THIS ORDER. BEFOR E DECIDING THE DISPUTE UNDER APPEAL WHETHER THERE IS A GENUINE FAMILY SETTLEMENT UNDER WHICH THE ASSESSEE (APPELLANT) HAS RECEIVED RS.5 CRORE AND TRANSFERRED CERTAIN PROPERTIES AND SUCH RECEIPT AND TRANSFER OF PROPERTIES ARE LIABLE FOR C APITAL GAIN TAX OR NOT, I HAVE SUMMARIZED BELOW THE FACT OF THE CASE WHICH HAS SO FAR EMERGED:- (I) A FAMILY BUSINESS HAS BEEN STARTED BY SHRI H.K. KAP UR IN 1956 AFTER HIS FAMILY CAME TO INDIA AFTER PARTITION. (II) THE FAMILY BUSINESS CONSISTED OF A PRINTING PRESS IN THE NAME OF AGRA UNIVERSITY PRESS & MANUFACTURING AND SELLING OF ICE -CREAM AND RUNNING OF A RESTAURANT IN THE BRAND OF MADHU ICE-CREAM AND MADH U RESTAURANT RESPECTIVELY. THE FAMILY BUSINESS WAS INITIALLY CARR IED OUT IN THE FORM OF A PARTNERSHIP FIRM FORMED BETWEEN TWO FAMILIES, ONE O F SHRI H.K. KAPUR AND SECOND OF HIS COUSIN SHRI O.P. KHANNA. (III) AFTER DEATH OF SHRI H.K. KAPUR IN 1971, THE FAMILY BUSINESS HAS PASSED ON TO HIS FAMILY COMPRISING OF HIS WIFE SMT. NIRMALA D EVI KAPUR AND HIS THREE SONS ITA NO.280/AGRA/2013 8 SHRI MADHUKAR KAPUR, SHRI ARVIND KAPUR & SHRI SOM K APUR. SUBSEQUENTLY SHRI SOM KAPUR RENOUNCED THE WORD AND BECAME A SANYASI A ND THE FAMILY BUSINESS REMAINED IN THE HAND OF SMT. NIRMALA KAPUR, SHRI MA DHUKAR KAPUR AND SHRI ARVIND KAPUR. A FAMILY TREE OF THE MEMBERS OF THIS FAMILY IS GIVEN ON PAGE NO.16 OF THIS ORDER. (IV) IN 1974-75 THE PRINTING BUSINESS OF THE FAMILY WAS CONVERTED FROM PARTNERSHIP FIRM TO A PRIVATE LIMITED COMPANY UNDER THE NAME OF M/S MAHIM PATRAN (P) LTD. AND THE PRINTING BUSINESS WAS TAKEN OVER BY THE COMPANY. SUBSEQUENTLY THERE WAS DIVISION BETWEEN KHANNA & KA PUR'S FAMILIES AND THE BUSINESS OF MADHU RESTAURANT WAS TAKEN OVER BY KHAN NA FAMILY AND BUSINESS OF MADHU ICE-CREAM WAS TAKEN OVER BY KAPUR FAMILY. THE BUSINESS OF MADHU ICE- CREAM WAS TAKEN OVER BY M/S MAHIM PATRAN (P) LTD. I N 2006. (V) APART FROM THE ABOVE BUSINESS, THE KAPUR FAMILY HAS ALSO CREATED SOME OTHER PRIVATE LIMITED COMPANIES IN THE NAME OF M/S NIRMALA REALTORS (P) LTD. AND M/S NIRMITI ASSOCIATES (P) LTD. (VI) THE ABOVE FACTS RELATING TO THE CONSTITUTIONS OF FAM ILY AND THE FAMILY BUSINESS AS EXPLAINED BY THE LD. AR IN HIS WRITTEN SUBMISSION, HAS NOT BEEN DISPUTED BY THE AO IN THE REMAND REPORT SUBMITTED B Y HIM. (VII) DUE TO DISPUTE BETWEEN TWO BROTHERS I.E. SHRI ARVIN D KAPUR (THE ASSESSEE- APPELLANT) AND HIS ELDER BROTHER SHRI MADHUKAR KAPU R, AS EXPLAINED BY THE LD. AR, FAMILY SETTLEMENT / ARRANGEMENT HAS BEEN ENTERE D BY DRAWING A MEMORANDUM OF UNDERSTANDING ON 15.06.2007 IN FORM O F A WRITTEN DOCUMENT TITLED AS 'RECORDING OF FAMILY SETTLEMENT', HEREINA FTER REFERRED AS MOU. (VIII) IT HAS ALSO BEEN EXPLAINED BY THE LD. AR THAT WITH THE OBJECT TO COMPROMISE DOUBTFUL OR POSSIBLE DISPUTES OR DISPUTE D RIGHTS AND TO PRESERVE THE FAMILY PROPERTY FOR THE PEACE AND SECURITY OF THE F AMILY BY AVOIDING LITIGATION AND SAVING ITS HONOUR, THE SAID MOU FOR THE FAMILY SETTLEMENT HAS BEEN DRAWN IN THE PRESENCE OF THE GURUJI OF THE FAMILY, LATE SWAM I MAHESHANAND GIRIJI MAHARAJ IN A MEETING OF FAMILY MEMBERS, HELD AT THE AUSPICIOUS PLACE AT MOUNT ABU RAJASTHAN. THE LD. AR HAS ALSO EXPLAINED THAT TH E FAMILY SETTLEMENT HAS ARRIVED IN PRESENCE OF GURUJI WITH THE INTENTION TO MAINTAIN AMITY AND GOODWILL AMONGST THE BROTHERS AND THEIR FAMILY MEMBERS. (IX) IN THE MOU DRAWN FOR THE FAMILY SETTLEMENT, BASICAL LY THREE PARTS HAVE BEEN MADE, THE FIRST PART BEING FOR TRANSFER OF BUSINESS AMONG THE FAMILY ITA NO.280/AGRA/2013 9 MEMBERS, THE SECOND PART BEING DIVISION OF THE IMMOVABLE PROPERTY OF THE FAMILY AND THE THIRD PART BEING DIVISION OF MOVABLE ASSETS OF THE FAMILY CONSISTING OF VARIOUS DEPOSITS, FDS, NSCS, LOANS IN THE FAMILY BUSINESS ETC. THIS MOU HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER BY THE AO ON PAGE NO. 3 & 4 AND THE SAME HAS BEEN REPRODUCED IN THIS ORDER ON P AGE NO. 16 TO 18. (X) IN THE FIRST PART, FOR TRANSFER OF INTEREST / SHARE OF SHRI ARVIND KAP UR AND THE MOTHER SMT. NIRMALA KAPUR IN THE FAMILY BUSINESS TO SHRI MADHUKAR KAPUR , IT HAS BEEN AGREED TO PAY SHRI ARVIND KAPUR AND SMT. N IRMALA KAPUR , RS.5 CRORES AND RS.50 LAC RESPECTIVELY. THE AMOUNT OF RS.5 CRORE WAS TO BE PAID BY SHRI MADHUKAR KAPUR TO SHRI ARVIND KAPUR BY THE DATE 31. 10.2007, A CONDITION HAS BEEN STIPULATED THAT THE ACTUAL TRANSFER OF BUSINES S SHALL NOT BE AFFECTED TILL THE AMOUNT OF RS.2.5 CRORE IS PAID TO SHRI ARVIND KAPUR . FOR PAYMENT TO SMT. NIRMALA KAPUR, IT HAS BEEN MENTIONED THAT THIS AMOU NT SHALL BE PAID TO HER WITHIN A PERIOD NOT EXCEEDING TWO YEARS FROM THE DA TE OF FAMILY SETTLEMENT. VARIOUS COMPANIES AND FIRMS OF FAMILY BUSINESS, CON SIDERED TO BE TRANSFERRED TO SHRI MADHUKAR KAPUR BY SHRI ARVIND K APUR ARE MENTIONED AS MAHIM PATRAN (P) LTD., MANAK SHEETAL (P) LTD., NIRM ALA REALTORS (P) LTD., NIRMITI ASSOCIATES (P) LTD., MADHU MUDRAK ETC. OUT OF THESE CONCERNS, THE FLAG SHIP COMPANY OF THE FAMILY BUSINESS OF KAPUR FAMILY IS EXPLAINED TO BE M/S MAHIM PATRAN (P) LTD. IN THIS COMPANY, BEFORE FAMIL Y SETTLEMENT, THE ASSESSEE SHRI ARVIND KAPUR HELD 6534 SHARES, HIS WIFE SMT. S UDHA KAPUR HAS HELD 2800 SHARES AND MOTHER SMT. NIRMALA KAPUR HELD 6536 SHAR ES. THESE SHARE HOLDINGS ARE MENTIONED IN THE LIST OF SHARE HOLDER AS ON 30 TH SEPTEMBER, 2005 PRODUCED IN THE APPEAL PROCEEDING AND THE SAME IS REPRODUCED ON PAGE NO. 50. AS PER THE ANNUAL RETURN FILED BY THIS COMPANY FOR AGM HELD ON 31.03.2007, ALL THE ABOVE MENTIONED SHARES HELD BY THREE FAMILY MEMBERS WERE TRANSFERRED TO SHRI MADHUKAR KAPUR IN ACCORDANCE WITH THE TERMS OF FAMI LY SETTLEMENT. THEREFORE, IN VIEW OF THIS FACTUAL POSITION, THE FINDING OF TH E AO IN THE ASSESSMENT ORDER THAT SHRI MADHUKAR KAPUR ALREADY HELD 2/3 RD OF SHARES OF THE BUSINESS AND REST 1/3 RD WAS HELD BY THE ASSESSEE AND HENCE, AS PER THE AO T HE SHARE HOLDING WAS ALREADY CONCENTRATED IN THE HAND OF SHRI MADHUKAR KAPUR AND THEREFORE, HE WAS ALWAYS CAPABLE OF TAKING DECISIONS AND MANAGING THE COMPAN Y EFFECTIVELY, HAS NOT BEEN FOUND TO BE CORRECT. AS PER THE FACTS WHICH HAS EMERGED DURING APPEAL , IT HAS BEEN FOUND THAT OUT OF THE TOTAL QUANTITY OF 27004 SHARES OF THE CO MPANY M/S MAHIM PATRAN (P) LTD., SHRI MADHUKAR KAPUR AND HIS FAMILY HAD ONLY 1 0468 SHARES WHICH ITA NO.280/AGRA/2013 10 AMOUNTED TO HOLDING ONLY 0.38% SHARES OF THIS COMPA NY AND NOT 2/3 RD SHARES OF THIS COMPANY. BEFORE THE FAMILY SETTLEMENT ABOUT 62 % OF SHARES OF THE COMPANY WERE IN THE HAND OF OTHER FAMILY MEMBERS MAINLY SHR I ARVIND KAPUR AND HIS FAMILY (10000 SHARES 37%) AND SMT. NIRMALA KAPUR (6536 SHARES 25%). AFTER FAMILY SETTLEMENT, 6534 SHARES HELD BY SHRI A RVIND KAPUR AND 2800 SHARES HELD BY HIS WIFE, SMT. SUDHA KAPUR TOTALING TO 9334 SHARES OUT OF 10000 SHARES HELD BY HIS FAMILY, WERE TRANSFERRED TO SHRI MADHUK AR KAPUR & HIS WIFE SMT. MILAN KAPUR IN JOINT NAME AND 6536 SHARES OF SMT. N IRMALA KAPUR WERE TRANSFERRED TO SHRI MADHUKAR KAPUR AND HIS WIFE SMT . MILAN KAPUR. THEREFORE, AFTER FAMILY SETTLEMENT, OUT OF TOTAL ISSUED AND SU BSCRIBED SHARES OF 27004 SHARES OF THE COMPANY, THE TOTAL NUMBER OF SHARES CAME IN THE CONTROL OF SHRI MADHUKAR KAPUR AND HIS FAMILY ARE 26338 SHARES WHIC H AMOUNTED TO 97.5% OF THE TOTAL SHARE HOLDING OF THIS COMPANY AND HENCE, IT IS CLEARLY EVIDENT THAT AFTER FAMILY SETTLEMENT, THERE IS A CONSOLIDATION OF SHAR ES OF THIS COMPANY IN THE HAND OF SHRI MADHUKAR KAPUR AND THEREFORE, THE CONCLUSION DRAWN BY THE AO IN THE ASSESSMENT ORDER THAT THE TRANSFER OF SHARES BY SHR I ARVIND KAPUR (ASSESSEE - APPELLANT) IS NOT FOR THE PURPOSE OF MA NAGING THE COMPANY EFFECTIVELY BY CONSOLIDATING SHARES HOLDING IN THE HAND OF SHRI MADHUKAR KAPUR AND HENCE, REJECTING THE CLAIM OF THE ASSESSE E ABOUT THERE BEING ANY FAMILY SETTLEMENT FOR WHICH SHARES WERE TRANSFERRED , HAS NOT BEEN FOUND TO BE BASED ON THE APPRECIATION OF CORRECT FACT. IN THE ASSESSMENT ORDER, THE AO HAS MAINLY CONCENTR ATED ON TRANSFER OF SHARES OF THE COMPANY M/S MAHIM PATRAN (P) LTD. AND TWO SMALL COMPANIES NIRMITI ASSOCIATES (P) LTD. & NIRMALA REALTORS (P) LTD. AND HE HAS CONSIDERED THAT RS.5 CRORE RECEIVED BY THE ASSESSEE (APPELLANT ) IS FOR TRANSFERRING OF THE SHARES IN THESE THREE COMPANIES. HOWEVER, FROM THE FIRST PART OF THE FAMILY SETTLEMENT, I HAVE FOUND THAT ALONG WITH THE BUSINE SS OF THESE THREE COMPANIES, THE BUSINESS INTEREST OF SHRI ARVIND KAPUR IN ONE M ORE COMPANY NAMELY M/S MANAK SHEETAL (P) LTD. AND THE BUSINESS OF M/S MADH U MUDRAK (A HUF) HAVE ALSO BEEN TRANSFERRED. DESPITE SHARE HOLDERS AND DI RECTORS IN THIS COMPANY BEING DIFFERENT PERSONS, THE COMPANY M/S MANAK SHEETAL (P ) LTD. HAS BEEN FOUND TO BE A FAMILY CONTROLLED COMPANY AND HENCE, IT CANNOT BE SAID THAT RS.5 CRORES HAVE BEEN PAID TO SHRI ARVIND KAPUR (APPELLANT) ONLY FOR TRANSFERRING OF SHARES OF THE ABOVE MENTIONED THREE COMPANIES. FROM THE NOTING MA DE IN THE MOU, IT IS VERY CLEAR THAT RS.5 CRORE IS PAID TO SHRI ARVIND KAPUR FOR TRANSFERRING OF HIS BUSINESS INTEREST IN ALL FAMILY CONCERNS INCLUDING THE ABOVE SAID THREE COMPANIES AND ALSO MANAK SHEETAL (P) LTD. AND M/S MADHU MUDRAK. SINCE, SHRI ARVIND KAPUR AND SHRI MADHUKAR KAPUR DID NOT HOLD ANY SHARE IN THE C OMPANY, M/S MANAK SHEETAL (P) LTD. IT HAS BEEN HELD BY THE AO IN THE ASSESSMENT ORDER OF SHRI ITA NO.280/AGRA/2013 11 MADHUKAR KAPUR PASSED U/S 143(3) VIDE ORDER DATED 3 0.12.2010 THAT IT IS APPARENT FROM THE DOCUMENTS SUPPLIED BY THE ASSESSE E( MADHUKAR KAPUR) AND THE SURROUNDING EVIDENCES THAT SHRI MADHUKAR KAPUR HAD EFFECTIVE CONTROL OVER M/S MANAK SHEETAL PVT. LTD. , AND SINCE AS PER THE MEMORANDUM OF FAMILY SETTLEMENT, SHRI ARVIND KAPUR HAS TRANSFERRED HIS B USINESS INTEREST IN THIS COMPANY TO SHRI MADHUKAR KAPUR, IT SHOWS THAT HE AL SO HAD CONTROL OVER THIS COMPANY DUE TO HIS BUSINESS INTEREST BEING IN THIS COMPANY ALSO. HOWEVER, COST OF TRANSFERRING OF BUSINESS INTEREST OF SHRI ARVIND KAPUR IN THIS COMPANY CANNOT