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Issues: Whether the simultaneous settlement deeds between the assessee and his brother in respect of jointly held properties constituted a "transfer" or "exchange" so as to attract capital gains tax, or whether they were bona fide family arrangements falling within the exception for transfers by way of gift and therefore not chargeable to capital gains.
Analysis: The properties were settled between close relatives to avoid future disputes and preserve family peace. The Tribunal held that the two deeds could not be artificially clubbed and recharacterised as an exchange merely because each brother relinquished rights in favour of the other. It was noted that the deeds were executed as settlement deeds in law, the stamp duty treatment supported that character, and the arrangement fell within the principle that a bona fide family arrangement/settlement is not to be treated as a transfer for capital gains purposes. The Tribunal relied on the settled position that where family members adjust their rights to maintain harmony, the transaction does not amount to a taxable transfer.
Conclusion: The settlement deeds did not amount to a taxable transfer under section 2(47) of the Income-tax Act, 1961, and the capital gains additions were unsustainable.
Ratio Decidendi: A bona fide family settlement or arrangement among close relatives, entered into to preserve family peace and effect a realignment of rights, is not a transfer for the purpose of charging capital gains tax, and cannot be recharacterised as an exchange merely because reciprocal conveyances are executed.
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