Gujarat High Court
The Commissioner Of Income Tax-I vs Sunilkumar B Handa on 24 June, 2026
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/1420/2007 JUDGMENT DATED: 24/06/2026
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 1420 of 2007
With
R/TAX APPEAL NO. 1265 of 2007
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
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Approved for Reporting Yes No
✓
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THE COMMISSIONER OF INCOME TAX-I
Versus
SUNILKUMAR B HANDA
==========================================================
Appearance:
MAUNIL G YAJNIK(9346) for the Appellant(s) No. 1
MR SN SOPARKAR, SENIOR ADVOCATE WITH MR B S SOPARKAR(6851)
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 24/06/2026
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1.Heard learned Senior Standing Counsel Mr.
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Maunil G. Yajnik for the appellant and
learned Senior Advocate Mr. S.N. Soparkar
with learned advocate Mr. B.S. Soparkar for
the respondent.
2.Both the appeals are filed under section 260A
of the Income Tax Act, 1961 (For short “the
Act”) against the common judgment and order
dated 09.02.2007 passed by the Income Tax
Appellate Tribunal, Ahmedabad (For short
“the Tribunal”) for the Assessment Year 1996-
1997 and 1997-1998 respectively.
3.The appeals are admitted by common order
dated 26.08.2008 raising following
substantial question of law:
“Whether the Appellate Tribunal is
right in law and on facts in
confirming the order passed by the
CIT(A) in holding that arrangement
for transfer of property as part of
family settlement and not subject to
capital gain tax?”
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4.Brief facts of the case are that by an
agreement dated 21.01.95, Shri Baldevraj
Handa, Shri Sushil Kumar Handa, Shri Sunil
Kumar Handa, mutually agreed to refer to
arbitration certain disputes amongst them, to
Hon’ble Mr. Justice B.J. Diwan, Ex-Chief
Justice of Gujarat High Court under the
provisions of the Arbitration Act. The
relevant clauses (e), (f) and (g) of the
above agreement which deal with the substance
of the dispute are as under:
“(e) In the last 15 years, the
parties thereto have set up various
companies listed in the Schedule-1
hereunder written. The important
amongst these companies are Core
Healthcare Limited (hereinafter also
referred to as “CHL”) and Core
Biotech Ltd. (hereinafter also
referred to as “CBL”) which are
listed public limited companies. The
present shareholding of the parties
hereto, of their respective families
and of their limited companies, in
CHL and CBL as well as in all the
other companies belonging to them,
jointly or individually, are also
given in SCHEDULE-1 hereunder
written. The Schedule-1 also
contains other relevant detailsPage 3 of 96
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regarding those Companies.
(f) Sushilkumar Handa is the
Chairman and Managing Director of
CHL and Mr. Sunilkumar Handa, is the
wholetime Director of CHL. Mr.
Baldevraj Handa is the Managing
Director of Core Biotech Ltd.
However, since the inception both
Sushilkumar and Sunilkumar have been
jointly responsible for management
of both these companies as well as
other Limited Companies in which
both have been interested and, it is
because of the joint efforts and
hard work of both the brothers under
the continuous guidance, direction
and advice of their father, Mr.
Baldevraj Hand, that these two
companies have come to occupy the
place of pride in the country in a
relatively short time.
(g) As the children of both the
brothers, viz., the said Mr
Sushilkumar Handa and the said Mr
Sunilkumar Handa are growing up and
the business of CHL and CBL have
grown manifold in a relatively short
time; various disputes, claims and
counter-claims have arisen between
the parties hereto and their family
members which have disturbed the
peace among the members of the
families of the parties hereto and
have strained the cordial
relationship among them. One of the
main areas of the disputes is about
the moral and/or legal ownership
(whether direct or indirect) of and
rights of the respective parties
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hereto and their family members in
the shares of the various companies
held by them as set out in the
SCHEDULE-1 hereunder written.”
5.Hon’ble Mr. Justice BJ Diwan, Ex-Chief
Justice of Gujarat High Court has given Award
dated 26.4.1994. The relevant clauses 5(a) to
(f) of the award are as under:
“5. CONTROL AND MANAGEMENT
(a) I award that the control and
management of CHL shall be with Mr.
Sushilkumar, and Mr. Sunilkumar will
have no say whatsoever in the
management of CHL. Even if Mr.
Sunilkumar is unhappy with the
performance of CHL, he shall not
interfere in the management or
operation of CHL in any manner
whatsoever.
(b) I award that control and
management of CBL shall be with Mr.
Sunilkumar, and Mr. Sushilkumar will
have no say whatsoever in the
management of CBL. Mr. Sunilkumar
shall be entitled to be made
Chairman and Managing Director of
CBL. Even it Sushilkumar is unhappy
with the performance of CBL, he
shall not interfere in the
management or operation of CBL in
any manner whatsoever.
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(c) I award that the control and
management of the closely-held
Company, Core International Limited,
where Mr. Sushilkumar and Mr.
Sunilkumar have mutual interest
today shall vest in Mr. Sushilkumar,
and Mr. Sunilkumar will have no say
whatsoever in the management of that
Company. Accordingly, the Board of
Directors of that Company shall be
reconstituted at any time according
to the desire of Mr. Sushilkumar.
(d) I award that the control and
management of the closely-hold
Company, Core Medicals Limited,
where Mr. Sushilkumar and Mr.
Sunilkumar have mutual interest
today shall vests in Mr. Sunilkumar,
and Mr. Sushilkumar will have no say
whatsoever in the management of that
Company. Accordingly, the Board of
Directors of that Company shall be
reconstituted at any time according
to the desire of Mr. Sunilkumar.
(e) I award that the control and
management of the closely-held
Companies, namely, GCPL and SFPL
shall vests in Mr. Sushilkumar, and
Mr. Sunilkumar will have no say
whatsoever in the management of
these Companies. Also Mr. Sunilkumar
shall resign as a Director from the
Board of Directors of these two
Companies immediately on Mr.
Sushilkumar having paid for transfer
of the respective shares of these
two Companies, and for this purpose
each Company would be considered
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separately and independently, as per
clauses 1 and 13 of this Arbitration
Award.
(f) Further, I award that the
control and management of the other
closely-held Companies belonging to
Mr. Sushilkumar and Mr. Sunilkumar
respectively and as specified in
SCHEDULE-I shall continue to be so.
6.Shri Baldevraj Handa is the father of Shri
Sushil Kumar Handa and Shri Sunil Kumar
Handa. The preamble clauses, (J), (K) and (L)
state that this agreement is not merely
between the above three individuals, but also
their families. Further, insofar as reference
to share transfer and related voting rights
are concerned pertains to all the persons
referred to therein. Schedule 1 to the
agreement gives the list of 33 companies in
all together with authorised capital,
subscribed capital, share holders and their
respective share holdings. Of these Core
Healthcare Ltd., (“CHL” for short) and Core
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Biotech Limited, (“CBL” for short) are public
limited companies. All others are private
limited companies, some of which are holding
shares in the above two public limited
companies. There are three private limited
companies in which both Sushil Kumar Handa
and Sunilkumar Handa are holding interest,
along with others in some cases. These are
(1) Genesis Consultants Limited (“GCL” for
short) (2) Core International Limited (“CIL”
for short) and (3) Core Medicals Limited
(“CML” for short). Of the rest, seven
companies have been identified as belonging
to Sunilkumar Handa and twenty-one companies
as belonging to Sushil Kumar Handa. In the
seven companies Sunil Kumar Handa and his
wife Divya hold all the shares. In eleven of
the twenty-one companies Sushil Kumar Handa
and his wife Beena hold all the shares. In
one company, Sushil Kumar Handa, Beena and
both the parents of Sushil Kumar Handa along
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with other individuals hold the shares. In
the rest of nine companies, certain
individuals and other private limited
companies of the group hold the shares. The
control and management of two public
companies and the three private limited
companies, wherein the interest of both
Sushil Kumar Handa and Sunil Kumar Handa were
more or less equal was in dispute.
7.The main clauses 1 to 15 contain the award in
respect of all the properties of the group,
including two charitable trusts. The Award
gives the control and management of CHL,
Genesis and CIL to Sushil Kumar Handa and
that of CBL and CML to Sunil Kumar Handa.
This apart, Sunil Kumar Handa gets three
office premises, one flat and one apartment
through companies and individuals of the
group. Opening portion of the Clause 13 and
14 of the Award gives the money to be paid
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between parties as under:-
“(a) Sushil Kumar will pay to
Sunilkumar a total all inclusive
lumpsum amount of Rs.150 crores
(Rupees one hundred and fifty
crores) as follows:
(i) A sum of Rs.57.30 crores (Rupees
fifty seven crores and thirty lakhs
only) shall be paid immediately on
signing of this Memorandum.
ii) The balance sum of Rs.92.70
crores (Rupees ninety two crores and
seventy lakhs only) shall be paid
either in:
14. AMOUNT TO BE PAID BY
MR.SUSHILKUMAR TO MR.BALDEVRAJ For
settling the various claims and
counter-claims between the parties
hereto, it has been between Mr.
Baldevraj and Mr. Sushilkumar as
follows:
(a) By 30th June, 1995, Mr.
Baldevraj shall deliver to Mr.
Sushilkumar all the relevant share
certificates and the duly executed
share transfer forms as provided in
clause I(d) hereinabove.
(b) Mr. Sushilkumar shall pay a sum
of Rs.2 crores to Mr. Baldevraj
simultaneously with the delivery of
the aforesaid share certificates and
the share transfer forms. If for any
reason, Mr. Sushilkumar requiresPage 10 of 96
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financial assistance for payment of
the said sum of Rs.2 crores or any
part thereof, Mr. Baldevraj will
give a loan of the required amount
upto Rs.2 crores to Mr. Sushilkumar.
Mr.Sushilkumar shall repay the said
loan to Mr.Baldevraj before 31st
December, 1995 Mr.Sushilkurnar shall
also be liable to pay interest on
the outstanding loan amount at the
rate of 12% (twelve percent) per
annum starting from 1st October,
1995 which shall be payable along
with the repayment of the loan.
(c) If Mr. Sushilkumar fails to
repay the loan and interest as
aforesaid, Mr. Baldevraj may give
extension of time to Mr. Sushilkumar
or may ask Mr. Sushilkumar to
retransfer the said shares,
proportionate to the outstanding
loan amount to Mr. Baldevraj.”
8.In pursuance of the terms of the award,
subsequently on 29.6.95 a Memorandum of
family settlement was executed on Rs.100/-
stamp paper duly notarised for giving effect
to the Award. The realignment of rights
between the parties, particularly, Sushil
Kumar Handa and Sunil Kumar Handa, over
various properties mentioned in the
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Memorandum of Family Settlement has taken
place in parts falling in more than one year,
including the year under appeal.
9.Accordingly, in terms of Memorandum of
Understanding, rights of the parties were
effectuated and the properties and the shares
were transferred among the family members.
The assessee had not shown any capital gain
or loss on the transactions taken place in
accordance with the Memorandum of
Understanding but Note No.1, below
computation of income, to the following terms
was mentioned.-
“Under a Family Agreement, there has
been settlement of certain
properties more particularly recited
and recorded in the Memorandum drawn
for this purpose, it is claimed that
since there is a no “transfer” as
defined under Direct Taxes including
for the purpose of levy of capital
gains tax u/s.45, I am not liable to
pay any tax under any of the Direct
Taxes Acts. It is merely adjustment
of rights in various properties.
Further, the computation provisionsPage 12 of 96
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of capital gains are also not
workable since it is not possible to
arrive at the consideration
received/receivable on relinquish
merit of the rights in the assets.