BE DETERMINED AND IT CAN BE ONLY ASSESSED ON THE BA SIS OF THE BUSINESS INTEREST OF BOTH THE BROTHERS IN THIS COMPANY. IN FACT, LOOKING TO THE DETAILS OF SHARE HOLDING OF SHRI ARVIND KAPUR AND SMT. NIRMALA KAPUR IN THE COMPANY, M/S MAHIM PATRAN (P) LTD., IT CAN BE SEEN THAT BOTH WERE HOLD ING ALMOST EQUAL NUMBER OF SHARES (SMT. NIRMALA KAPUR WAS HOLDING ONLY TWO SHA RES MORE THAN THAT OF SHRI ARVIND KAPUR). HOWEVER, SHRI ARVIND KAPUR WAS PAID RS.5 CRORE BUT SMT. NIRMALA KAPUR WAS PAID RS.50 LAC. THEREFORE, IT CAN NOT BE SAID THAT FOR TRANSFERRING THE SAME NUMBER OF SHARES, TWO PERSONS CAN BE PAID DIFFERENT AMOUNTS. IN FACT, 2800 SHARES HELD BY SMT. SUDHA KA PUR IN THIS COMPANY, WERE ALSO TRANSFERRED BUT NO AMOUNT HAS BEEN PAID TO HER FOR TRANSFERRING OF HER SHARES. THE LD. AR HAS ALSO EXPLAINED IN HIS WRITTEN SUBMISSION THAT THE SHARES OF ALL THE THREE COMPANIES WERE NOT TRANSFERRED FOR AN Y CONSIDERATION IS EVIDENT FROM THE FACT THAT NO CONSIDERATION FOR TRANSFER OF SHARE IS MENTIONED IN THE TRANSFER DEED AND IT HAS BEEN ONLY SPECIFIED THAT T HE BASIS OF TRANSFER OF SHARES IS AS PER THE FAMILY SETTLEMENT AND NO TRANSFER STAMP HAS BEEN AFFIXED ON THE TRANSFER DEEDS BECAUSE THERE WAS NO MONITORY CONSID ERATION FOR THE PURPOSE OF STAMP ACT. FROM THESE FACTS, IT IS CLEAR THAT RS.5 CRORE RECEI VED BY SHRI ARVIND KAPUR (ASSESSEE APPELLANT) IS FOR TRANSFERRI NG OF HIS ENTIRE BUSINESS INTEREST IN ALL THE BUSINESS ENTITIES OF T HE FAMILY BUSINESS AND NOT ONLY FOR TRANSFERRING OF SHARES OF THE THREE COMPAN IES CONSIDERED BY THE AO. IF THE TRANSFER VALUE OF THE SHARES OF M/S MAHI M PATRAN (P) LTD. RECEIVED BY THE ASSESSEE (APPELLANT) IS REQUIRED TO BE DETERMINED, IT CAN BE AT THE MOST TAKEN AT RS.50 LAC EQUAL TO THE VALUE W HICH WAS RECEIVED BY SMT. NIRMALA KAPUR FOR THE SAME NUMBER OF SHARES. (XI) IN THE SECOND PART OF MOU FOR FAMILY SETTLEMENT, DETAILS OF DIVISION OF VARIOUS IMMOVABLE PROPERTIES HAVE BEEN GIVEN. THE AO HAS QUESTIONED DISTRIBUTION OF THESE PROPERTIES IN THE MANNER AS I T WAS MENTIONED IN THE MOU BECAUSE AS PER HIS FINDING, MOST OF THESE PROPERTIE S WERE INDIVIDUALLY HELD BY THE FAMILY MEMBERS AND HELD BY THE COMPANIES AND SINCE, IN VIEW OF THE AO, A COMPANY IS A SEPARATE LEGAL ENTITY, THE PROPERTIES HELD BY THE COMPANY CANNOT BE DIVIDED AMONG THE FAMILY MEMBERS DURING A FAMILY SETTLEMENT ITA NO.280/AGRA/2013 12 WITH REGARD TO THE HOUSE SITUATED AT 64-SURYA NAGAR , AGRA, IT HAS BEEN MENTIONED THAT THIS HOUSE WILL GO TO SMT. NIRMALA K APUR. AS PER THE FINDING OF THE AO, THIS PROPERTY WAS OWNED BY SMT. NIRMALA KAP UR, EVEN BEFORE THE DATE OF FAMILY SETTLEMENT AND THEREFORE, HE POINTED OUT THA T THE ASSESSEE'S CONTENTION OF ALLOTMENT OF THE SAID PROPERTY TO SMT. NIRMALA KAPU R IS NOT TENABLE AS SHE HAS ALWAYS BEEN OWNER OF THE SAID PROPERTY. AGAINST SUC H FINDING OF THE AO, THE LD. AR HAS EXPLAINED IN THE WRITTEN SUBMISSION THAT THE CORRECT FACTS ARE THAT THIS PROPERTY WERE OWNED JOINTLY BY SMT. NIRMALA KAPUR, SHRI MADHUKAR KAPUR AND SHRI ARVIND KAPUR, EVEN THOUGH THE TITLE WAS IN THE NAME OF SMT. NIRMALA KAPUR. IN SUPPORT OF HIS CONTENTION, HE FILED COPY OF INCO ME TAX RETURN OF SMT. NIRMALA KAPUR FOR A.Y. 2006-07 IN WHICH, 1/3 RD SHARE OF HOUSE PROPERTY INCOME FROM THIS HOUSE SINCE THE DEATH OF SHRI H.K. KAPUR HAS BEEN S HOWN IN THE HAND OF EACH OF THE THREE FAMILY MEMBERS MENTIONED ABOVE. THIS EXPLA NATION OF THE LD. AR IN THE WRITTEN SUBMISSION HAS NOT BEEN CONTROVERTED BY THE AO IN THE REMAND REPORT. AS REGARDS TO DIVISION OF THE PROPERTY, HELD BY THE COMPANY, IT HAS BEEN EXPLAINED DURING THE HEARING BY THE LD. AR THAT ALL THE COMPANIES ARE CLOSELY HELD PRIVATE LIMITED COMPANY AND DURING THE COURSE OF FAMILY SETTLEMENT, THE PROPERTIES THOUGH REGISTERED IN THEIR NAME HAVE ALS O BEEN DIVIDED FOR BEING BENEFICIALLY USED BY THE CONCERNED FAMILY MEMBERS T O WHOM SUCH PROPERTY HAS BEEN ASSIGNED. THE DIVISION OF PROPERTY, EVEN IF THE Y ARE HELD BY THE COMPANIES, HAS BEEN JUSTIFIED BECAUSE ALL THESE PROPERTIES WER E BEING ALSO USED EARLIER BY THE FAMILY MEMBERS BECAUSE OF THESE COMPANIES BEING CLOSELY HELD AND THEREFORE, DURING THE COURSE OF FAMILY SETTLEMENT ALSO, THESE PROPERTIES HAVE BEEN ASSIGNED TO A PARTICULAR FAMILY MEMBERS AS MENTIONED IN THE MOU FOR BEING USED BY THEM AND BECAUSE OF SUCH DIVISION OF THE PROPERTY THE VALIDITY OF THE GENUINENESS OF THE FAMILY SETTLEMENT / ARRANGEMENT CANNOT BE QUESTIONE D. (XII) AS PER THE THIRD PART OF THE MOU, THE MOVABLE ASSET S OF 'THE FAMILY HAVE BEEN DIVIDED. THE VALUE OF SUCH MOVABLE ASSETS COMPR ISING OF FDS, NSCS, LOANS WITH FAMILY BUSINESS HAS BEEN VALUED AT RS.4.2 CROR E. DURING THE COURSE OF HEARING, THE AO QUESTIONED THE VALIDITY OF FAMILY S ETTLEMENT, TAKING THE PLEA THAT THE THIRD PART OF THE MOU HAS NOT BEEN ACTED UPON I N LETTER AND IN A SPIRIT. HOWEVER, THIS OBJECTION OF THE AO HAS BEEN COUNTERE D BY THE LD. AR BY SUBMITTING THE FULL DETAIL OF DISTRIBUTION OF MOVAB LE ASSETS SO FAR MADE AS I HAVE ALREADY DISCUSSED IN PARA NO. 9.6 (XIII) THE AO HAS QUESTIONED THE VALIDITY OF FAMILY SETTLEM ENT BY POINTING OUT THAT THE DOCUMENT PREPARED IN WRITING FOR THE PURPO SE OF FAMILY SETTLEMENT HAS ITA NO.280/AGRA/2013 13 NOT BEEN REGISTERED AS PER THE DECISION OF HON'BLE SUPREME COURT IN CASE OF KALE VS. DY. DIRECTOR OF CONSOLIDATION (SUPRA). HOWEVER, IT HAS BEEN EXPLAINED BY THE LD. AR THAT SUCH DOCUMENT HAS BEEN ACTED UPON I N LETTER AND SPIRIT AND THEREFORE, REGISTRATION OF SUCH DOCUMENT IS NOT NEC ESSARY AS HELD BY THE HON'BLE SUPREME COURT IN CASE OF K.K. MODI VS. K.N. MODI (SUPRA). (XIV) DURING THE COURSE OF THE HEARING OF APPEAL PROCEEDI NG, IT HAS BEEN ADMITTED BY THE AO THAT THERE IS NO POSITIVE EVIDEN CE TO SHOW THAT BOTH BROTHERS HAVE MADE THE ARRANGEMENT OF FAMILY SETTLEMENT UNDE R DISPUTE IN THIS APPEAL, FOR THE PURPOSE OF TAX PLANNING AND DESPITE SHOWING THEMSELVES HAVING BEEN SEPARATED IN ACCORDANCE WITH THIS FAMILY SETTLEMENT , THEY ARE STILL DOING BUSINESS TOGETHER. HE HAS ALSO CONFIRMED THAT AS PER THIS FA MILY SETTLEMENT, BOTH HAVE GOT SEPARATED AND ONE BROTHER I.E. SHRI MADHUKAR KAPUR HAS RECEIVED THE ENTIRE FAMILY BUSINESS RUNNING IN NAME OF DIFFERENT CONCER NS AS MENTIONED IN POINT NO. (X) AND OTHER BROTHER I.E. SHRI ARVIND KAPUR (ASSES SEE-APPELLANT) HAS RECEIVED RS.5 CRORE IN LIEU OF HANDING OVER OF HIS BUSINESS INTEREST IN THESE CONCERNS BELONGING TO THE FAMILY BUSINESS. 10.2 AFTER SUMMARIZING THE FACT OF THE CASE UNDER A PPEAL ON THE QUESTION OF THE ISSUES RELATING TO THE FAMILY SETTLEMENT / ARRANGEM ENT, I HAVE EXAMINED THE CASE LAWS AVAILABLE ON THIS ISSUE AS CITED BY THE LD. AR DURING THE COURSE OF HEARING OF THE APPEAL. 10.2 THE ISSUE RELATING TO TRANSFER OF SHARES IN A COMPANY DURING THE COURSE OF FAMILY SETTLEMENT HAS COME BEFORE THE HON'BLE ITAT M ADRAS IN THE CASE OF A.L. RAMANATHAN VS. ITO (1991) 40 TTJ (MAD) 90, AND IN THIS DECISION, THE HON'BLE ITAT HAS HELD THAT TRANSFER OF SHARES DURING THE COURSE OF FAMILY SETTLEMENT IS NOT LIABLE FOR CAPITAL GAIN TAX. THIS DECISION OF THE HON'BLE ITAT, MADRAS HAS BEEN SUBSEQUENTLY CONFIRMED BY THE HON'B LE MADRAS HIGH COURT IN CIT VS. A.L. RAMANATHAN 245 ITR 494 (MAD). THE FACT OF THIS CASE IS THAT THE ASSESSEE IS A HINDU UNDIVIDED FAMILY. THE KARTA OF THIS JOINT FAMILY IS SRI A.L. RAMANATHAN, WHO IS THE SON OF SRI L. ALAGUSUNDARAM CHETTIAR. ON 12-4-1952 THERE WAS A PARTITION BETWEEN ALAGUSUNDARAM CHETTIA R AND HIS BROTHER L. NARAYANAN CHETTIAR, THEREAFTER, ON 12-9-1955 THERE W AS A PARTITION IN THE JOINT FAMILY OF WHICH ALAGUSUNDARAM CHETTIAR WAS THE KART A AND HIS THREE SONS, AL. LAKSHMANAN, AL. PERIANNAN AND AL. RAMANATHAN WERE T HE OTHER COPARENERS.SUBSEQUENTLY DISPUTES AROSE BETWEEN AL. RAMANATHAN AND HIS SON R. LAKHMANAN ON THE ONE SIDE AND ALAGUSUNDARAM CHETTIA R, AL. LAKSHMANAN AND PERIANNAN SHANMUGAM ON THE OTHER SIDE. THE CLAIM MAD E BY THE ASSESSEE'S SIDE WAS THAT THE DIVISION EFFECTED ON 12-9-1955 WAS NOT FAIR AND IN ADDITION, THERE ITA NO.280/AGRA/2013 14 WERE ALSO QUARRELS ABOUT THE MANAGEMENT OF THE COMP ANY MAHALAKSHMI TEXTILE MILLS LTD. IN WHICH ALL OF THEM HAD SHARES. THE DISP UTES LED TO CIVIL AND CRIMINAL PROCEEDINGS AGAINST EACH OTHER. SINCE THE DISPUTES AFFECTED THE FAMILY PEACE AND HONOUR, A RAPPROCHEMENT WAS MADE THROUGH TWO PANCHA YATDARS, SRI RM. MUTHUPALANIAPPA CHETTIAR AND SRI S.P.S. SUBRAMANIAN CHETTIAR. AN INTERIM AGREEMENT WAS ENTERED INTO ON 19-8-1980 UNDER WHICH THE ASSESSEE'S SIDE WAS TO RECEIVE RS.8 LAKHS AND CERTAIN LANDS IN KOTHAGAI VILLAGE AND IN RETURN THEY WERE REQUIRED TO TRANSFER HALF OF THEIR SHARE- HOLDINGS IN MAHALAKSHMI TEXTILE MILLS LTD., LAKSHMI LINES LTD. AND CHARLIE ENGG. CO. LTD. TO THE OTHER SIDE SUBJECT TO FULL SETTLEMENT L ATER. THIS ARRANGEMENT. WAS ALSO CONDITIONAL UPON RE-TRANSFER OF ALL THESE ASSE TS TO EACH OTHER IN CASE A FINAL SETTLEMENT FELL THROUGH. HOWEVER, ON 20-6-1981 A FINAL AGREEMENT WAS DRAWN UP RECORDING THE ORAL AGREEMENT DATED 6-5-1981 UNDER W HICH THE ASSESSEE'S SIDE WAS TO RECEIVE A FURTHER AMOUNT OF RS.11 LAKHS WHIC H WAS PAID ON 19-6- 1981 IN ADDITION TO RS.8 LAKHS PAID ON 9-9-1980 AND ALSO KEEP THE LAND TRANSFERRED TO THEM ON 10-9-1980 AS WELL AS A BRICK CHAMBER TRANSFERRED BY ANOTHER REGISTERED TRANSFER DEED. IN RETURN, THE OTHER SIDE WAS TO RETAIN THE SHARES IN MAHALAKSHMI TEXTILE MILLS LTD., LAKSH MI LINES LTD. AND CHARLIE ENGG. CO. LTD. ETC. TRANSFERRED BY THE ASSE SSEE'S SIDE TO THEM IN ACCORDANCE WITH THE EARLIER AGREEMENT DATED 19-8-19 80. TWO FURTHER CLAUSES MENTIONED THAT A SUM OF RS.5,46,781 DUE FROM THE ASSESSEE'S SIDE TO THE OTHER SIDE WAS TO BE WAIVED AND A SUM OF RS.3 LAKHS WAS PAID TO SMT. UNNAMALAI ACHI, WIFE OF AL. RAMANATHAN AS STRIDHAN BY THE OTH ER SIDE. IT WAS FURTHER AGREED THAT AL. RAMANATHAN SHOULD RESIGN FROM THE P OST OF SECRETARY TO THE COMPANY, MAHALAKSHMI TEXTILE MILLS LTD. AND ALSO RET IRE FROM THE FIRMS, LAKSHMI PLANTATIONS AND JAYALAKSHMI