ACIT, CHENNAI V. N.Ramachandran, CHENNAI

ITA 7/CHNY/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7394 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 02-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Capital asset
• Section: 147; 148; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.7/CHNY/2017 & C.O. NO.35/CHNY/2017 (IN I.T.A. NO.7/CHNY/2017) ( )( / ASSESSMENT YEAR : 2010-11 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2), CHENNAI - 600 034. V. SHRI N. RAMACHANDRAN, KHIVRAJ COMPLEX II, 2 ND FLOOR, NO.480, ANNA SALAI, CHENNAI - 600 035. PAN : AANPR 4994 H (+,/ APPELLANT) ( RESPONDENT & CROSS OBJECTOR) +, - . / APPELLANT BY : SMT. RUBY GEORGE, CIT /0+, - . / RESPONDENT BY : SH. N. DEVANATHAN, ADVOCATE 1 - 2% / DATE OF HEARING : 05.07.2018 3') - 2% / DATE OF PRONOUNCEMENT : 24.07.2018 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -1, CHENNA I, DATED 18.10.2016 AND PERTAINS TO ASSESSMENT YEAR 2010-11. THE ASSESSEE HAS FILED CROSS-OBJECTION AGAINST THE VERY SAME ORDER OF 2 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 THE CIT(APPEALS). THEREFORE, WE HEARD THE APPEAL A ND CROSS- OBJECTION TOGETHER AND DISPOSING OF THE SAME BY THI S COMMON ORDER. 2. LETS FIRST TAKE REVENUES APPEAL. 3. THE ONLY GROUND ARISES FOR CONSIDERATION IS TAXA BILITY OF TRANSFER OF SHARES BY MEANS OF FAMILY ARRANGEMENT. 4. SMT. RUBY GEORGE, THE LD. DEPARTMENTAL REPRESENT ATIVE, SUBMITTED THAT THERE WAS A SURVEY IN THE BUSINESS P REMISES OF M/S BIRDIE INVESTMENTS (MADRAS) PVT. LTD. WHERE THE PRE SENT ASSESSEE AND HIS WIFE SMT. SUREKHA RAMACHANDRAN ARE DIRECTOR S. DURING THE COURSE OF SURVEY OPERATION, ACCORDING TO THE LD. D. R., IT WAS FOUND THAT INVESTMENTS WERE RECEIVED AS SHARE PREMIUM FRO M PRINCE HOLDINGS (MADRAS) PVT. LTD. TO THE EXTENT OF 224.97 CRORES. ACCORDING TO THE LD. D.R., THE ASSESSEE EXPLAINED B EFORE THE ASSESSING OFFICER THAT THERE WAS A SETTLEMENT IN TH E FAMILY ON 12.08.2009 AND CONSEQUENT TO THE FAMILY SETTLEMENT, THE MONEY RECEIVED WAS USED FOR MAKING INVESTMENTS. HOWEVER, THE ASSESSEE HAS NOT DISCLOSED ANY CAPITAL GAIN ON TRANSFER OF S HARES. ACCORDING TO THE LD. D.R., THE ASSESSEE HAS DISCLOSED ONLY SA LARY INCOME BESIDES CAPITAL LOSS OF 6,63,378/- AND INCOME FROM OTHER SOURCES 3 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 TO THE EXTENT OF 5,21,89,254/-. THE ASSESSEE HAS NOT OFFERED ANY INCOME CONSEQUENT TO THE SO-CALLED FAMILY SETTLEMEN T. CONSEQUENT TO THE SO-CALLED FAMILY SETTLEMENT, THERE WAS TRANS FER / REALLOCATION OF SHARES OF COMPANIES BETWEEN ASSESSEE AND HIS BROTHE R SHRI N. SRINIVASAN. THEREFORE, THE ASSESSING OFFICER REOPE NED THE ASSESSMENT BY ISSUING NOTICE UNDER SECTION 148 OF T HE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') ON 13.06.2014. CONS EQUENT TO THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT, THE ASS ESSEE HAS NOT FILED ANY NEW RETURN. THE ASSESSEE REQUESTED THE A SSESSING OFFICER TO TREAT THE RETURN ORIGINALLY FILED AS RET URN FOR THE REOPENED ASSESSMENT. THE ASSESSING OFFICER, THEREFORE, ISSU ED A SHOW CAUSE NOTICE CALLING UPON THE ASSESSEE WHY THE AMOU NT RECEIVED CONSEQUENT TO THE FAMILY SETTLEMENT, INCLUDING THE SO-CALLED NON- COMPETE FEE, SHOULD NOT BE BROUGHT TO TAX? THE ASS ESSEE FILED HIS OBJECTIONS PRIMARILY CLAIMING THAT SINCE THE ENTIRE AMOUNT, INCLUDING THE NON-COMPETE FEE, WAS PAID TO THE ASSESSEE CONSE QUENT TO THE FAMILY ARRANGEMENT / SETTLEMENT, IT IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. 5. SMT. RUBY GEORGE, THE LD. D.R. SUBMITTED THAT TH E SO-CALLED FAMILY ARRANGEMENT CANNOT BE CONSTRUED AS FAMILY AR RANGEMENT AT 4 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 ALL. ACCORDING TO THE LD. D.R., THE ENTIRE FAMILY MEMBERS ARE NOT PARTY TO THE SO-CALLED FAMILY ARRANGEMENT / SETTLEM ENT. MOREOVER, THE PROPERTIES, WHICH WERE SUBJECT MATTER OF SO-CALLED FAMILY ARRANGEMENT ARE INDIVIDUAL PROPERTIES OF THE ASSESSEE AND HIS BROTHER SHRI N. SRINIVASAN. THEREFORE, ACCORDI NG TO THE LD. D.R., THERE WAS NO HINDU UNDIVIDED FAMILY. HENCE, THE AS SESSING OFFICER FOUND THAT THE PROFIT RECEIVED BY THE ASSES SEE IN TRANSFER OF THE SHARES OF CERTAIN COMPANIES IS LIABLE FOR TAXAT ION. ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER ALSO FOUND THAT THE NON-COMPETE FEE RECEIVED BY THE ASSESSEE FROM HIS BROTHER SHRI N. SRINIVASAN IS ALSO LIABLE FOR TAXATION. ON A QUERY FROM BENCH, T HE LD. D.R. CLARIFIED THAT CONSEQUENT TO THE SO-CALLED FAMILY A RRANGEMENT / SETTLEMENT, THE SHARES OF CERTAIN COMPANIES WERE RE -ALLOCATED BETWEEN THE ASSESSEE AND HIS BROTHER. ACCORDING TO THE LD. D.R., THE SO-CALLED ARRANGEMENT BETWEEN THE ASSESSEE AND HIS BROTHER IS NOT A FAMILY ARRANGEMENT AT ALL. ACCORDING TO THE LD. D.R., IT WAS TRANSFER OF SHARES, THEREFORE, LIABLE FOR TAXATION. 6. SMT. RUBY GEORGE, THE LD. DEPARTMENTAL REPRESENT ATIVE, FURTHER SUBMITTED THAT THE SO-CALLED FAMILY SETTLEM ENT BETWEEN THE ASSESSEE AND HIS BROTHER DOES NOT DISTRIBUTE THE PR OPERTY EQUALLY 5 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 BETWEEN THEM. MOREOVER, IT WAS ALSO NOT CLEAR HOW THE VALUATION WAS MADE FOR THE SO-CALLED REALLOCATION OF SHARES. THEREFORE, ACCORDING TO THE LD. D.R., THE FAMILY SETTLEMENT AG REEMENT DATED 12.08.2009 CANNOT BE TREATED AS FAIR AND EQUITABLE. HENCE, THE ASSESSING OFFICER HAS RIGHTLY FOUND THAT THE AGREEM ENT DATED 12.08.2009 CANNOT BE CONSIDERED AS A FAMILY ARRANGE MENT AT ALL. MOREOVER, ACCORDING TO THE LD. D.R., THE INVESTMEN T IN THE SHARES OF EWS FINANCE & INVESTMENT PVT. LTD. WAS MADE BY I NDIA CEMENTS LTD. THE MAJOR SHAREHOLDERS ARE ASSESSEE AND HIS B ROTHER BESIDES FEW SHARES WERE ALLOTTED TO OTHERS. ACCORDING TO T HE LD. D.R., THE EXISTENCE OF NUCLEUS FOR MAKING INVESTMENT IN THE S O-CALLED COMPANIES WERE NOT ESTABLISHED BY THE ASSESSEE. RE FERRING TO THE OBSERVATION MADE BY THE ASSESSING OFFICER WITH REGA RD TO HAND WRITTEN AGREEMENT IN THE YEAR 1990, TO TREAT THE EN TIRE COMPANIES AS JOINT FAMILY PROPERTY, THE LD. D.R. SUBMITTED THAT THE SO-CALLED HAND WRITTEN AGREEMENT IS ONLY A SELF DECLARATION GIVEN BY SHRI N. SRINIVASAN, THEREFORE, THE EXISTENCE OF COMMON FUND / ESTATE WAS NOT ESTABLISHED BY THE ASSESSEE. HENCE, ACCORDING TO THE LD. D.R., THE FUND RECEIVED BY THE ASSESSEE CONSEQUENT TO THE FAMILY 6 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 SETTLEMENT FOR TRANSFER OF SHARES HAS TO BE TAXED U NDER THE INCOME- TAX ACT. 7. REFERRING TO NON-COMPETE FEE, THE LD. D.R. SUBMI TTED THAT THE NON-COMPETE FEE IS NOT IN RELATION TO EXISTING PROPERTY, IT IS IN RELATION TO RIGHT OF THE ASSESSEE TO DO BUSINESS IN FUTURE. MOREOVER, ACCORDING TO THE LD. D.R., THE NON-COMPET E FEE IS TO RESTRAIN THE ASSESSEE FROM ENGAGING HIMSELF IN DOIN G BUSINESS FOR A PERIOD OF FIVE YEARS. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER, THE ASSESSEE HAS FILED CROSS-OBJ ECTION IN RESPECT OF THE NON-COMPETE FEE. 8. ON THE CONTRARY, SH. N. DEVANATHAN, THE LD.COUNS EL FOR THE ASSESSEE, SUBMITTED THAT THERE WAS A FAMILY ARRANGE MENT BETWEEN THE ASSESSEE AND HIS BROTHER. ACCORDING TO THE LD. COUNSEL, IT IS NOT IN DISPUTE THAT INDIA CEMENTS LTD. WAS PROMOTED BY SHRI T.S. NARAYANASWAMI, THE FATHER OF THE ASSESSEE AND SHRI SANKARALINGA IYER (OF SANMAR GROUP). IN OTHER WORDS, THERE ARE TWO GROUPS INVOLVED IN PROMOTING INDIA CEMENTS LTD. ONE GROUP IS BY THE ASSESSEES FATHER AND ANOTHER GROUP BY SHRI SANKARA LINGA IYER . ON 7 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 THE DEMISE OF THE ASSESSEES FATHER, ACCORDING TO T HE LD. COUNSEL, THE ASSESSEE AND HIS BROTHER SHRI N. SRINIVASAN SUC CEEDED SHRI T.S. NARAYANASWAMI. SIMILARLY, ON THE DEATH OF SHR I SANKARALINGA IYER, HIS SONS, NAMELY, SHRI N. SANKAR AND SHRI N. KLUMAR SUCCEEDED THE SAID SHRI SANKARALINGA IYER. ACCORDI NG TO THE LD. COUNSEL, THERE WAS A MISUNDERSTANDING BETWEEN THE A SSESSEES FAMILY AND SHRI SANKARALINGA IYERS FAMILY. THE MA TTER REACHED TO JUDICIAL FORUMS ALSO. SINCE THERE WAS PROLONGED L ITIGATION, FINANCIAL INSTITUTIONS STEPPED IN AND TOOK OVER THE MANAGEMEN T OF INDIA CEMENTS LTD. AFTER A DECADE, ACCORDING TO THE LD. COUNSEL, THE ISSUES WERE SETTLED AMICABLY AND SHRI SANKARALINGA IYERS SON SHRI N. SANKAR BECAME THE CHAIRMAN OF INDIA CEMENTS LTD. THE ASSESSEES BROTHER SHRI N. SRINIVASAN WAS APPOINTED AS MANAGING DIRECTOR AND THE ASSESSEE WAS APPOINTED AS DIRECTOR . ACCORDING TO THE LD. COUNSEL, IN SEPTEMBER, 2007, SHRI N. SANKAR AND SHRI N. KUMAR, THE SONS OF SHRI SANKARALINGA IYER, SOLD THE IR ENTIRE STAKE IN INDIA CEMENTS LTD. TO THE ASSESSEE AND HIS BROTHER. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE ASSESSEE AND HIS BROTHER SUCCEEDED IN CONTROLLING THE ENTIRE MANAGEMENT OF I NDIA CEMENTS LTD. CONSEQUENTLY, SHRI N. SRINIVASAN WAS APPOINTE D AS MANAGING 8 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 DIRECTOR AND THE ASSESSEE BECAME DIRECTOR. SINCE T HERE WAS A DISPUTE AMONG THE FAMILY MEMBERS OF THE ASSESSEE, A CCORDING TO THE LD. COUNSEL, THERE WAS A SETTLEMENT AT THE INTE RVENTION OF THE ASSESSEES MOTHER IN THE YEAR 1990. THE LD.COUNSEL FURTHER SUBMITTED THAT IT WAS DECIDED AMONG THE FAMILY MEMB ERS, ALL THE CONCERNS AND COMPANIES PROMOTED ARE FAMILY BUSINESS . AN AGREEMENT WAS ALSO ENTERED INTO TO THAT EFFECT. SU BSEQUENTLY, AT THE END OF 2008, AGAIN THERE WAS MISUNDERSTANDING A MONG THE FAMILY MEMBERS AND DISPUTE AROSE. THEREFORE, THERE WAS A FAMILY AGREEMENT ON 12.08.2009. AS PER THE AGREEMENT, THE SHARE OF INDIA CEMENTS LTD. WAS ALLOTTED TO SHRI SRINIVASAN AND TH E SHARES OF OTHER COMPANIES PROMOTED BY THE FAMILY BY MAKING INVESTME NT FROM THE NUCLEUS OF HINDU UNDIVIDED FAMILY WAS ALSO ALLOTTED TO SHRI SRINIVASAN AND THE ASSESSEE WAS COMPENSATED BY MAKI NG PAYMENTS IN CASH. 9. SH. N. DEVANATHAN, THE LD.COUNSEL FOR THE ASSESS EE, FURTHER SUBMITTED THAT WHEN THERE WAS A DISPUTE IN THE FAMI LY IN THE YEAR 1990, IT WAS AGREED BETWEEN THE ASSESSEE AND HIS BR OTHER SHRI N. SRINIVASAN TO TREAT THE BUSINESS AS FAMILY BUSINESS AND HENCE, AT THIS STAGE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN SAYING THAT THE 9 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 PROPERTY DOES NOT BELONG TO ASSESSEES FAMILY. MOREOVER, ACCORDING TO THE LD. COUNSEL, MERELY BEC AUSE THE ASSESSEES SISTERS HAVE NOT JOINED THE FAMILY ARRAN GEMENT ON 12.08.2009, IT DOES NOT LOSE ITS CHARACTER AS FAMIL Y SETTLEMENT. PLACING RELIANCE ON THE JUDGMENT OF APEX COURT IN K .K. MODI V. K.N. MODI (1998) 3 SCC 573, THE LD.COUNSEL SUBMITTED THA T WHEN THE AGREEMENT IS ARRIVED AT BETWEEN TWO GROUPS BELONGIN G TO THE SAME FAMILY REGARDING DIVISION OF ASSETS, THE APEX COURT HELD THAT THE COURT SHOULD NOT LIGHTLY INTERFERE WITH IT ESPECIAL LY WHEN IT HAS BEEN SUBSTANTIALLY ACTED UPON BY THE PARTIES. IN THIS C ASE ALSO, ACCORDING TO THE LD. COUNSEL, THE PARTIES HAVE ACTED UPON THE FAMILY AGREEMENT AND NO ONE IS DISPUTING THE FAMILY SETTLE MENT. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE ASSESS ING OFFICER BEING THE TAXING AUTHORITY, CANNOT DOUBT THE FAMILY SETTL EMENT . ACCORDING TO THE LD. COUNSEL, THE MATTER WOULD STAND DIFFEREN TLY IN CASE ANY ONE OF THE FAMILY MEMBERS DISPUTED THE ARRANGEMENT ARRIVED AT BETWEEN THE ASSESSEE AND HIS BROTHER. THE DISP UTE PENDING BEFORE COMPANY LAW BOARD WAS ALSO SETTLED IN TERMS OF THE FAMILY ARRANGEMENT / SETTLEMENT DATED 12.08.2009. 10 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 10. SH. N. DEVANATHAN, THE LD.COUNSEL FOR THE ASSES SEE, FURTHER SUBMITTED THAT THE VERY SAME FAMILY SETTLEMENT DATE D 12.08.2009 CAME FOR CONSIDERATION BEFORE THE ADMINISTRATIVE CO MMISSIONER UNDER SECTION 263 OF THE ACT IN THE CASE OF RESULTS INVESTMENTS PVT. LTD. THE SHARE OF RESULTS INVESTMENTS PVT. LTD. W AS ALSO SUBJECT MATTER OF FAMILY SETTLEMENT DATED 12.08.2009. IN F ACT, ACCORDING TO THE LD. COUNSEL, THE ADMINISTRATIVE COMMISSIONER IN ITIATED PROCEEDING UNDER SECTION 263 OF THE ACT CALLING UPO N THE ASSESSEE TO EXPLAIN THE SOURCE OF INVESTMENT OF 125 CRORES FOR ISSUE OF 6250 SHARES. THE ASSESSEE EXPLAINED BEFORE THE COMMISSI ONER THAT THE SOURCE FOR MAKING INVESTMENTS IN RESULTS INVESTMENT S PVT. LTD. IS THE AMOUNTS RECEIVED CONSEQUENT TO THE FAMILY ARRAN GEMENT DATED 12.08.2009. AFTER CONSIDERING THE FAMILY ARRANGEME NT / SETTLEMENT DATED 12.08.2009, ACCORDING TO THE LD. COUNSEL, THE ADMINISTRATIVE COMMISSIONER FOUND THAT PRINCE HOLDINGS (MADRAS) PV T. LTD. HAS ADVANCED AN AMOUNT OF 125 CRORES FOR ALLOTMENT OF SHARES CONSEQUENT TO THE FAMILY SETTLEMENT DATED 12.08.200 9 BETWEEN THE ASSESSEE AND HIS BROTHER SHRI N. SRINIVASAN. ACCOR DING TO THE LD. COUNSEL, THE ENTIRE PAYMENT WAS REFLECTED IN THE BA LANCE SHEET OF PRINCE HOLDINGS (MADRAS) PVT. LTD. ACCORDINGLY, TH E ADMINISTRATIVE 11 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 COMMISSIONER ACCEPTED THE EXPLANATION OF THE ASSESS EE FOR THE SOURCE OF INVESTMENT AND DROPPED THE PROCEEDING INI TIATED UNDER SECTION 263 OF THE ACT. COPY OF THE ORDER OF THE A DMINISTRATIVE COMMISSIONER PASSED UNDER SECTION 