Bona fide family settlement can fall outside stamp-duty-based income tax addition where it realigns pre-existing rights and inheritance claims.

A bona fide family settlement implemented after the death of the family head was treated as a realignment of pre-existing family rights, not a taxable transfer for the difference between stamp duty value and stated consideration. The property was held through a family-owned company, and the deed was executed only to give effect to the settlement and meet registration requirements. Because the arrangement was genuine and intended to resolve family claims and preserve harmony, the transaction was taken within the exclusion for property received under a will or by way of inheritance. The resulting addition under section 56(2)(vii) was therefore not sustainable.

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Issues: Whether the difference between the stamp duty value and the stated consideration for the property attracted tax under section 56(2)(vii) of the Income-tax Act, 1961, where the property was received pursuant to a family settlement and on the demise of the family head.

Analysis: The property was held by a family-owned company whose shareholding was substantially with the family, and the transfer was made in implementation of a family arrangement recorded after the death of the family head. The arrangement was found to be genuine and aimed at settling family rights, and the sale deed executed by the company was only to effect the settlement and meet registration-related expenses. A bona fide family settlement, intended to resolve family claims and preserve harmony, is treated as a realignment of pre-existing rights and not as a taxable transfer in this context. The proviso to section 56(2)(vii) excludes property received under a will or by way of inheritance, and the transaction was held to fall within that exclusion.

Conclusion: The addition under section 56(2)(vii) was not sustainable and was deleted.

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