Hence, on this count also, I am not
liable to pay tax.”
10. The Assessing Officer has considered the
capital gains taxable on the following
grounds:
“1. Transfer to and from corporate
entities cannot be part of family
settlement;
2. Outsiders like friends,
associates and other persons cannot
be part of family settlement;
3. Where more than one family is
involved there cannot be family
settlement; [based on Ahmedabad ITAT
decision in Priyambhai Bipinbhai, 58
ITD 11];
4. One of the companies which
transferred shares as part of
settlement has declared L.T. Capital
loss and it has been allowed in its
asst; therefore there has to be
capital gain when the appellant
transfers as part of that
settlement;
5. Consideration in terms of money
has passed between parties to family
settlement and as such it cannot bePage 13 of 96
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said that there was no
consideration; and,
6. The consideration that passed
between Sushil Kumar Handa and Sunil
Kumar Handa, more or less equals the
FMV of shares transferred between
parties, which again confirms that
this is not a family settlement.”
11. The Assessing Officer, thus, calculated
the capital gains as under:
(i) Long Term Capital
Gains:
(a) On transfer of
shares of Genesis
Consultant Pvt. Ltd. Rs. 45,39,68,450
(b) On transfer of
shares of Swapnil
Financial Pvt. Ltd Rs. 5,03,00,738
(c) On transfer of
shares of Core
International Ltd. Rs. 15,57,246
Total: Rs.50,58,26,434
(ii) Short Term Capital
Gains :
(a) On transfer of
shares of Core
International Ltd. Rs. 81,24,216
Total: Rs.51,39,50,650
12. The Assessing Officer accordingly added
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Rs.51,39,50,650/- to the total income of the
assessee.
13. Being aggrieved, the assessee preferred
an appeal before the CIT(Appeals).
CIT(Appeals). CIT(Appeals) while allowing the
appeals made the following observations:
“The family settlement was valid and
the transaction was not a transfer
for the purpose of the Gift tax.
Courts give effect to a family
settlement upon the broad and
general ground that the object is to
settle existing or future disputes
regarding property amongst members
of a family. A family settlement
entered into bona fide by the
parties who are members of a family
to put an end to disputes among
themselves is not a transfer. It is
not also the creation of an
interest. For, in a family
settlement, each party takes a share
in the property by virtue of the
independent title which is 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 claim to a
share in the property.
Apart from the above, enclosed find
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herewith the following cases.
(i) Kale V/s. Deputy Director of
Consolidation (1976) AIR sc 807.
ii) AL Ramanathan Vs. ITO (37 ITD
Ziaddun Ahmed Vs. CIT (102 ITR 253)
iv) Tek Bahadur Bhayil Vs DS Bhayil,
AIR 1966 SC 292; 295.
v) Mohd. Haroon Japanwala V/s. ITO
22 ITD 61.
vi) Shambu Prasad Vs. Phool Kumar,
AIR 1971 SC 1337;
The appellant has further submitted
paper cutting as under :
Name the of Date Under the heading
newspaper/editio
n
Economic 22.1.96 “CORE GROUP SPLITS
Ahmedabad. DUE TO RIFT IN
Times, FAMILY OF HANDA’S”
Economic Times, 22.1.96 “HANDA BROTHERS ON
New Delhi. VERGE OF SPLITTING
CORE GROUP”
Business 10.10.95 “CORE GROUP DIVIDED
Standard, New BETWEEN BROTHERS”
Delhi.
16. I have considered the facts of
the case, discussion made in the
assessment order and written and
oral submissions made on behalf ofPage 16 of 96
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the appellant and various case laws
relied upon by the appellant and by
the Assessing Officer. It is seen
that a family settlement was arrived
between Sunilkumar Handa, Baldevraj
Handa and Sushilkumar Handa. All the
three are having management and
control over the function of various
companies of Core group, viz, Core
Health Care Limited, Core Bio-tech
Limited and others. It is also seen
that the family settlement was done
by Ex-Chief Justice of Gujarat High
Court, Shri B.J. Divan. The main
point in the issue is that whether
there was any family settlement as
per the definition of family
settlement or not. The Assessing
Officer was of the view that since
many other corporate bodies and
individuals were involved, this
settlement does not amount to family
settlement.
16(i) As per the agreement of family
settlement, family arrangement were
made and the assets were transferred
from various companies and
individuals to different individuals
and companies as indicated below :
FROM TO ASSETS
GENESIS CONST. SUNILKUMAR '11,61,000 SHARE
LTD. HANDA OF CORE HEALTH
CARE LTD.
SUNILKUMAR SUSHILKUMAR '50420 SHARES OF
HANDA HANDA GENESIS CONST.
LTD.
SUNILKUMAR SUSHILKUMAR 1725 SHARES OF
HANDA HANDA SWAPNIL FIN. P
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LTD.
BALDEVRAJ HANDA SUSHILKUMAR 17094 SHARES OF
HANDA CHL
BALDEVRAJ SUSHILKUMAR 50670 SHARES OF
HANDA, HUF HANDA CHL
MRS.RAKUMARI SUSHILKUMAR 41094 SHARES OF
HANDA HANDA CHL
SUSHILKUMAR SUNILKUMAR RIGHTS OF ZIFCD
HANDA HANDA OF CORE BIO LTD.
SUNILKUMAR SUSHILKUMAR 480960 SHARES OF
HANDA HANDA CIL
DIVYADIPTI SUSHILKUMAR 960 SHARES OF
HANDA HANDA CIL
SUSHILKUMAR SUNILKUMAR 10 SHARES OF CML
HANDA
BEENABEN HANDA RAJIV MEHТА 10 SHARES OF CML
AMEET H DESAI DEEPAK SHARMA 10 SHARES OF CML
GENESIS CONS SID FINANCIAL CORE HOUSE
LTD P. LTD.
GENESIS CONS CHRYSALIS NARAYAN CHAMBERS
LTD IND.
GENESIS CONS SID FINANCIAL SUMAY FLATS
LTD P. LTD
BEENABEN HANDA DIVYADIPTI SHAKUNTAL FLAT
HANDA
SUSHILKUMAR SUNILKUMAR 150.00 CRORES
HANDA HANDA
SUNILKUMAR SUSHILKUMAR 20.00 CRORES
HANDA HANDA
16(ii) The Assessing Officer was of
the view that since the company like
Genesis Consultant Limited has also
transferred the shares to Sunilkumar
Handa, therefore, it cannot be
treated as a valid family settlement
He also observed that 10 shares were
transferred by Sushilkumar Handa to
Rajiv Mehta, 10 shares by BeenabenPage 18 of 96
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to Tusharbhai Toparaniand 10 shares
by Amit Desai to Deeapk Sharma. The
AO has also relied upon the
judgement of Priyambhai Bipinbhai
Mehta 58 ITD 11 (1996) wherein it
was held that if more than one
family is involved then it does not
amount to family settlement. There
was a family dispute which has not
been denied by the Assessing
Officer. The only objection of the
Assessing Officer is that since
corporate bodies and individuals are
also involved, it does not amount to
family settlement.
16(iii) It has been argued on behalf
of the appellant that when there is
a family settlement, some shares or
the some assets are to be
transferred from one hand to the
another, which means some corporate
bodies or some individuals have to
transfer some shares from one hand
to other and he further argued that
these individuals and corporate
bodies were neither signatories nor
they were party to the family
settlement, in fact they have
facilitated the transferring of the
shares from one hand to other to
arrive at a family settlement. This
family settlement was arrived on
23.6.1995 and signatories to the
family settlement were Shri
Baldevraj Handa, Sunilkumar Handa
and Sushilkumar Handa and neither a
corporate body nor any individual
was a signatory to the family
settlement. The family members of
Sunilkumar Handa authorised to ShriPage 19 of 96
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Sunilkumar to take decision of the
various assets and liabilities on
the family settlement. Similarly,
family members of the Sushilkumar
Handa, viz, wife, daughter and minor
son, they also authorised Shri
Sushilkumar Handa to take decision
on the assets and liabilities as per
the family settlement. It is seen
that as per the submission made on
behalf of the appellant that no
other corporate body was ever
involved in the process of family
settlement. They were neither
signatories nor they were the party
to the family settlement and in fact
they have facilitated the
transferring of the shares from one
hand to other to arrive at the
family settlement. It is also seen
that Rajiv Mehta, Smt. Beenaben
Handa and Amit Desai had transferred
only 10 shares of Core Medical
Limited, which is just 10 shares out
of 50 lac shares which is hardly any
fraction. The AO settlement only on
the ground of transfer of negligible
fraction of the shares to outsiders.
Moreover, these shares were
transferred to facilitate the family
settlement. All the three persons
were neither a party to the family
settlement nor a signatory to the
family settlement. I am therefore,
of the opinion that following the
decision Kale Vs. Dy.Director of
Consolidation (1976) AIR SC 807,
there was a valid family settlement
between one Handa family group, i.e.
between Baldev Raj Handa,
Sushilkumar Handa and SunilkumarPage 20 of 96
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Handa which are family members of
one family and no other family was
involved and therefore no capital
gain is liable when there is a
proper and bonafide valid family
settlement.
16(iv) Without prejudice to the
discussion made above, the appellant
has taken alternative plea that even
if it is considered that there is no
family settlement, the appellant is
also not liable for capital gain on
account of various submissions made
by him during the course of hearing.
He also argued that the essential
ingredient for charge of Capital
Gains Tax is that there should be a
transfer of capital asset. Just
because there is a consideration in
a transaction, it does not become
subject to the Capital Gains Tax
levy. According to Authorised
Representative, this proposition is
supported by the decision of Supreme
Court in the case of Gwalior Silk
Mills Ltd 191 ITR 697 (SC). He has
further stated that Section 47
excludes certain transfers and since
the family arrangement is not held
to be a transfer and would not
require to be listed in section 47
unlike a partition which is a
transfer and had to be specifically
excluded from section 45. The AR
further submitted that for
computation of capital gain, it
should be possible to compute the
capital Gain and for that purpose it
should be possible to identify the
consideration for transfer and inPage 21 of 96
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the present case, consideration has
not been mentioned in the family
settlement. Lump sum shares and
assets were transferred from one
hand to the other and there was no
specific consideration amount in
assets transferred from one hand to
other, so it is not possible to
identify the consideration. He has
further argued that there was no
specific consideration for transfer
of specific assets, hence, capital
gain is not chargeable since the
consideration is unascertainable.
The AR submitted that to compute
capital gain it should be possible
to identify the consideration for
transfer and the cost of acquisition
of assets, though the cost of
acquisition of shares is
identifiable in this case, there is
no identifiable consideration for
transfer of the shares under the
family settlement. Because the
transfer has not taken place for any
consideration or there is no selling
and purchasing of the shares or any
asset from one individual or
corporate body to the other
individual or corporate body, there
cannot be any capital gains. The
proposition that unless the
consideration be levied is supported
by the judgments in the cases of
Sunil Siddharth 156 ITR 408 (SC) and
B. Srinivasa Shetty 128 ITR 420
(SC).
I find from the assessment order of
Sushilkumar Handa, passed by the AO,
no addition has been made on account
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of these realignments. In respect of
Sunilkumar Handa, the appellant in
this case, the AO has added the
following in appellant’s total
income:
LTCG on transfer of Rs.45,39,68,450
GCPL shares
-do- on Swapnil Finance Rs.5,03,00,738
Private Ltd. (SFPL)
-do- on CIL Rs.15,57,246
STCG on transfer of CIL Rs.81,24,216
sharesSFPL, belonging to Sunilkumar Handa
and his wife Divya was holding
shares of CHL, which was transferred
to Sushilkumar Handa. In order to
realign the voting rights of
Sushilkumar Handa and Sunilkumar
Handa the Arbitrator has awarded the
transfer of all the shares of SFPL
by Sunilkumar Handa to Sushilkumar
Handa [Clause 1(b) of the Award].