CREDIT CORPORATION. SIR HILARLY THE OTHER SIDE WAS TO GIVE UP THE DIRECTORSHIP IN MAHALAKSHMI TEXTILE MILL S EMPLOYEES' COOPERATIVE CREDIT SOCIETY LTD. AND R. UNNAMALAI ACHI WAS TO RE TIRE FROM THE FIRM, RAJALAKSHMI CREDIT CORPORATION. ON THE BASIS OF ABOVE FACTS OF THE CASE, THE ASSESS EE IN THE ABOVE CITED CASE LAW CLAIMED THAT THE AGREEMENTS DATED 19-8-1980 AND 20- 6-1981 SHOULD BE TAKEN AS SUPPLEMENT TO THE EARLIER PARTITION DATED 12-9-1 955 THUS, NOT AMOUNTING TO A TRANSFER UNDER SECTION 47 OR IN THE ALTERNATIVE AS A FAMILY ARRANGEMENT NOT AMOUNTING TO A TRANSFER SUCH THAT THE CAPITAL GAINS FROM THESE TRANSACTIONS COULD NOT BE ASSESSED TO TAX. ANOTHER STAND TAKEN BY THE ASSESSEE WAS THAT THE CONSIDERATION PAID WAS NOT MERELY FOR THE TRANS FER OF ASSETS BUT ALSO TO AVOID CONTINUOUS FRICTION AND TO BUY PEACE FROM THE PSYCHOLOGICAL TENSION AND THAT AN APPROPRIATE AMOUNT HAD TO BE EXCLUDED I N CASE CAPITAL GAINS IS TO BE COMPUTED. ITA NO.280/AGRA/2013 15 THE ABOVE CONTENTIONS OF THE ASSESSEE WAS REJECTED B Y THE ITO ON THE GROUND THAT CAPITAL GAINS WAS DEEMED TO BE INCOME AND UNLE SS EXEMPTION WAS MADE SUCH DEEMED INCOME WAS CHARGEABLE TO TAX. HE WAS AL SO OF THE VIEW THAT SINCE THE PARTIES HAD HELD AND ENJOYED THE PROPERTIES UND ER THE EARLIER PARTITION DEED, THEY CANNOT PUT THE CLOCK BACK BY RE-DISTRIBUTING T HE ASSETS AND, THEREFORE, THE TRANSACTIONS AMOUNTED TO A TRANSFER OF THEIR TITLE IN RESPECT OF WHICH CAPITAL GAINS WAS EXIGIBLE TO TAX. HE COMPUTED THE CAPITAL GAINS AT RS. 5,00,583. AGAINST THE DECISION OF THE AO, THE ASSESSEE APPEAL ED AND PRESSED THE CONTENTION BEFORE THE CIT(A) THAT THE TRANSACTIONS DID NOT AMO UNT TO A TRANSFER AS THEY FORMED A FAMILY ARRANGEMENT. IT WAS ALSO CONTENDED THAT THE TRANSACTION WAS EFFECTED FOR OBTAINING CONTROL OF THE COMPANIES AND HENCE THE ENTIRE CONSIDERATION DID NOT REFER TO THE TRANSFER OF ANY PARTICULAR CAPITAL ASSET IN RESPECT OF WHICH CAPITAL GAINS COULD BE TAXED. THE C IT (APPEALS) HOWEVER REJECTED THESE CONTENTIONS BY NOTING THAT THE PARTI TION HAD BEEN COMPLETED ON 12-9-1955 AND HAD BEEN RECOGNISED UNDER SECTION 171 OF THE INCOME-TAX ACT, 1961 AND COULD NOT BE RE-OPENED BEYOND THE PERIOD O F LIMITATION OF THREE YEARS .PRESCRIBED UNDER THE ARTICLE 113 OF THE LIMITATION ACT, 1963. HE FELT THAT THE CLAIM OF FAMILY ARRANGEMENT SHOULD NOT BE COUNTENAN CED BECAUSE SUCH A THEORY WILL OPEN THE FLOOD-GATES OF TAX AVOIDANCE AS EVERY TRANSFER WILL BE DESCRIBED AS A FAMILY ARRANGEMENT FOR AVOIDING GIFT-TAX AND CAPITA L GAINS TAX. HE FURTHER HELD THAT' THE TRANSFER OF THE SHARES TOOK EFFECT ONLY W HEN IT WAS REGISTERED WITH THE COMPANY AND SUCH REGISTRATION OF THE SHARES TOOK PL ACE IN TWO ACCOUNTING YEARS ENDED 31-3-1981 AND 31-3-1982. HE FURTHER NOTED THA T THE ACTUAL CONSIDERATION RECEIVED BY THE ASSESSEE INCLUDED ALSO THE EXTINGUI SHMENT OF DEBTS AND PAYMENT OF AMOUNT TO UNNAMALAI ACHI SO THAT THE TOTAL CONSI DERATION SHOULD BE WORKED OUT TO RS.28,05,985. HE WAS OF THE OPINION THAT 50% OF THIS AMOUNT HAD TO BE BROUGHT TO TAX IN THE ASSESSMENT YEAR UNDER CONSIDE RATION AND AFTER GIVING NOTICE TO THE ASSESSEE ENHANCED THE CAPITAL GAINS A SSESSABLE IN THIS YEAR TO RS.10,03,725. AGAINST THE DECISION OF THE CIT(A), TH E ASSESSEE HAS FURTHER FILED APPEAL TO HON'BLE ITAT MADRAS AND ON APPEAL OF THE A SSESSEE, THE HON'BLE TRIBUNAL HAS HELD AS UNDER:- 6. IN THE FURTHER APPEAL BEFORE US IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE TRANSACTIONS AMOUNTED TO A FAMILY ARRANGEMENT WHICH COURTS HAVE RECOGNISED IN THE CASE OF CGT V. PAPPAT HI ANNI [1981] 127 ITR 655 (MAD.), ZIAUDDIN AHMED V. CGT [1976] 102 ITR 253 (GAUHATI), CIT V. R. PONNAMMAL [1987] 164 ITR 706 (MAD.), KALE V. DY. DIRECTOR OF CONSOLIDATION [1976] 3 SCC 119 AND BY THE TRIBUNAL I N THE CASE OF M.S. ITA NO.280/AGRA/2013 16 MARIAPPA V. GTO [1988] 25 ITD 53 (MAD.). IT WAS SUBM ITTED THAT SINCE THERE WAS NO TRANSFER, THERE COULD BE NO CAPITAL GA INS EXIGIBLE TO TAX. ON THE OTHER HAND, IT WAS CONTENDED ON BEHALF OF THE R EVENUE THAT THE CLAIM THAT THE TRANSACTIONS AMOUNTED TO A FAMILY ARRANGEM ENT SHOULD NOT BE ACCEPTED BECAUSE IT HAD NOT BEEN PROVED TO BE SO. A CCORDING TO THE REVENUE, THERE WERE INTERNAL CONTRADICTIONS IN THE CLAIM OF THE ASSESSEE PARTICULARLY WITH REFERENCE TO THE CONDUCT OF THE P ARTIES. IT WAS SUBMITTED THAT IN BETWEEN THE INTERIM AGREEMENT DATED 19-8-19 80 AND THE FINAL AGREEMENT DATED 20-6-1981, THE OTHER SIDE HAD TRANS FERRED THE LAND TO THE ASSESSEE ON 10-9-1980 WHICH THE ASSESSEE HAD IN TUR N SOLD ON 6-2-1981 TO STRANGERS WITHOUT WAITING FOR THE FINAL AGREEMENT E VEN THOUGH IT WAS SUBJECT TO RE-TRANSFER IF THE FINAL AGREEMENT FELL THROUGH. IT WAS FURTHER POINTED OUT THAT THE DOCUMENT DATED 10-9-1980 WAS R EGISTERED AS A GIFT SETTLEMENT. ACCORDING TO THE REVENUE, WHILE THE AGR EEMENT DATED 20-6- 1981 STATED THAT AL. RAMANATHAN WAS ON LEAVE FROM 9 -91980, AN EXPLANATION HAD BEEN CALLED FOR ON 5-5-1981, A DAY PRIOR TO THE ORAL AGREEMENT DATED 6-5-1981 CALLING FOR EXPLANATION FO R HIS RECENT ACTIONS AS SECRETARY OF THE COMPANY THUS BELYING THE STATEMENT . IT WAS ALSO POINTED OUT THAT SHRI AL. RAMANATHAN HAD MADE A GIFT OF DIA MONDS TO HIS SISTER OUT OF THE JOINT FAMILY FUNDS WHICH WAS INCONSISTEN T WITH THE CASE THAT THE PARTIES WERE AT LOGGERHEADS. IT WAS ARGUED THAT THE FAMILY ARRANGEMENT COULD BE ACCEPTED ONLY IF IT WAS BONA FIDE AND IN V IEW OF THE CONDUCT OF THE ASSESSEE WHICH SHOWED TRUST IN EACH OTHER IN THEIR OTHER TRANSACTIONS IN SPITE OF THE ALLEGED QUARRELS, THE AGREEMENTS COULD NOT BE ACCEPTED AS A GENUINE FAMILY ARRANGEMENT AND THE CLAIM SHOULD BE REJECTED AS BEING MADE ONLY FOR THE PURPOSE OF AVOIDING TAX ON CAPITA L GAINS PARTICULARLY WHEN THEY HAD TRANSFERRED TITLE TO THE PROPERTIES W HICH THEY HAD ENJOYED FOR DECADES. 7. ON A CONSIDERATION OF THE RIVAL SUBMISSIONS,, WE ARE OF THE OPINION THAT THE ASSESSEE IS ENTITLED TO SUCCEED. THE ESSENTIALS OF A FAMILY SETTLEMENT AND THE PRINCIPLES GOVERNING THE EXISTENCE OF THE S AME HAVE BEEN SUCCINCTLY SUMMARISED IN HALSBURY'S LAWS OF ENGLAND , VOL. 17, THIRD EDITION, PP. 215-216 AS FOLLOWS : 'A FAMILY ARRANGEMENT IS AN AGREEMENT BETWEEN MEMBE RS 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 SEC URITY OF THE FAMILY BY AVOIDING LITIGATION OR BY SAVING ITS HONOUR. ITA NO.280/AGRA/2013 17 THE AGREEMENT MAY BE IMPLIED FROM A LONG COURSE OF D EALING, BUT IT IS MORE USUAL TO EMBODY OR TO EFFECTUATE THE AGREEMENT IN A DEED TO WHICH THE TERM 'FAMILY ARRANGEMENT' IS APPLIED. FAMILY ARRANGEMENTS ARE GOVERNED BY PRINCIPLES WHIC H ARE NOT APPLICABLE TO DEALINGS BETWEEN STRANGERS. THE COURT, WHEN DECID ING THE RIGHTS OF PARTIES UNDER FAMILY ARRANGEMENTS OR CLAIMS TO UPSE T SUCH ARRANGEMENTS, CONSIDERS WHAT IN THE BROADEST VIEW OF THE MATTER I S MOST FOR THE INTEREST OF FAMILIES, AND HAS REGARD TO CONSIDERATIONS WHICH , IN DEALING WITH TRANSACTIONS BETWEEN PERSONS NOT MEMBERS OF THE SAM E FAMILY, WOULD NOT BE TAKEN INTO ACCOUNT. MATTERS WHICH WOULD BE FATAL TO THE VALIDITY OF SIMILAR TRANSACTIONS BETWEEN STRANGERS ARE NOT OBJE CTIONS TO THE BINDING EFFECT OF FAMILY ARRANGEMENTS.' THIS STATEMENT OF THE LAW HAS BEEN AFFIRMED BY OUR S UPREME COURT IN THE CASE OF KALE (SUPRA ). IBIS POSITION HAS BEEN REITE RATED BY THE MADRAS HIGH COURT IN THE CASE OF R. PONNAMMAL ( SUPRA). IN THE PRESENT CASE, THE EXISTENCE OF DISPUTES AND THE FACT THAT THE ARRANGE MENT WAS MADE IN CONSULTATION WITH PANCHAYATDARS ARE NOT IN DISPUTE. EVERY SUCH ARRANGEMENT WILL NECESSARILY RESULT IN REALIGNMENT OF INTEREST IN SEVERAL PROPERTIES. BUT YET, COURTS HAVE RECOGNISED THAT SUCH REALIGNMENT OF INTEREST WOULD NOT AMOUNT TO A TRANS FER. FOR INSTANCE, IN THE CASE OF ZIAUDDIN AHMED (SUPRA), AS IN THE PRESENT CASE, SHARES IN A COMPANY WERE ALL TRANSFERRED TO O NE PARTY TO ENABLE THE PROPER MANAGEMENT OF THE COMPANY AND IT WAS RECOGNISED AS A FAMILY ARRANGEMENT NOT AMOUNTING TO A TRANSFER. THIS ARRANGEMENT APPEARS TO BE BONA FIDE INASMUCH AS IT HAS BEEN SHOWN TO HAVE BEEN MADE VOLUNTARILY AND NOT INDUCED , BY ANY FRAUD OR COLLUSION. THE CONDUCT OF THE PARTIES REFERRED TO BY THE REVENUE I S CONSISTENT WITH THE BONA FIDE FAMILY ARRANGEMENT PA RTICULARLY WHEN IT WAS ARRIVED AT IN THE PRESENCE OF PANCHAYATDARS. WE FIND THIS FAMILY ARRANGEMENT TO BE IN CONFORMITY WITH THE WELL-SETTL ED PROPOSITIONS REGARDING THE BINDING EFFECT AND ESSENTIALS OF FAMI LY ARRANGEMENT SET OUT IN PAGE 711 OF 164 ITR IN THE CASE OF PONNAMMAL BY T HE MADRAS HIGH COURT. THE FACT THAT THE DOCUMENT TRANSFERRING THE L AND IN PURSUANCE OF THE FAMILY ARRANGEMENT WAS DESCRIBED AS A GIFT SETT LEMENT FOR STAMP DUTY PURPOSES, CANNOT CONCLUDE THE ISSUE WHETHER THE ENT IRE TRANSACTION AMOUNTED TO A FAMILY ARRANGEMENT. ITA NO.280/AGRA/2013 18 8. THE APPELLATE TRIBUNAL HAS HELD IN THE CASE OF MOH D. HAROON JAPANWALA V. ITO [1987] 22 ITD 61 (DELHI) THAT FAMILY ARRANGEME NT NOT BEING TRANSFER WOULD NOT GIVE RISE TO CHARGEABLE CAPITAL GAINS. WE ARE NOT PERSUADED TO DIFFER FROM THIS VIEW. 9. IT WAS CONTENDED ON BEHALF OF THE REVENUE THAT S ECTION ,47 SPECIFICALLY EXCLUDED DISTRIBUTION OF ASSETS ON PARTITION AND IF THIS TRANSACTION WAS TREATED AS A SUPPLEMENTARY PARTITION AND DATED BACK TO THE ORIGINAL PARTITION, THEN THE ASSESSEE SHOULD BE PREPARED FOR CHANGE IN THE INCIDENCE OF TAXATION FOR ALL THE INTERVENING YEARS. THIS CONT ENTION PROCEEDS ON A MIS-APPREHENSION THAT THE TRANSACTION IS A SUPPLEME NTARY PARTITION OR THAT IT DATES BACK TO THE ORIGINAL PARTITION. THE TR ANSACTION OF A FAMILY ARRANGEMENT DOES NOT DATE BACK BUT ONLY RE-DISTRIBU TES THE RIGHTS PROSPECTIVELY WITHOUT EFFECTING ANY TRANSFER. THE AS SUMPTION UNDERLINING THE FAMILY ARRANGEMENT IS THAT THE PARTIES HAD ANTE CEDENT RIGHTS IN ALL THE ASSETS AND THIS PROPOSITION OF LAW LEADS TO THE LEG AL INFERENCE THAT THE FAMILY ARRANGEMENT DOES NOT AMOUNT TO ANY TRANSFER OF TITLE. THE OTHER CONTENTION OF THE REVENUE