URMILA MAHESH NATHANI, MUMBAI V. ITO 14(2)(2), MUMBAI

ITA 5921/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0754 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 19-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 28-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Capital asset; Gift; Cost of acquisition; Valuation report
• Section: 143(3)

Judgement Text

MRS URMILA MAHESH NATHANI ITA NO. 5 9 21 /M/201 2 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F , MUMBAI . . , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIA L MEMBERITA ITA NO. : 5 921 /MUM/20 1 2 (ASSESSMENT YEAR: 200 9 - 1 0) MRS UR MILA MAHESH NATHANI , C/O. MANDHANIA & ASSOCIATES, 6 - !, PIL COURT, 6 TH FLOOR, 111 M K ROAD, CHURCHGATE, MUMBAI - 400 0 20 .: PAN : ABVPN 0820 F VS IT O - 1 4 ( 2 ) ( 2 ) , 304, 3 RD FLOO R, EARNEST HOUSE, NARIMAN POINT, MUMBAI - 400 0 1 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HARI S RAHEJA RESPONDENT BY : SHRI PAWAN KUMAR BEERLA /DATE OF HEARING : 05 - 05 - 2015 / DATE OF PRONOUNCEMENT : 10 - 07 - 2015 ORDER PER AMIT SHUKLA , J.M. : TH E AFORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE AGAINST IMPUGNED ORDER DATED 3 1. 08 .2012 PASSED BY CIT(A) - 25 , MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR 200 9 - 1 0 ON THE FOLLOWING GROUND: 1. ON THE FACTS AND IN THE CIRCUMST A NCES OF THE CASE , THE LEARNED C OMMISSIONER OF INCOME TAX (A PPEALS ) ERRED IN HOLDING THAT A SUM OF RS. 35,00,000/ - RECEIVED BY WAY OF FAMILY SET TLEMENT IS LIABLE TO BE TAXED AS LONG TERM CAPITAL GAIN SUBJECT TO DEDUCTION OF INDEXED COST. THE APPELLANT SUBMITS THAT THE RELINQUISHMENT OF PROPERTY BY WAY OF FAMILY ARRANGEMENT WOULD NOT ATTRACT CAPITAL GAIN TAX AS THE SAME WAS A PRUDENT ARRANGEMENT TO AVOID POSSIBLE LITIGATION AMONG THE FAMILY MEMBERS. THE APPELLANT THEREFORE SUBMIT THAT THE ENTIRE ADDITION OUGHT TO BE DELETED. MRS URMILA MAHESH NATHANI ITA NO. 5 9 21 /M/201 2 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL, WHO HAD INHERITED THE PROPERTY FROM THE FATHER OF HER D ECEASED HUSBAND ( I.E. HER FATHER - IN - LAW ) , BEING 1/3 RD OF THE HOUSE PROPERTY AND PLOTS SITUATED AT JODHPUR. THE PROPERTY WAS DEVOLVED UPON HER AFTER THE DEATH OF HER MINOR SON. OTHER 2/3 RD SHARE BELONGS TO HER DECEASED HUSBANDS TWO BROTHERS. LATER ON, UNDE R A FAMILY SETTLEMENT AGREEMENT , S HE RELINQUISHED HER 1/3 RD SHARE IN FAVOUR OF THE DECEASED HUSBANDS BROTHERS FOR A CONSIDERATION OF RS. 35 LAKHS. BEING A MONEY RECEIVED UNDER FAMILY ARRANGEMENT, THE SAID AMOUNT WAS NOT OFFERED FOR TAX UNDER THE HEAD LONG - TERM - CAPITAL - GAIN. HOWEVER, THE ASSESSING OFFICER HELD THAT THE AMOUNT HAS BEEN RECEIVED IN LIEU OF RELINQUISHMENT OF RIGHTS IN THE PROPERTY, THEREFORE, IT IS A TRANSFER OF A CAPITAL ASSET, HENCE TAXABLE UNDER THE HEAD CAPITAL GAINS . 3. BEFORE THE CIT( A), THE ASSESSEE GAVE THE ENTIRE BACKGROUND AS TO HOW THE ASSESSEE HAS RECEIVED SUM OF RS. 35 LAKHS AS ON FAMILY ARRANGEMENT IN TERMS OF FAMILY SETTLEMENT AGREEMENT. BEFORE THE CIT(A), RELIANCE WAS PLACED ON VARIOUS DECISIONS, WHICH HAVE BEEN INCORPORATED BY THE CIT(A) FROM PAGES 5 TO 7 O F THE APPELLATE ORDER. 