I have carefully considered the
above. The genuineness of the
arbitration award itself is not in
question, having been given by a
retd, Chief Justice of Gujarat High
Court. The AO too has impliedly
accepted the position. Thus the only
question that is to be considered is
whether this is a family settlement,
in which case there is no transfer
as such attracting capital gains
tax.”
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14. CIT (Appeals) thereafter referred to
decision in case of CIT v. Ponnammal reported
in 164 ITR 706 (Mad), wherein it is held as
under:
“When parties enter into a family
arrangement, the validity of the
family arrangement is not to be
judged with reference to whether the
parties who raised disputes or
rights or claims in certain
properties had in law any such right
or not The members of a joint family
may, in order to maintain peace and
bring about harmony in the family,
enter into a family arrangement and
if the arrangement is entered into
bona fide and the terms thereof are
fair, courts will normally give
assent to such an arrangement rather
than avoid it. Even if a party to
the settlement has to little under
the arrangement but the other party
relinquishes all its claims or
titles in favour of such a person
and acknowledge him to be sole
owner, then the antecedent title
must be assured and the family
arrangement will be upheld.”
15. Following the aforesaid decision,
CIT(Appeals) in facts of the case held as
under:
“In the appellant’s case, there is
no doubt, as seen from the agreementPage 24 of 96
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to refer to arbitration, the
Arbitration award and the memorandum
to give efface to the award, that
there were disputes in regard to
control and management of two public
Itd, companies CHL, CBL and three
private limited companies CIL, CML
and GCPL where both Sushil Kumar
Handa and Sunil Kumar Handa held
interest. GCPL held shares of CHL
and substantial interest in that
public limited company. Basically
what the award does is to realign
the voting rights in public limited
companies in such a manner that the
two sons of Baldevraj Handa will get
control of one company each and each
will not/have any say in the control
and management of other’s company.
For instance, clause 1(e) and (f) of
the award distributes the voting
rights of CHL as under :
Share holder in No. of shares in No. of shares in Equivalent No. of
CHL CHL held (In the shareholding shares in CHL
lakhs) company held by held by Mr.
Mr. Sunilkumar Sunilkumar fin
GCPL 79.81 NIL NIL
SEPL 43.5 NIL NIL
REPL (Rajbai 43.5 NIL NIL
Financial Private
Limited
Mr. Sunilkumar 17.87 n/a 17.87
Total 186.48 n/a 17.87
Mr. Sunilkumar’s Holding in CHL as of the total shares in CHL 5%
Share holder in No. of shares in No. of shares in Equivalent No. of
CHL CHL held (In the shareholding shares in CHL
lakhs) company held by held by Mr.
Mr. Sushilkumar Sushilkumar
GCPL 79.81 NIL 79.81
SEPL 43.5 NIL 43.5
REPL (Rajbai 43.5 NIL 43.5
Financial Private
Limited
Mr. Sunilkumar 6,08 n/a 6.08Page 25 of 96
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Total 172.89 N/a 172.89
Mr. Sushilkumar’s Holding in CHL as
of the total shares in CHLClause 2 of the award has similarly
adjusted the voting rights of CBL as
under:
2. SHARES IN CORE BIOTECH LIMITED
CBL has offered to its shareholders,
by way of rights, 5 (five) zero
interest fully convertible
debentures (ZIFCDs) for very equity
share held. I ward that Mr.
Sushilkumar shall renounce all his
rights entitlement which he has
received from CBL in favour of Mr.
Sunilkumar such that and thereafter
the number of shares in CBL held by
Mr. Sushilkumar shall be 5,67,560
(five lakhs sixty seven thousand
five hundred sixty) equivalent to
5.20% (five and twenty percent) of
the increased total paid-up share
capital of CBL after the conversion
of the aforesaid ZIFCDs rights,”
The shares of private limited
companies have been shifted from one
to another with a view to ensure the
above distribution of control and
management over the public limited
companies. That the two sons of
Baldevraj Handa had antecedent title
over both the public limited
companies is clear from the award
and agreement preceding it. The
shifting of shares of companies has
to be viewed from this over allPage 26 of 96
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settlement between the family
members of Baldevraj Handa and not
in isolation. It is not that the
companies themselves were made
parties to the family settlement as
presumed by the A.O. Likewise the
few outsiders” were not party to the
family settlement. It is clear from
the award that those persons were
holding the shares for and on behalf
of the family members. Only one
family was involved in the
settlement and not more than one
family as presumed by the A.O. That
one of the companies has declared
capital loss on the transfers does
not detract from the fact that there
was a family settlement. The
correctness of capital loss allowed
in the case of a company cannot be
decided upon in this appeal. What is
in issue is whether there was
settlement between Baldevraj Handa,
Sushil Kumar Handa and Sunilkumar
Handa. The Arbitrator’s award makes
it clear that there was such a
settlement. That there was money
transfer between parties to the
settlement cannot also detract from
the family settlement. As per the
award, Sushilkumar Handa, in terms
of control and management of public
company CHL and private company CIL
and GCPL, whereas Shri Sunilkumar
Handa got control and management of
CBL and CML [clause 13 and 14 of the
award]. This cross-consideration in
money covered the entire
distribution between the parties and
not merely swapping of shares.”
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16. CIT(Appeals) thereafter considered the
following decisions for the issue as to
whether share transfer can take place in
family settlement or not:
1) Ziauddin Ahmad vs CGT reported in 102 ITR
253
2) AL. Ramnathan vs ITO reported in 37 ITD
55(MAD).
17. CIT(Appeals) thereafter held as under:
“This statement of the law has been
affirmed by our Supreme Court in the
case of Kale. This position has been
reiterated by the Madras High Court
in the case of R. Poonammal. In The
present case, the existence of
disputes and the fact that
arrangement 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 recognized that
such realignment of interest would
not amount to a transfer For
instance, in the case of Ziauddin
Ahmed, as in the present case,Page 28 of 96
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shares in a company were all
transferred to one party to enable
the proper management of the company
and it was recognized 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 is consistent with the bona
fide family arrangement particularly
when it was arrived at the presence
of Panchayatdars. We find this
family arrangement to be in
conformity with the well-settled
propositions regarding the binding
effect and essentials of family
arrangement set out in page 711 of
164 ITR in the case of Poonammal by
the Madras High Court. The fact that
the document transferring the land
in pursuance of the family
arrangement was described as a gift
settlement for stamp duty purposes,
cannot conclude the issue whether
the entire transaction amounted to
family arrangement.”
18. After considering various decisions of
the Tribunal, CIT(Appeals) came to the
following conclusion:
“In the present case the settlement
was between the members of In the
same family and all had antecedentPage 29 of 96
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title to the properties covered
under the settlement. As already
observed, there is no findings in
appellant’s case that the settlement
is sham and it is aimed at tax
evasion.”
19. CIT(Appeals) allowed the appeal of the
assessee as under:
“Therefore, it is not correct to
equate the entire sum paid by the
appellant only to the shares of CHL
transferred by GCPL. In respect of
other shares as mentioned at page
No.60 also the AO has adopted a
rough and ready method to arrive at
the consideration for the transfer
of shares without giving any basis
to arriving at the value per share.
In any case, once it is held as
family settlement and consequently
no transfer for the reasons
discussed above, the issue of
computing the consideration for
computing capital gains does not
arise In the facts and circumstances
all of the addition made by the AO
as capital gains are deleted.”
20. Being aggrieved, the Revenue preferred
appeals before the Tribunal. The Tribunal
after taking into consideration the
submissions made on behalf of both the sides
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as well as findings of fact arrived at by the
CIT(Appeals) dismissed the appeals observing
as under:
“In pursuance of the Award, the
family settlement was entered into
among the family members. As per the
agreement of family settlement, the
assets were transferred from various
companies and individuals to
different companies and individuals
which are reproduced in para-16(i)
of the order of the CIT(A) given
hereinabove The AO was of the view
that since in accordance with the
family settlement, the shares by
various companies and individuals
were transferred to the family
members and other persons and
companies, therefore, the settlement
does not amount to family
settlement. The learned DR also
vehemently relied on this
observation of the AO. We have also
gone through the family settlement.
We find that it is only Shri
Baldevbhai Handa, Shri Sunilkumar
Handa and Sushilkumar Handa who are
the signatories to the family
settlement and no corporate body is
a party to the family settlement.
The family members of Shri
Sunilkumar Handa authorized Shri
Sunilkumar to take decision of the
various assets and liabilities on
the family settlement. Similarly,
the family members of Shri
Sushilkumar Handa have authorized
Shri Sushilkumar to take decision onPage 31 of 96
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the assets and liabilities as per
the family settlement. The corporate
body and other persons merely
facilitated their transfer of shares
from one another. To arrive at the
family settlement. Merely that to
arrive at the family settlement
among the members, some of the
shares of the outside parties have
also been transferred to facilitate
the family settlement, will not
prove that there is no family
settlement among the family members.
No cogent material or evidence was
brought to our knowledge by the
learned DR which may prove that the
outside parties or corporate body
were also parties to the family
settlement. It is a settled law that
when there is family settlement, no
capital gain can be imposed.”
21. The Tribunal also considered the
decision in case of Kale and others v. Deputy
Director of Consolidation and others reported
in (1976) 3 Supreme Court Cases 119 relied
upon on behalf of the Revenue and thereafter
held as under:
“17. The agreement entered into is
among the family members. The
Memorandum of Understanding has only
been signed by the family members,
which has been descended from a
common ancestor. It is an admitted
fact that in the case of thePage 32 of 96
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assessee, there was a dispute among
family members about their interest
and rights in the family properties
and the family business. Through the
Memorandum of Understanding, the
dispute among the family members has
been settled. No corporate entity or
outsider has been the party to the
Memorandum of family settlement.
Merely that some of the concerns in
which the family members were
holding shares have transferred the
shares in accordance with the family
settlement entered into among family
members, will not make the
Memorandum of family settlement not
to be a bona fide one Thus, in our
opinion, the essential conditions
for the family settlement as have
been mentioned by the Hon’ble
Supreme Court in the said decision
have been duly fulfilled in the case
of the assessee.”
22. Considering the decision in case of CIT
v. A N Naik reported in 256 ITR 246 (Mum),
relied upon by the Revenue, the Tribunal held
as under:
“18. The next decision relied upon
by the learned DR is that of the
Hon’ble Mumbai High Court in the
case of CIT v AN Naik Associates and
another 265 ITR 346 (Mum). We have
gone through this decision also. We
find that in that case the question
before the High Court was about the
interpretation of sec. 45(4) of thePage 33 of 96
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LT. Act. Whether distribution of
capital assets of the firm among the
partners at retirement, will also be
covered by the provisions of sec.
45(4) of the Act. The question
involved in that decision is not
relating to the family arrangement.”
23. The Tribunal after considering the
decisions cited at bar on behalf of the
assessee dismissed the appeal of the Revenue
by observing as under:
“In view of the aforesaid cases, it
is clear that a compromise or family
settlement is based on the
assumption that there is an
antecedent title, interest or right
of some sort in the parties and the
agreement so entered into
acknowledges and defines what that
title is, each party relinquishing
all claims to the property other
than that falling to his share and
recognizing the right of others, as
they had previously ascertained it
to the portions allotted to them
respectively. The “family” has to be
The understood in a wider sense so
as to include within its fold not
only close relations or legal heirs
but even those persons who may have
some sort of antecedent title, a
semblance of a claim or even if they
have a spes succession is so that
the future disputes are settled for
ever in the larger interest of the
family. In the present case, therePage 34 of 96
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was a family settlement among the
father and two sons. The shares have
been transferred in accordance with
the family arrangement so as to
realign the interest among family
members and this would not amount
transfer liable to capital gains.
