2020 (10) TMI 25 - AT - Income Tax

ITAT upholds income assessment, deems family settlement proceeds as LTCG, grants relief on indexed cost

The Income Tax Appellate Tribunal (ITAT) upheld the Assessing Officer's (A.O.) assessment of income at Rs. 92,84,18,760, confirming it was correctly ... Long term capital gain - re-alignment of shareholding pursuant to family settlement arrangement - indexation of assets (shares received as gift) from the date of ownership by the previous owner or from the first year in which the assessee became owner - Whether A.O./CIT(A) erred in not holding that the amount received on re-alignment of shareholding pursuant to family settlement arrangement was not liable to capital gains tax u/s 45? - Whether amount received by the appellant was not towards equalization of family interests and was thus, not in the nature of owelty, but was consideration received for ‘transfer’ of shares, being personal property? HELD THAT:- Assessee did not produce any evidence of prior, present or likelihood of any future family dispute on record to justify the execution of the Memorandum of Family Settlement. The clauses of the Memorandum of Family Settlement clearly establish that it was a simple transaction of sale and purchase of shares, subject to consideration received by the assessee from Shri Golu L. Mirchandani. Shri Golu L. Mirchandani have been described as purchaser of the shares and assessee as seller in the Memorandum of Family Settlement which could never be regarded as Family Settlement Deed. The assessee did not have any antecedent, title of any family property because whatever shares/asset assessee has possessed as owner have been sold subject to consideration because the assessee has acquired the shares of two Companies by way of gift from her father and sons. Thus, it was not a family property which could have been divided between the assessee and Shri Golu L. Mirchandani. The assessee did not receive any share from the family of her husband. The facts also clearly established that there is no equitable partition or distribution of family shares/ assets. The chart reproduced above shows that it was merely sale transaction of shares which could not be considered as Family Settlement. Thus, it cannot be said that the impugned amount was given to assessee for equalisation of interest in the family property and thus, it was not an owelty as is claimed by the assessee. Since shares were the personal property of the assessee, therefore, when same were transferred to Shri Golu L. Mirchandani, it would amount to sale. It is an admitted fact that assessee initially admitted the transactions to be sale and purchase transaction subject to consideration. Assessee was not able to prove by any evidence to justify retraction from the earlier admission on disclosing the sale transaction in the original return of income disclosing capital gains - assessee by claiming now it to be Family Settlement tried to defruad the Revenue to reduce the taxable returned income. Assessee has received this amount for relinquishing her rights to manage the two companies i.e., the consideration for her asset. She has not received this amount as owelty as there were no division of assets. She had to forego her assets for a consideration and she did not receive any asset/right in reciprocation nor was the money paid for equalisation of the interest. Thus, the money received by her though indirectly were the sale consideration of transfer of her rights and not owelty. ₹ 45 lakhs was paid in settling the liability of the assessee in the matter of Excise prosecution which would amount to transfer. Thus, it is clear that assessee received the impugned amount on sale of the shares. Therefore, it would be transfer of capital asset within the meaning of Section 2(47) of the I.T. Act, 1961, so as to attract the provisions of capital gains which assessee has rightly disclosed in the return of income and paid the tax thereon - Decided against assessee. Indexed cost of acquisition of shares in question - This issue has already been decided by the Ld. CIT(A) in the first round of proceedings and deleted the addition. The Departmental Appeal have been dismissed by the Tribunal [2014 (10) TMI 698 - ITAT DELHI]. Thus, this issue should not have been taken-up by the authorities below in this second round of appellate proceedings because this issue was not the remanded matter. Orders of the authorities below are set aside and the A.O. is directed to follow the first round order of the Ld. CIT(A) and the Tribunal (supra). Ground No.4 of the appeal of the Assessee is allowed. Further, charging of interest is mandatory and consequential. Issues Involved:1. Assessment of income at Rs. 92,84,18,760.2. Taxability of owelty received pursuant to a family settlement as 'long-term capital gain'.3. Non-taxability of the amount received pursuant to family settlement.4. Indexed cost of acquisition of shares.5. Addition of Rs. 45,00,000 as compounding fee paid by M/s. Monica Electronics Limited.Detailed Analysis:1. Assessment of Income at Rs. 92,84,18,760:The Assessee challenged the assessment of income at Rs. 92,84,18,760, arguing that the findings of the Assessing Officer (A.O.) were contrary to binding decisions in the Assessee's own case. The Income Tax Appellate Tribunal (ITAT) reviewed the facts and previous orders, noting that the A.O. had made specific additions, including the indexed cost of acquisition for Long Term Capital Gains (LTCG) and an amount taxed under section 45 of the Income Tax Act, 1961. The ITAT upheld the A.O.'s assessment, confirming that the income was correctly assessed.2. Taxability of Owelty Received Pursuant to Family Settlement:The Assessee received Rs. 93,88,81,656 pursuant to a family settlement and argued it was owelty, not taxable as LTCG. The A.O. and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the amount received was for the transfer of shares, thus taxable as LTCG. The ITAT examined the Memorandum of Family Settlement and the nature of the transaction, concluding that the amount received was indeed for the transfer of shares and not an owelty. The ITAT supported the A.O.'s and CIT(A)'s findings that the transaction was taxable as LTCG.3. Non-Taxability of the Amount Received Pursuant to Family Settlement:The Assessee contended that the amount received under the family settlement should not be taxable. The ITAT reviewed the legal principles of family settlements, noting that genuine family settlements aimed at resolving disputes are not considered transfers for tax purposes. However, in this case, the ITAT found no evidence of a family dispute or equitable partition. The transaction was deemed a sale of shares, not a family settlement, and thus taxable. The ITAT dismissed the Assessee's claim of non-taxability.4. Indexed Cost of Acquisition of Shares:The A.O. had restricted the indexed cost of acquisition to Rs. 75,75,001, while the Assessee claimed Rs. 99,80,872. The CIT(A) in the first round of proceedings had allowed the higher indexed cost, a decision upheld by the ITAT. In the second round of proceedings, the ITAT directed the A.O. to follow the first round order, confirming the higher indexed cost of Rs. 99,80,872. This ground was decided in favor of the Assessee.5. Addition of Rs. 45,00,000 as Compounding Fee:The A.O. added Rs. 45,00,000 as LTCG, arguing it was received indirectly for relinquishing management rights in M/s. Monica Electronics Ltd. and M/s. Onida Saka Ltd. The Assessee argued that the amount was paid as compounding fees by M/s. Monica Electronics Limited and not received by the Assessee. The ITAT found that the amount was indeed related to relinquishing management rights and was part of the family settlement, thus taxable as LTCG. The ITAT upheld the A.O.'s and CIT(A)'s decision, confirming the addition.Conclusion:The ITAT dismissed the Assessee's appeal on grounds 1, 2, 3, and 5, confirming the taxability of the amounts received as LTCG and the addition of Rs. 45,00,000. However, the ITAT allowed the appeal on ground 4, directing the A.O. to accept the higher indexed cost of acquisition as previously decided. The appeal was partly allowed.