WAS THAT SINCE A FAMILY A RRANGEMENT WAS, NOT LISTED IN SECTION 47, IT COULD NOT BE EXCLUDED FROM THE APPLICATION OF SECTION 45. THIS CONTENTION ALSO CANNOT BE ACCEPTED BECAUSE SECTION 47 EXCLUDES CERTAIN TRANSFERS AND SINCE THE FAMILY ARRANGEMENT IS NOT HELD TO BE A TRANSFER BY THE COURTS IT WOULD NOT REQUIRE TO BE L ISTED IN SECTION 47 UNLIKE A PARTITION WHICH IS A TRANSFER AND HAD TO BE SPECI FICALLY EXCLUDED FROM SECTION 45. MOREOVER, SINCE SECTION 45 CAN' APPLY O NLY TO CAPITAL GAINS ARISING FROM TRANSFERS, FAMILY ARRANGEMENTS FALL OU TSIDE THE SCOPE OF SECTION 45 ITSELF IN VIEW OF THE LEGAL POSITION THA T A FAMILY ARRANGEMENT IS NOT A TRANSFER AT ALL. 10. THE REVENUE RELIED UPON THE DECISION IN THE CASE OF CIT V. SMT. VIMLA LAL [1983] 143 ITR 16 (ALL.). BUT THAT DECISION IS O F NO ASSISTANCE TO US AS THERE WAS NO CLAIM IT) THAT CASE THAT THE TRANSACTI ON AMOUNTED TO A FAMILY ARRANGEMENT AND NOT A TRANSFER. SIMILARLY, THERE WA S NO SUCH CLAIM IN THE CASE OF NANJIAH SETTY V. CGT [1964] 54 ITR 425 (MYS. ) EITHER, WHICH IS RELIED ON BY THE REVENUE. THE CONTENTION OF THE REVE NUE THAT THE ACCEPTANCE OF THIS CLAIM WILL INDUCE OTHER ASSESSEE S TO MAKE SIMILAR CLAIMS IS OF NO SIGNIFICANCE, FOR, EACH CASE HAS TO BE DEC IDED ON THE MERITS OF THE CLAIM AS TO WHETHER THERE WAS A GENUINE FAMILY ARRA NGEMENT AND SUCH CLAIMS CANNOT BE CONDEMNED WITHOUT SCRUTINY MERELY BECAUSE THERE WILL BE NO INCIDENCE OF TAX IF THE CLAIMS ACCEPTED. IN T HE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE TRANSACTION OF THE ASSESSEE BEING A ITA NO.280/AGRA/2013 19 FAMILY ARRANGEMENT DID NOT AMOUNT TO A TRANSFER AND , THEREFORE, THERE WAS NO CHARGEABLE CAPITAL GAINS ARISING FROM THAT TRANSACTION. THE CAPITAL) GAINS BROUGHT TO TAX BY THE AUTHORITIES BELOW ARE DELETED FROM THE TOTAL 'INCOME OF THE ASSESSEE AND THE ITO IS DIRECTED TO RE- COMPUTE THE TOTAL INCOME.' THE ABOVE DECISION OF THE HON'BLE ITAT, MADRAS HAS B EEN FURTHER CONFIRMED BY THE HON'BLE HIGH COURT OF MADRAS ON FU RTHER APPEAL FILED BY THE DEPARTMENT AGAINST THE ABOVE DECISION OF THE ITAT MA DRAS. THE RELEVANT PORTION OF THE DECISION OF HON'BLE HIGH COURT OF MADRAS REP ORTED IN CIT VS. A.L. RAMANATHAN 245 ITR 494 (MAD) IS REPRODUCED AS UNDER:- '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 RIGHT S OR CLAIMED RIGHTS TO CERTAIN PROPERTIES HAD IN LAW ANY SUCH RIGHT OR NOT . [PARA 3] A PERUSAL OF THE RECORDS ESTABLISHED THAT A DISPUTE AROSE IN THAT FAMILY AND THE FAMILY ARRANGEMENT WAS ARRIVED AT IN CONSULTATI ON WITH THE PANCHAYATDARS AND, ACCORDINGLY, REALIGNMENT OF INTE REST 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.[PARA 2] THE FAMILY ARRANGEMENT IS AN AGREEMENT BETWEEN THE MEMBERS OF THE SAME FAMILY INTENDED BE GENERALLY AND REASONABL Y FOR THE BENEFIT OF THE FAMILY EITHER BY COMPROMISING DOUBTFUL OR DI SPUTED RIGHTS OR BY PRESERVING THE FAMILY PROPERTY OR THE PEACE AND SECURITY OF THE FAMILY BY AVOIDING LITIGATION OR BY SAVING ITS HONO UR. SO, THE FAMILY ARRANGEMENTS ARE GOVERNED BY PRINCIPLES WHICH ARE N OT APPLICABLE TO DEALINGS BETWEEN STRANGERS AND THE FAMILY ARRANG EMENT AMONG THEM IS FOR THE INTEREST OF THE FAMILY, FOR THE HAR MONIOUS WAY OF LIVING. SO, SUCH REALIGNMENT OF INTEREST BY WAY OF EFFECTING FAMILY ARRANGEMENT AMONG THE FAMILY MEMBERS WOULD NOT AMOU NT TO TRANSFER. [PARA 2] IN THE INSTANT CASE, THE TRIBUNAL WAS PERFECTLY JUST IFIED IN TAKING THE VIEW THAT THE TRANSACTION IN QUESTION BEING A FAMILY ARR ANGEMENT, DID NOT AMOUNT TO TRANSFER AND, THEREFORE, THERE WAS NO CHA RGEABLE CAPITAL GAIN ARISING FROM THAT TRANSACTION. SO, THE TRANSACTION OF THE ASSESSEE DID NOT ITA NO.280/AGRA/2013 20 AMOUNT TO TRANSFER AND THERE WAS NO CHARGEABLE CAPI TAL GAIN ARISING FROM THAT TRANSACTION.' 10.3 THE ISSUE RELATING TO TAXATION OF CAPITAL GAIN ON TRANSFER OF SHARES DURING THE COURSE OF FAMILY SETTLEMENT HAS BEEN FURTHER EX AMINED BY THE HON'BLE MADRAS HIGH COURT IN CASE OF CIT VS. KAY ARR ENTERPRISES 299 ITR 348 (MAD). IN THIS CASE, FOLLOWING QUESTION OF LAW WAS REFERRE D BY THE REVENUE AGAINST THE DECISION OF THE HON'BLE ITAT, MADRAS DELETING THE C APITAL GAIN CHARGED TO TAX ON TRANSFER OF SHARES DURING THE COURSE OF FAMILY SETT LEMENT. (I) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE APPELLATE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE FAMILY ARRANGEMENT AS ARRIVED AT BY THE ASSESSEES TO REARR ANGE THE SHAREHOLDINGS TO AVOID POSSIBLE LITIGATION THEMSELV ES WILL NOT ATTRACT CAPITAL GAINS TAX UNDER THE INCOME-TAX ACT, 1961? (II) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE APPELLATE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE REARRANGEMENT OF SHAREHOLDINGS IN THE COMPANY TO AVOID POSSIBLE L ITIGATION AMONG FAMILY MEMBERS TO BE A PRUDENT ARRANGEMENT, THE SAM E CANNOT BE HELD AS A TRANSFER OF SHARES WHICH IS EXIGIBLE TO CAPITA L GAINS TAX? ON THE ABOVE QUESTION OF LAW, THE HON'BLE MADRAS HI GH COURT HAS HELD AS UNDER:- 2. THE ASSESSMENT YEAR INVOLVED IN THESE APPEALS IS 199 6-97. THERE WAS A TRANSFER OF SHARES BETWEEN THE ASSESSEE-FIRM, WHICH CONSISTS OF PARTNERS, WHO ARE FAMILY MEMBERS, IN THAT, CERTAIN NEW SHARES WERE ACQUIRED IN EXCHANGE OF OLD SHARES, AS ALSO SOME CONSIDERATION IN CASH. ACCORDING TO THE ASSESSEES, THE TRANSFER WAS CONSEQUENT TO A FAM ILY ARRANGEMENT. BUT, THE ASSESSING OFFICER, AFTER ANALYSING THE FACTS OF THE CASE AND THE LEGAL ASPECTS ON THE SAME, CONCLUDED THAT THERE WAS INDEE D A TRANSFER INVOLVED AND THUS, SUBJECTED TO CAPITAL GAINS TAX. AGGRIEVED BY THE SAME, THE ASSESSEES FILED APPEALS BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), WHO UPHELD THE, ORDERS OF THE ASSESSING OFFICER. EX ASPERATED BY THE SAME, THE ASSESSEES PREFERRED SECOND APPEALS BEFORE THE TR IBUNAL AND THE TRIBUNAL, BY THE IMPUGNED COMMON ORDER DATED JULY 26 , 2005, ALLOWED THE APPEALS ON THE GROUND THAT THE REARRANGEMENT OF SHAREHOLDINGS IN THE COMPANY TO AVOID POSSIBLE LITIGATION AMONG FAMILY M EMBERS IS A PRUDENT ARRANGEMENT, WHICH IS NECESSARY TO CONTROL THE COMPANY EFFECTIVELY BY THE MAJOR SHAREHOLDERS TO PRODUCE BE TTER PROSPECTS AND ACTIVE SUPERVISION AND ACCORDINGLY, HELD THAT S UCH FAMILY ITA NO.280/AGRA/2013 21 ARRANGEMENT CANNOT BE HELD AS TRANSFER, WHICH IS EX IGIBLE TO CAPITAL GAINS TAX. HENCE, THE PRESENT APPEALS BY THE REVENUE RAISING T HE SUBSTANTIAL QUESTIONS OF LAW REFERRED TO ABOVE. 3. THE CORE ISSUE THAT ARISES FOR CONSIDERATION IN THE SE APPEALS IS WHETHER THE TRANSFER OF SHARES PURSUANT TO THE FAMILY ARRAN GEMENT TO AVOID A POSSIBLE LITIGATION AMONG THE FAMILY MEMBERS WOULD ATTRACT THE CAPITAL GAINS TAX. 4. THE LAW ON THE POINT IS WELL-SETTLED BY THE DECISIO NS OF THE APEX COURT IN MATURI PULLAIAH V. MATURI NARASIMHAN, AIR 1966 SC 1 1836, AND IN KALE V. DEPUTY DIRECTOR OF CONSOLIDATION, AIR 1976 SC 807, WHICH ARE FOLLOWED BY THIS COURT IN CIT V. R. PONNAMMAL [1987] 164 ITR 706, AND IN CIT V. AL RAMANATHAN [2000] 245 ITR 494 (MAD). IT IS A SETTLED LAW THAT WHEN PARTIES ENTER INTO A FAMILY ARRANGEMENT, THE VALIDI TY OF THE FAMILY ARRANGEMENT IS NOT TO BE JUDGED WITH REFERENCE FO W HETHER THE PARTIES WHO RAISED DISPUTES OR RIGHTS OR CLAIMED RI GHTS IN CERTAIN PROPERTIES HAD IN LAW ANY SUCH RIGHT OR NOT. 5. IN MATURI PULLAIAH V. MATURI NARASIMHAM, AIR 1966 S C 1836, CITED SUPRA, THE APEX COURT HAS HELD AS FOLLOWS (PAGE 184 1) : 'BRIEFLY STATED, THOUGH CONFLICT OF LEGAL CLAIMS IN PRESENT 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 JOI NT HINDU FAMILY MAY, TO MAINTAIN PEACE OR TO BRING ABOUT HARMONY IN THE FAM ILY, ENTER INTO SUCH A FAMILY ARRANGEMENT. IF SUCH AN ARRANGEMENT IS ENTER ED 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 ARRANGEMEN T THAN TO AVOID IT.' 6. IN KALE V. DEPUTY DIRECTOR OF CONSOLIDATION, AIR 1 976 SC 807, CITED SUPRA, THE APEX COURT HAS LAID DOWN THE PROPOSITION S WHICH ARE THE ESSENTIALS OF A FAMILY ARRANGEMENT AND THE SAME REA D AS FOLLOWS (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 EQUI TABLE DIVISION OR ALLOTMENT OF PROPERTIES BETWEEN THE VARIOUS MEMBERS OF THE FAMILY ; (2) THE SAID SETTLEMENT MUST BE VOLUNTARY AND SHOUL D NOT BE INDUCED BY FRAUD, COERCION OR UNDUE INFLUENCE.' ITA NO.280/AGRA/2013 22 7. THIS COURT, IN CIT V. R. PONNAMMAL [1987] 164 ITR 706, REFERRED TO SUPRA, HELD 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 WHI CH 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 SUST AINED OR NOT. IF THE ASSESSEE FOUND IT WORTHWHILE TO SETTLE THE DISPUTE BETWEEN HERSELF, HER SONS AND DAUGHTERS BY MAKING THE FAMILY ARRANGE MENT, THE SAID ARRANGEMENT COULD NOT BE IGNORED BY A TAX AUTHORITY . IN VIEW OF THE FINDING OF THE TRIBUNAL, THE FAMILY ARRANGEMENT DATE D 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 ASSES-SEE WOULD ALSO ARISE.' 8. ACCORDINGLY, IN THE SAID CASE, APPLYING THE PRINCIP LES LAID DOWN IN THE DECISIONS OF THE APEX COURT AND THE DECISION OF THI S COURT REFERRED SUPRA, THIS COURT HELD AS FOLLOWS (12000] 245 ITR 494, 498) : 'THE TRIBUNAL, ON THE FACTS, FOUND THAT THE FAMILY A RRANGEMENT INVOLVED IN THIS CASE APPEARS TO BE A BONA FIDE ONE IN AS MUCH AS IT HAS BEEN SHOWN TO HAVE BEEN MADE VOLUNTARILY AND NOT INDUCED BY ANY F RAUD OR COLLUSION AND THE CONDUCT OF THE PARTIES REFERRED TO BY THE REVEN UE IS CONSISTENT WITH THE BONA FIDE FAMILY ARRANGEMENT PARTICULARLY WHEN IT W AS ARRIVED AT IN THE PRESENCE OF PANCHAYATDARS. SO, THE FAMILY ARRANGEME NT IS A BONA FIDE ONE AND IT WAS EFFECTED TO DISSOLVE THE FAMILY DISPUTE. ' 9. IN THE INSTANT CASE ALSO, THE TRIBUNAL FOUND THAT TH E REARRANGEMENT OF SHAREHOLDINGS IN THE COMPANY TO AVOID POSSIBLE LITI GATION AMONG FAMILY MEMBERS IS A PRUDENT ARRANGEMENT WHICH IS NECESSARY TO CONTROL THE COMPANY EFFECTIVELY BY THE MAJOR SHAREHOLDERS TO PR ODUCE BETTER PROSPECTS AND ACTIVE SUPERVISION OR OTHERWISE THERE WOULD BE CONTINUOUS FRICTION AND THERE WOULD BE NO PEACE AMONG THE MEMB ERS OF THE FAMILY. SUCH A FAMILY ARRANGEMENT INTENDED EITHER BY COMPRO MISING DOUBTFUL OR DISPUTED RIGHTS OR BY PRESERVING THE FA MILY PROPERTY OR THE PEACE AND SECURITY OF THE FAMILY BY AVOIDING LI TIGATION OR BY SAVING ITS HONOUR CANNOT BE CONCLUDED AS ANY OTHER DEALINGS ITA NO.280/AGRA/2013 23 BETWEEN STRANGERS, AS SUCH A FAMILY ARRANGEMENT IS FOR THE INTEREST OF THE FAMILY AND FOR THE HARMONIOUS WAY OF LIVING, THEREFORE, SUCH A REALIGNMENT OF INTEREST BY WAY OF EFFECTING A FAMIL Y ARRANGEMENT AMONG THE FAMILY MEMBERS WOULD NOT AMOUNT TO TRANSF ER. 10. HENCE, THE TRIBUNAL HAS RIGHTLY FOUND THAT THE IMPUG NED TRANSFER OF SHARES BY WAY OF FAMILY ARRANGEMENT WOULD NOT ATTRA CT CAPITAL GAINS TAX, AS THE SAME IS A PRUDENT ARRANGEMENT TO AVOID POSSI BLE LITIGATION AMONG THE FAMILY MEMBERS AND IS MADE VOLUNTARILY AND NOT INDUCED BY ANY FRAUD OR COERCION AND, THEREFORE, CANNOT BE DOUBTED. 