263 OF THE ACT IN THE CASE OF RESULTS INVESTMENTS PVT. LTD. IS AVAILABLE AT PAGE 156 OF THE PAPER- BOOK VOL.I. 11. SINCE THE ADMINISTRATIVE COMMISSIONER BY AN ORD ER DATED 05.02.2014, ACCEPTED THE EXPLANATION OF THE ASSESSE E THAT THE SOURCE OF INVESTMENT WAS CONSEQUENT TO THE FAMILY S ETTLEMENT DATED 12.08.2009 AND DROPPED THE PROCEEDING INITIATED UND ER SECTION 263 OF THE ACT. ACCORDING TO THE LD. COUNSEL, THE ASSE SSING OFFICER CANNOT REOPEN THE ASSESSMENT BY ISSUING NOTICE UNDE R SECTION 148 OF THE ACT. ON A QUERY FROM THE BENCH WHETHER THE ORDER OF THE ADMINISTRATIVE COMMISSIONER PASSED UNDER SECTION 26 3 OF THE ACT IN THE CASE OF RESULTS INVESTMENTS PVT. LTD. ON 05. 02.2014 WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER? TH E LD.COUNSEL VERY FAIRLY SUBMITTED THAT THE ORDER OF THE ADMINISTRATI VE COMMISSIONER WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER. HOWEVER, ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER SIMPLY IGNORED THE ORDER OF THE ADMINISTRATIVE COMMISSIONER BY MAK ING 12 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 OBSERVATION THAT THE COMMISSIONER HAS MADE CURSORY REMARKS ON FAMILY ARRANGEMENT AND NOT DEALT WITH THE DETAILS. SINCE THE SOURCE OF INVESTMENT WAS FOUND TO BE THE FAMILY SETTLEMENT , ACCORDING TO THE LD. COUNSEL, THE ADMINISTRATIVE COMMISSIONER AF TER EXAMINING THE FAMILY ARRANGEMENT / SETTLEMENT DATED 12.08.200 9, FOUND THAT THE ASSESSEE EXPLAINED THE SOURCE AND DROPPED THE P ROCEEDING UNDER SECTION 263 OF THE ACT IN RESPECT OF THE INVE STMENTS MADE IN RESULTS INVESTMENTS PVT. LTD. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER IS NOT JUSTIFIED IN REOPENING THE ASSESSMENT BY ISSUING NOTICE UNDER SECTION 148 OF T HE ACT. 12. SH. N. DEVANATHAN, THE LD.COUNSEL FOR THE ASSES SEE, FURTHER SUBMITTED THAT SHRI JUSTICE S.H. KAPADIA, THE FORME R CHIEF JUSTICE OF INDIA, ALSO EXAMINED THIS AGREEMENT, NAMELY, FAMILY SETTLEMENT DATED 12.08.2009 AND GAVE OPINION SAYING THAT THE A GREEMENT DATED 12.08.2009 IS AN ARRANGEMENT BETWEEN THE FAMI LY MEMBERS, THEREFORE, IT IS NOT A TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT. SINCE IT IS NOT A TRANSFER, THE FORMER CH IEF JUSTICE FOUND THAT THE SETTLEMENT DATED 12.08.2009 READ TOGETHER WITH THE SETTLEMENT EARLIER IN THE YEAR 1990, DO NOT CONSTIT UTE A TRANSFER. ACCORDINGLY, THE SAME IS NOT LIABLE FOR TAXATION. THE LD.COUNSEL 13 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 SUBMITTED THAT A COPY OF OPINION GIVEN BY SHRI JUST ICE S.K. KAPADIA, THE FORMER CHIEF JUSTICE OF INDIA, IS AVAILABLE AT PAGE 74-92 OF PAPER-BOOK VOL.1. 13. SH. N. DEVANATHAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT SHRI K. PARASARAN, THE FORMER ATTORN EY GENERAL OF INDIA, ALSO GAVE AN OPINION AFTER EXAMINING FAMILY ARRANGEMENT / SETTLEMENT DATED 12.08.2009. AFTER NARRATING THE I SSUE AND THE JOINT FAMILY STATUS, THE FORMER ATTORNEY GENERAL OF INDIA OBSERVED IN HIS OPINION THAT THE ENTIRE ISSUE REGARDING FAMILY ARRA NGEMENT WAS DISCUSSED BY THE APEX COURT IN S. SHANMUGAM PILLAI V. K. SHANMUGAM PILLAI (1973) 2 SCC 312. THE APEX COURT FOUND THAT THE COURTS STRONGLY LEAN IN FAVOUR OF A FAMILY ARRA NGEMENT THAT BRINGS ABOUT HARMONY IN THE FAMILY AND TO DO JUSTICE TO V ARIOUS MEMBERS AND AVOID FUTURE DISPUTES. ULTIMATELY, THE FORMER ATTORNEY GENERAL OF INDIA FOUND THAT THE AGREEMENT DATED 12.08.2009 WAS BETWEEN THE MALE HEIRS AND THERE WAS NO EVIDENCE TO SHOW TH AT FEMALE HEIRS OBJECTED TO THE SETTLEMENT DATED 12.08.2009. ACCOR DING TO THE LD. COUNSEL, IN THE LIGHT OF MERE SPECULATION, THE VERA CITY OF SETTLEMENT AGREEMENT DATED 12.08.2009 CANNOT BE DOUBTED AT ALL . ACCORDING TO THE LD. COUNSEL, THERE CANNOT BE ANY BETTER EVIDENC E OF EXISTENCE OF 14 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 A COMMON FAMILY FUND THAN THE FAMILY THEMSELVES. W HEN THE FAMILY MEMBERS AGREED THAT THE BUSINESS IS OF THEIR FAMILY , ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER CANNOT SAY T HAT IT IS NOT A FAMILY BUSINESS. THE LD.COUNSEL FURTHER SUBMITTED THAT THE AGREEMENT DATED 12.08.2009 IS ACTED UPON BETWEEN TH E ASSESSEE AND HIS BROTHER. MOREOVER, THE SISTERS OF THE ASS ESSEE HAVE NOT DISPUTED THE AGREEMENT. HENCE, THE ASSESSING OFFIC ER CANNOT AT THIS STAGE SAY THAT THE AGREEMENT DATED 12.08.2009 IS NOT A FAMILY ARRANGEMENT. THE