The bona fide of the family
arrangement in the case of the
assessee can not be doubted. The
CIT(A) has examined the submissions
D of the learned OR which were
reiterated before us in detail and
dealt with exhaustively. After
appreciating all the facts of the
case, no cogent material or evidence
was brought to our knowledge which
may persuade us to take a different
view from the view taken by the
CIT(A), The findings given by the
CIT(A) are based on the basis of the
law laid down by the Hon’ble Supreme
Court and other legal luminaries in
respect of family settlement. We
agree with the findings given by the
CIT(A) in respect of each and every
plea taken by the AO In our view, no
interference is called for in the
order of the CIT(A) and we do not
find any illegality or infirmity in
the reasoning given by the CIT(A)
white holding that the Memorandum of
family settlement entered into
between the assessee, his brother
and his father, to be a bona fide
one, specially when the Arbitration
Award has been pronounced by the
sole arbitrator Ex-Hon’ble Chief
Justice of High Court Justice Shri
BJ Diwan and the memorandum of
family settlement has been executedPage 35 of 96
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in consequence of such award. The
memorandum of family settlement is
just to implement the arbitration
award. The bonafide of the award has
not been challenged by the Revenue,
therefore, no question of treating
the memorandum of family settlement
to be a non-genuine arise. We also
agree with the CIT(A) that no
capital gain arises on the transfer
of the shares in the case of the
assessee as all the shares have been
transferred in pursuance of the
family arrangement/settlement and it
can not be regarded to be a transfer
for a consideration. Even for the
purpose of sec. 45 it can not be
regarded to be a transfer when it is
for implementing the family
arrangement/settlement. We therefore
confirm the order of the CIT(A) by
adopting the reasoning given by the
CIT(A) in this regard and
accordingly dismiss the appeals of
the Revenue for both the years.”
24. Learned Senior Standing Counsel Maunil
G. Yajnik for the appellant Revenue submitted
that both CIT(Appeals) and the Tribunal have
committed an error of law in holding that the
shares transferred by the entities like
limited companies and third parties who are
not party either to the Deed of family
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arrangement or the arbitral award and the
subsequent settlement deed, would amount to
transfer under the provisions of section 247
of the Act and therefore, the Assessing
Officer has rightly invoked the provisions
for levy of capital gains under section 45 of
the Act holding that transfer to and from
Corporate entities cannot be part of the
family settlement and Outsiders like friends,
associates and other persons cannot be
subject to any family settlement.
25. It was further submitted that both the
CIT(Appeals) and the Tribunal have ignored
the fact that consideration in terms of money
has passed between the parties to family
settlement and therefore, such family
settlement arrived at between the parties
would amount to transfer of the assets.
26. In support of his submission, reliance
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was placed on the following decisions:
1) P.P.Mahatme v. Assistant Commissioner of
Income-tax, Circle-2, Margao reported in
(2020) 420 ITRE 71 (Bom.) wherein reliance
was placed on para no.36 which reads as
under:
“36. The family settlement referred
to in Sachin Ambulkar (supra) was a
settlement amongst family members in
the context of their ‘preexisting
right’. In this context, the ITAT
whose decision was questioned by the
Revenue in the case of Sachin
Ambulkar (supra), had held that
since the settlement ‘only defines a
preexisting joint interest as
separate interests, there is no
conveyance, if the arrangement is
bonafide’. Since there is no
conveyance, there is no need for
registration of such arrangements,
when orally made, even if later on
reduced to writing. The ITAT,
thereafter, followed the decision of
the Hon’ble Apex Court in the case
of Mahuri Pallaiah v. Maturi
Narasimham AIR 1966 (SC) 1836 and
held that where there is no transfer
of assets in the family arrangement
and the amount received by the
Assessee is part of the family
arrangement and not towards the
transfer of any capital assets, suchPage 38 of 96
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amount cannot be regarded as a
capital gain and no capital gains
tax liability arises. In Sachin
Ambulkar (supra), this Court
declined to interfere with the view
taken by the ITAT by observing that
the decision of the ITAT ‘is based
on facts. Hence no question of law
arises’.”
2) B.A. Mohota Textiles Traders (P) Ltd. v.
Deputy Commissioner of Income-tax, Special
Range-2 reported in (2017) 397 IR 616 (Bom),
wherein reliance was placed on the following
paragraphs:
“9. We have considered the rival
submissions. There is no dispute
before us that a family arrangement/
settlement would not amount to a
transfer. In fact, all the three
Authorities under the Act have not
disputed the aforesaid position in
law. So far as the members of Mohota
family are concerned, who are
parties to the family settlement,
any transfer inter se between them
on account of family settlement
would not result in a transfer so as
to attract the provisions of the
Capital gain tax under the Act.
However, in the present case, we are
not concerned with the members of
Mohota family who were parties to
the family settlement, but with
transfer of share done by thePage 39 of 96
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Company incorporated under the
Companies Act having
separate/independent corporate
existence, perpetual succession and
common seal. This Company is
independent and distinct from it’s
members. In fact, this principle
dates back to the decision of House
of Lords in Saloman v. Saloman & Co.
Ltd., 1897 AC 22. Our Court in T.R.
Pratt (Bombay) Ltd. v. E.D. Sassoon
and Co. Ltd. AIR 1936 Bom. 62 has
observed as under :
” As held in 1897 A.C. 22 (23),
under the law, an incorporated
Company is a distinct entity and
although shares may be practically
controlled by one person, in law a
Company is a distinct entity and it
is not relevant to enquire whether
the directiors belonged to the same
family or whether it is
compendiously described ‘a one-man
Company.”
10. However, the Courts have
permitted the lifting of corporate
veil to prevent injustice. One such
class of cases, where the Court has
disregarded the corporate entity is
where it is used for tax evasion. A
classic illustration of this is
found In Re. Dinshaw Maneckjee Petit
AIR 1927 (Bom.) 371, where the Court
lifted the corporate veil as it
found that “the Company in this case
was formed by the assessee purely
and simply as a means of avoiding
super tax and that the Company was
nothing more than the Assessee
himself. It did no business but was
created purely and simply as a legal
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entity to ostensibly receive
dividends and interest and handed
them over to the assessee as
pretended loan”. In the present
case, the Revenue does not seek to
lift the corporate veil. It is not
the case of the Revenue that the
Corporate identity is a sham and it
has been formed only to circumvent
the law. In this case, it is the
Assessee which seeks to lift the
corporate veil so as to identify the
members of the Assessee/Company as
those who entered into family
settlement as reflected in the
Arbitration Award dt.30.4.1994 and
call upon the authority to ignore
the corporate existence of the
Appellant. This lifting of the
corporate veil is not allowed when
it is not for the benefit of the
Revenue. The Apex Court in the case
of Mrs. Bacha F. Guzdar v. CIT
[1955] 27 ITR 1 (SC) has inter alia
observed that “A shareholder has no
interest in the property of the
Company….. It has only a right to
participate in the profits of the
Company as and when the Company
decides to divide them. The Company
is a juristic person and is distinct
different from it’s share holders.
It is the Company which owns the
property and not the share holders.”
Therefore, the attempt of the share
holder to lift the corporate veil at
the instance of the share holder was
rejected. In this case also, shares
in M/s.R.S.Rekhchand Mohota Spinning
and Weaving Mills Ltd. and M/s.
Vaibhav Textiles Pvt. Ltd. are held
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by the appellant/assessee and not
it’s members. The members,
therefore, cannot claim any rights
to the property of
appellant/assessee Company i.e.
shares of M/s.R.S.Rekhchand Mohota
Spinning and Weaving Mills Ltd. and
M/s. Vaibhav Textiles Pvt. Ltd. as
rightly held by the Authorities
under the Act.
11. The submission of learned
Counsel Mr.Thakkar that the entire
transaction should be looked at
wholistically bearing in mind the
purpose and object of the settlement
as recorded in the Arbitration Award
dt.30.4.1994 so as to settle the
dispute between members of the
family and it was to achieve
aforesaid objective that the shares
in the appellant/assessee were
directed to be transferred. The
objective/purpose of family
settlement would restrict itself
only to the persons who entered into
the family arrangement and are part
of the settlement. It cannot extend
to the persons who are strangers to
the settlement. In this case,
admittedly, the Appellant/assessee
is not a member of Mohota family so
as to be a part of the family
settlement. The appellant/assessee
having been formed under the
Companies Act have certain
advantages and disadvantages
attached to it. But once a Company
comes into existence under the
provisions of the Companies Act and
it is considered to be an
independent entity, then it’s
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obligation under the law as a
separate legal entity has to be
complied with and settlement arrived
at between it’s members cannot
discharge the appellant/assessee
from complying with it’s obligations
under the Law. It was also contended
that the Appellant/assessee had no
volition in transferring the shares.
This submission overlooks the fact
that an artificial entity such as a
Company only acts through it’s
Directors and in no case, does the
Company has a mind of it’s own to
decide the course of action to be
adopted.
12. It was also submitted that no
consideration was received by the
Appellant/assessee for the transfer
of shares. It is submitted that the
fair market value of
M/s.R.S.Rekhchand Mohota Spinning
and Weaving Mills Ltd. arrived at
Rs.225/- per share and that of M/s.
Vaibhav Textiles Pvt. Ltd. arrived
at Rs.10/-per share by the
Arbitrator was only for the purposes
of adjustment of rights amongst the
parties. This submission overlooks
the fact that the Arbitration Order
annexed to the decree (Page 62 of
the Appeal memo) itself records that
the shares in M/s.R.S.Rekhchand
Mohota Spinning and Weaving Mills
Ltd. and M/s. Vaibhav Textiles Pvt.
Ltd. are to be transferred at a
consideration of Rs.225/- and
Rs.10/- per share respectively.
Thus, the consideration has been
determined and accepted by the
members of the family, who are in
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management of the Assessee/Company.
13. Mr.Thakkar, learned Counsel also
placed reliance upon the decision of
the Calcutta High Court in the case
of Shaw Wallace and Co. Ltd. (supra)
in support of the submission that
one is entitled to lift corporate
veil and look behind to find out who
are the real persons in control of
the incorporated Company. In the
aforesaid case, the issue was with
regard to amalgamation of 100%
subsidiary company to it’s holding
company. The question which arose
for consideration before the
Calcutta High Court was whether an
amalgamation between holding and
subsidiary Companies would amount to
transfer of capital asset in terms
of Section 45 r/w. 2 (47) of the
Act. The Calcutta High Court
specifically referred to Section 47
of the Act and in particular, to
Section 47, sub-clause (v) of the
Act to hold that a transfer by a
subsidiary company to the holding
Company of the whole of it’s share
capital will not be regarded as
transfer for the purposes of
computing capital gains under
Chapter IV-E of the Act. Further
observations made by the Calcutta
High Court to the effect that, on
looking behind the facade of the
Company, one would notice that all
the assets of the subsidiary company
are held by it’s parent company
which owns 100 % of it’s shares. The
aforesaid observations of the
Calcutta High Court seems to provide
the rationale for Section 47(v) of
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the Act in excluding a transfer of
the entire share capital of a
subsidiary to it’s holding company
which owns 100% of it’s shares from
being considered a transfer. In the
present facts, we are not concerned
with transfer between holding and
subsidiary companies. It is not the
case of the appellant that Section
47 of the Act is applicable.
