TaxTMI 
TaxTMI 
TaxTMI 
2018 (11) TMI 112
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....ndran are Directors. During the course of survey operation, according to the Ld. D.R., it was found that investments were received as share premium from Prince Holdings (Madras) Pvt. Ltd. to the extent of Rs. 224.97 Crores. According to the Ld. D.R., the assessee explained before the Assessing Officer that there was a settlement in the family on 12.08.2009 and consequent to the family settlement, the money received was used for making investments. However, the assessee has not disclosed any capital gain on transfer of shares. According to the Ld. D.R., the assessee has disclosed only salary income besides capital loss of Rs. 6,63,378/- and income from other sources to the extent of Rs. 5,21,89,254/-. The assessee has not offered any income consequent to the so-called family settlement. Consequent to the so-called family settlement, there was transfer / reallocation of shares of companies between assessee and his brother Shri N. Srinivasan. Therefore, the Assessing Officer reopened the assessment by issuing notice under Section 148 of the Income-tax Act, 1961 (in short 'the Act') on 13.06.2014. Consequent to the notice issued under Section 148 of the Act, the assessee has n....
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....over, according to the Ld. D.R., the investment in the shares of EWS Finance & Investment Pvt. Ltd. was made by India Cements Ltd. The major shareholders are assessee and his brother besides few shares were allotted to others. According to the Ld. D.R., the existence of nucleus for making investment in the so-called companies were not established by the assessee. Referring to the observation made by the Assessing Officer with regard to hand written agreement in the year 1990, to treat the entire companies as joint family property, the Ld. D.R. submitted that the so-called hand written agreement is only a self declaration given by Shri N. Srinivasan, therefore, the existence of common fund / estate was not established by the assessee. Hence, according to the Ld. D.R., the fund received by the assessee consequent to the family settlement for transfer of shares has to be taxed under the Incometax Act. 7. Referring to non-compete fee, the Ld. D.R. submitted that the non-compete fee is not in relation to existing property, it is in relation to right of the assessee to do business in future. Moreover, according to the Ld. D.R., the non-compete fee is to restrain the assessee from engag....
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....siness. An agreement was also entered into to that effect. Subsequently, at the end of 2008, again there was misunderstanding among the family members and dispute arose. Therefore, there was a family agreement on 12.08.2009. As per the agreement, the share of India Cements Ltd. was allotted to Shri Srinivasan and the shares of other companies promoted by the family by making investment from the nucleus of Hindu Undivided Family was also allotted to Shri Srinivasan and the assessee was compensated by making payments in cash. 9. Sh. N. Devanathan, the Ld.counsel for the assessee, further submitted that when there was a dispute in the family in the year 1990, it was agreed between the assessee and his brother Shri N. Srinivasan to treat the business as family business and hence, at this stage, the Assessing Officer is not justified in saying that the property does not belong to assessee's family. Moreover, according to the Ld. counsel, merely because the assessee's sisters have not joined the family arrangement on 12.08.2009, it does not lose its character as family settlement. Placing reliance on the judgment of Apex Court in K.K. Modi v. K.N. Modi (1998) 3 SCC 573, the Ld.counsel....
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....se of Results Investments Pvt. Ltd. is available at page 156 of the paperbook Vol.I. 11. Since the Administrative Commissioner by an order dated 05.02.2014, accepted the explanation of the assessee that the source of investment was consequent to the family settlement dated 12.08.2009 and dropped the proceeding initiated under Section 263 of the Act. According to the Ld. counsel, the Assessing Officer cannot reopen the assessment by issuing notice under Section 148 of the Act. On a query from the Bench whether the order of the Administrative Commissioner passed under Section 263 of the Act in the case of Results Investments Pvt. Ltd. on 05.02.2014 was brought to the notice of the Assessing Officer? the Ld.counsel very fairly submitted that the order of the Administrative Commissioner was brought to the notice of the Assessing Officer. However, according to the Ld. counsel, the Assessing Officer simply ignored the order of the Administrative Commissioner by making observation that the Commissioner has made cursory remarks on family arrangement and not dealt with the details. Since the source of investment was found to be the family settlement, according to the Ld. counsel, the Admin....
