Family arrangement deemed genuine for property acquisition, impacting capital gains computation. Successful appeal for assessee.

The Tribunal found the family arrangement for property acquisition genuine, allowing the adoption of the cost of acquisition as of 01-04-1981 for computing long-term capital gains. The income was assessed under long-term capital gains rather than as income from other sources, with consequential benefits and deductions granted. The appeal of the assessee was successful.

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Issues Involved:
1. Whether the property acquired by the assessee through a memorandum of family arrangement cum compromise deed dated 03-06-2004 is genuine.
2. Whether the cost of acquisition as on 01-04-1981 should be adopted for the purpose of computation of long-term capital gain.
3. Whether the income should be assessed under long-term capital gain or taxed under the head of income from other sources.

Issue-wise Detailed Analysis:

1. Genuineness of the Family Arrangement:
The primary issue revolves around the legitimacy of the property acquisition through the memorandum of family arrangement cum compromise deed dated 03-06-2004. The CIT(A) questioned the genuineness of the family arrangement, stating that the property "Ram Kutir" was the self-acquired property of Late Shri Balakram Kamal and bequeathed to his adopted son Shri Rajesh Gupta through a will. The CIT(A) noted that there was no antecedent dispute over the title of the property and no legal right of any third person over it. It was observed that the family arrangement did not create any legal right in the property for the assessee and was seen as an attempt to circumvent taxation laws. However, the Tribunal found that the family arrangement was documented and registered in the presence of witnesses and that the dispute was recognized by the Revenue in the cases of the assessee's father and brother. The Tribunal cited Supreme Court judgments indicating that even bona fide disputes without legal claims could validate a family arrangement.

2. Cost of Acquisition for Computation of Long-term Capital Gain:
The assessee argued that the property was acquired through a family arrangement, and hence the cost of acquisition should be considered as on 01-04-1981, allowing for indexation benefits. The CIT(A) disagreed, stating that the assessee had no right in the property and the family arrangement did not create any legal right in the property itself. The Tribunal, however, held that the family arrangement was genuine and that the property was acquired through this arrangement. Consequently, the Tribunal allowed the adoption of the cost of acquisition as on 01-04-1981 for the computation of long-term capital gains.

3. Assessment Under Long-term Capital Gain vs. Income from Other Sources:
The CIT(A) assessed the entire consideration received by the assessee as income from other sources, arguing that the assessee had no legal right to the property and did not transfer any asset. The Tribunal found that the family arrangement was bona fide and that the property was genuinely acquired through this arrangement. Therefore, the Tribunal directed that the income should be assessed under long-term capital gains, not as income from other sources. The Tribunal also allowed the consequential benefits and deductions as per law.

Conclusion:
The Tribunal concluded that the family arrangement was genuine and recognized the property acquisition through this arrangement. The cost of acquisition as on 01-04-1981 was adopted for the computation of long-term capital gains, and the income was directed to be assessed under long-term capital gains, allowing the consequential benefits and deductions as per law. The appeal of the assessee was allowed.

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