LD.COUNSEL FURTHER SUBMITTED THAT SINCE THERE WAS NO TRANSFER IN THE FAMILY ARRANGEMENT, THE COMP ENSATION RECEIVED TO EQUALIZE THE INEQUALITIES IN THE FAMILY SETTLEMENT IS NOT TAXABLE AS INCOME. THE LD.COUNSEL PLACED HIS RELIA NCE ON THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN CIT V. A SHWANI CHOPRA (2013) 352 ITR 620 AND JUDGMENT OF MADRAS HI GH COURT IN CIT V. KAY AAR ENTERPRISES (299 ITR 348) AND ALSO T HE JUDGMENT OF KARNATAKA HIGH COURT IN CIT V. NAGARAJA RAO (352 IT R 565). THE LD.COUNSEL FURTHER SUBMITTED THAT THE SPECIAL LEAVE PETITION FILED BY THE REVENUE AGAINST THE JUDGMENT OF MADRAS HIGH COU RT IN KAY AAR ENTERPRISES (SUPRA) WAS DISMISSED BY THE SUPREME CO URT IN 306 ITR 5. THE LD.COUNSEL FURTHER SUBMITTED THAT THE R ECEIPT OF SHARE 15 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 PREMIUM IS NOT INCOME AT ALL, THEREFORE, THE SAME A LSO IS NOT LIABLE FOR TAXATION. 14. SH. N. DEVANATHAN, THE LD.COUNSEL FOR THE ASSES SEE, FURTHER SUBMITTED THAT THE NON-COMPETE FEE RECEIVED BY THE ASSESSEE IS ONLY CONSEQUENT TO THE FAMILY SETTLEMENT, THEREFORE , THE ASSESSING OFFICER CANNOT SAY THAT IT IS A BUSINESS ARRANGEMEN T. TO SETTLE DISPUTE AMONG THE FAMILY MEMBERS, THE ASSESSEE AGRE ED NOT TO ENGAGE HIMSELF IN THE BUSINESS OF CEMENT MANUFACTUR ING FOR FIVE YEARS. ACCORDING TO THE LD. COUNSEL, THIS AGREEMEN T IS ONLY TO BRING PEACE IN THE FAMILY AND TO HAVE AMICABLE SOLUTION T O THE EXISTING MISUNDERSTANDING AMONG THE FAMILY MEMBERS. THEREFO RE, ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) IS N OT JUSTIFIED IN BIFURCATING THE MONEY RECEIVED TOWARDS COMPENSATION FOR INEQUALITIES IN THE FAMILY SETTLEMENT AS NON-COMPET E FEE. A MERE REFERENCE IN THE FAMILY SETTLEMENT AS NON-COMPETE F EE MAY NOT ALTER THE CHARACTER OF RECEIPT. HENCE, ACCORDING TO THE LD. COUNSEL, NON- COMPETE FEE IS ALSO PART OF FAMILY SETTLEMENT, THER EFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN TAKING DIFFERENT V IEW. 16 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN THE REVENUES APPEAL, THE ISSUE ARISES FOR CONSIDERATION IS WHETH ER THE TRANSFER OF SHARES, CONSEQUENT TO THE FAMILY ARRANGEMENT, IS TA XABLE UNDER THE INCOME-TAX ACT OR NOT? THE MAIN CONTENTION OF THE LD. D.R. BEFORE THIS TRIBUNAL IS THAT THERE IS NO NUCLEUS OF THE FA MILY FOR MAKING INVESTMENT IN THE BUSINESS AND SHARES OF THE COMPAN IES, THEREFORE, THE PROPERTY AND BUSINESS HAVE TO BE TREATED AS IND IVIDUAL PROPERTY. HENCE, THE AGREEMENT DATED 12.08.2009 TO SETTLE THE FAMILY DISPUTE IS NOT A FAMILY SETTLEMENT AT ALL. THE ADMITTED FA CT IS THAT INDIA CEMENTS LTD. WAS ESTABLISHED BY THE ASSESSEES FATH ER SHRI T.S. NARAYANASWAMI AND ONE SHRI SANKARALINGA IYER. AFTE R THE DEATH OF THE ASSESSEES FATHER, BOTH THE ASSESSEE AND HIS BR OTHER SHRI N. SRINIVASAN SUCCEEDED TO THE INTEREST OF SHRI T.S. N ARAYANASWAMI. THEREFORE, THE BASIC BUSINESS, NAMELY, INDIA CEMENT S LTD. WAS THE ANCESTRAL PROPERTY OF THE ASSESSEE AND HIS BROTHER. FROM THAT BUSINESS, SEVERAL OTHER GROUP COMPANIES WERE FORMED , NAMELY, EWS FINANCE & INVESTMENT PVT. LTD. AND OTHER COMPAN IES BY THE ASSESSEE AND HIS BROTHER. THE INVESTMENT IN ALL TH ESE COMPANIES PROMOTED BY THE ASSESSEE AND HIS BROTHER SHRI N. SR INIVASAN WAS 17 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 FROM INDIA CEMENTS LTD. THEREFORE, IT IS NOT CORRE CT TO SAY THAT THE COMMON FUNDS OR NUCLEUS OF THE HINDU UNDIVIDED FAMI LY WAS NOT AVAILABLE FOR MAKING INVESTMENT IN THE COMPANIES ES TABLISHED BY THE ASSESSEE. 16. THE ADMITTED FACT BY THE ASSESSEE AND REVENUE C LEARLY ESTABLISHES THAT THE SOURCE FOR FUNDS FOR MAKING IN VESTMENT IN THE COMPANIES PROMOTED BY THE ASSESSEE AND HIS BROTHER SHRI N. SRINIVASAN ARE THE INCOME FROM INDIA CEMENTS LTD. THEREFORE, THE FIRST CONTENTION OF THE REVENUE THAT THE ASSESSEE H AS NO NUCLEUS OF HINDU UNDIVIDED FAMILY FOR MAKING INVESTMENT IN THE SHARES OF EWS FINANCE & INVESTMENT PVT. LTD. OR OTHER COMPANI ES HAS NO MERIT AT ALL. THIS TRIBUNAL IS OF THE CONSIDERED O PINION THAT ALL THE COMPANIES WERE ESTABLISHED BY THE ASSESSEE AND HIS BROTHER SHRI N. SRINIVASAN ONLY BY INVESTING FUNDS FROM NUCLEUS OF HINDU UNDIVIDED FAMILY. IT IS OBVIOUS FROM THE SO-CALLED DECLARATION BY SHRI N. SRINIVASAN OR OTHERWISE IT IS CALLED AS AGR EEMENT BY THE ASSESSEE IN THE YEAR 1990. IN 1990, IT WAS AGREED BY THE ASSESSEE AND HIS BROTHER SHRI N. SRINIVASAN THAT THE ENTIRE BUSINESS IS THE FAMILY BUSINESS OF THE ASSESSEE AND HIS BROTHER SHR I N. SRINIVASAN. THEREFORE, IT IS NOT CORRECT TO CONTEND AT THIS STA GE BY THE REVENUE 18 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 THAT THE PROPERTIES ARE INDIVIDUAL PROPERTIES OF TH E ASSESSEE AND THE ASSESSEE HAD NO COMMON FUND FOR MAKING INVESTMENT. 