14. Further, lifting of corporate
veil at the instance of the assessee
would mean that it is denying it’s
corporate existence. This, after
taking advantage of the separate
existence of a Company under the
Act. Therefore, after having
incorporated the Limited Company and
given it separate existence from
it’s share holders, it is not open
to the Company to urge “Please
ignore my separate existence and
look at the persons behind me.” If
that be so, the Appellant/Company
must opt for voluntarily winding up
and then the shares being allotted
to the individual members on
liquidation would be governed by the
family arrangement/settlement.
15. In the above view, the Tribunal
was correct in holding that the
transaction of transfer of shares by
the independent corporate entity was
assessable to capital gain tax.
Therefore, the substantial questions
of law which arise for our
consideration are all decided in
favour of the respondent/revenue and
against the appellant/assessee.
Accordingly, the appeal is
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dismissed. No order as to costs.
3) Banarsi Lal Aggarwal v. Commissioner of
Gift-tax reported in (1998) 230 ITR 114
(Punjab & Haryana) wherein reliance was
placed on para no.11 which reads as under:
“11. The Supreme Court of India in
Kale v. Dy. Director of
Consolidation AIR 1976 SC 807 has
clearly laid down that the members
of the family claiming partition
must have antecedent title, claim or
interest in the disputed property.
It was also held that the family
settlement must be bona fide so as
to resolve the family dispute.”
27. It was therefore submitted that the
question of law admitted by this Court may be
answered in favor of the Revenue holding that
the arrangement for transfer of property as
part of family settlement is subjected to
capital gain tax.
28. On the other hand, learned Senior
Advocate Mr. S.N. Soparkar appearing for the
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respondent assessee submitted that as per the
arbitration agreement between the parties
only the family members are the signatories
and no other outsider or company is party to
such arbitration agreement or arbitral award
passed by the sole arbitrator Hon’ble Mr.
Justice B.J. Diwan, Ex-Chief Justice of High
Court of Gujarat which was also reduced in
writing by the family members giving effect
to the arbitration award. It was therefore,
submitted that the contention raised on
behalf of the Revenue that Corporate
Companies and outsiders have transferred the
shares and therefore, the assessee is liable
for capital gains is contrary to the facts
and the concurrent findings arrived at by
both the CIT(Appeals) and the Tribunal.
29. In support of his submission, reliance
was placed on the decision in case of
Commissioner of Income Tax, Mumbai v. Sachin
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P. Ambulkar reported in (2014) 221 Taxman 67
(Bombay) wherein in similar facts, Bombay
High Court dismissed the appeal of the
Revenue holding as under:
“3. The ITAT following the decision
of the Apex Court in the case of
Maturi Pullaiah v. Maturi Narasinham
AIR 1966 SC 1836, held that there is
no transfer of assets in the family
arrangement and the amount received
by the assessee is part of the
family arrangement and not towards
the transfer of any capital assets
and hence no Capital Gains Tax
liability arises. In our opinion,
the decision of the ITAT is based on
finding of facts, hence no question
of law arises. Accordingly, the
appeal is dismissed.”
30. Referring to the facts of the case, it
was pointed out from the paper book filed by
the assessee containing the papers which were
available before the authorities that in the
arbitration agreement as well as arbitral
award passed by the arbitrator, there is only
reference to division of the two main
companies Core Healthcare Limited and Core
Biotech Ltd. between the two brothers and for
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that purpose, family settlement agreement is
arrived at signed by all the family members.
31. It was submitted that genuineness of the
family arrangement is not doubted by the
Assessing Officer and the same is considered
by both the CIT(Appeals) and the Tribunal.
32. In support of his submission, learned
Senior Counsel Mr. Soparkar referred to and
relied upon the following decisions:
1) Kale and others v. Deputy Director of
Consolidation and others (supra)
2) Hansa Industries (P) Ltd. and others v.
Kidarsons Industries (P) Ltd. reported in
(2006) 8 Supreme Court Case 531
3) Ganesh (Dead) Through Lrs. and others v.
Ashok and another reported in (2011) 15
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Supreme Court Cases 417.
4) Ravinder Kaur Grewal and others v. Manjit
Kaur and others reported in (2020) 9 Supreme
Court Cases 706.
5) Commissioner of Income Tax v. Kay Arr
Enterprise reported in (2008) 299 ITR 348
Madras.
6) Commissioner of Gift-tax v. Valluru
Venkateswara Rao reported in (1980) 123 ITR
54.
33. Referring to the above decisions, it was
submitted that the concurrent findings of
fact arrived at by both CIT(Appeals) and the
Tribunal does not require any interference as
the disputes between the family members are
resolved through a genuine family settlement
deed followed by arbitral award which is not
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in dispute or doubted by the Revenue and
therefore, the transactions sought to be
roped in for taxable capital gains for which
addition made on behalf of the Assessing
Officer has rightly been deleted by the
CIT(Appeals) and the Tribunal.
34. It was therefore, submitted that appeal
be dismissed by answering the question of law
in favour of the assessee and against the
Revenue.
35. Having heard the learned advocates for
the respective parties and having considered
the facts, evidence and case laws cited at
bar, both CIT(Appeals) and the Tribunal have
arrived at concurrent findings of fact.
36. The question of law is based upon the
implication of the agreement of family
settlement dated 21.01.1995 for settling the
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disputes amongst the family members. The
respondent assessee – Shri Sunilkumar
Baldevraj Handa entered into family
arrangement deed with his father Shri
Baldevraj Handa and Shri Sushilkumar Handa
for settling their disputes by referring the
disputes to arbitration and appointed Hon’ble
Mr. Justice BJ Diwan, Ex-Chief Justice of
Gujarat High Court. Clauses (e), (f) and (g)
of the agreement reproduced here-in-above
clearly describes the disputes between the
assessee, his brother and father. Hon’ble Mr.
Justice BJ Diwan, by award dated 26.04.1994
settled the disputes between the three family
members as reproduced here-in-above in para
5(a) to (f) of the award.
37. The assessee along with his brother and
father have implemented the award by entering
into Memorandum of Family Settlement dated
23.06.1995. The appellant Revenue has not
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doubted the genuineness of the award which is
implemented by the parties as a family
arrangement to resolve the disputes.
38. On perusal of the settlement agreement
arrived at between the parties to implement
the arbitral award, the assets were
transferred from various companies and
individuals to different companies as per the
shareholding of the assessee, his brother and
father which is reproduced here-in-above from
the order of CIT(Appeals).
39. The contention was raised on behalf of
the Revenue that though the companies who
were not party to the settlement agreement
have transferred the shares and therefore,
the settlement agreement cannot be termed as
a family settlement as other corporate bodies
who are not party to the settlement agreement
have also transferred the shares inter-se.
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Even the outsiders i.e. friends and other
relatives who are not party to the settlement
have also transferred the shares from one
company to another.
40. At first blush, the above contention
appears to be very attractive however, when
we peruse the settlement agreement and the
transactions which have taken place as
enumerated in detail by CIT(Appeals) in the
order, it is apparent that all the
transactions between one company to other
company and the individual companies are only
with a view to facilitate the transfer of
shares as per the settlement agreement
entered into between the assessee, his father
and brother.
41. So far as the assessee is concerned, the
transfer of shares would not give rise to any
taxable event and because of transfer of
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shares by one company to another for any
consideration, taxable event would occur in
assessment of those companies for which the
assessee is not liable and appropriate
taxability is required to be fixed and is
already fixed in the assessment of those
companies who have paid the capital gains tax
in accordance with law.
42. In view of above facts emerging from the
record which is not in dispute, both the
CIT(Appeals) and the Tribunal have therefore,
arrived at concurrent findings of fact that
no taxable event has taken place in the hands
of the assessee.
43. Reliance placed by the learned advocate
for the appellant-Revenue on the decision in
case of P.P.Mahatme (supra), pertains to what
can be considered as family settlement. In
the facts of the said case, Shri P.P. Mahatme
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was the power of attorney holder to Lorna
Margaret Pinto who was a Non Resident Indian
and a dispute arose between the parties and
his sister relating to immovable property in
the State of Goa. It was sought to be usurped
by the relatives of the appellant and
accordingly, a Civil Suit was filed which was
disposed of by consent decree and as per
consent decree, the appellant received money
which was sought to be taxed as capital
gains. The appellant therefore, raised a
dispute that it was a family settlement in
absence of any pre-existing right in favour
of the appellant.
44. In such facts, the Hon’ble Bombay High
Court reversed the decision of the Tribunal
by distinguishing the decision in case of
Kale and others v. Deputy Director of
Consolidation and others (supra) in view of
clear and cogent material available on record
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to establish that the relatives of appellant
had no right in the immovable property which
was the subject matter of dispute and
therefore, settlement between the appellant
and the relatives cannot be described as
family settlement.
45. However, in the facts of the present
case, there was a family settlement between
the assessee, his father and brother after
the arbitral award was passed with respect to
the right in property which was distributed
as per the terms of settlement.
46. Similarly, reliance placed on decision
in case of B.A. Mohota Textiles Traders (P)
Ltd. (supra), would not be applicable in
facts of the present case because in the
facts of the said case, the question of
taxable event in the hands of the company was
decided whereas in facts of the present case
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the question of taxability of the shares
transferred pursuant to the settlement deed
cannot be considered and whether the
companies in whose favour taxable event has
taken place has discharged its liability or
not cannot have any impact on the tax
liability of the assessee who is an
individual.
47. Reliance placed on the decision in case
of Banarsi Lal Aggarwal v. Commissioner of
Gift-tax (supra), would also not be
applicable in the present case because in the
said case, there was no valid family
settlement amongst the members of the family
and decree obtained from the Civil Court was
collusive whereas in facts of the present
case there is no doubt raised regarding the
genuineness of the family settlement between
the parties.
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48. However, the ratio laid down by the
Hon’ble Apex Court in the following decisions
would squarely be applicable to the facts of
the case:
1) Kale and others v. Deputy Director of
Consolidation and others (supra), wherein it
is held as under:
“9. Before dealing with the
respective contentions put forward
by the parties, we would like to
discuss in general the effect and
value of family arrangements entered
into between the parties with a view
to resolving disputes once for all.
By virtue of a family settlement or
arrangement members of a family
descending from a common ancestor or
a near relation seek to sink their
differences and disputes, settle and
resolve their conflicting claims or
disputed titles once for all in
order to buy peace of mind and bring
about complete harmony and good will
in the family. The family
arrangements are governed by a
special equity peculiar to
themselves and would be enforced if
honestly made. In this connection,
Kerr in his valuable treatise “Kerr
on Fraud” makes the following
pertinent observations regarding the
nature of the family arrangementPage 59 of 96
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which may be extracted thus:
“The principles which apply to
the case of ordinary compromise
between strangers, do not
equally apply to the case of
compromises in the nature of
family arrangements. Family
arrangements are governed by a
special equity peculiar to
themselves, and will be enforced
if honestly made although they
have not been meant as a
compromise, but have proceeded
from an error of all parties,
originating in mistake or
ignorance of fact as to what
their rights actually are, or of
the points on which their rights
actually depend.”
