1998 (12) TMI 36

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....undaram Chettiar was the karta and his three sons, viz., Al. Lakshmanan. Al. Periannan and Al. Ramanathan, were the other co-parceners. Disputes arose in the family and an interim agreement was entered into on August 19, 1980, under which the assessee's side was to receive Rs. 8 lakhs and certain lands in Kothagai Village and in return they were required to transfer half of their shareholding in Mahalakshmi Textile Mills Ltd., Lakshmi Lines Ltd. and Charlie Engineering Co. Ltd., to the other side subject to full settlement later. On August 20, 1981, the final agreement was drawn up recording the oral agreement dated May 6, 1981, under which the assessee's side was to receive a further amount of Rs. 11 lakhs which was paid on June 19, 1981, ....

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....on that the transaction is only a family arrangement and it does not involve any transfer of title of the properties transferred and the transaction of family arrangement does not give rise to capital gains. On that, the reference has arisen and at the instance of the Revenue, the following question has been referred to this court for our opinion : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the transactions of the assessee amount to a family arrangement and cannot be termed as a transfer and there was no chargeable capital gains arising from that transaction ?" A perusal of the records goes to establish that the dispute arose in that family and the family arrangement was ....

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....d daughters by making the family arrangement, the said arrangement could not be ignored by a tax authority. In view of the finding of the Tribunal, the family arrangement dated December 17, 1971, had to be held to be a valid piece of document and, hence, the Tribunal was right in its view that no transfer of property was involved within the meaning of section 2(xxiv) of the Gift-tax Act and, hence, there was no liability to gift-tax either under section 4(1)(a) or under section 4(2) and consequently no question of inclusion of the income of the minor in the hands of the assessee would also arise." It is the settled law that when parties enter into a family arrangement, the validity of the family arrangement is not to be judged with refer....