TaxTMI 
TaxTMI 
2020 (10) TMI 25
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....y settlement to be taxable as 'long-term capital gain' on transfer of shares. 2.1. That the CIT(A) erred in concluding that the amount received by the appellant was not towards equalization of family interests and was thus, not in the nature of owelty, but was consideration received for 'transfer' of shares, being personal property 2.2. That the CIT(A) erred on facts in law in holding memorandum of family settlement to be an agreement for sale of shares, without appreciating the nature of the family settlement. 3. That the CIT(A) erred on facts and in law in alternatively holding that the appellant's plea regarding non-taxability of the amount received pursuant to family settlement to be in the nature of retraction, which is not permissible in law. 3.1. That the CIT(A) failed to appreciate that there is no estoppel against law and merely because an amount, not taxable in law, is erroneously offered for tax in the return of income, cannot confer jurisdiction to tax the said amount. 4. Without prejudice, that the CIT(A) erred in not setting aside the action of the assessing officer considering the indexed cost of acquisition of shares at Rs. 75,77,001 as against Rs. 99,80,872....
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.... who gave part relief of Rs. 24,05,871/- by allowing the indexation of assets (shares received as gift) from the date of ownership by the previous owner instead of from the first year in which the assessee became owner. The addition of Rs. 45 lakhs as LTCG was confirmed by the Ld. CIT(A). The assessee preferred an appeal before the ITAT, Delhi Bench against the Order of the Ld. CIT(A). The assessee took an additional ground before the Tribunal which reads as follows : "That on the facts and circumstances of the case and in Law, the A.O./CIT(A) erred in not holding that the amount received on re-alignment of shareholding pursuant to family settlement arrangement was not liable to capital gains tax under section 45 of the Income Tax Act, 1961." 3.2. This additional ground was admitted by the Tribunal vide its Order Dated 29.02.2016 and the matter was remanded back to the file A.O. for fresh adjudication as per Law. The addition of Rs. 45 lakhs was also remanded back to the A.O. The A.O, therefore, noted that on perusal of the Order of Tribunal above, it is clear that the issue to be decided upon is - "Whether any money was received by assessee in this transaction and whether the t....
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....nsfer of the shares inadvertently under capital gains. The Tribunal has admitted the additional ground and referred the matter to the file of A.O. to reconsider the same as per Law. Therefore, the Order of the Tribunal is binding on the A.O. In the original assessment proceedings under section 143(3), the taxability of the amount received on transfer of shares as Family Settlement was not considered but manner of computation was disputed. The A.O. has treated the amount of Rs. 45 lakhs paid as compounding fees in the prosecution case pending against MEL by the GLM Group as the payment against the relinquishment of the right by the assessee to intervene in the management of day-to-day affairs of MEL and OSL and added the same under section 45 of the I.T. Act, 1961. This issue is also remanded to the A.O. It is stated that it is settled Law that any amount received under 'Family Settlement' does not involve any 'Transfer'. Thus, though the relinquishment of interest in property/shares or extinguishment of rights therein attract is transfer and attract capital gains, by Court rulings, such re-alignment in family settlement does not constitute transfer. The assessee relied upon the fol....
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....at the amount received by assessee on sale of shares of above two companies are in the nature of transfer of shares and are taxable as capital gains, which, assessee has rightly offered for taxing in the original return of income. 3.7. The A.O. as regards the issue regarding indexed cost of acquisition for calculating capital gains on the sale of shares noted that in the earlier assessment order the cost of acquisition was modified and indexed cost of acquisition was restricted to Rs. 75,75,001/- as against Rs. 99,80,872/- claimed by the assessee. The disallowance was deleted by the Ld. CIT(A) and Department filed an appeal before the ITAT which was dismissed. However, the Department did not accept the decision and no appeal is filed because of low tax effect. Since the matter is decided by the A.O. afresh, therefore, the A.O. as per original assessment order Dated 11.11.2011 again taken the indexed cost of acquisition at Rs. 75,75,001/- as against Rs. 99,80,872/- taken by the assessee. 3.8. The A.O. considered another issue regarding taxability of Rs. 45 lakhs which were indirectly received by assessee, according to the provisions of the same, 'Memorandum of Family Settlement' D....