The object of the arrangement is
to protect the family from long
drawn litigation or perpetual
strife’s which mar the unity and
solidarity of the family and
create hatred and bad blood
between the various members of
the family. To-day when we are
striving to build up an
egalitarian society and are
trying for a complete
reconstruction of the society,
to maintain and uphold the unity
and homogeneity of the family
which ultimately results in the
unification of the society and,
therefore, of the entire
country, is the prime need of
the hour. A family arrangement
by which the property is
equitably divided between the
various contenders so as toPage 60 of 96
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achieve an equal distribution of
wealth instead of concentrating
the same in the hands of a few
is undoubtedly a milestone in
the administration of social
justice. That is why the term
“family” has to be understood
in a wider sense so as to
include within its fold not only
close relations or legal lins
but even those persons who may
have some sort of antecedent
title, a semblance of a claim or
even if they have a spes
succession is so that future
disputes are sealed for ever and
the family instead of fighting
claims inter se and wasting
time, money and energy on such
fruitless or futile litigation
is able to devote its attention
to more constructive work in the
larger interest of the country.
The Courts have, therefore,
leaned in favour of upholding a
family arrangement instead of
disturbing the same on technical
or trivial grounds. Where the
Courts find that the family
arrangement suffers from a legal
lacuna or a formal defect the
rule of estoppel is pressed into
service and is applied to shut
out plea of the person who being
a party to family arrangement
seeks to unsettle a settled
dispute and claims to revoke the
family arrangement under which
he has himself enjoyed some
material benefits. The law in
England on this point is almostPage 61 of 96
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the same. In Halsbury’s Laws of
England, the following apt
observations regarding the
essentials of the family
settlement and the principles
governing the existence of the
same are made:
“A family arrangement is an
agreement between members of the
same family, intended to be
generally and reasonably for the
benefit of the family either by
compromising doubtful or
disputed rights or by preserving
the family property or the peace
and security of the family by
avoiding litigation or by saving
its honour.
The agreement may be implied
from a long course of dealing,
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 which are not
applicable to dealings between
strangers. The court, when
deciding the rights of parties
under family arrangements or
claims to upset such
arrangements, considers what in
the broadest view of the matter
is most for the interest of
families, and has regard to
considerations which, in dealing
with transactions between
persons not members of the same
family, would not be taken intoPage 62 of 96
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account. Matters which would be
fatal to the validity of similar
transactions between strangers
are not objections to the
binding effect of family
arrangements.”
10. In other words to put the
binding effect and the essentials of
a family settlement in a concretised
form, the matter may be reduced into
the form of the following
propositions:
(1) The family settlement must
be a bona fide one so as to
resolve family disputes and
rival claims by a fair and
equitable division or allotment
of properties between the
various members of the family.
(2) The said settlement must be
voluntary and should not be
induced by fraud, coercion or
undue influence;
(3) The family arrangements may
be even oral in which case no
registration is necessary;
(4) It is well settled that
registration would be necessary
only if the terms of the family
arrangement are reduced into
writing. Here also, a
distinction should be made
between a document containing
the terms and recitals of a
family arrangement made under
the document and a mere
memorandum prepared after the
family arrangement had already
been made either for the purposePage 63 of 96
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of the record or for information
of the court for making
necessary mutation. In such a
case the memorandum itself does
not create or extinguish any
rights in immoveable properties
and therefore does not fall
within the mischief of Section
17 (2) (sic) (Sec. 17 (1) (b) -)
of the Registration Act and is,
therefore, not compulsorily
registrable;
(5) The members who may be
parties to the family
arrangement must have some
antecedent title, claim or
interest even a possible claim
in the property which is
acknowledged by the parties to
the settlement. Even if one of
the parties to the settlement
has not title but under the
arrangement the other party
relinquishes all its claims or
titles in favour of such a
person and acknowledges him to
be the sole owners, then the
antecedent title must be assumed
and the family arrangement will
be upheld and the Courts will
find no difficulty in giving
assent to the same;
(6) Even if bona fide disputes,
present or possible, which may
not involve legal claims are
settled by a bona fide family
arrangement which is fair and
equitable the family arrangement
is final and binding on the
parties to the settlement.
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11. The principles indicated above
have been clearly enunciated and
adroitly adumbrated in a long course
of decisions of this Court as also
those of the Privy Council and other
High Courts’ which we shall discuss
presently.
12. In Khunni Lal V/s. Gobind
Krishna Narain, (1911) 38 Ind App
87, 102 (PC) the statement of law
regarding the essentials of a valid
settlement was fully approved of by
their Lordships of the Privy
Council. In this connection, the
High Court made the following
observations which were adopted by
the Privy Council;
“The learned judges say as
follows:
“The true character of the
transaction appears to us to
have been a settlement between
the several members of the
family of their disputes, each
one relinquishing all claim in
respect of all property in
dispute other than that falling
to his share, and recognizing
the right of the others as they
had previously asserted it to
the portion allotted to them
respectively. It was in this
light, rather than as conferring
a new distinct title on each
other, that the parties
themselves seem to have regarded
the arrangement, and we think
that it is the duty of the
Courts to uphold and give full
effect to such an arrangement.”Page 65 of 96
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Their Lordships have no
hesitation in adopting that
view.”
This decision was fully endorsed
by a later decision of the Privy
Council in Mt. Hiran Bibi V/s.
Mt. Sohan Bibi, AIR 1914 PC 44.
13. In Sahu Madho Das V/s. Mukand
Ram, (1955) 2 SCR 22, 42-43 = (AIR
1955 SC 481, 490, 491) this Court
appears to have amplified the
doctrine of validity of the family
arrangement to the farthest possible
extent, where Bose, J., speaking for
the Court, observed as follows:
It is well settled that a
compromise or family arrangement
is based on the assumption that
there is an antecedent title of
some sort in the parties and the
agreement acknowledges and
defines what that title is, each
party relinquishing all claims
to property other than that
falling to his share and
recognising the right of the
others, as they had previously
asserted it, to the portions
allotted to them respectively.
That explains why no conveyance
is required in these cases to
pass the title from the one in
whom it resides to the persons
receiving it under the family
arrangement. It is assumed that
the title claimed by the person
receiving the property under the
arrangement had always resided
in him or her so far as the
property falling to his or herPage 66 of 96
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share is concerned and therefore
no conveyance is necessary. But,
in our opinion, the principle
can be carried further and so
strongly do the Courts lean in
favour of family arrangements
that bring about harmony in a
family and do justice to its
various members and avoid in
anticipation, future disputes
which might ruin them all, and
we have no hesitation in taking
the next step (fraud apart) and
upholding an arrangement under
which one set of members
abandons all claim to all title
and interest in all the
properties in dispute and
acknowledges that the sole and
absolute title to all the
properties resides in only one
of their number (provided he or
she had claimed the whole and
made such an assertion of title)
and are content to take such
properties as are assigned to
their shares as gifts pure and
simple from him or her, or as a
conveyance for consideration
when consideration is present.”
14. In Ram Charan Das V/s.
Girjanandini Devi, (1965) 3 SCR 841
this Court observed as follows:
“Courts give effect to a family
settlement upon the broad and
general ground that its object
is to settle existing or future
disputes regarding property
amongst members of a family. The
word ‘family’ in the context is
not to be understood in a narrowPage 67 of 96
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sense of being a group of
persons who are recognised in
law as having a right of
succession or having a claim to
a share in the property in
dispute … … … …. The
consideration for such a
settlement, if one may put it
that way, is the expectation
that such a settlement will
result in establishing or
ensuring amity and goodwill
amongst persons bearing
relationship with one another.
That consideration having been
passed by each of the disputants
the settlement consisting of
recognition of the right
asserted by each other cannot be
permitted to be impeached
thereafter.”
15. In Tek Bahadur Bhujil V/s. Debi
Singh Bhujil, AIR 1966 SC 292, 295
it was pointed out by this Court
that a family arrangement could be
arrived at even orally and
registration would be required only
if it was reduced into writing. It
was also held that a document which
was no more than a memorandum of
what had been agreed to did not
require registration. This Court had
observed thus:
“Family arrangement as such can
be arrived at orally. Its terms
may be recorded in writing as a
memorandum of what had been
agreed upon between the parties.
The memorandum need not be
prepared for the purpose of
being used as a document onPage 68 of 96
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which future title of the
parties be founded. It is
usually prepared as a record of
what had been agreed upon so
that there be no hazy notions
about it in future. It is only
when the parties reduce the
family arrangement in writing
with the purpose of using that
writing as proof of what they
had arranged and, where the
arrangement is brought about by
the document as such, that the
document would require
registration as it is then that
it would be a document of title
declaring for future what rights
in what properties the parties
possess.”
16. Similarly in Maturi Pullaiah
V/s. Maturi Narasimham, AIR 1966 SC
1836 it was held that even if there
was no conflict of legal claims but
the settlement was a bona fide one
it would be sustained by the Court.
Similarly it was also held that even
the disputes based upon ignorance of
the parties as to their rights were
sufficient to sustain the family
arrangement. In this connection this
Court observed as follows:
“It will be seen from the said
passage that a family
arrangement resolves family
disputes, and that even disputes
based upon ignorance of parties
as to their rights may afford a
sufficient ground to sustain it.
XXXXX
Briefly stated, though conflictPage 69 of 96
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of legal claims in praesenti or
in futuro is generally a
condition for the validity of a
family arrangement, it is not
necessarily so. Even bona fide
disputes present or possible,
which may not involve legal
claims will suffice. Members of
a joint Hindu family may, to
maintain peace or to bring about
harmony in the family, enter
into such a family arrangement.
If such an arrangement is
entered into bona fide and the
terms thereof are fair in the
circumstances of a particular
case, Courts will more readily
give assent to such an
arrangement than to avoid it.”
17. In Krishna Biharilal V/s.
Gulabchand, (1971) Supp. SCR 27, 34
it was pointed out that the word
‘family’ had a very wide connotation
and could not be confined only to a
group of persons who were recognised
by law as having a right of
succession or claiming to have a
share. The Court then observed:
“To consider a settlement as a
family arrangement, it is not
necessary that the parties to
the compromise should all belong
to one family.
“As observed by this Court in
Ram Charan Das V/s. Girjanandini
Devi, (1965) 3 SCR 841 – the
word “family” in the context of
a family arrangement is not to
be understood in a narrow sense
of being a group of persons whoPage 70 of 96
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are recognised in law as having
a right of succession or having
a claim to a share in the
property in dispute. If the
dispute which is settled is one
between near relations then the
settlement of such a dispute can
be considered as a family
arrangement – See Ramcharan
Das’s case.
The courts lean strongly in
favour of family arrangements to
bring about harmony in a family
and do justice to its various
members and avoid in
anticipation future disputes
which might ruin them all.”
18. In a recent decision of this
Court is S. Shanmugam Pillai, V/s.
K. Shanmugam Pillai, (1973) 2 SCC
312 the entire case law was
discussed and this Court observed as
follows:
“If in the interest of the
family properties or family
peace the close relations had
settled their disputes amicably,
this Court will be reluctant to
disturb the same. The courts
generally lean in favour of
family arrangements.
XXXXX
Now turning to the plea of
family arrangement, as observed
by this Court in Sahu Madho Das
V/s. Mukand Ram, (1955) 2 SCR 22
– the courts lean strongly in
favour of family arrangements
that bring about harmony in aPage 71 of 96
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family and do justice to its
various members and avoid, in
anticipation, future disputes
which might ruin them all. As
observed in that case the family
arrangement can as a matter of
law be inferred from a long
course of dealings between the
parties.
In Maturi Pullaiah V/s. Maturi
Narasimham,. AIR 1966 SC 1836 –
this Court held that although
conflict of legal claims in
praesenti or in futuro is
generally a condition for the
validity of family arrangements,
it is not necessarily so. Even
bona fide disputes present or
possible, which may not involve
legal claims would be
sufficient. Members of a joint
Hindu family may, to maintain
peace or to bring about harmony
in the family, enter into such a
family arrangement. If such an
agreement is entered into bona
fide and the terms thereto are
fair in the circumstances of a
particular case, the courts
would more readily give assent
to such an agreement than to
avoid it.”