11. IN VIEW OF THE SETTLED PROPOSITIONS OF LAW, WE HOL D THAT THE TRIBUNAL WAS JUSTIFIED IN ARRIVING AT THE CONCLUSION THAT TH E FAMILY ARRANGEMENT AMONG THE ASSESSEES DOES NOT AMOUNT TO ANY TRANSFER AND HENCE, NOT EXIGIBLE TO CAPITAL GAINS TAX. ACCORDINGLY, FINDING NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION IN THESE APPEAL S, THE SAME ARE DISMISSED. CONSEQUENTLY, CONNECTED MISCELLANEOUS PE TITIONS ARE ALSO DISMISSED.' 10.4 THE ISSUE RELATING TO TAXATION OF CAPITAL GAIN ON TRANSFER OF SHARES OF COMPANIES DURING A FAMILY SETTLEMENT HAS ALSO BEEN EXAMINED BY HON'BLE KARNATAKA HIGH COURT IN CASE OF CIT VS. R. NAGRAJA RAO REPORTED IN (2012) 21 TAXMAN.COM 101(KAR) AND IN THIS ORDER, THE HON'BLE HIGH COURT HAS CONF IRMED THE DECISION OF HON'BLE ITAT BANGLORE IN WHICH, IT H AS BEEN FOUND BY THE TRIBUNAL THAT UNDER FAMILY ARRANGEMENT MADE BETWEEN FAMILY MEMBER, SHARES WERE TRANSFERRED AMONG THE FAMILY MEMBERS TO ENABLE EACH PERSON TO HAVE TOTAL CONTROL OVER ONE OR TWO COMPANIES EFFECTIVELY AND H ENCE, IT WAS HELD BY THE TRIBUNAL THAT SUCH TRANSFER OF SHARES CANNOT BE TREA TED AS AN EXCHANGE FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN AS CONTENDED BY THE REVENUE TO JUSTIFY THE CAPITAL GAIN COMPUTED BY THE ASSESSING OFFICER ON THE TRANSFER/EXCHANGE OF SHARES. FOLLOWING THE ABOVE PRINCIPLE OF LAW OF FAM ILY SETTLEMENT, THE TRIBUNAL DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF COMPUTATION OF CAPITAL GAIN AND THIS DECISION OF THE TRIBUNAL WAS C ONFIRMED BY THE HON'BLE HIGH COURT OF KARNATAKA HOLDING THAT THE WORD 'TRANSFER' DOES NOT INCLUDE PARTITION OR FAMILY SETTLEMENT AS DEFINED UNDER THE ACT. IT IS W ELL SETTLED THAT A PARTITION IS NOT A TRANSFER. WHAT IS RECORDED IN A FAMILY SETTLE MENT IS NOTHING BUT A PARTITION. IT IS FURTHER OBSERVED BY THE HON'BLE HIGH COURT TH AT THE TRIBUNAL ON A PROPER CONSIDERATION OF THE ENTIRE MATERIAL ON RECORD, HAS CATEGORICALLY HELD THAT THE TRANSACTION IN QUESTION IS A FAMILY ARRANGEMENT AND WHEN THERE IS NO TRANSFER, ITA NO.280/AGRA/2013 24 THERE IS NO CAPITAL GAIN AND, THEREFORE, THERE IS N O LIABILITY OF THE ASSESSEE TO PAY CAPITAL GAIN TAX. TO UNDERSTAND THE RATIO OF THIS CASE, IT IS NECESSAR Y TO UNDERSTAND THE FACTS OF THIS CASE. FACTS OF THIS CASE ARE EXPLAINED IN T HE ORDER PASSED BY THE HON'BLE ITAT BANGLORE IN ITS ORDER NO. ITA NO. 432 (BANG)/19 97 DATED 26 TH APRIL 2005. FACTS OF THIS CASE ARE THAT THERE WAS A FAMILY ARRA NGEMENT BY, DEED DATED 21.12.1992 BETWEEN THE CHILDREN OF LATE J.N. RADHAK RISHNA AND SMT. SARASWATI BAI VIZ. (I) MRS. MANJULA SRINIVASAN, (II)MR. R. NARAYANA RAO, (III).MR. R. NEELAKANTA RAO. AS PER THE AGREEMENT, PARTIES HAD BEEN HOLDING APAR T FROM PERSONAL PROPERTIES, FAMILY PROPERTIES AND SHARES IN DIFFERENT BUSINESS CONCERNS AND EACH OF THE FAMILY BUSINESS HAS BEEN INDEPENDENTLY MANAGED BY ONE OF THE PARTIES. THERE WERE AGAIN, DISPUTES BETWEEN THE MEMBERS OF THE FAMILY AND AFTER PROLONGED DISCUSSIONS THE DISPUTES WERE REFER RED FOR ARBITRATION. AFTER DISCUSSION WITH THE PARTIES, THE ARBITRATOR S UGGESTED THAT THE PARTIES RECOGNIZE THEIR BUSINESS AND THEIR SHARE HOLDINGS A ND TO EFFECT A PARTIAL PARTITION BETWEEN THEMSELVES IN RESPECT OF DIFFEREN T PROPERTIES AND BUSINESS AND THIS RESULTED IN THE FAMILY SETTLEMENT. AS PER THE FAMILY SETTLEMENT, SHRI NARAYANA RAO WAS TO DISSOCIATE HIMSELF FROM THE FOLLOWING COMPANIES:- (I) AMRUT DISTILLERIES LTD. (II) ASHISH DISTILLERIES LTD. (III) REWDALE PRECISION TOOLS (P) LTD. (IV) SEENU PRECISION TOOLING SYSTEMS (P) LTD. FOR THIS PURPOSE, HE WAS TO RESIGN AS DIRECTOR OF T HESE COMPANIES AND TRANSFER HIS SHARE HOLDINGS TO THE OTHER PARTIES, A S SPECIFIED IN THE AGREEMENT. SIMILARLY, SHRI NEELAKANTA RAO WAS TO DISSOCIATE FR OM:- (I) JUGGET PHARMA (P) LTD. (II) ASSOCIATED DRUG CO. (P) LTD. (III) JAGDALE FOODS (P) LTD. WHICH WAS AMALGAMATED WITH J AGDALE EXPORTS (IV) CELEN LORON PLANTATIONS (P) LTD. ITA NO.280/AGRA/2013 25 FOR THIS PURPOSE, HE WAS TO RESIGN AS DIRECTOR OF T HESE COMPANIES AND ALSO TRANSFER THE SHARES HELD BY HIM IN THE COMPANIES AS SPECIFIED IN THE AGREEMENT. SHRI NAGARAJA RAO, THE ASSESSEE HEREIN WAS ALSO TO RESIGN FROM KAVERI BREWERIES, A PARTNERSHIP FIRM AND TRANSFER HIS INTEREST TO NEE LAKANTA RAO FOR A CONSIDERATION OF RS.35,000/- BEING THE CAPITAL BALA NCE OF THE FORMER. IN ACCORDANCE WITH THE AGREEMENT, THE ASSESSEE TRANSFE RRED THE SHARES. FURTHER SIMILAR TRANSFER OF THE SHARE WAS AFFECTED BY NEELAKANTA RAO TO THE ASSESSEE ALSO. THE ASSESSEE CLAIMED THAT THERE WAS NO TRANSFER AS IN THE CASE OF FAMILY SETTLEMENT BETWEEN THE MEMBERS O F THE FAMILY. THIS WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND CONSEQUEN TLY ASSESSED UNDER THE HEAD 'CAPITAL GAINS' BOTH LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM CAPITAL GAINS ARISING ON ACCOUNT OF TRANSFER OF THE SE SHARES. THE ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY THE CIT(A). DURING THE COURSE OF HEARING OF THE APPEAL BEFORE T HE ITAT BANGALORE, THE COUNSEL FOR THE ASSESSEE AFTER RELYING ON THE DECIS ION OF THE CASE OF ZIAUDDIN AHMED VS. CGT 102 ITR 253 ARGUED THAT BOTH THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN TREATING THE VALUE RECEIVED FOR SURREN DERING SHARES HELD BY THE ASSESSEE IN VARIOUS COMPANIES IN FAVOUR OF OTHER FA MILY MEMBERS AS AN AMOUNT DEPOSITED UNDER THE HEAD CAPITAL GAINS AND THEY ARE NOT JUSTIFIED IN TREATING FAMILY SETTLEMENT AS TRANSFER FOR THE PURPOSE OF CA PITAL GAINS. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTATIVE ARGUED THAT MEMBERS OF THE FAMILY WERE SEPARATED LONG BACK AND THEY WERE HOLDING THE SHARE S IN VARIOUS COMPANIES IN THE INDIVIDUAL CAPACITY AND HAVING MANAGEMENT, CONT ROL OVER THESE COMPANIES AND IN ORDER TO HAVE SMOOTH FUNCTIONING AND UNIFORM CONTROL, SHARES OF VARIOUS COMPANIES WERE TRANSFERRED TO MEMBERS SO AS TO ENAB LE EACH PERSON TO HAVE TOTAL CONTROL ON ONE OR TWO COMPANIES EFFECTIVELY A ND THE DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT AT BEST, THIS ARRANGE MENT CAN BE TREATED AS AN EXCHANGE ONLY AND HENCE, IN HIS VIEW SUCH ARRANG EMENT WAS NOT FAMILY SETTLEMENT, AND TRANSFER OF SHARES BY THE ASSESSEE WAS LIABLE FOR CAPITAL GAIN AS HELD BY THE CIT(A). AFTER HEARING THE RIVAL SUBMISSIONS, THE HON'BLE TRIBUNAL HELD THAT FROM THE FACTS GATHERED, THE TRA NSACTION CANNOT BE TREATED AS AN EXCHANGE BUT IT IS ONLY A FAMILY ARR ANGEMENT TO RESOLVE THE DIFFERENCE AND DISPUTES BETWEEN FAMILY MEMBERS OF T HE ASSESSEE BECAUSE SUCH ARRANGEMENT HAS ARRIVED AFTER REFERRING THE MA TTER TO AN ARBITRATOR DUE TO SERIOUS DIFFERENCES BETWEEN FAMILY MEMBERS. RELEVAN T PORTION OF THE DECISION OF THE HON'BLE TRIBUNAL HOLDING THE TRANSACTION IN THIS CASE AS DONE ON ACCOUNT OF FAMILY SETTLEMENT AND CANNOT BE TERMED AS TRANSFER EITHER IN RESPECT OF MOVABLE ITA NO.280/AGRA/2013 26 OR IMMOVABLE PROPERTIES OR IN RESPECT OF COMMERCIAL PROPERTIES IS GIVEN AS UNDER:- 'WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RECORDS. THE FACTS RELATING TO THE ARRANGEMENT BETWEEN FAMILY MEMBERS ARE NOT IN DISPUTE. FURTHER, THE FACTUM OF ARBITRATION IS ALSO NOT DISP UTED BY THE REVENUE. THESE UNDISPUTED FACTS SHOW THERE WERE SERIOUS DIFFE RENCE BETWEEN FAMILY MEMBERS DURING THE RELEVANT POINT OF TIME. IN SUCH AN EVENT, THE ASSESSEE AND HIS FAMILY MEMBERS HAVE NO OTHER OPTION EXCEPT TO REFER THE MATTER TO AN ARBITRATOR WHICH RESULTED IN A FAMILY SETTLEMENT IN RESPECT OF PROPERTIES MOVABLE AND IMMOVABLE. FROM THE FACTS GA THERED, THE TRANSACTION CANNOT BE TREATED AS AN EXCHANGE. BUT I T IS ONLY A FAMILY ARRANGEMENT AND FAMILY ARRANGEMENT TO RESOLVE THE D IFFERENCE AND DISPUTES BETWEEN THE FAMILY MEMBERS OF THE ASSESSEE . 4.1 THE LD. DEPARTMENTAL REPRESENTATIVE HAD RELIED O N THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF RAM CHARAN DAS VS. GIRJA NANDINI DEVI REPORTED IN AIR 1966 SC 323. THIS DECISION, IN FACT, RENDERS SUPPORT TO THE STAND TAKEN BY THE ASSESSEE. IN THE AFORESAI D DECISION, THE HON'BLE APEX COURT OBSERVED AS UNDER:- 'IN THE FIRST PLACE ONCE IT IS HELD THAT THE TRANSA CTION BEING A FAMILY SETTLEMENT IS NOT AN ALIENATION, IT CANNOT AMOUNT T O THE CREATION OF AN INTEREST. FOR, AS THE PRIVY COUNCIL POINTED OUT IN MST. HIRAN BIBI'S CASE, AIR 1914 PC IN A FAMILY SETTLEMENT EACH PARTY TAKES A SHARE IN THE PROPERTY BY VIRTUE OF THE INDEPENDENT TITLE WHICH I S ADMITTED TO THAT EXTENT BY THE OTHER PARTIES. IT IS NOT NECESSARY, A S WOULD APPEAR FROM THE DECISION IN RANGASAMI GOUNDEN VS. NACHIAPA GOUN DEN 46 LND. APP 72: (AIR 1918 PC 196). THAT EVERY PARTY TAKING BENEF IT UNDER A FAMILY SETTLEMENT MUST NECESSARILY BE SHOWN TO HAVE UNDER THE LAW, A CLAIM TO A SHARE IN THE PROPERTY. ALL THAT IS NECESSARY IS T HAT THE PARTIES MUST BE RELATED TO ONE ANOTHER IN SOME WAY AND HAVE A POSSI BLE CLAIM TO THE PROPERTY OR A CLAIM OR EVEN A SEMBLANCE OF A CLAIM ON SOME OTHER GROUND, AS SAY, AFFECTION.' WHILE MAKING OBSERVATION AS ABOVE, THEIR LORDSHIP W ERE ALSO PLEASED TO CONSIDER THE DECISIONS REPORTED IN AIR 1914 PC 44, AIR 1918 PC 196, AIR 1921 PC 107, AND AIR 1926 PC 2. ITA NO.280/AGRA/2013 27 4.2 IN THE CASE OF ZIAUDDIN AHMED (SUPRA) RELIED ON BY THE LD. COUNSEL FOR ASSESSEE, THE GAUHATI HIGH COURT PLEASED TP OBS ERVE AS UNDER:- 'COURTS GIVE EFFECT TO A FAMILY SETTLEMENT UPON THE ABROAD AND GENERAL GROUND THAT ITS OBJECT IS TO SETTLE EXISTING OR FUT URE DISPUTES REGARDING PROPERTY AMONGST MEMBERS OF A FAMILY. A FAMILY SETT LEMENT ENTERED INTO BY THE PARTIES WHO ARE MEMBER OF A FAMILY BONA FIDE TO PUT AN END TO DISPUTE AMONG THEM IS NOT A TRANSFER. IT IS NOT ALSO THE CREATION OF AN INTEREST. FOR IN A FAMILY SETTLEMENT, EACH PARTY TA KES A SHARE IN THE PROPERTY BY VIRTUE OF THE INDEPENDENT TITLE WHICH I S ADMITTED TO THAT EXTENT BY THE OTHER PARTIES. EVERY PARTY WHO TAKES BENEFIT UNDER IT NEED NOT NECESSARILY BE SHOWN TO HAVE UNDER THE LAW, A C LAIM TO A SHARE IN THE PROPERTY. ALL THAT IS NECESSARY TO SHARE IS THA T HE PARTIES ARE RELATED TO EACH OTHER IN SOME WAY AND HAVE A POSSIBLE CLAIM TO THE PROPERTY OR A CLAIM OR EVEN A SEMBLANCE OF A CLAIM ON SOME OTHE R GROUND AS, SAY, AFFECTION.' 