17. THE NEXT CONTENTION OF THE REVENUE IS THAT ALL THE FAMILY MEMBERS ARE NOT PARTY TO THE AGREEMENT DATED 12.08. 2009. WHEN THE ASSESSEE WAS EXAMINED ON 07.02.2014, HE REPLIED AS FOLLOWS WITH REGARD TO HIS TWO SISTERS AS ANSWER TO QUESTIO N NO.15:- AFTER MY FATHER PASSED AWAY, THE FAMILY CONSISTED O F MY MOTHER, BROTHER AND TWO SISTERS. MY MOTHER, BROTHE R AND I GOT THE SISTERS MARRIED AND WHATEVER HAD TO BE GIVE N TO THEM AS PER MY MOTHERS WISHES WAS DONE. SUBSEQUEN TLY, MY MOTHER ALLOWED MY BROTHER AND MYSELF TO RUN THE BUS INESS AND SO WE WERE ONLY THE TWO PEOPLE AS PART OF THIS FAMILY SETTLEMENT. THIS EXPLANATION OF THE ASSESSEE WAS NOT PROPERLY A PPRECIATED BY THE ASSESSING OFFICER. WHEN THE ASSESSEE AND HIS B ROTHER SHRI N. SRINIVASAN GOT THE TWO SISTERS MARRIED AS PER THEIR MOTHERS WISHES AND GAVE WHATEVER THEIR MOTHER WISHED, IT MEANS THA T SUFFICIENT FUNDS WERE GIVEN TO THEIR SISTERS. MOREOVER, THE S AID TWO SISTERS HAD NOT RAISED ANY OBJECTION AGAINST THE FAMILY ARRANGE MENT MADE IN THE YEAR 1990 AND ON 12.08.2009. SINCE THE TWO SISTERS HAVE NOT RAISED ANY OBJECTION EVEN NOW, THE ASSESSING OFFICER CANNO T DOUBT THE FAMILY ARRANGEMENT DATED 12.08.2009. 19 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 18. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS ALSO DOUBTED THE FAMILY ARRANGEMENT ENTERED INTO BY THE ASSESSEE AND HIS BROTHER ON 12.08.2009 ON THE GROUND THAT THE CH ILDREN OF THE ASSESSEE AND THE CHILDREN OF SHRI N. SRINIVASAN WER E NOT PARTY TO THE AGREEMENT. THE ASSESSING OFFICER HAS NOT TAKEN INTO CONSIDERATION THE PROVISIONS OF THE HINDU SUCCESSIO N ACT, 1956. AS PER THE HINDU SUCCESSION ACT, 1956, THE PROPERTY WO ULD DEVOLVE ON THE CHILDREN IMMEDIATELY ON THE DEATH OF THEIR RESP ECTIVE FATHER. THE CHILDREN CAN CLAIM SHARE IN RESPECT OF PROPERTY ALL OTTED TO THEIR PARENTS. IN OTHER WORDS, THE ASSESSEE AND HIS BROTH ER SHRI N. SRINIVASAN ARE CLASS I HEIRS. THEREFORE, EVEN THOU GH THE GRANDCHILDREN HAVE RIGHT ON THE PROPERTY OF GRANDFA THER, THAT RIGHT IS SUBJECT TO THE PROPERTY ALLOTTED TO THEIR RESPECTIV E PARENTS. WHEN SHRI N. SRINIVASAN AND THE ASSESSEE ENTERED INTO A FAMILY AGREEMENT BETWEEN THEM ON 12.08.2009 REALLOCATING T HE SHARES OF THE COMPANIES AND TO EQUALIZE THE ALLOTMENT, MONETA RY COMPENSATION WAS GIVEN AS AGREED BETWEEN THEM, THEN THEIR RESPECTIVE CHILDREN CAN CLAIM OR SUCCEED ONLY TO TH E PROPERTY ALLOTTED TO THEIR RESPECTIVE PARENTS. THEREFORE, M ERELY BECAUSE THE CHILDREN OF SHRI N. SRINIVASAN AND THE ASSESSEE ARE NOT PARTY TO THE 20 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 AGREEMENT DATED 12.08.2009, IT WILL NOT LOSE ITS CH ARACTER AS AGREEMENT OR FAMILY SETTLEMENT. MOREOVER, IT IS S ETTLED PRINCIPLE OF LAW THAT INEQUALITIES IN PARTITION OF PROPERTY AMON G THE COPARCENERS OF HUF, CANNOT BE A GROUND TO DOUBT THE FAMILY SETT LEMENT OTHERWISE ADMITTED BY PARTIES. 19. THIS ISSUE CAME BEFORE THE ADMINISTRATIVE COMMI SSIONER IN THE CASE OF RESULTS INVESTMENTS PVT. LTD. THE ADMI NISTRATIVE COMMISSIONER AT PARA 8.1 OF HIS ORDER HAS OBSERVED AS FOLLOWS:- 8.1 I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF THE COUNSEL FOR THE ASSESSEE AND ALSO THE EVIDENCE FURN ISHED BY HIM. IT IS CLEAR THAT M/S PRINCE HOLDINGS (MADRAS) PVT. LTD. HAVE ADVANCED AN AMOUNT OF 125 CRORES FOR ALLOTMENT OF SHARES. THIS AMOUNT HAS BEEN PAID BY M/S PRINCE HO LDINGS (MADRAS) PVT. LTD. IN CONSEQUENCE OF A FAMILY SETTL EMENT AGREEMENT DATED 12.08.2009 BETWEEN SHRI N. RAMACHANDRAN AND SHRI N. SRINIVASAN. THE TOTAL PAYMENT IS REFLE CTED IN THE BALANCE SHEET OF M/S PRINCE HOLDINGS (MADRAS) PVT. LTD. THUS, THE CAPITAL RAISED BY THE ASSESSEE OF 125 CRORES STANDS EXPLAINED. THE ISSUE WITH REGARD TO THE SOUR CES OF SHARE CAPITAL OF 125 CRORES IS DROPPED. FROM THE ABOVE OBSERVATION OF THE ADMINISTRATIVE CO MMISSIONER IN HIS ORDER DATED 05.02.2014 UNDER SECTION 263 OF THE ACT IN THE CASE OF RESULTS INVESTMENTS