4. HOWEVER, THE LD. CIT(A) UPH E LD THE ACTION OF THE AO ON THE GROUND THAT ASSESSEE HAD INHERITED 1/3 RD SHARE IN THE SAID PROPERTY AND THEREFORE , RELINQUISHING HER RIGHT AMOUNT S T O TRANSFER IN RELATI ON TO A CAPITAL ASSET AND HE NC E, SUCH A CONSIDERATION RECEIVED FOR RELINQUISHING OF RIGHTS IN THE PROPERTY IS TAXABLE UNDER THE HEAD LONG - TERM - CAPITAL - GAIN U/S 45. THE ASSES S EE HA D ALSO RAISED ALTERNATE CONTENTION THAT IF THE SAID PROPERTY IS TAXED UNDER THE HEAD CAPITAL - GAIN THEN FA I R MARKET RATE AS ON 01.04.1981 SHOULD BE TAKEN AND COST OF ACQUISITION SHOULD BE ALLOWED AFTER INDEXATION AS PROVIDED IN SECTION 48. THE LD. CIT(A) A FTER CONSIDERING THE VALUATION REPORT OF THE ASSESSEE AND ALSO THE REMAND REPORT OF THE AO, DIRECTED THE AO TO TAKE A FA I R MARKET VALUE AS ON 01.04.1981 AS PER THE VALUATION REPORT SUBMITTED BY MRS URMILA MAHESH NATHANI ITA NO. 5 9 21 /M/201 2 3 THE ASSESSEE AND GIVE INDEXATION BENEFIT TO THE ASSESSEE IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V MANJU LA J SHAH , REPORTED IN 16 TAXMAN.COM 42(MUM) 5. BEFORE US, THE LD. COUNSEL FOR THE ASSES S EE AFTER NARRATING THE ENTIRE FACTS, DREW OUR ATTENTION TO THE FAMILY SETTLEMENT AGREEMENT AND POINTED OUT THAT THERE WAS A CLEAR - CUT SETTLEMENT THAT ASSES S EE SHALL C EASE TO HAVE ANY RIGHT, TITLE, INTEREST, CLAIM IN ANY OF THE PROPERTIES AND IN LIEU OF HER RIGHTS, SHE WAS PAID RS. 35 LAKHS. HE FURTHER SUBMITTED THAT SUCH A PAYMENT RECEIVED BY THE ASSESSEE CANNOT BE TAXED UNDER THE HEAD CAPITAL GAIN . I N SUPPORT THIS C ONTENTION, LD. COUNSEL RELIED UPON FOLLOWING CASE LAWS: SR.N . CASE LAW CITATION 1 CIT V KAY ARR ENTERPRISES AND OTHERS (2008) 299 ITR 348 (MAD) 2 CIT V R. NAGARAJA RAO (2012) 21 TAXMANN.COM101(KER) 3 CIT V NEVILLE N WADIA (1973) 90 ITR 155 (BOM) 4 CIT V ASHWANI CHOPRA & ANR. (2013) 352 ITR 620 (P&H) 5 MOHD. HAROON JAPANWALA V ITO 22 ITD 61(ITAT DEL E BENCH 6 A L RAMANATHAN V ITO 37 ITD 55 (ITAT MAD A BENCH 7 MRS. P SHEELA V ITO (2009) 308 ITR (AT) 350 ITAT BANG BEN 8 RAM CHARAN DAS V GIRJANANDINI DEVI AND ORS 1966 AIR 323 (SC) 9 ACIT V SINGLA RICE & GEN. MILLS (2002) 82 ITD 778(ITAT DEL A BENCH) 6 . ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE CIT(A). 7 . WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE INHERITED 1/3 RD PROPERTY IN THE ESTATE OF HER DECEASED HUSBANDS FATHER ( I.E. HER FATHER - IN - LAW ) AFTER THE DEATH OF HER MINOR SON. A FAMILY ARRANGEMENT WAS ARRIVED TO PARTITION THE INTEREST OF THE ASSESSEE BY PAYING HER LUMP SUM AMOUN T OF RS. 35,00,000/ - TO RELINQUISH THE RIGHT IN THE PROPERT IES . A FAMILY SETTLEMENT AGREEMENT WAS ARRIVED AT ON 28 TH APRIL, 2008 WHEREIN , IT WAS AGREED THAT THE ASSESSEE SHALL CEASED TO HAVE ANY RIGHTS, TITLE, INTEREST, CLA I MS IN ANY OF THE PROPERTIES OF L ATE SHRI R. L . MAHESHWARI I.E. HER FATHER - IN - LAW. TO COMPLETE THE TRANSACTION OF SETTLEMENT, FOLLOWING INSTRUMENTS WERE ALSO DRAWN AND EXECUTED : - MRS URMILA MAHESH NATHANI ITA NO. 5 9 21 /M/201 2 4 A. A RELEASE DEED BY SMT. URMILA OF THE RIGHTS, TITLE & INTEREST IN THE PROPERTY 340, SARDARPURA ROAD NO. 4, JODHPUR FAVOURING SHRI F.L. MAHESHWARI & SHRI JITENDRA MAHESHWARI. B. A GIFT DEED BY SMT URMILA OF HER INTEREST IN PROPERTY AT 3 A POKRAN HOUSE JODHPUR FAVOURING SMT. SHASHI MAHESHWARI W/O SHRI JITENDRA MAHESHWARI