4.3 IN THE PRESENT CASE, ADMITTEDLY THERE ARE A 'LO T OF DISPUTES BETWEEN THE FAMILY MEMBERS OF THE ASSESSEE WHO ARE NONE OTHER T HAN RELATIVES TO EACH OTHER. IN THAT EVENT FAMILY ARRANGEMENT AND SETTLEM ENT ENTERED INTO BY THE PARTIES ON THE SUGGESTIONS MADE BY THE ARBITRAT ION CANNOT BE TERMED AS TRANSFER EITHER IN RESPECT OF MOVABLE OR IMMOVAB LE PROPERTIES OR IN RESPECT OF COMMERCIAL PROPERTIES. ACCORDINGLY, WE H OLD THAT THE TRANSACTION AND THE FAMILY ARRANGEMENT MADE BETWEEN THE ASSESSEE AND THE FAMILY MEMBERS CANNOT BE TREATED OTHERWISE THAN A FAMILY ARRANGEMENT. ACCORDINGLY, THE APPEAL FILED BY THE A SSESSEE IS ALLOWED.' THE DEPARTMENT FILED APPEAL TO HON'BLE HIGH COURT OF KARNATAKA AGAINST THE ABOVE DECISION OF THE HON'BLE TRIBUNAL BY RAISIN G FOLLOWING QUESTION OF LAW:- 1. WHETHER, THE TRIBUNAL WAS CORRECT IN HOLDING THAT TH E SALE PROCEEDS EARNED BY THE ASSESSEE OUT OF SALE OF SHARES HELD I N PRIVATE LIMITED COMPANIES CANNOT BE TREATED AS THE INCOME OF THE AS SESSEE AND BROUGHT TO CAPITAL GAINS TAX. 2. WHETHER, THE TRIBUNAL WAS CORRECT IN HOLDING THAT T HE TRANSFER OF SHARES TOOK PLACE BY VIRTUE OF FAMILY ARRANGEMEN T AND THERE WAS NO TRANSFER AS THERE WERE FAMILY DISPUTES AND S UCH ARRANGEMENT TOOK PLACE AT THE INSTANCE THE ARBITRAT OR. ITA NO.280/AGRA/2013 28 3. WHETHER, THE TRIBUNAL WAS CORRECT IN HOLDING THAT TH E FINDING RECORDED BY THE ASSESSING OFFICER THAT THE SALE OF SHARES HELD BY THE ASSESSEE IN HIS INDIVIDUAL CAPACITY OVER VARIOUS PR IVATE LIMITED COMPANIES CAN BE BROUGHT TO CAPITAL GAINS TAX WHICH CAME TO BE UPHELD BY THE APPELLATE COMMISSIONER' FOR ANSWERING THE ABOVE QUESTION OF LAW, THE HON'BL E HIGH COURT HAS HELD AS UNDER:- 'THIS COURT HAD AN OCCASION TO CONSIDER THE AFORESAI D QUESTIONS IN THE CASE OF K.N. MADHUSUDHAN GIFT TAX APPEAL NOS. 1 & 2 OF 2008 DISPOSED OFF ON 6TH SEPTEMBER, 2010, IN THE AFORESAID JUDGME NT IT VAS HELD THAT THE WORD TRANSFER' DOES NOT INCLUDE PARTITION OR FAMILY SETTLEMENT AS DEFINED UNDER THE ACT, IT IS WELL-SETTLED THAT A PARTITION IS NOT A TRANSFER, WHAT IS RECORDED IN A FAMILY SETTLEMENT I S NOTHING BUT A PARTITION. EVERY MEMBER HAS AN ANTERIOR TITLE TO TH E PROPERTY WHICH IS THE SUBJECT-MATTER OF A TRANSACTION, THAT IS, PARTITION OR A FAMILY ARRANGEMENT. SO THERE IS A ADJUSTMENT OF SHA RES, CRYSTALLIZATION OF THE RESPECTIVE RIGHTS IN THE FAM ILY PROPERTIES AND I THEREFORE IT CANNOT BE CONSTRUED AS A TRANSFE R IN THE EYE OF LAW. WHEN THERE IS NO TRANSFER THERE IS NO CAPITAL GAIN AND CONSEQUENTLY NO TAX ON CAPITAL GAIN IS LIABILITY TO BE PAID. THE TRIBUNAL ON A PROPER CONSIDERATION OF THE ENTIRE MA TERIAL ON RECORD HAS CATEGORICALLY HELD THAT THE TRANSACTION QUESTION IS A FAMILY ARRANGEMENT. THERE IS NO TRANSFER, THERE IS NO CAPIT AL GAIN AND THEREFORE THERE IS NO LIABILITY TO PAY CAPITAL GAIN TAX. THE ORDER IS IN ACCORDANCE WITH LAW. THE SUBSTANTIAL QUESTIONS OF LA W ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, NO MERITS IN THIS APPEAL. ACCORDINGLY, THIS APPEAL IS DISMISSED.' 10.5 IN A RECENT DECISION OF PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. ASHWANI CHOPRA 2013 ITA NO. 353 TO 356 OF 2011 DATE D 10,01.2013, IT HAS BEEN FOUND THAT THERE WAS PARTITION OF PROPERTIES O F GROUP OF M/S HIND SAMACHAR LTD. IN TWO GROUPS 'A' & 'B' IN WHICH BUSI NESS OF THE COMPANY WAS DIVIDED BETWEEN SUBJECT TO CONDITION THAT GROUP 'B' WILL PAY RS.24 CRORE TO GROUP 'A'. ASSESSEE IS PART OF GROUP 'A'. THE AO TAX ED THE SHARE OF ASSESSEE IN RS.24 CRORE IN HIS HAND, DESPITE THE FACT THAT MATT ER OF COMPENSATION WAS STILL DISPUTED IN THE COURT. BOTH CIT(A) AND TRIBUNAL AND C IT(A) HELD THAT THE SUM OF RS.24 CRORES TRANSFERRED TO THE ASSESSEE AND OTHER MEMBER OF THE FAMILY OF GROUP 'A' DID NOT ACCRUE TO THE INCOME OF THIS GROUP, INC LUDING THE APPELLANT BECAUSE THE MATTER WAS SUB-JUDICE AND THE ASSESSEE WAS NOT ALLOWED TO USE THE MONEY BY ITA NO.280/AGRA/2013 29 THE ORDER OF THE COURT. ON APPEAL BY THE DEPARTMENT , THE HON'BLE HIGH COURT HAS AFTER RELYING ON THE DECISION OF MADRAS HIGH COURT IN A.L. RAMANTHAN'S CASE (SUPRA), KAY ARR ENTERPRISES'S CASE (SUPRA) AND DEC ISION OF KARNATAKA HIGH COURT IN R. NAGARAJA RAO'S CASE (SUPRA) HELD THAT THE PAYMENT OF RS.24 CRORE TO GROUP A IS TO EQUALISE THE INEQUALITIES IN PARTITION OF THE ASSETS OF M/S HIND SAMACHAR LTD. THE AMOUNT SO PAID IS IMMOVABLE P ROPERTY. IF SUCH AMOUNT IS TO BE TREATED AS INCOME LIABLE TO TAX, THE INEQU ALITIES WOULD SET IN AS THE SHARE OF THE RECIPIENT WILL DIMINISH TO THE EXTENT OF TAX . SINCE THE AMOUNT PAID DURING THE COURSE OF PARTITION IS TO SETTLE THE INEQUALITI ES IN PARTITION, THEREFORE DEEMED TO BE IMMOVABLE PROPERTY. SUCH AMOUNT IS NOT AN INC OME LIABLE TO TAX. THUS, THE AMOUNT OF OWELTY I.E. COMPENSATION DEPOSITED BY GRO UP 'B' IS TO EQUALISE THE PARTITION REPRESENTS IMMOVABLE PROPERTY AND WILL NO T ATTRACT CAPITAL GAIN. 11.1 AFTER CONSIDERING THE ABOVE CASE LAWS, FOLLOWI NG BROAD PRINCIPLE OF LAW EMERGES WITH REGARD TO EXISTENCE OF A GENUINE FAMIL Y SETTLEMENT AND THERE BEING NO TAX LIABILITY ON MEMBERS OF FAMILY INVOLVED IN S UCH FAMILY SETTLEMENT ON THE AMOUNT RECEIVED BY THEM ON TRANSFER OF ANY MOVABLE OR IMMOVABLE PROPERTY OR IN RESPECT OF COMMERCIAL PROPERTIES. THE ARRANGEMENT OF FAMILY SETTLEMENT SHOULD APPEAR B ONA FIDE IT SHOULD BE VOLUNTARY NOT INDUCED BY ANY FRAUD OR COLLUSION OR UNDUE INFLUENCE IT SHOULD BE ARRIVED IN PRESENCE OF SOME ARBITRATOR IT MAY BE ARRIVED BY AN AGREEMENT BETWEEN THE MEMBE RS 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 SEC URITY OF THE FAMILY BY AVOIDING LITIGATION OR BY SAVING ITS HONOUR. SO, TH E 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. IT MAY BE EITHER ORAL OR IN WRITING BUT IF MERE A M EMORANDUM HAS BEEN PREPARED FOR THE PURPOSE OF RECORD AND TERMS OF SUC H MEMORANDUM HAS BEEN ACTED UPON, THERE IS NO NEED OF GETTING SUCH D OCUMENT REGISTERED KALE VS. DY DIRECTOR OF CONSOLIDATION (SUPRA) AND K .K. MODI VS. K.N. MODI (SUPRA)] THE WORD 'TRANSFER' DOES NOT INCLUDE PARTITION OR FA MILY SETTLEMENT AS DEFINED IN THE INCOME TAX ACT. ITA NO.280/AGRA/2013 30 WHAT IS RECORDED IN THE FAMILY SETTLEMENT IS NOTHIN G BUT A PARTITION. EVERY MEMBER HAS AN ANTERIOR TITLE TO THE PROPERTY WHICH IS SUBJECT MATTER OF PARTITION OR A FAMILY ARRANGEMENT. UNDER FAMILY ARRANGEMENT THERE IS ADJUSTMENT OF SHA RES, CRYSTALLISATION OF RESPECTIVE RIGHTS IN THE FAMILY PROPERTIES AND THER EFORE IT CANNOT BE CONSTRUED AS A TRANSFER IN THE EYE OF LAW. WHEN THERE IS NO TRANSFER, THERE IS NO CAPITAL GAIN AND CONSEQUENTLY NO CAPITAL GAIN TAX. ANY AMOUNT PAID BY ONE FAMILY MEMBER TO ANOTHER FAM ILY MEMBER AS COMPENSATION IS TO EQUALISE THE PARTITION AND SUCH AMOUNT REPRESENTS IMMOVABLE PROPERTY AND WILL NOT ATTRACT CAPITAL GAI N 11.2 IF ABOVE PRINCIPLES ARE APPLIED ON THE FACTS O F THE PRESENT CASE, IT CAN BE SEEN THAT AN ARRANGEMENT HAS BEEN ARRIVED AMONG THR EE FAMILY, MEMBERS I.E. SHRI ARVIND KAPUR, HIS BROTHER SHRI MADHUKAR KAPUR AND THEIR MOTHER, SMT. NIRMALA KAPUR IN PRESENCE OF THEIR GURUJI AND A MEM ORANDUM HAS ALSO BEEN DRAWN HAVING TERMS OF SETTLEMENT FOR PARTITION OF F AMILY BUSINESS, IMMOVABLE PROPERTIES AND MOVABLE ASSETS AND UNDER SUCH ARRANG EMENT, SHRI ARVIND KAPUR RECEIVED RS.5,00,00,000/- FROM SHRI MADHUKAR KAPUR IN LIEU OF TRANSFERRING OF ENTIRE FAMILY BUSINESS TO HIM AND ALSO TRANSFERRING OF HIS SHARE IN CERTAIN PROPERTIES AND GETTING OTHER PROPERTIES AND DIVISIO N OF MOVABLE ASSETS. ALL THE TERMS OF THE MEMORANDUM HAS BEEN ACTED UPON. SMT. N IRMALA KAPUR GOT RS.50,00,000/- ALONG WITH SOME IMMOVABLE PROPERTIES . DETAILS OF PARTITION DONE IN TERMS OF MEMORANDUM HAVE BEEN GIVEN IN A CHART F ORM ON PAGE NO. 18 OF THIS ORDER. THE AO DURING THE COURSE OF HEARING HAS ALSO ADMITTED THAT THERE IS NO POSITIVE EVIDENCE TO SHOW THAT BOTH THE BROTHERS HA VE MADE THIS ARRANGEMENT FOR ANY TAX PLANNING AND THEY ARE STILL DOING BUSIN ESS TOGETHER. HE ADMITTED THAT BOTH HAVE SEPARATED AS PER THE TERMS OF MEMORANDUM OF SETTLEMENT, ASSESSEE (APPELLANT) HAS RECEIVED RS.5,00,00,000/-AND BUSINE SS HAS BEEN COMPLETELY TAKEN OVER BY SHRI MADHUKAR KAPUR. THEREFORE, BONA F IDE OF THIS ARRANGEMENT TO SETTLE DISPUTE BETWEEN TWO BROTHERS TO WHICH, THEIR MOTHER WAS ALSO A PARTY, CANNOT BE DOUBTED AND IT HAS BEEN ALSO FOUND THAT T HERE IS NO FRAUD OR COLLUSION OR UNDUE INFLUENCE INVOLVED IN THIS FAMILY SETTLEME NT. THE AO ALSO COULD NOT PRODUCE ANY SUCH EVIDENCE AND HE EVEN ADMITTED AS T HERE IS NO TAX PLANNING IN DOING SUCH FAMILY SETTLEMENT AS MENTIONED ABOVE. IN VIEW OF THE ABOVE FACTS OF THE PRESENT CASE, SUCH ARRANGEMENT FULFILLS ALL ING REDIENTS OF FAMILY SETTLEMENT AND HENCE, THE ARRANGEMENT ARRIVED IN THE FAMILY OF THE ASSESSEE (APPELLANT) ON ACCOUNT OF WHICH, HE GOT RS.5 CRORE APART FROM OTHE R MOVABLE AND IMMOVABLE ITA NO.280/AGRA/2013 31 PROPERTIES IS NOTHING BUT FAMILY SETTLEMENT/ARRANGE