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....s of Mirchandani Family as part of Family Settlement, assessee would give certain shares held by her in M/s. GUVISO and M/s. IWAI to her brother-in-law Mr. Gulu L. Mirchandani [brother of husband of assessee] thereby, resulting in the control and ownership of the said companies moving from Mr. Sonu Mirchandani family to Mr. Gulu Mirchandani family. Further, as a result of such realignment, the assessee received the impugned owelty amount under the 'Family Settlement/Arrangement'. Pursuant to the aforesaid Arrangement, it was, inter alia, also mutually agreed that Mr. Gulu L. Mirchandani shall be in sole management and control of two listed companies i.e., M/s. Monika Electronics Ltd., and M/s. Onida Saka Ltd. including right to nominate the Managing Directors and Directors of both the M/s. Monika Electronics Ltd., and M/s. Onida Saka Ltd., subject to the condition that Mr. Gulu L. Mirchandani Group would indemnify Mr. Sonu L. Mirchandani Group against and in respect of any and all claims, actions, demands, losses, damages, liabilities and or Judgments in respect of pending cases, which including settling one pending prosecution by payment of the compounding fees of Rs. 45 lakhs pa....
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....d. The Ld. CIT(A) also held that amount has been rightly offered to tax in the return of income by the assessee. The Ld. CIT(A) also confirmed the addition of Rs. 45 lakhs because there were no Family Settlement and that the amount was paid on behalf of the assessee to the Central Excise Authorities for compounding the offence. Therefore, the Ld. CIT(A) agreed with the findings of the A.O. that same is taxable in the hands of the assessee. Since no evidence was filed with regard to amount of Rs. 10 lakhs relatable to the assessee only, therefore, addition was confirmed. The Ld. CIT(A), accordingly, dismissed the appeal of assessee. 6. On Ground Nos.1 to 3, Learned Counsel for the Assessee reiterated the submissions made before the authorities below. He has also filed written synopsis along with details of various assets of family prior to and post Family Settlement as directed which is taken on record. He has submitted that assessee along with her husband Shri Sonu Mirchandani and her two sons are in SLM Group are part of larger Mirchandani Family which had jointly promoted, owned, managed and operated a clutch of valuable companies. SLM Group entered into a Family Settlement with....
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....s 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: (3) The family arrangement may be even oral in which case no registration is necessary: (4) It is well-settled that registration would be necessary only if the terms of the family arrangement are reduced into writing. Here also, a distinction should be made between a document containing the terms and recitals of a family arrangement made under the document and a mere memorandum prepared after the family arrangement had already been made either for the purpose of the record or for information of the court for making necessary mutation. In such a case the memorandum itself does not create or extinguish any rights in immovable properties and therefore does not fall within the mischief of s. 17(2) of the Registration Act and is, therefore, not compulsorily registrable; (5) The members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property. It which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has no ti....
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....order to ensure amicable and equitable distribution of assets and properties between the two brothers i.e., GLM and SLM. The A.O. and the Ld. CIT(A) have not doubted the genuineness/bonafides of the Family Settlement even in the first round of proceedings. There is no allegation whatsoever that Family Settlement was not voluntary. He has submitted that parties have acted upon the Family Settlement. The assessee and her family Members had pre-existing, antecedent title, claim, interest in various properties as referred in the Family Settlement Deed. Thus, the amount received by assessee through Family Settlement on transfer of assets would not attract capital gains tax. He has submitted that perusal of the Family Settlement Deed, it may be noted that the same was bonafide Family Settlement entered into between the Family Members of Mirchandani family by clearly setting out the individual rights and holdings of each and every Member of the family tree and based on such Settlement. It was not an agreement for transfer of personal asset i.e., shares held by the assessee in the companies jointly controlled, owned, operated and managed. The owelty amount thus received in Family Settlemen....