PVT. LTD., CLEARLY ESTABLISH ES THAT COMMISSIONER EXAMINED THE AGREEMENT DATED 12.08.200 9 AND FOUND THAT THE SOURCE FOR INVESTMENT WAS EXPLAINED. THEREFORE, IT 21 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 MAY NOT BE CORRECT TO THE ASSESSING OFFICER TO SAY THAT THE ADMINISTRATIVE COMMISSIONER HAS NOT EXAMINED THE AG REEMENT. AT PARA 9.2 OF THE ORDER OF THE ADMINISTRATIVE COMMISS IONER UNDER SECTION 263 OF THE ACT DATED 05.02.2014, HE FURTHER OBSERVED AS FOLLOWS:- 9.2 I HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 56(2)(VII), 56(2)(VIIA), 56(2)(VIIB) AND RULE 11U & 11UA. IT IS FOUND THAT THE ARGUMENT OF THE COUNSEL FOR THE ASSESSEE IS CORRECT. 6250 SHARES WERE ALLOTTED BY THE ASSESSEE COMPANY TO M/S PRINCE HOLDINGS (MADRAS) PV T. LTD. DURING THE FINANCIAL YEAR 2009-10. IN THE CASE OF THE ASSESSEE COMPANY, THE ONLY SECTION RELEVANT TO THE ISSUE OF SHARE IS 56(2)(VIIB) WHICH IS EFFECTIVE ONLY FROM 01.04. 2012. SINCE THE SHARES WERE ALLOTTED TO M/S PRINCE HOLDIN GS (MADRAS) PVT. LTD. PRIOR TO THE DATE WHEN THE ABOVE PROVISIONS BECAME EFFECTIVE, THESE PROVISIONS AND R ULE 11U & 11UA ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE . MOREOVER, THE SHARES WERE ALLOTTED IN CONSEQUENCE OF A FAMILY SETTLEMENT AGREEMENT DATED 12.08.2009 BETWEEN SHRI N. RAMACHANDRAN AND SHRI N. SRINIVASAN. HENCE , THE ISSUE WITH REGARD TO ALLOTMENT OF SHARES AT HIGH RA TES IS ALSO DROPPED. THEREFORE, IT IS OBVIOUS THAT THE COMMISSIONER HAS EXAMINED THE ISSUE MORE THAN ONCE IN HIS ORDER PASSED UNDER SECT ION 263 OF THE ACT AND FOUND THAT THERE WAS FAMILY SETTLEMENT ON 1 2.08.2009 AND THE ASSESSEE RECEIVED MONEY WHICH WAS UTILISED IN M AKING INVESTMENTS IN THE SHARES. WHEN THIS ORDER PASSED BY THE 22 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 COMMISSIONER UNDER SECTION 263 OF THE ACT WAS BROUG HT TO THE NOTICE OF THE ASSESSING OFFICER, THE ASSESSING OFFI CER IGNORED THE FINDINGS OF THE COMMISSIONER ON THE GROUND THAT THE COMMISSIONER HAS NOT DEALT IN DETAIL. THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT WHEN THE HIGHER AUTHORITY HAS DISCUSSED THE MA TTER AND FOUND THAT THE SOURCE FOR INVESTMENT IS THE FAMILY SETTLE MENT DATED 12.08.2009, THE ASSESSING OFFICER BEING SUBORDINATE TO THE COMMISSIONER, CANNOT SAY THAT THE COMMISSIONER HAS NOT DISCUSSED THE MATTER IN DETAIL. WHETHER THE MATTER WAS DISCUSSED IN DETAIL OR NOT, THE OBSERVATION MADE BY THE HIGHER A UTHORITY IS BINDING ON THE LOWER AUTHORITY. THIS TRIBUNAL IS OF THE CO NSIDERED OPINION THAT JUDICIAL DISCIPLINE NEEDS TO BE FOLLOWED. WHA TEVER MAY BE THE REASON, WHEN THE HIGHER AUTHORITY, NAMELY, COMMISSI ONER, FOUND THAT THERE WAS FAMILY ARRANGEMENT AND THE SOURCE FO R INVESTMENT IS THE FUNDS RECEIVED CONSEQUENT TO THE FAMILY ARRANGE MENT, THE ASSESSING OFFICER CANNOT IGNORE THE SAME. THEREFOR E, REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT, CANNOT STA ND FOR SCRUTINY OF LAW. CONSEQUENTLY, THE ORDER PASSED BY THE ASSE SSING OFFICER AFTER REOPENING OF ASSESSMENT ON ISSUE OF NOTICE UN DER SECTION 148 OF THE ACT CANNOT STAND FOR LEGAL SCRUTINY. ACCO RDINGLY, WE HOLD 23 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 THAT THE REOPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE ACT IS INVALID. CONSEQUENTLY, THE ORDER PASSED BY THE ASSESSING OFFICER HAS NO LEG TO STAND, HENCE THE SAME IS QUASHED. 20. WE HAVE CAREFULLY GONE THROUGH THE LEGAL OPINIO N GIVEN BY MR. JUSTICE S.H. KAPADIA, FORMER CHIEF JUSTICE OF I NDIA, A COPY OF WHICH IS AVAILABLE FROM PAGES 74 TO 92 OF THE PAPER -BOOK VOL.1. AFTER EXTRACTING THE FACTS OF THE CASE AND CASE LAW S ON THE SUBJECT, THE FORMER CHIEF JUSTICE OF INDIA HAS OPINED AS FOL LOWS:- FOR ABOVE REASONS, I AM OF THE VIEW THAT THE SAID OVERALL SETTLEMENT DATED 12.08.2009 READ WITH 1990 FS DO NOT RESULT INTO TRANSFER UNDER SECTION 2(47) OF THE ITA. APART FROM GENUINENESS OF THE SHARE PREMIUM WHICH CANNOT BE CHALLENGED AS HELD IN THE CASE OF GREEN I NFRA (SUPRA), SECTION 56(2)(VIIB) INTRODUCED BY FA 2012, W.E. F. 01.04.2013 HAS NO APPLICATION TO THE OS OF 2009. HENCE, THE DEPARTMENT IS NOT ENTITLED TO RELY ON THE SAID SUB- SECTION. 