Tax treatment of unregistered family arrangements depends on proof of actual implementation; related indexation and 54F claims also failed.
An unregistered family arrangement may be recognised in tax proceedings only if its bona fide character and actual implementation are proved by reliable evidence; in the absence of such proof, the sale proceeds remain assessable in the hands of the person shown to have received them. The claimed indexation from 1.4.1981 was rejected because prior ownership was not established by material evidence, and exemption under section 54F failed because the assessee owned more than one residential house and the alleged partition was not proved to have operated. The plea to confine capital gains to 40% of the consideration was also rejected, as the record did not support that restriction.
Issues: (i) Whether the family arrangement evidenced by the unregistered partition deed dated 11.11.2005 was valid and acted upon so as to exclude the assessee from being assessed on the entire sale consideration from the land sale; (ii) whether the assessee was entitled to claim indexation of cost from 1.4.1981; (iii) whether exemption under section 54F was available; and (iv) whether capital gains could be confined only to 40% of the sale consideration.
Issue (i): Whether the family arrangement evidenced by the unregistered partition deed dated 11.11.2005 was valid and acted upon so as to exclude the assessee from being assessed on the entire sale consideration from the land sale?
Analysis: A family arrangement need not necessarily be registered if it is bona fide, voluntary, and intended to resolve family disputes. However, where the arrangement is relied upon to alter the incidence of taxation, its actual implementation must be shown by reliable evidence. The assessee did not produce material to establish that the arrangement was acted upon, that the properties were separately allotted and held in the respective shares, or that the family members became owners in terms of the alleged partition deed. In the absence of such proof, the document could not be accepted to shift the sale proceeds away from the assessee.
Conclusion: The family arrangement was not accepted for tax purposes, and the entire sale consideration was rightly brought to tax in the assessee's hands.
Issue (ii): Whether the assessee was entitled to claim indexation of cost from 1.4.1981?
Analysis: The claim of ownership prior to 1.4.1981 was unsupported by material evidence. The record instead showed that the assessee and others became owners only on the basis of the later revenue certificate, and the cost recorded therein did not support the claimed earlier date for indexation.
Conclusion: The claim for indexation from 1.4.1981 was rejected.
Issue (iii): Whether exemption under section 54F was available?
Analysis: The assessee did not controvert the finding that he owned more than one residential house on the date of transfer. Since the claimed family arrangement was also not proved to have been acted upon, the factual basis for the exemption failed.
Conclusion: Exemption under section 54F was rightly denied.
Issue (iv): Whether capital gains could be confined only to 40% of the sale consideration?
Analysis: The plea that only 40% of the consideration was taxable was not supported by the material on record. The authorities found that the acquisition cost applied to the entire land and that the tenancy-related ratio did not justify restricting taxability to 40% alone.
Conclusion: The restriction of capital gains to 40% was rejected.
Final Conclusion: The additions and disallowances made in assessment were sustained in full, and the assessee's appeal failed.
Ratio Decidendi: An unregistered family arrangement can be relied upon in tax proceedings only if its bona fide character and actual implementation are proved by evidence; otherwise, the entire gain may be assessed in the hands of the person shown to have received the consideration, and related reliefs depending on ownership and allotment may be denied.
TaxTMI 
AI Drafter ✕
TaxTMI 