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....9. On the other hand, Ld. D.R. relied upon the Orders of the authorities below. The Ld. D.R. referred to the reasoning given by the authorities below that there is no Family Settlement between the parties. He has submitted that it is a contractual agreement between the parties and the assessee has entered into simple transaction of sale and purchase with Shri Golu L. Mirchandani which clearly indicate that there is a transfer of asset within the meaning of Section 45 of the I.T. Act, 1961, so as to levy the capital gain tax on transfer of the share/asset. The Ld. D.R. submitted that assessee voluntarily paid self-assessment tax on the capital gain so offered on the same transaction in the original return of income and as such, there were no justification for the assessee to claim exclusion of the amount from the return filed originally under section 139(1) of the I.T. Act, 1961. The Ld. D.R. also submitted that since the amount of Rs. 45 lakhs was paid for settling the criminal prosecution and other offences in the name of the company owned by the assessee, therefore, the assessee has received the amount in question and as such the same also liable to be taxed in the hands of the a....
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....ell settled that when the Tribunal sets aside an assessment and remands a case for fresh assessment, the power of the ITO is confined to the subject matter of appeal before the Tribunal. The A.O. is bound to follow the directions of the Tribunal. We rely upon the Judgments of Hon'ble Allahabad High Court in the cases of S.P. Kochhar vs., ITO 145 ITR 255 [All.] and Shri Vindhya Basini Prasad Gupta vs., Commissioner of Income Tax 186 ITR 253 [All.], Judgment of Calcutta High Court in the case of Katihar Jute Mills Pvt. Ltd., vs., Commissioner of Income Tax 120 ITR 861 [Cal.]. Considering the above, it is clear that when the parties have allowed the earlier Order of the Tribunal to become final, it is binding on the authorities below and the Ld. CIT(A) shall have to decide the same in accordance with Law and should refrain from making observations and comments on the findings of the Tribunal regarding taxability of impugned amount. 10.2. The assessee in the present appeal has claimed that she has entered into Memorandum of Family Settlement Dated 31.05.2008, copy of which is filed at pages 5 to 26 of the PB which is also reproduced by the A.O. in the impugned assessment order. Learne....
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....pay their personal loan to GOVISO. In the Memorandum of Family Settlement GLM is described as 'Purchaser' and Assessee as 'Seller'. 10.3. Learned Counsel for the Assessee relied upon Judgment of the Hon'ble Supreme Court in the case of Kale vs., Dy. Director (supra). He has also relied upon Judgments of Hon'ble Supreme Court in the cases of Ramcharan Das vs., Girija Nandini (supra), Ravinder Kaur Grewal & Others vs., Manjit Kaur & Others (supra), on the proposition that the Memorandum of Family Settlement is binding on the parties once it is acted upon and is not required to be registered. He has also relied upon other Judgments at Sl.Nos. 4 to 8 mentioned at page-25 of this Order i.e., Commissioner of Income Tax vs., KayAAR Enterprise etc., (supra), on the proposition that Family Arrangement being in the nature of re-alignment, re-distribution, relinquishing or even consolidating certain claims and rights between the Members of the Family bonafidely by putting an end to the dispute amongst themselves is not regarded as 'Transfer' and any amount received has been held not liable to tax under the taxation provisions. 10.4. Learned Counsel for the Assessee also submitted that the i....
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....early establish that it was a simple transaction of sale and purchase of shares, subject to consideration received by the assessee from Shri Golu L. Mirchandani. Shri Golu L. Mirchandani have been described as purchaser of the shares and assessee as seller in the Memorandum of Family Settlement which could never be regarded as Family Settlement Deed. The assessee did not have any antecedent, title of any family property because whatever shares/asset assessee has possessed as owner have been sold subject to consideration because the assessee has acquired the shares of two Companies by way of gift from her father and sons. Thus, it was not a family property which could have been divided between the assessee and Shri Golu L. Mirchandani. The assessee did not receive any share from the family of her husband. The facts also clearly established that there is no equitable partition or distribution of family shares/ assets. The chart reproduced above shows that it was merely sale transaction of shares which could not be considered as Family Settlement. Thus, it cannot be said that the impugned amount was given to assessee for equalisation of interest in the family property and thus, it w....