19. Thus it would appear from a
review of the decisions analysed
above that the Courts have taken a
very liberal and broad view of the
validity of the family settlement
and have always tried to uphold it
and maintain it. The central idea in
the approach made by the Courts is
that if by consent of parties aPage 72 of 96
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matter has been settled, it should
not be allowed to be re-opened by
the parties to the agreement on
frivolous or untenable grounds.
20. A Full Bench of the Allahabad
High Court in Ramgopal V/s. Tulshi
Ram AIR 1928 All 641, 649 has also
taken the view that a family
arrangement could be oral and if it
is followed by a petition in Court
containing a reference to the
arrangement and if the purpose was
merely to inform the Court regarding
the arrangement, no registration was
necessary. In this connection the
full bench adumbrated the following
propositions in answering the
reference:
“We would, therefore return the
reference with a statement of
the following general
propositions:
With reference to the first
question:
(1) A family arrangement can be
made orally.
(2) If made orally, there being
no document, no question of
registration arises.
With reference to the second
question:
(3) If though it could have been
made orally, it was in fact
reduced to the form of a
“document’ registration (when
the value is Rs. 100 and
upwards) is necessary.
(4) Whether the terms have been
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“reduced to the form of a
document” is a question of fact
in each case to be determined
upon a consideration of the
nature and phraseology of the
writing and the circumstances in
which and the purpose with which
it was written.
(5) If the terms were not
“reduced to the form of a
document”, registration was not
necessary (even though the value
is Rs. 100 or upwards); and,
while the writing cannot be used
as a piece of evidence for what
it may be worth, e.g. as
corroborative of other evidence
or as an admission of the
transaction or as showing or
explaining conduct.
(6) If the terms were “reduced
to the form of a document” and,
though the value was Rs. 100 or
upwards, it was not registered,
the absence of registration
makes the document inadmissible
in evidence and is fatal to
proof of the arrangement
embodied in the document.”
21. Similarly in Sitale Baksh V/s.
Jang Bahadur, AIR 1933 Oudh 347 348,
349 it was held that where a Revenue
Court merely gave effect to the
compromise, the order of the Revenue
Court did not require registration.
In this connection the following
observations were made:
“In view of this statement in
Para. 5 of the plaint it is
hardly open to the plaintiffsPage 74 of 96
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now to urge that Ex. 1, the
compromise, required
registration when they
themselves admit that it was
embodied in an order of the
Revenue Court and that it was
given effect to by the Revenue
Court ordering mutation in
accordance with the terms of the
compromise. XXX
We hold that as the Revenue
Court by its proceedings gave
effect to this compromise, the
proceedings and order of the
Revenue Court did not require
registration.”
Similarly in a later decision of
the same Court in Mst. Kalawati
v Sri Krishna Prasad, ILR 19
Luck 57 it was observed as
follows:
“Applying this meaning to the
facts of the present case, it
seems to us that the order of
the mutation court merely stated
the fact of the compromise
having been arrived at between
the parties and did not amount
to a declaration of will. The
order itself did not cause a
change of legal relation to the
property and therefore it did
not declare any right in the
property.”
22. The same view was taken in
Bakhtawar V/s. Sundar Lal, AIR 1926
All 173 where Lindsay, J., speaking
for the Division Bench observed as
follows:
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“It is reasonable to assume that
there was a bona fide dispute
between the parties which was
eventually composed, each party
recognizing an antecedent title
in the other. In this view of
the circumstances I am of
opinion that there was no
necessity to have this petition
registered. It does not in my
opinion purport to create,
assign, limit, extinguish or
declare within the meaning of
these expressions as used in
Section 17 (1) (b) of the
Registration Act. It is merely a
recital of fact by which the
Court is informed that the
parties have come to an
arrangement.”
2) Hansa Industries (P) Ltd. and others v.
Kidarsons Industries (P) Ltd. reported in
(2006) 8 Supreme Court Case 531, wherein it
is held as under:
“5. During the pendency of the
proceedings the parties arrived at a
compromise whereby appellant No.2
Narendra Nath Nanda and his group
agreed to transfer their equity
shares in Kidarsons Industries (P)
Ltd. Respondent No.1 Company,
constituting 30.14% of the share
capital of Respondent No.1 Company,
in favour of the respondents. The
price of the shares was to be paid
in specie by transferring to thePage 76 of 96
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appellants 30.14% of the assets of
the Company. The agency of Thyssen
was to be retained by Narendra Nath
Nanda, appellant No.2 and his group.
The relevant terms of the settlement
are the following:-
“2. That the price of the
aforesaid 5654 (later corrected
as 5564) equity shares of
Kidarsons Industries (P) Ltd.,
will be paid to Shri Narendra
Nath Nanda, and/or his nominees
in specie by Company by
transferring to him 30.14% of
the assets of the Company.
Marginal amount not exceeding 5
lakhs may be paid by the company
to Shri Narendra Nath Nanda and/
or his nominees as the case may
be, in cash if found necessary.
Similarly Shri Narendra Nath
Nanda may make similar
compensatory equilisation
payment to the company. Parties
by consent can, however, agree
to a larger amount.
6. That Shri P.N Khanna, Retired
Judge is at present acting as a
Mediator. He will act as a
Commissioner, to separate 30.14%
of the assets of the company to
be given to Shri Narendra Nath
Nanda Group as set out
hereinbefore.
10. Assets of the company will
be valued as on 01.07.1988.
14. Shri Narendra Nath Nanda
will continue to occupy the
portion of the property of the
company in which he is atPage 77 of 96
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present residing as deemed
owner/owner, and the value of
such portion will be taken into
account for evaluating the
assets of the company. The value
of such part of the property as
is occupied by Shri Narendra
Nath Nanda will be adjusted in
the value of his share.
16. That for the purpose of
valuation of share of Shri
Narendra Nath Nanda Group, the
property No.K-72, Udyog Nagar,
Rohtak Road, Delhi will be
treated as the property of the
company.
19. This agreement will be filed
in the Suit No.1310 of 1988 and
C.P. No. 28 of 1988, and
appropriate orders will be
passed in the suit”.
Xxx
11. Learned counsel for the
respondents has brought to our
notice a decision of the this Court
in Kale and others V/s. Deputy
Director of Consolidation and
others, laying down the approach of
the Court in giving effect to a bona
fide family arrangement entered into
between the parties with a view to
resolving disputes once for all.
This Court held that the family
arrangements are governed by special
equity peculiar to themselves and
would be enforced if honestly made.
Reference was made with approval to
a passage appearing in Kerr on Fraud
wherein the following pertinent
observations appear:-
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“The principles which apply to
the case of ordinary compromise
between strangers, do not
equally apply to the case of
compromises in the nature of
family arrangements. Family
arrangements are governed by a
special equity peculiar to
themselves, and will be enforced
if honestly made, although they
have not been meant as a
compromise, but have proceeded
from an error of all parties,
originating in mistake or
ignorance of fact as to what
their rights actually are, or of
the points on which their rights
actually depend.”
xxx
13. This Court held that courts have
leaned in favour of upholding a
family arrangement instead of
disturbing the same on technical or
trivial grounds. Where the courts
find that the family arrangement
suffers from a legal lacuna or a
formal defect the rule of estoppel
is pressed into service and is
applied to shut out plea of the
person who being a party to family
arrangement seeks to unsettle a
settled dispute and claims to revoke
the family arrangement under which
he has himself enjoyed some material
benefits. The principles were
concretized and succinctly reduced
to the following propositions :-
“(1) The family settlement must
be a bona fide one so as to
resolve family disputes and
rival claims by a fair andPage 79 of 96
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equitable division or allotment
of properties between the
various members of the family;
(2) The said settlement must be
voluntary and should not be
induced by fraud, coercion or
undue influence;
(3) The family arrangement may
be even oral in which case no
registration is necessary;
(4) It is well settled that
registration would be necessary
only if the terms of the family
arrangement are reduced into
writing. Here also, a
distinction should be made
between a document containing
the terms and recitals of a
family arrangement made under
the document and a mere
memorandum prepared after the
family arrangement had already
been made either for the purpose
of the record or for information
of the Court for making
necessary mutation. In such a
case the memorandum itself does
not create or extinguish any
rights in immoveable properties
and therefore does not fall
within the mischief of Sec.
17(2) (sic) (Sec. 17(1)(b)-) of
the Registration Act and is,
therefore, not compulsorily
registrable;
(5) The members who may be
parties to the family
arrangement must have some
antecedent title, claim or
interest even a possible claim
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in the property which is
acknowledged by the parties to
the settlement. Even if one of
the parties to the settlement
has no title but under the
arrangement the other party
relinquishes all its claims or
titles in favour of such a
person and acknowledges him to
be the sole owner, then the
antecedent title must be assumed
and the family arrangement will
be upheld, and the Courts will
find no difficulty in giving
assent to the same;
(6) Even if bona fide disputes,
present or possible, which may
not involve legal claims are
settled by a bona fide family
arrangement which is fair and
equitable the family arrangement
is final and binding on the
parties to the settlement.”
xxx
17. Clause 14 of the settlement
being unambiguous, clear and
categorical, it must be given effect
because one cannot term the said
Clause 14 as vitiated by fraud, or
illegal being in breach of any
statutory provision, or against
public policy, or hit by the
principle of impossibility of
performance. The settlement was made
bona fid17. Clause 14 of the
settlement being unambiguous, clear
and categorical, it must be given
effect because one cannot term the
said Clause 14 as vitiated by fraud,
or illegal being in breach of any
statutory provision, or against
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public policy, or hit by the
principle of impossibility of
performance. The settlement was made
bona fide by the parties to resolve
all their disputes and all facts
were known to the parties when they
reached the settlement. With their
eyes open and fully aware of their
experiences of the past, they agreed
to share the Golf Links property.
The relevant clause in the
settlement is not vitiated by any
consideration which may impel the
court not to give effect to that
clause in the settlement. The
question of practical inconvenience
should have concerned the
respondents when they entered into
the settlement. They cannot at the
stage of implementation of the
settlement avoid a covenant in the
settlement solemnly incorporated
with their consent on the pretext of
practical inconvenience of living in
the same house, albeit in separate
portions, in the unfortunate
background of bickerings and
acrimony. This issue must,
therefore, be decided in favour of
the appellants. e by the parties to
resolve all their disputes and all
facts were known to the parties when
they reached the settlement. With
their eyes open and fully aware of
their experiences of the past, they
agreed to share the Golf Links
property. The relevant clause in the
settlement is not vitiated by any
consideration which may impel the
court not to give effect to that
clause in the settlement. The
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question of practical inconvenience
should have concerned the
respondents when they entered into
the settlement. They cannot at the
stage of implementation of the
settlement avoid a covenant in the
settlement solemnly incorporated
with their consent on the pretext of
practical inconvenience of living in
the same house, albeit in separate
portions, in the unfortunate
background of bickerings and
acrimony. This issue must,
therefore, be decided in favour of
the appellants.
Xxx
19. Before us learned counsel for
the respondent did not want to join
issue on this question and left it
to us to pass an appropriate order.
