TaxTMI 
TaxTMI 
2018 (4) TMI 432
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....r to be taxed under the head of income from other sources. The assessee has revised the grounds and following ground Nos. 2, 3 and 4 reads as under: - "II. Disallowing of Index Cost of Rs. 37,91,550/- for calculating Long Term capital Gains. 2. The Learned CIT(A) erred in confirming the disallowance of Index cost of Rs,37,91,550/- on the basis of acquisition cost as on 1/4/1981 at Rs. 4,83,000/- as the right in the property was recognized by "Memorandum of Family Arrangement Cum - Compromise dt.03/06/2004 and the same was accepted in the case of Father and Brother of the Assessee. III. Income from long term capital gain is directed to be taxed under the head of income from other sources. 3. Without prejudice to the above, the Learned CIT(A) erred in taxing Long term capital gains under the head Income from other sources, without giving any opportunity of hearing and without any notice of enhancement, hence, the finding of the CIT(A) that receipt to be taxed as Income from other source may be deleted and receipt may be directed to be taxed as capital gains and consequential indexation cost may be directed to be allowed. 4. Without prejudi....
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.... of the family or the members to engage in fights or disputes. For a family arrangement to be valid there must he a common property or joint property. Individual or self-acquired properties are not considered unless antecedent title, claim or interest in the property is shown to be in existence. In the present case, the Ram Kutir property was the self acquired property of Late Shri Balakram Kamal and he had bequeathed it through a Will to his adopted son Shri Rajesh Gupta. There is no antecedent dispute over the title of the property and there is no right of any third person over this property by law. Therefore, the claim of the assesse (son of Rajesh Gupta) that there was a dispute over the Will of Shri Balakram Gupta is a false claim because in the Order of Probate or in the succession proceedings no such claim has been made by the assessee before any court of law. It is the law that it is necessary to prove that every party taking benefit under the arrangement must necessarily have, under the law, a claim to th property. This has not been done. 6.9 Normally, a dispute is a prelude to a family arrangement. In the case of the present assessee no such pre-existing dispute ....
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....f the property that the assessee and his brother would get 30% share each of the consideration. This means that the assessee and his brother have not crafted any right in the property but have only sought a division in the consideration received on the transfer of the property at a future date. This is akin to application of the income by Shri Rajesh Gupta and there is no diversion of income by way of any overriding title in favour of the assessee. 6.10 It is also necessary to note that if Shri Rajesh Gupta had intended to create a title in the property in favour of the assessee, he would have been required by law to have it registered as per the Registration Act. This issue had been considered by the Supreme Court in Roshan Singh v. Zile Singh AIR 1988 SC 881, and the true principle that emerges from this judgment can be stated thus 'if the arrangement, of compromise is one under which a person having an absolute title to the property transfers his title in some of the items thereof to others, the formalities differences are resolved by the compromise, then, there is no question of one deriving title front other and therefore, the arrangement does not fall within the ....
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....or the assessee explained the facts that during the year under consideration the assessee has declared receipt of 30% of share of sale consideration in respect of property Ram Kutir and claimed deduction of index cost of acquisition at Rs. 37,91,550/- and declared long term capital gain of Rs. 2,77,08,450/-. The assessee claimed deduction under section 54 of the Act as this long term capital gain was invested in purchase of new residential property. The learned Counsel for the assessee explained that 30% share of Ram Kutir was acquired by assessee by way of family arrangement cum compromised deed dated 03-06-2004, which was documented and registered on 03-06-2004 in the presence of witnesses. It was claimed by the assessee that the assessee is grandson of Shri Balakram Kamal and son of Shri Rajesh Gupta. The learned counsel for the assessee drew our attention to paper book page 62 wherein family tree of late Shri Balakram Kamal is exhibited, which is as under: - 5. It was explained that this property Ram Kutir was acquired by assessee's father Shri Rajesh Gupta through a will of Shri Balak Ram Kamal dated 15-09-1997, which was executed by probate order dated 25-11-2011. The lear....
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....ove as if they are entitled to the same in terms of the Family Arrangement cum compromise since inception of the said property." 6. In view of the above, the learned Counsel for the assessee argued that the rights of the assessee were recognized by this family arrangement cum compromise deed and the same has been accepted by the Revenue while framing assessment under section 143(3) of the Act in the case of Shri Rajesh Gupta, the father and Shri Vishal Gupta, the brother of the assessee. The copy of the Assessment Order of Shri Vishal Gupta for AY 2012-13 dated 14-11-2014 is enclosed in Assessee's Paper Book at page 137. The learned Counsel argued that the family arrangement cum compromise is equivalent to partition attracting the provisions of section 49(1) of the Act. He stated that the property acquired by way of family settlement for the purpose of computation of capital gains, indexation is always allowable. Consequently, the deduction under section 54 of the Act for investment made in residential property should be allowed to the assessee. 7. The learned Sr. Departmental Representative relied on the order of CIT(A) and she stated that from memorandum of family arrangeme....
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....g the property by way of family arrangement. Even, Hon'ble Supreme Court in the case of Kale vs. Deputy Director of Consolidation, AIR 1976 (SC) 807, as laid down the principles which are essential for family arrangement. "(1) The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family; (2) The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence;" (p. 813) 10. I find from the authority referred by the learned for the assessee of Hon'ble Madras High Court in the case of CIT vs AL Ramanathan (2000) 245 ITR 494, wherein Hon'ble court has clearly held that family arrangement should be bonafide one so as to resolve the family dispute and rival claims by a fair and equitable division of properties between various members of the family. Before me, the learned Sr. Departmental Representative could not point out that the present memorandum of family arrangement cum compromise deed dated 03-06-2004 is not a bonafide or it is obtained under any fraud or coercion. There is no such challenged ....