Facts of the case:

There was a transfer of shares between the assessee-firm, which consists of partners, who are family members, in that, certain new shares were acquired in exchange of old shares, as also some consideration in cash.  According to the assessees, the transfer was consequent to a family arrangement.  But, the Assessing Officer, after analysing the facts of the case and the legal aspects on the same, concluded that there was indeed a transfer involved and thus, subjected the Capital Gains Tax.

Issue:

Whether the transfer of shares pursuant to the family arrangement to avoid a possible litigation among the family members would attract the Capital Gains Tax.

Held:

In view of the settled propositions of law, we hold that the Tribunal was justified in arriving at the conclusion that the family arrangement among the assessees does not amount to any transfer and hence, not exigible to capital gains tax.  

(For full text of judgment - visit 2008 -TMI - 3709 - MADRAS HIGH COURT)

Family arrangement in share reallocation does not constitute a transfer for capital gains tax, per tribunal conclusion. A reallocation of shares among family-member partners, involving exchange of new shares and cash, was assessed by the AO as a transfer attracting capital gains tax; the Tribunal concluded that a bona fide family arrangement effecting such share reallocation does not constitute a transfer exigible to capital gains tax and sustained that position against the AO's assessment.