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....bers agreed that the business is of their family, according to the Ld. counsel, the Assessing Officer cannot say that it is not a family business. The Ld.counsel further submitted that the agreement dated 12.08.2009 is acted upon between the assessee and his brother. Moreover, the sisters of the assessee have not disputed the agreement. Hence, the Assessing Officer cannot at this stage say that the agreement dated 12.08.2009 is not a family arrangement. The Ld.counsel further submitted that since there was no transfer in the family arrangement, the compensation received to equalize the inequalities in the family settlement is not taxable as income. The Ld.counsel placed his reliance on the judgment of Punjab & Haryana High Court in CIT v. Ashwani Chopra (2013) 352 ITR 620 and judgment of Madras High Court in CIT v. Kay Aar Enterprises (299 ITR 348) and also the judgment of Karnataka High Court in CIT v. Nagaraja Rao (352 ITR 565). The Ld.counsel further submitted that the Special Leave Petition filed by the Revenue against the judgment of Madras High Court in Kay Aar Enterprises (supra) was dismissed by the Supreme Court in 306 ITR 5. The Ld.counsel further submitted that the recei....
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....ri N. Srinivasan was from India Cements Ltd. Therefore, it is not correct to say that the common funds or nucleus of the Hindu Undivided Family was not available for making investment in the companies established by the assessee. 16. The admitted fact by the assessee and Revenue clearly establishes that the source for funds for making investment in the companies promoted by the assessee and his brother Shri N. Srinivasan are the income from India Cements Ltd. Therefore, the first contention of the Revenue that the assessee has no nucleus of Hindu Undivided Family for making investment in the shares of EWS Finance & Investment Pvt. Ltd. or other companies has no merit at all. This Tribunal is of the considered opinion that all the companies were established by the assessee and his brother Shri N. Srinivasan only by investing funds from nucleus of Hindu Undivided Family. It is obvious from the so-called declaration by Shri N. Srinivasan or otherwise it is called as agreement by the assessee in the year 1990. In 1990, it was agreed by the assessee and his brother Shri N. Srinivasan that the entire business is the family business of the assessee and his brother Shri N. Srinivasan. Th....
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.... as agreed between them, then their respective children can claim or succeed only to the property allotted to their respective parents. Therefore, merely because the children of Shri N. Srinivasan and the assessee are not party to the agreement dated 12.08.2009, it will not lose its character as agreement or family settlement. Moreover, it is settled principle of law that inequalities in partition of property among the coparceners of HUF, cannot be a ground to doubt the family settlement otherwise admitted by parties. 19. This issue came before the Administrative Commissioner in the case of Results Investments Pvt. Ltd. The Administrative Commissioner at para 8.1 of his order has observed as follows:- "8.1 I have carefully considered the arguments of the Counsel for the assessee and also the evidence furnished by him. It is clear that M/s Prince Holdings (Madras) Pvt. Ltd. have advanced an amount of Rs. 125 Crores for allotment of shares. This amount has been paid by M/s Prince Holdings (Madras) Pvt. Ltd. in consequence of a family settlement agreement dated 12.08.2009 between Shri N. Ramachandran and Shri N. Srinivasan. The total payment is reflected in the balance sheet of M/s....
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....2.08.2009, the Assessing Officer being subordinate to the Commissioner, cannot say that the Commissioner has not discussed the matter in detail. Whether the matter was discussed in detail or not, the observation made by the higher authority is binding on the lower authority. This Tribunal is of the considered opinion that judicial discipline needs to be followed. Whatever may be the reason, when the higher authority, namely, Commissioner, found that there was family arrangement and the source for investment is the funds received consequent to the family arrangement, the Assessing Officer cannot ignore the same. Therefore, reopening of assessment under Section 147 of the Act, cannot stand for scrutiny of law. Consequently, the order passed by the Assessing Officer after reopening of assessment on issue of notice under Section 148 of the Act cannot stand for legal scrutiny. Accordingly, we hold that the reopening of the assessment under Section 147 of the Act is invalid. Consequently, the order passed by the Assessing Officer has no leg to stand, hence the same is quashed. 20. We have carefully gone through the legal opinion given by Mr. Justice S.H. Kapadia, former Chief Justice of....