21. WE HAVE ALSO CAREFULLY GONE THROUGH THE OPINION OF SHRI K. PARASARAN, THE FORMER ATTORNEY GENERAL OF INDIA. A FTER EXTRACTING THE FACTS OF THE ISSUE AND CASE LAWS ON THE SUBJECT , THE FORMER ATTORNEY GENERAL OF INDIA EXPRESSED HIS OPINION AS FOLLOWS:- QUERY A. WHETHER THE VARIOUS ITEMS [ENLISTED UNDER (I) TO (III)] RECEIVED BY THE QUERIST FROM HIS BROTHER MR. NS IN 24 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 LIEU OF FAMILY SETTLEMENT DATED 12.08.2009 WILL BE LIABLE TO BE TAXED AS CAPITAL GAINS IN THE HANDS OF THE QUERIST: (I) 337 CRORES RECEIVED BY THE QUERIST FOR TRANSFER OF EWS FINANCE SHARES; (II) SHARE CAPITAL OF 225 CRORES INFUSED BY M/S PRINCE HOLDINGS (MADRAS) PVT. LTD. IN M/S BIRDIE (INVESTMEN TS) MADRAS PVT. LTD. AND SHARE CAPITAL OF 125 CRORES INFUSED BY M/S PRINCE HOLDINGS (MADRAS) PVT. LTD. IN M/S RESUL TS INVESTMENTS PVT. LTD.; (III) ADDITIONAL SUM OF 6.84 RECEIVED BY THE QUERIST AS PART OF FAMILY SETTLEMENT. 32. THE SUM RECEIVED UNDER ITEM (I) VIZ. CONSIDERATI ON FOR TRANSFER OF SHARES IS NOT SUBJECT TO CAPITAL GAINS TAX, AS IT IS IN IMPLEMENTATION OF A FAMILY SETTLEMENT. A FAMILY SE TTLEMENT DOES NOT RESULT IN A TRANSFER AND COMPENSATION RECEIVE D TO EQUALIZE INEQUALITIES IN FAMILY SETTLEMENT IS NOT TAXABLE AS INCOME. THE SETTLEMENT AGREEMENT DATED 12.8.2009 IS VALID AND BINDING ON THE PARTIES THERETO FOR THE REASONS GIVEN IN THE ABOVE PARAGRAPHS. THE SUM RECEIVED UNDER ITEM (II) IS NOT TAXABLE, AS THIS FORMS PART OF THE OVERALL FAMILY SETTLEMENT DATED 12.08.2009. FURTHER THIS SUM RECEIVED BEING A CAPITAL INFUSION BY WAY OF SHARE C APITAL AND SHARE PREMIUM AND HENCE IT IS NOT IN THE NATURE OF INCOME AT ALL. THE SUM RECEIVED UNDER ITEM (III) IS RECEIVED ALONG THE SAM E LINES AS ITEMS (I) AND (II), THE SAME WILL NOT BE TAXABLE, BEING RECEIV ED UNDER A FAMILY ARRANGEMENT. 22. FROM THE ABOVE, IT IS OBVIOUS THAT APART FROM R EOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT AGAINST THE ORDER OF THE ADMINISTRATIVE COMMISSIONER UNDER SECTION 263 OF TH E ACT, EVEN ON MERIT, WHEN THERE WAS FAMILY ARRANGEMENT BETWEEN TH E ASSESSEE 25 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 AND HIS BROTHER, AND THE INEQUALITIES OF DISTRIBUTI ON OF SHARES WAS COMPENSATED MONETARILY, THIS TRIBUNAL IS OF THE CON SIDERED OPINION THAT THERE WAS NO TRANSFER WITHIN THE MEANING OF SE CTION 2(47) OF THE ACT. THEREFORE, THE SAME CANNOT BE BROUGHT TO TAXA TION UNDER ANY OF THE PROVISIONS OF INCOME-TAX ACT. ACCORDINGLY, THE ORDER OF THE CIT(APPEALS) IS CONFIRMED ON THIS ISSUE. 23. NOW COMING TO NON-COMPETE FEE, NON-COMPETE FEE IS A PART OF THE FAMILY SETTLEMENT DATED 12.08.2009. WHEN TH E CIT(APPEALS) FOUND THAT THE COMPENSATION RECEIVED BY THE ASSESSE E IS NOT TAXABLE UNDER INCOME-TAX ACT, IT IS NOT KNOWN WHY T HE NON-COMPETE FEE RECEIVED BY THE ASSESSEE IS TO BE TAXED UNDER T HE INCOME-TAX ACT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION TH AT EVEN THOUGH IT WAS REFERRED AS NON-COMPETE FEE, IT IS ONLY A PART OF FAMILY SETTLEMENT TO SETTLE THE DISPUTE ONCE FOR ALL AND T O BRING PEACE IN THE FAMILY . THEY ANTICIPATED THAT ALLOWING THE ASSESS EE TO ESTABLISH ANOTHER CEMENT FACTORY IN THE NEAR FUTURE MAY CREAT E A FRICTION IN THE FAMILY AND THEREFORE, CERTAIN AMOUNT IN CASH WAS PA ID. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHAT WAS PAID TO THE ASSESSEE IS ONLY A PART OF FAMILY SETTLEMENT ARISIN G OUT OF AGREEMENT DATED 12.08.2009, THEREFORE, THE SAME ALSO CANNOT B E BROUGHT TO 26 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 TAXATION. IN OTHER WORDS, WHAT WAS PAID TO THE ASS ESSEE IS CONSEQUENT TO THE FAMILY SETTLEMENT DATED 12.08.200 9. HENCE, THE SAME IS NOT LIABLE FOR TAXATION. MOREOVER, AS FOU ND EARLIER AT PARA 19, THE REOPENING OF ASSESSMENT AFTER THE ORDER OF THE ADMINISTRATIVE COMMISSIONER UNDER SECTION 263 OF TH E ACT IS INVALID. HENCE, WE ARE UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, ORDERS OF BOTH THE AUTHO RITIES BELOW IN RESPECT OF THE SO-CALLED NON-COMPETE FEE IS SET ASI DE AND THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 24. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED AND THE CROSS-OBJECTION OF THE ASSESSEE S TANDS ALLOWED. ORDER PRONOUNCED ON 24 TH JULY, 2018 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 24 TH JULY, 2018. KRI. 27 I.T.A. NO.7/CHNY/17 C.O. NO.35/CHNY/17 - /267 87)2 /COPY TO: 1. +, /APPELLANT 2. /0+, /RESPONDENT 3. 1 92 () /CIT(A)-1, CHENNAI-34 4. PRINCIPAL CIT-1, CHENNAI 5. 7: /2 /DR 6. ;( < /GF.