C. SHRI JITENDRA MAHESHWARI TO TRANSFER ALL HIS RIGHTS/TITLE/ INTEREST IN PROPERTY AT 4A & 4B POKRAN HOUSE BY WAY OF GIFT IN FAVOUR OF SHRI F L. MAHESHWARI. IN LIEU OF HER SURRENDERING OF HER RIGHTS, THE ASSESSEE WAS PAID A SUM OF RS. 35 LAKHS WHICH IS THE SUBJECT MATTER OF DISPUTE BEFORE US I N THIS APPEAL. THE SAID RELINQUISHMENT OF RIGHTS HAS TO BE SEEN FROM THE ANGLE , WHETHER THIS WOULD HAVE CREATED A POSSIBLE LITIGATION OR MAY BE HARASSMENT TO THE ASSESSEE , L ATER ON FROM THE OTHER FAMILY MEMBERS OF HER DECEASED HUSBAND. UNDER A FAMILY ARRAN GEMENT, IF A SETTLEMENT IS AGREED, AMONGST THE MEMBERS THEN IT CANNOT BE HELD THAT ITS A CASE OF TRANSFER OF A CAPITAL ASSET. THE ASSESSEE HAD MERELY INHERITED THE SHARE ON BEHALF OF HER LATE HUSBAND FROM THE PROPERTY BELONGING TO HER FATHER - IN - LAW. THIS SHARE HAD BEEN RELINQUISHED UNDER THE FAMILY ARRANGEMENT , WHEREIN ALL THE PARTIES WHO HAD ANTECEDENTS RIGHTS HAVE MUTUALLY AGREED UPON FOR SETTLEMENT OF THE SHARES. SUCH A FAMILY SETTLEMENT OR ARRANGEMENT DOES NOT TANTAMOUNT TO ANY TRANSFER OF A TITLE , AL BEIT IT IS AKIN TO A PARTITION OF THE FAMILY ASSET AMONGST THE MEMBERS, WHICH IS NOT REGARDED AS A TRANSFER U/S 47(I). IN CASE OF A FAMILY SETTLEMENT, IT ONLY SETTLES THE CONFLICTING CLAIMS WHICH HAD PRE - EXISTING JOINT INTEREST, TO A SEPARATE INTEREST AND THERE IS NO CONVEYANCE OF A PROPERTY OR TRANSFER OF A PROPERTY. HERE IT IS NOT A TRANSFER OF A CAPITAL ASSET BUT AN ARRANGEMENT FOR SETTLING THE INTEREST AND RIGHTS OF THE FAMILY MEMBERS. THE HONBLE MADRAS MRS URMILA MAHESH NATHANI ITA NO. 5 9 21 /M/201 2 5 HIGH COURT IN THE CASE OF CIT VS KAY A RR ENTERPRI SES & OTHERS , REPORTED IN [2008] 299 ITR 348, HELD THAT WHEN THE PARTIES ENTERED INTO A FAMILY ARRANGEMENT, THAT WOULD NOT ATTRACT CAPITAL GAIN AS THE SAME WAS PRUDENT ARRANGEMENT TO AVOID POSSIBLE LITIGATION AMONG FAMILY MEMBERS. FURTHER, A FAMILY ARRANGE MENT HAS TO BE SEEN AS AN AGREEMENT BETWEEN THE MEMBERS OF THE SAME FAMILY FOR SETTLING DOUBTFUL OR DISPUTED OR PRESERVING THE FAMILY PROPERTY OR THE MEMBERS AND SECURITY OF THE FAMILY BY AVOIDING LITIGATION OR BY SAVING ITS OWNER. SIMILAR VIEW HAS BEEN T AKEN IN VARIOUS DECISIONS AS RELIED UPON BY THE LD. COUNSEL. IN THE LATE ST DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SACHIN B. AMBULKAR, THE HONBLE HIGH COURT UPHELD THAT IF THERE IS NO TRANSFER OF ASSET AND AMOUNT HAS BEEN RECEIVED BY T HE ASSESSEE AS PART OF FAMILY ARRANGEMENT, DOES NOT GAVE RISE TO LIABILITY OF CAPITAL GAIN TAX . T HUS, WE HOLD THAT THE AMOUNT RECEIVED BY THE ASSESSEE IN TERMS OF FAMILY SETTLEMENT AGREEMENT CANNOT BE TREATED ON ACCOUNT OF TRANSFER OF A CAPITAL ASSET WHICH CANNOT BE SAID TO CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAIN . A CCORDINGLY GROUND RAISED BY THE ASSES S EE IS TREATED AS ALLOWED. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JU LY , 2015. SD/ - SD/ - ( . . ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 10 TH JU LY , 2015 / COPY TO: - 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A) - 2 5 , MUMBAI 4) THE CIT 1 4 , MUMBAI . 5) , , / THE D.R. F BE NCH, MUMBAI. MRS URMILA MAHESH NATHANI ITA NO. 5 9 21 /M/201 2 6 6) COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS