Transfer of shares under family arrangement not taxable; assessment reopening invalid; non-compete fee not taxable.

The Tribunal dismissed the Revenue's appeal, holding that the transfer of shares under the family arrangement was not taxable as it did not constitute a "transfer" under the Income-tax Act. The reopening of the assessment under Section 147 was deemed invalid due to the prior acceptance of the family settlement by the Commissioner. The non-compete fee received as part of the family settlement was also not taxable. The order was pronounced on 24th July 2018 at Chennai.

---

---

Issues Involved:
1. Taxability of transfer of shares by means of family arrangement.
2. Validity of reopening of assessment under Section 147 of the Income-tax Act.
3. Taxability of non-compete fee received as part of family settlement.

Detailed Analysis:

1. Taxability of Transfer of Shares by Means of Family Arrangement:

The primary issue in the Revenue’s appeal was whether the transfer of shares consequent to a family arrangement is taxable under the Income-tax Act. The Departmental Representative argued that the so-called family arrangement was not genuine since not all family members were parties to it and the properties involved were individual properties. However, the counsel for the assessee contended that the family arrangement was genuine and had been acted upon by the parties involved. The Tribunal observed that India Cements Ltd., the primary business, was ancestral property, and subsequent investments in other companies were made from the income of this business. It was concluded that the companies were established using funds from the Hindu Undivided Family (HUF), and the family arrangement dated 12.08.2009 was valid. Therefore, the transfer of shares under this arrangement did not constitute a "transfer" under Section 2(47) of the Act and was not taxable.

2. Validity of Reopening of Assessment Under Section 147:

The Tribunal examined whether the reopening of the assessment under Section 147 was valid. The Department had reopened the assessment based on the family settlement and non-compete fee. The counsel for the assessee argued that the Administrative Commissioner had already examined the family settlement under Section 263 and found it to be genuine, thus explaining the source of investment. The Tribunal held that the Assessing Officer, being subordinate to the Commissioner, could not ignore the findings of the higher authority. Since the Commissioner had accepted the family arrangement and the source of investment, the reopening of the assessment was deemed invalid. Consequently, the order passed by the Assessing Officer after reopening the assessment was quashed.

3. Taxability of Non-Compete Fee Received as Part of Family Settlement:

The issue of whether the non-compete fee received by the assessee as part of the family settlement was taxable was also considered. The Department argued that the non-compete fee was taxable as it restrained the assessee from engaging in business for five years. The counsel for the assessee contended that the non-compete fee was part of the family settlement to bring peace within the family and should not be taxed separately. The Tribunal agreed with the assessee, stating that the non-compete fee was part of the family arrangement and not a separate business arrangement. Thus, it was not liable for taxation. Furthermore, the reopening of the assessment was invalid, and the addition made by the Assessing Officer was deleted.

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the cross-objection of the assessee. It was held that the family arrangement dated 12.08.2009 was valid, and the transfer of shares under this arrangement was not taxable. The reopening of the assessment under Section 147 was deemed invalid, and the non-compete fee received as part of the family settlement was not subject to taxation. The order was pronounced on 24th July 2018 at Chennai.

---