MENT AFTER APPLYING THE RATIO OF THE CASE LAWS OF CIT VS. A.L. RAMANATHAN (SUPRA), CIT VS. KAY ARR ENTERPRISES (SUPRA) & CIT VS. N, NAGARAJA RAO (SUPR A). THE CONCLUSION DRAWN BY THE AO IN THE ASSESSMENT ORDER HAS NOT BEE N FOUND TO BE CORRECT ABOUT NON APPLICABILITY OF THESE CASE LAWS IN CASE OF THE ASSESSEE (APPELLANT) AS DISCUSSED IN THE ASSESSMENT ORDER AS WELL AS IN THE REMAND REPORT CONTENDING THAT THE TRANSFER OF SHARES IN THIS CASE IS NOT FOR THE PURPOSE OF MANAGING THE COMPANY EFFECTIVELY BY CONSOLIDATING SHARE HOLDING AND ALSO AS PER THE FINDING OF THE AO IN THIS CASE, THERE IS OUTRIGHT BUYING OF SH ARES INSTEAD OF EXCHANGE OF SHARE. CONTRARY TO THE ABOVE FINDING OF THE AO, IN THIS CASE, THERE IS CERTAINLY CONSOLIDATION OF SHARES IN THE HAND OF SHRI MADHUKA R KAPUR AND HIS FAMILY IN THE COMPANIES HELD BY THE KAPUR FAMILY AFTER FAMILY SET TLEMENT BECAUSE BEFORE FAMILY SETTLEMENT, SHRI MADHUKAR KAPUR AND HIS FAMI LY HELD ONLY 38% OF SHARES IN THE COMPANIES UNDER THE CONTROL OF KAPUR FAMILY AND AFTER FAMILY SETTLEMENT, HE GOT HOLDING ON 97% SHARES OF THESE COMPANIES AS I HAVE DISCUSSED ON PAGE NO.58.AS REGARD TO THE EXCHANGE OF SHARES, IT HAS B EEN VERY CLEARLY HELD BY THE HON'BLE ITAT BANGALORE IN THE CASE OF R. NAGARAJA RAO VS. DCIT (SUPRA) THAT DURING THE COURSE OF FAMILY SETTLEMENT TRANSFER OF SHARES AMONG THE FAMILY MEMBERS CANNOT BE EVEN TREATED AS 'EXCHANGE'. IN FA CT, IN SUBSEQUENT DECISION BY THE HON'BLE KARNATAKA HIGH COURT IN THE SAME CAS E, IT HAS BEEN HELD THAT WHAT IS RECORDED IN A FAMILY SETTLEMENT IS NOTHING BUT PARTITION AND EVERY MEMBER HAS AN ANTERIOR TITLE TO THE PROPERTY AND HE NCE, THERE IS A ADJUSTMENT OF SHARES, CRYSTALLIZATION THE RESPECTIVE RIGHTS IN TH E FAMILY PROPERTIES AND THEREFORE, IT CANNOT BE CONSTRUED AS A TRANSFER IN THE EYES OF LAW. THEREFORE, IN THE FAMILY SETTLEMENT THERE IS NEITHER ANY EXCHANGE OF SHARES, NOR ANY TRANSFER OF SHARES AND HENCE, DECISION OF THE AO REJECTING THE GENUINENESS OF THE FAMILY SETTLEMENT ON THE GROUND THAT THERE IS NO CONSOLIDA TION OF SHARES IN THE HAND OF ONE FAMILY MEMBER IN THIS CASE AND ALSO THERE IS OU TRIGHT BUY OUT OF SHARES BY ONE FAMILY MEMBER FROM OTHER FAMILY MEMBER, INSTEAD OF THERE BEING ANY EXCHANGE OF SHARE, HAS NOT BEEN FOUND TO BE IN ACCO RDANCE WITH LAW AS ELABORATELY DISCUSSED IN THE ABOVE MENTIONED THREE CASE LAWS. THEREFORE, IN VIEW OF MY ABOVE FINDING, I HOLD THAT THERE IS A GE NUINE FAMILY SETTLEMENT IN THE FAMILY OF THE ASSESSEE (APPELLANT) AS PER TH E PRINCIPLE LAID DOWN IN VARIOUS COURT DECISIONS DISCUSSED IN THIS ORDER SO FAR AND ON ACCOUNT OF SUCH FAMILY SETTLEMENT, THE ASSESSEE (APPELLANT) HA S BEEN PAID RS.5 CRORE ON TRANSFERRING OF HIS BUSINESS INTEREST IN ALL THE ENTITIES OF FAMILY BUSINESS ALONG WITH GETTING HIS SHARES IN MOVABLE AND IMMOVA BLE ASSETS AS MENTIONED IN THE MEMORANDUM OF FAMILY SETTLEMENT. ITA NO.280/AGRA/2013 32 11.3 THE AO HAS ALSO HELD IN THE ASSESSMENT ORDER TH AT RS.5 CRORE WAS PAID TO THE ASSESSEE (APPELLANT) IN A LIEU OF RELINQUISHING HIS RIGHTS IN THE BUSINESS RELATING TO HIS 1/3RD SHARES IN VARIOUS BUSINESS AN D IS AS SUCH COVERED U/S 2(47) AND SECTION 45 OF THE ACT CHARGEABLE AS CAPITAL GAI NS. HE HAS FURTHER HELD THAT SUCH TRANSFER OF SHARES HAVE BEEN DONE BY THE ASSES SEE (APPELLANT) IN THREE COMPANIES I.E. M/S MAHIM PATRAN (P) LTD., M/S NIRMI TI ASSOCIATES (P) LTD. & M/S NIRMALA REALTORS (P) LTD. FOR WHICH, HE HAS COMPUTE D CAPITAL GAIN ON TRANSFER OF SHARES HELD BY THE ASSESSEE (APPELLANT) IN THESE CO MPANIES TO SHRI MADHUKAR KAPUR. AS PER THE TWO SECTIONS MENTIONED BY THE AO, CAPITAL GAIN TAX IS CHARGEABLE ON ANY PROFIT OR GAINS ARISING FROM TRAN SFER OF CAPITAL ASSET. THEREFORE, AFTER HAVING DECIDED ABOVE THAT THERE IS A GENUINE FAMILY SETTLEMENT IN THIS CASE, IT HAS TO BE SEEN WHETHER THERE IS AN Y 'TRANSFER' OF SHARES BY THE ASSESSEE (APPELLANT) E THE LEGAL TERMS DURING THE C OURSE OF FAMILY SETTLEMENT. AS PER THE TERMS OF THE FAMILY SETTLEMENT, RS.5 CRORE WAS GIVEN TO THE ASSESSEE (APPELLANT) FOR TRANSFERRING OF HIS BUSINESS INTERE ST IN VARIOUS ENTITIES OF THE FAMILY BUSINESS INCLUDING MAHIM PATRAN (P) LTD., MA NAK SHEETAL (P) LTD., NIRMALA REALTORS (P) LTD., NIRMITI ASSOCIATES (P) L TD., MADHU MUDRAK ETC. BUT THE AO HAS TAKEN THIS AMOUNT AS SALE CONSIDERATION FOR TRANSFER OF SHARES OF THE ASSESSEE (APPELLANT) ONLY IN THREE COMPANIES I.E. M /S MAHIM PATRAN (P) LTD., M/S NIRMITI ASSOCIATES (P) LTD. & M/S NIRMALA REALTORS (P) LTD. AND HE HAS NOT GIVEN ANY CREDENCE TO TRANSFERRING OF BUSINESS INTEREST O F THE ASSESSEE (APPELLANT) IN OTHER ENTITIES NAMELY M/S MANAK SHEETAL (P) LTD. (I N WHICH THE ASSESSEE DO NOT HOLD ANY SHARES AND IT IS BEING CONTROLLED BY HIM A LONG WITH HIS BROTHER THROUGH THE DUMMY DIRECTORS) AND M/S MADHU MUDRAK. THE AO HI MSELF HAS HELD M/S MANAK SHEETAL (P) LTD. AS A COMPANY CONTROLLED BY T HE FAMILY OF THE ASSESSEE (APPELLANT) IN THE ASSESSMENT ORDER OF SHRI MADHUKA R KAPUR,. THEREFORE, IF THE ASSESSEE (APPELLANT) IS SURRENDERING HIS INTEREST I N THE BUSINESS OF THIS FAMILY ENTITY, THOUGH BEING A COMPANY ONLY CONTROLLED BY H IM ALONG WITH HIS BROTHER WITHOUT HAVING ANY SHARE HOLDING OFFICIALLY, HE WOU LD HAVE CERTAINLY RECEIVED SOME AMOUNT ON SURRENDERING OF HIS SHARE OF BUSINES S INTEREST IN THIS COMPANY, WHICH COULD NOT BE POSSIBLE TO QUANTIFY SEPARATELY BECAUSE THERE IS NO DECLARED SHARE HOLDING OF THE ASSESSEE (APPELLANT) IN THIS C OMPANY BUT WHILE DRAWING THE MEMORANDUM FOR FAMILY SETTLEMENT FOR SURRENDERING O F BUSINESS INTEREST OF THE ASSESSEE (APPELLANT) IN THE ENTITIES OF FAMILY BUSI NESS, THIS COMPANY HAS BEEN MENTIONED WHILE SPECIFYING THE TOTAL AMOUNT OF COMP ENSATION OF RS.5 CRORE GIVEN TO THE ASSESSEE (APPELLANT). THESE FACTS CLEARLY SHO WS THAT THE AMOUNT OF RS.5 CRORE CANNOT BE SAID TO BE THE SALE CONSIDERATION O F THE SHARE HOLDING OF THE ASSESSEE (APPELLANT) IN THE ABOVE MENTIONED THREE C OMPANIES ONLY AND IT IS EVIDENT FROM ANOTHER FACT ALSO THAT EQUAL NUMBERS O F SHARES WERE HELD BY HIS OTHER ALSO IN THESE COMPANIES FOR WHICH, SHE HAS BE EN PAID ONLY RS.50 LAC. FROM ITA NO.280/AGRA/2013 33 THE ABOVE FACT, IT IS VERY CLEAR THAT RS.5 CRORE PA ID TO THE ASSESSEE (APPELLANT) IS NOT FOR TRANSFERRING OF SHARES IN DIFFERENT COMPANI ES HELD BY HIM, WHILE SURRENDERING HIS BUSINESS INTEREST IN THE FAMILY BU SINESS TO HIS BROTHER SHRI MADHUKAR KAPUR BUT THIS AMOUNT WAS PAID TO HIM AS C OMPENSATION FOR FALLING OF ALL THE FAMILY BUSINESS IN THE SHARE OF SHRI MADHUK A KAPUR DURING THE FAMILY SETTLEMENT AND IN LIEU OF SUCH BUSINESS GOING TO SH RI MADHUKAR KAPUR, THE ASSESSEE (APPELLANT) WAS PAID RS.5 CRORE BY HIM. THE REFORE, AS HELD IN THE CASE OF CIT VS. ASHWINI CHOPRA (SUPRA), RS.5 CRORE PAID TO THE ASSESSEE (APPELLANT) IS THE AMOUNT OF OWELTY I.E. COMPENSATION PAID BY S HRI MADHUKAR KAPUR TO EQUALIZE THE PARTITION DURING FAMILY SETTLEMENT AND IN SUCH ARRANGEMENT, HE HAS GOT ENTIRE FAMILY BUSINESS AND THE ASSESSEE (APPELLANT) GOT RS. 5 CRORE, THEREFORE, SUCH COMPENSATION IS NOT TAXABLE. IN ANY WAY, IF RS.5 CRORE IS CONSIDERED AS RECEIVED FOR TRANSFERRING OF SHARES IN THE COMPANIES BY THE ASSESSEE (APPELLANT) , SUCH TRANSACTION OF THE ASSESSEE DONE DURING THE COURSE OF A FAMILY SETTLEM ENT / ARRANGEMENT DID NOT AMOUNT TO A TRANSFER AND, THEREFORE, THERE WAS NO C HARGEABLE CAPITAL GAINS ARISING FROM THAT TRANSACTION AS HELD IN THE CASE O F A.L. RAMANATHAN (SUPRA). THE HON'BLE KARNATAKA HIGH COURT ALSO IN CASE OF R. NAGARAJA RAO HAS HELD THAT SUCH TRANSACTION IS NOT TRANSFER BECAUSE WHAT IS RECORDED IN A FAMILY SETTLEMENT IS NOTHING BUT A PARTITION AND THE WORD 'TRANSFER' DOES NOT INCLUDE 'PARTITION' OR 'FAMILY SETTLEMENT' AS DEFINED UNDER THE ACT AND IS WELL SETTLED THAT PARTITION IS NOT TRANSFER. SINCE, IN THIS CASE THER E IS NO 'TRANSFER', THE CHARGEABILITY OF CAPITAL GAIN TAX AS PER SECTION 2( 47) AND SECTION 45 WOULD NOT ARISE AS HELD BY THE AO. THEREFORE, I HOLD THAT THE FAMILY SETTLEMENT BEING GENUINE IN CASE OF THE ASSESSEE (APPELLANT), THE AM OUNT OF RS.5 CRORE RECEIVED BY THE ASSESSEE (APPELLANT), EVEN CONSIDER ING IT FOR TRANSFERRING OF SHARES IS NOT CHARGEABLE TO CAPITAL GAIN TAX BEC AUSE SUCH TRANSACTION IS CONSIDERED AS PARTITION IN FAMILY SETTLEMENT AND PA RTITION IS NOT TRANSFER. 11.4 AS FAR AS THE RELIANCE OF THE AO ON THE CASE L AW OF CIT VS. A.N. NAYAK 136 TAXMAN 107 (MUMBAI) IS CONCERNED, IN THIS CASE THE ISSUE BEFORE THE HON 'BLE HIGH COURT WAS ABOUT CHARGEABILITY OF CAPITAL GAIN TAX AS PER SECTION 45(4) ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION OF A FIRM OR OTHER ASSOCI ATION OF PERSONS OR BODY OF INDIVIDUALS OF BEING A COMPANY OR A CO-OPERATIVE SOCIETY) OR OTHERWISE. IN THIS DECISION, THE HON'BLE HIGH COURT HAS DEALT WITH THE WORD 'OTHERWISE' , MAINLY TO DECIDE ABOUT CHARGEABILITY OF CAPITAL GAIN TAX, EVEN AFTER HOLDI NG THAT THERE WAS A FAMILY PARTITION AND NO DISSOLUTION OF FIRM BECAUSE THE PA RTNERSHIP SUBSISTED WITH TWO ITA NO.280/AGRA/2013 34 PARTNERS AND THE BUSINESS ALSO CONTINUED BUT THE RE TIRING PARTNERS RECEIVED THEIR SHARES IN CAPITAL ASSETS AND THEREFORE, IN EARLIER DECISION, THE TRIBUNAL HAS HELD THAT SINCE THERE IS NO DISSOLUTION OF FIRM, NO CAPI TAL GAIN WOULD ARISE. HOWEVER, ON FILING OF APPEAL BY THE REVENUE AGAINST THE DECI SION OF THE HON'BLE TRIBUNAL, IT HAS BEEN HELD THAT THE WORD `OTHERWISE' TAKES INTO ITS SWEEP NOT ONLY CASES OF DISSOLUTION BUT ALSO CASES OF SUBSISTING PARTNERS O F A PARTNERSHIP, TRANSFERRING ASSETS IN FAVOUR OF A RETIRING PARTNER AND HENCE, A S PER THE DECISION OF THEIR LORDSHIP IN THIS CASE, 'THEREFORE, THE CONTENTION TH AT IT WOULD NOT AMOUNT TO A TRANSFER, HAD TO BE REJECTED. IT IS CLEAR THAT WHEN THE ASSET IS TRANSFERRED TO A PARTNER, THAT FALLS WITHIN THE EXPRESSION 'OTHERWIS E', AND THE RIGHTS OF THE OTHER PARTNERS IN THAT ASSET OF THE PARTNERSHIP ARE EXTIN GUISHED. THAT WAS ALSO THE POSITION EARLIER BUT CONSIDERING THAT ON RETIREMENT THE PARTNER ONLY GOT HIS SHARE, IT WAS HELD THAT THERE WAS NO EXTINGUISHMENT OF RIGHT. CONSIDERING THE AMENDMENT, THERE WAS CLEARLY A TRANSFER IN THE INST ANT CASE, AND IF THERE BE A TRANSFER, IT WOULD BE SUBJECT TO CAPITAL GAINS TAX' . LOOKING TO THE ABOVE DECISION OF MUMBAI HIGH COURT, IT CAN BE CLEARLY SEEN THAT THE ISSUE DEALT BY THEM IS SQUARELY COVERED BY THE PROVISIONS OF SECTION 45(4) OF THE INCOME TAX ACT, IN WHICH SUCH TRANSACTI ONS ARE PROVIDED TO BE COVERED BY THE WORD 'TRANSFER' BUT IN CASE OF THE A SSESSEE, THE MATTER IS NOT RELATED TO HIS RETIREMENT FROM ANY FIRM AND INSTEAD OF THAT HIS TRANSACTIONS IS RELATING TO TRANSFERRING OF BUSINESS INTEREST IN TH E ENTITIES OF FAMILY BUSINESS DURING A FAMILY SETTLEMENT WHICH TANTAMOUNT TO PART ITION OF FAMILY PROPERTIES, NOT COVERED BY THE WORD 'TRANSFER' AND HENCE, THE F ACT OF THE CASE OF THE ASSESSEE BEING DIFFERENT THAN THE FACT OF THE CASE OF CIT VS. A.N. NAYAK (SUPRA) RELIED UPON BY THE AO, THIS CASE LAW WOULD NOT APPLY IN CA SE OF THE ASSESSEE (APPELLANT). 