Learned counsel for the appellants
argued before us that no capital
gains tax is payable in the instant
case because the transfers are by
virtue of an order of the Court and,
therefore, Ss. 100 to 104 of the
Companies Act are attracted. There
is in reality no transfer or sale
that may attract capital gains tax,
in view of the pre-existing right
and title of the parties which gets
crystalised under a family
arrangement. He further submitted
that so far as respondent – Company
is concerned it does not get any
consideration and, therefore, there
is no question of any capital gains
tax liability so far as respondent
Company is concerned. In any event
even if the capital gains tax
liability is imposed that will be
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the liability of the appellants
herein, and they will be obliged to
discharge that liability in
accordance with law. Learned counsel
for the appellant made a clear and
categorical statement before us that
if any liability arises out of the
valuation of the assets or capital
gains relating to properties covered
by the settlement, the appellants
shall be liable to discharge that
liability. The appellants are
willing to execute an undertaking to
this effect and to creating a charge
on the assets which may fall to
their share for discharge of such
tax liability, if any, imposed. It
was submitted that there was no need
to deduct this amount from the value
of the assets of the Company and
this Court may direct that in case
such a liability arises in future
and any demand is raised against
respondent Company of capital gains
tax, the appellants shall be liable
to discharge that liability.
Respondent No.1 shall be entitled to
challenge the tax demand, if any,
for which necessary funds will be
made available by the appellants.
All this has been stated on the
assumption that on a future date
there is a demand of capital gains
tax by the tax authority on the
alleged transfers made under the
settlement.”
3) Ganesh (Dead) Through Lrs. and others v.
Ashok and another reported in (2011) 15
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Supreme Court Cases 417, wherein it is held
as under:
“12. A family settlement is not a
transfer of property, as rightly
held by the first appellate court.
The first appellate court held that
the family settlement was bona fide
to avoid disputes in the family. The
decree in Civil Suit No.476 of 1978
was only in pursuance of that family
settlement, and hence it could not
be interfered with.”
4) Ravinder Kaur Grewal and others v. Manjit
Kaur and others reported in (2020) 9 Supreme
Court Cases 706, wherein it is held as under:
25. Be that as it may, the High
Court has clearly misapplied the
dictum in the relied upon decisions.
The settled legal position is that
when by virtue of a family
settlement or arrangement, members
of a family descending from a common
ancestor or a near relation seek to
sink their differences and disputes,
settle and resolve their conflicting
claims or disputed titles once and
for all in order to buy peace of
mind and bring about complete
harmony and goodwill in the family,
such arrangement ought to be
governed by a special equity
peculiar to them and would be
enforced if honestly made. The
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object of such arrangement is to
protect the family from long drawn
litigation or perpetual strives
which mar the unity and solidarity
of the family and create hatred and
bad blood between the various
members of the family, as observed
in Kale ([(1976) 3 SCC 119]. In the
said reported decision, a three-
Judge Bench of this Court had
observed thus: –
“9…… A family
arrangement by which the
property is equitably
divided between the various
contenders so as to achieve
an equal distribution of
wealth instead of
concentrating the same in
the hands of a few is
undoubtedly a milestone in
the administration of social
justice. That is why the
term “family” has to be
understood in a wider sense
so as to include within its
fold not only close
relations or legal heirs but
even those persons who may
have some sort of antecedent
title, a semblance of a
claim or even if they have a
spes successionis so that
future disputes are sealed
for ever and the family
instead of fighting claims
inter se and wasting time,
money and energy on such
fruitless or futile
litigation is able to devote
its attention to morePage 86 of 96
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constructive work in the
larger interest of the
country. The courts have,
therefore, leaned in favour
of upholding a family
arrangement instead of
disturbing the same on
technical or trivial
grounds. Where the courts
find that the family
arrangement suffers from a
legal lacuna or a formal
defect the rule of estoppel
is pressed into service and
is applied to shut out plea
of the person who being a
party to family arrangement
seeks to unsettle a settled
dispute and claims to revoke
the family arrangement under
which he has himself enjoyed
some material
benefits. …..”
(emphasis supplied)
26. In paragraph 10 of the said
decision, the Court has delineated
the contours of essentials of a
family settlement as follows: –
“10. In other words to put
the binding effect and the
essentials of a family
settlement in a concretised
form, the matter may be
reduced into the form of the
following propositions:
“(1) The family settlement
must be a bona fide one so
as to resolve family
disputes and rival claims by
a fair and equitablePage 87 of 96
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division or allotment of
properties between the
various members of the
family;
(2) The said settlement must
be voluntary and should not
be induced by fraud,
coercion or undue influence;
(3) The family arrangement
may be even oral in which
case no registration is
necessary;
(4) It is well-settled that
registration would be
necessary only if the terms
of the family arrangement
are reduced into writing.
Here also, a distinction
should be made between a
document containing the
terms and recitals of a
family arrangement made
under the document and a
mere memorandum prepared
after the family arrangement
had already been made either
for the purpose of the
record or for information of
the court for making
necessary mutation. In such
a case the memorandum itself
does not create or
extinguish any rights in
immovable properties and
therefore does not fall
within the mischief of
Section 17(2) of the
Registration Act and is,
therefore, not compulsorily
registrable;
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arrangement must have some
antecedent title, claim or
interest even a possible
claim in the property which
is acknowledged by the
parties to the settlement.
Even if one of the parties
to the settlement has no
title but under the
arrangement the other party
relinquishes all its claims
or titles in favour of such
a person and acknowledges
him to be the sole owner,
then the antecedent title
must be assumed and the
family arrangement will be
upheld and the courts will
find no difficulty in giving
assent to the same;
(6) Even if bona fide
disputes, present or
possible, which may not
involve legal claims are
settled by a bona fide
family arrangement which is
fair and equitable the
family arrangement is final
and binding on the parties
to the settlement.”
(emphasis supplied)
27. Again, in paragraph 24, this
Court restated that a family
arrangement being binding on the
parties, clearly operates as an
estoppel, so as to preclude any of
the parties who have taken advantage
under the agreement from revoking or
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challenging the same. In paragraph
35, the Court noted as follows: –
“35. … We have already
pointed out that this Court
has widened the concept of
an antecedent title by
holding that an antecedent
title would be assumed in a
person who may not have any
title but who has been
allotted a particular
property by other party to
the family arrangement by
relinquishing his claim in
favour of such a donee. In
such a case the party in
whose favour the
relinquishment is made would
be assumed to have an
antecedent title. …..”
And again, in paragraph 36, the
Court noted as follows: –
“36. … Yet having regard
to the near relationship
which the brother and the
son-in-law bore to the widow
the Privy Council held that
the family settlement by
which the properties were
divided between these three
parties was a valid one. In
the instant case also
putting the case of
Respondents Nos. 4 and 5 at
the highest, the position is
that Lachman died leaving a
grandson and two daughters.
Assuming that the grandson
had no legal title, so long
as the daughters were there,Page 90 of 96
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still as the settlement was
made to end the disputes and
to benefit all the near
relations of the family, it
would be sustained as a
valid and binding family
settlement. …”
28. While rejecting the argument
regarding inapplicability of
principle of estoppel, the Court
observed as follows: –
“38. … Assuming, however,
that the said document was
compulsorily registrable the
courts have generally held
that a family arrangement
being binding on the parties
to it would operate as an
estoppel by preventing the
parties after having taken
advantage under the
arrangement to resile from
the same or try to revoke
it. …..”
5) Commissioner of Income Tax v. Kay Arr
Enterprise reported in (2008) 299 ITR 348
Madras, wherein it is held as under:
“8. Accordingly, in the said case,
applying the principles laid down in
the decisions of the apex court and
the decision of this court referred
supra, this court held as follows
([2000] 245 ITR 494, 498) :
“the Tribunal, on the facts, found
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that the family arrangement involved
in this case appears to be a bona
fide one inasmuch as it has been
shown to have been made voluntarily
and not induced by any fraud or
collusion and the conduct of the
parties referred to by the Revenue
is consistent with the bona fide
family arrangement particularly when
it was arrived at in the presence of
panchayatdars. So, the family
arrangement is a bona fide one and
it was effected to dissolve the
family dispute.”
9. In the instant case also, the
Tribunal found that the
rearrangement of shareholdings in
the company to avoid possible
litigation among family members is a
prudent arrangement which is
necessary to control the company
effectively by the major
shareholders to produce better
prospects and active supervision or
otherwise there would be continuous
friction and there would be no peace
among the members of the family.
Such a family arrangement intended
either by compromising doubtful or
disputed rights or by preserving the
family property or the peace and
security of the family by avoiding
litigation or by saving its honour
cannot be concluded as any other
dealings 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 family
arrangement among the family members
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would not amount to transfer.
10. Hence, the Tribunal has rightly
found that the impugned transfer of
shares by way of family arrangement
would not attract capital gains tax,
as the same is a prudent arrangement
to avoid possible litigation among
the family members and is made
voluntarily and not induced by any
fraud or coercion and, therefore,
cannot be doubted.”
6) Commissioner of Gift-tax v. Valluru
Venkateswara Rao reported in (1980) 123 ITR
54, wherein it is held as under:
“No doubt sub-section (2) of section
18 provides for the maintenance of a
Hindu wife although she lives
separately from her husband under
the circumstances specified in
clauses. (a) to (g). Sub-section (3)
of section 18 makes it clear that a
Hindu wife is not entitled to a
separate residence and maintenance
from her husband if she is unchaste
or ceases to be a Hindu by
conversion to another religion. Sub-
sections (2) and (3) of section 18
are not material for our purpose.
Sub-section (1) of section 18 would
amply apply to the instant case. The
karta’s wife was given a property of
acres 2.95 of dry land, worth about
one lakh of rupees, by means of a
registered deed on March 26, 1970,
pursuant to the agreement entered
into between the parties on MarchPage 93 of 96
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20, 1970, when the partition of the
family took place. In the
circumstances, it can, by no stretch
of imagination, be said that the
property was given to the lady as a
gift and not in lieu of her
maintenance. The right to
maintenance is a statutory one
provided under the Hindu Adoptions
and Maintenance Act, 1956. Though
this right has been codified under
section 18 of the aforesaid Act, it
was in existence even prior to that
Act as she is entitled under the
Hindu law. Unless the ingredient of
lack of consideration is satisfied,
the transaction cannot be held to be
a gift which attracts gift-tax. The
transaction is undoubtedly for
coasideration. The consideration is
to provide for the maintenance of
the wife of the karta.
This view of ours gains support from
a decision of the Division Bench of
the Madras High Court in CGT v. Rm.
S. Ramanathan Chettiar [1969] 74 ITR
758 . Therein a provision for
payment to the wife of the karta of
a sum of Rs. 50,000 to be expended
by her was made in a partial
partition of the joint family of the
assessee. It fell for decision
whether such payment was for
consideration and consequently not
liable to pay gift-tax. It was held
that the payment, in the
circumstances of the case, to the
wife had the effect of giving
quittance to the family obligation
to maintain the karta’s wife and,
therefore, such consideration isPage 94 of 96
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money’s worth and hence the payment
was not a gift. That apart, the
transaction can be justified even as
a family settlement in view of the
decision of the Supreme Court in
Kale v. Deputy Director of
Consolidation, AIR 1976 SC 807. The
Supreme Court held that the family
arrangement may be even oral and if
there is a memorandum which is only
a record of the settlement entered
into orally earlier, it does not
require registration even if it
involves immovable property.”
49. In view of above conspectus of law and
in view of foregoing reasons and concurrent
findings arrived at by both CIT(Appeals) and
the Tribunal, it cannot be said that Tribunal
has committed any error in confirming the
order passed by the CIT(Appeals) in holding
that arrangement for transfer of property as
part of family settlement is not subject to
capital gain tax. The question of law is
therefore, answered in favour of the assessee
and against the Revenue.
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50. Appeals therefore, being devoid of any
merit, are accordingly dismissed.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
RAGHUNATH R NAIR
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