11.5 IN VIEW OF MY DECISION AS DISCUSSED ABOVE, I HOLD THAT THERE IS GENUINE FAMILY SETTLEMENT/ARRANGEMENT IN THIS CASE UNDER WH ICH, THE ASSESSEE (APPELLANT) RECEIVED RS.5 CRORE FOR TRANSFERRING OF HIS BUSINESS INTEREST IN FAMILY TO HIS BROTHER SHRI MADHUKAR KAPUR AND SUCH TRANSACTION WOULD NOT ATTRACT CAPITAL GAIN. THEREFORE, THE LONG TERM CAPITAL GAIN OF RS. 4,51,85,011/- ADDED IN THE ASSESSMENT ORDER IS DELE TED AND GROUND NO. 2 TO 4 TAKEN BY THE APPELLANT IN THIS RESPECT IS ALLO WED . 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ITA NO.280/AGRA/2013 35 8. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THERE IS EXCHANGE OF PROPERTY BY THE ASSESSEE AND IN LIEU OF THAT HE HAS RECEIVED RS.5 CRORE. THEREFORE, CAPITAL GAIN TAX IS LEVIABLE ON THE ASSESSEE. THE LD. DR FURTHER SUBMITTED THAT IT IS N OT A FAMILY TRANSFER PER SE. THEREFORE, THE LD. CIT(A) SHOULD NOT HAVE DELETED T HE ADDITION. 9. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE RELIED UPON THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND T HE SAME CASE LAWS AS HAVE BEEN REFERRED TO IN THE IMPUGNED ORDER. THE LD . COUNSEL FOR THE ASSESSEE ALSO FILED COPY OF ORDER OF ITAT, AGRA BENCH IN THE CASE OF SHRI MADHUKAR KAPUR VS. ACIT IN ITA NO. 392/AGRA/2012 FOR SAME AS SESSMENT YEAR 2008-09 DATED 29.01.2013, IN WHICH ON THE BASIS OF THE SAME HISTORY, THE AO MADE ADDITION U/S. 2(22)(E) OF THE ACT AND SUCH ADDITION HAS BEEN DELETED BY THE TRIBUNAL. COPY OF THE ORDER IS PLACED ON RECORD. 10. ON CONSIDERATION OF THE RIVAL SUBMISSIONS AND T HE MATERIAL ON RECORD, WE DO NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL . THE LD. CIT(A) HAS CONSIDERED THE ISSUE IN DETAIL WITH REFERENCE TO FA MILY SETTLEMENT ARRIVED AT BETWEEN THE ASSESSEE, HIS MOTHER AND HIS BROTHER. T HE LD. CIT(A) CONSIDERED ITA NO.280/AGRA/2013 36 IN DETAIL THE FAMILY BUSINESS WHICH WAS STARTED BY SHRI H.K. KAPUR IN 1956 AFTER HIS FAMILY CAME TO INDIA AFTER PARTITION. THE PARTNERSHIP CARRIED ON BY HIM WAS LATER ON CONVERTED INTO THE COMPANY, IN WHI CH HIS COUSIN O.P. KHANNA ALSO JOINED. AFTER THE DEATH OF SHRI H.K. KAPUR, TH E FAMILY BUSINESS WAS PASSED TO HIS FAMILY MEMBERS, I.E., HIS WIFE SMT. NIRMALA KAPUR AND THREE SONS, MADHUKAR KAPUR, ARVIND KAPUR (ASSESSEE) AND SHRI SO M KAPUR. SINCE SHRI SOM KAPUR RENOUNCED THE WORD AND BECAME A SANYASI, THE ABOVE THREE PERSONS SUCCEEDED THE ENTIRE BUSINESS OF SHRI K.K. KAPUR AFTER DIVISION OF THE PROPERTY BETWEEN KHANNA AND KAPUR FAMILY AND THE EN TIRE BUSINESS WAS TAKEN BY THE ASSESSEE AND HIS BROTHER MADHUKAR KAPU R. ACCORDING TO THE EXPLANATION OF THE ASSESSEE, LATER ON THE DISPUTE A ROSE BETWEEN THE ASSESSEE AND HIS BROTHER MADHUKAR KAPUR. THEREFORE, FAMILY S ETTLEMENT WAS DONE BETWEEN THE ASSESSEE AND SHRI MADHUKAR KAPUR AND TH EIR MOTHER SMT. NIRMALA KAPUR. THE FAMILY SETTLEMENT WAS DONE TO SE TTLE ALL THE DISPUTES AMONG THE TWO BROTHERS. THEREFORE, IT WAS DECIDED T O BIFURCATE /DIVIDE THEIR BUSINESS PROPERTIES/ASSETS ETC. TO ACHIEVE FAMILY P EACE AND LONG RELATIONSHIP OF THE FAMILY. THE PROPERTIES WERE DISTRIBUTED AND IN LIEU OF THE SAME, THE ASSESSEE RECEIVED RS. 5 CRORE FROM HIS BROTHER AND HIS MOTHER RECEIVED RS. 50 LACS. THEREFORE, THROUGH THE FAMILY SETTLEMENT DEED , THE FAMILY BUSINESS WAS SETTLED AND ALL DISPUTES WERE SETTLED IN THE PRESEN CE OF THEIR FAMILY GURU. THUS, ITA NO.280/AGRA/2013 37 THERE WAS NO FRAUD OR COLLUSION BETWEEN THE PARTIES AND THERE WAS NO INTENTION TO DEFRAUD THE REVENUE. THE FAMILY SETTLE MENT WAS MADE WITH RESPECT TO TRANSFER OF FAMILY BUSINESS, TRANSFER OF IMMOVABLE PROPERTIES AND DISTRIBUTION OF MOVABLE ASSETS. THE LD. CIT(A) ON PROPER APPRECIATION OF EVIDENCES AND MATERIAL ON RECORD RIGHTLY CAME TO TH E CONCLUSION THAT FAMILY SETTLEMENT DEED WAS GENUINE AND WAS DONE UNDER THE CIRCUMSTANCES TO SETTLE ALL THE DISPUTES BETWEEN THE FAMILY MEMBERS. THE LE ARNED CIT(A) ALSO RIGHTLY CONSIDERED THE VARIOUS PROPERTIES HELD BY ALL THE F AMILY MEMBERS AND THEIR SHARE HOLDING IN VARIOUS COMPANIES WHICH CLEARLY PR OVE THAT RS.5 CRORE WAS RECEIVED BY THE ASSESSEE FOR TRANSFER OF BUSINESS I NTEREST AND ALL THE BUSINESS ENTITIES OF THE FAMILY BUSINESS AND NOT ONLY FOR TR ANSFERRING OF THE SHARES OF THREE COMPANIES CONSIDERED BY THE AO. IT IS ALSO SU PPORTED BY THE FACT THAT THE AMOUNT TAKEN BY THE MOTHER OF THE ASSESSEE WAS RS.5 0 LACS. HOWEVER, IN THE CASE OF ASSESSEE THE AMOUNT WAS OF RS.5 CRORE. THUS , DISTRIBUTION OF PROPERTIES HELD BY THE FAMILY WAS SETTLED THROUGH SETTLEMENT D EED IN ORDER TO AVOID DISPUTE BETWEEN THE BROTHERS. THE PROPERTIES WERE H ELD BY ALL THE FAMILY MEMBERS AND USED BY THEM AS SUCH. THE FAMILY SETTLE MENT WAS ACTED BY THE PARTIES. THEREFORE, THERE WAS NO NEED OF ITS REGIST RATION. THERE WAS NO TAX PLANNING TO DEFRAUD THE REVENUE. THE AMOUNT PAID TO THE ASSESSEE WAS FOR ENTIRE TRANSFER OF FAMILY BUSINESS, PROPERTIES AND ASSETS AND NOT FOR THE ITA NO.280/AGRA/2013 38 SURRENDER OF SHARES ONLY IN THE COMPANIES. THE FIND ING OF THE AO WERE, THEREFORE, UNJUSTIFIED THAT IT WAS A TRANSFER OF SH ARES ONLY ATTRACTING CAPITAL GAIN TAXES. THE LEARNED CIT(A), THEREFORE, RIGHTLY CONSIDERED THE BACKGROUND AND HISTORY OF THE FAMILY BUSINESS. THEREFORE, THE AMOUNT IN QUESTION PAID TO THE ASSESSEE IS NOT FOR TRANSFERRING OF SHARES IN D IFFERENT COMPANIES ONLY HELD BY HIM, WHILE SURRENDERING HIS BUSINESS INTEREST IN THE FAMILY BUSINESS TO HIS BROTHER, BUT THE AMOUNT IN QUESTION WAS PAID BY HIM AS COMPENSATION FOR FALLING OF THE FAMILY BUSINESS IN THE SHARE OF MADH UKAR KAPUR THROUGH THE FAMILY SETTLEMENT AND IN LIEU OF SUCH BUSINESS GOIN G TO SHRI MADHUKAR KAPUR, THE ASSESSEE WAS PAID RS. 5 CRORE. THE LD. CIT(A), THEREFORE, ON PROPER APPRECIATION OF FACTS AND MATERIAL ON RECORD RIGHTL Y HELD THAT THERE IS A GENUINE FAMILY SETTLEMENT/ARRANGEMENT IN THIS CASE, UNDER WHICH THE ASSESSEE RECEIVED THE AMOUNT FOR TRANSFERRING HIS BUSINESS I NTEREST IN THE FAMILY BUSINESS TO HIS BROTHER SHRI MADHUKAR KAPUR. AS SUC H, SUCH TRANSACTION WOULD NOT ATTRACT CAPITAL GAIN TAX. FINDINGS OF THE LD. C IT(A) ARE SUPPORTED BY THE DECISIONS OF MADRAS HIGH COURT IN THE CASE OF CIT V S. PONNAMMAL 164 ITR 706, IN WHICH IT WAS HELD THAT IF THE ASSESSEE SETTLES A FAMILY DISPUTE BY MAKING A FAMILY ARRANGEMENT IRRESPECTIVE OF THE FACT WHETHER RIVAL CLAIMS WERE VALID OR NOT, THERE IS NO TRANSFER OF PROPERTY WITHIN MEANIN G OF S. 2(XXIV) OF THE ACT AND NOT LIABLE TO TAX. THE ORDER OF ITAT, MADRAS B ENCH IN THE CASE OF A.L. ITA NO.280/AGRA/2013 39 RAMANATHAN VS. ITO, 40 TTJ (MAD.) 90, IN WHICH IT W AS HELD THAT WHERE THE CONDUCT OF THE PARTIES IN EFFECT IS CONSISTENT WITH BONAFIDE FAMILY ARRANGEMENT, THE TRANSACTION WOULD NOT GIVE RISE TO CHARGEABLE CAPITAL GAINS. THIS ORDER OF THE TRIBUNAL HAS BEEN CONFIRMED BY TH E MADRAS HIGH COURT IN THE CASE OF CIT VS. A.L. RAMANATHAN, 245 ITR 494. T HE MADRAS HIGH COURT IN THE CASE OF CIT VS. KAY AAR ENTERPRISES & ORS., 299 ITR 348 HELD THAT ARRANGEMENT OF SHARE HOLDING IN THE COMPANY TO AVOI D POSSIBLE LITIGATION AMONG FAMILY MEMBERS IS A PRUDENT ARRANGEMENT AND C ANNOT BE HELD TO BE TRANSFER OF SHARES EXIGIBLE TO CAPITAL GAIN TAX. HO NBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. R. NAGARAJA RAO, 21 TAXMANN.COM 101 HELD WHERE FAMILY MEMBERS OF ASSESSEE WERE HOLDING SHARES IN DIFFEREN T BUSINESS CONCERNS AND ASSESSEE UNDER A FAMILY ARRANGEMENT HAD TRANSFERRED HIS SHARE HELD IN A FIRM IN FAVOUR OF A FAMILY MEMBER, THERE WAS NO TRANSFER IN INSTANT CASE. 11. WE MAY ALSO NOTE HERE THAT ITAT, AGRA BENCH IN THE CASE OF SHRI MADHUKAR KAPUR VS. ACIT IN ITA NO. 392/AGRA/2012 FO R THE ASSESSMENT YEAR 2008-09 VIDE ORDER DATED 29.01.2013 CONSIDERED THE SIMILAR FACTS OF FAMILY SETTLEMENT ARRIVED AT BETWEEN MADHUKAR KAPUR AND AR VIND KAPUR AND PAYMENT OF RS.5 CRORE PAID TO THE ASSESSEE, ARVIND KAPUR. HOWEVER, IN THIS CASE, THE ISSUE HAS BEEN THE AMOUNT TRANSFERRED FRO M M/S. MANAK SHEETAL PVT. ITA NO.280/AGRA/2013 40 LTD. TO THE ASSESSEE IN THE LIGHT OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE TRIBUNAL CONSIDERED THE SAME FACTS AS HAVE BEEN CON SIDERED IN THIS CASE AND DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF D EEMED DIVIDEND. COPY OF ORDER IS PLACED ON RECORD. 12. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE LIGHT OF FINDING OF FACT ARRIVED AT BY THE LD. CIT(A) WHICH HAVE NOT BEEN REBUTTED BY THE REVENUE THROUGH ANY EVIDENCE OR MATERIAL ON RECORD, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF LD. CI T(A) IN DELETING THE ADDITION. THUS, THE LD. CIT(A) RIGHTLY HELD THAT NO CAPITAL G AIN TAX IS ATTRACTED IN THIS CASE SO AS TO MAKE THIS ADDITION. WE CONFIRM THE ORDER O F THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (ANNAPURNA MEHROTRA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 10.02.16 *AKS/- COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR