TaxTMI 
TaxTMI 
2022 (9) TMI 1682
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....n under the Act. 3. The Ld. CIT(A) erred in not appreciating the fact that once the sale of the property is authorized in the resolution passed by the Company/ board, the transaction between the company and the assessee as two distinct persons would have to be considered de hors the reason for which the board decided to sell the property. 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored. 2. The Revenue has filed additional grounds of appeal, which reads as under: 1. The market value of the impugned property is Rs.6,10,51,500/- as per the Special Deputy Collection (Stamps), Madurai vide D. Dis. No. 266/115/KDNL dated 09-03-2017 and the same must be considered for the purpose of section 56(2)(vii) of the Act. Since the ground does not require appreciation of new facts, the same is admitted. 3. The Ld. Sr. DR, drawing attention to the grounds of appeal, submitted that a corporate entity was the owner of the asset which was transferred to the assessee and therefore, the provisions of Sec.56(2)(vii) has rightly been applie....
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....ellate proceedings, the assessee submitted that GTPL was a family-owned entity and 95% of its shareholding was held by assessee's father whereas remaining 5% was held by assessee's brother Shri S. Balasubramaniun. M/s GTPL was stated to be promoted by the founder (assessee's father). As Karta of his family, Dr. B. Sivanthi Adityan invested in various properties and business ventures. The investments include investment in closely held companies including GTPL and the said investments were done in his name and in the names of the family members since the entire investments were from joint family funds. The same was clear from the terms of the Deed of Declaration-cum-undertaking as executed by assessee's brother Shri S. Balasubramaniun on 09-12-2013 upon demise of Dr. B. Sivanthi Adityan on 19-04-2013. 5.2 It was further submitted that Dr. B. Sivanthi Adityan conveyed his oral will to the brother to settle the family properties. Dr. B. Sivanthi Adityan expired on 19-04-2013. As per his last wish, it was decided by the legal heirs to partition and settle the properties held by late Dr. B. Sivanthi Adityan. Accordingly, deed of declaration-cum-undertaking was executed wherein it was ....
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.... on the other decision of Hon'ble Supreme Court in Rangasami Gounden V/s Nachiapa Gounden (AIR 1918 PC 196) to support the submissions that family settlement was nothing but realignment of interest among the family members and such an arrangement would not amount to 'transfer'. Another decision as referred by the assessee was the decision of Hon'ble High Court of Madras in CIT V/s AL Ramanathan (245 ITR 494) wherein similar position was laid down. Similar was stated to the ratio of decision of Hon'ble Delhi High Court in the case of CWT V/s Santosh Singh (252 ITR 707). 5.4 In the said background, it was further submitted that the corporate entity has separate independent existence having perpetual succession and common seal. However, the courts have permitted lifting of corporate veil to prevent injustice as held by Hon'ble Calcutta High Court in Shaw Wallace & Co. Ltd. V/s CIT (119 ITR 399). 5.5 The assessee submitted that the consideration of Rs.10 Lacs as shown was to meet expenses on transfer (stamp duty etc.) and not on account of sale of property. The said property was received by the assessee as the full and final settlement of her share in family properties. The trans....
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....pany Dr. Late. B. Sivanthi Adityan has expressed, his Oral Will of continuance of company even after his demise. 6. First appellate findings and Adjudication 6.1 The Ld. CIT(A) noted that GTPL was family owned company and its entire shareholding was held by assessee's father and brother. The entity was founded by the father of the assessee. Dr. B. Sivanthi Adityan invested in various properties and venture and the said investments were made in the name of family members out of joint family funds. As per last wish of assessee's father, the declaration-cum-undertaking was executed by assessee's brother and accordingly the property devolved on the assessee as per family settlement. 6.2 Considering all the facts and circumstances, Ld. CIT(A) concurred with assessee' submissions and adjudicated the issue as under: - 4.3.10. I have considered both the points of view. I have taken note of the fact that Mr. S. Balasubramainan, Managing Director of M/s. Gay Travels Private Limited has confirmed that the property transferred to the Appellant, was out of partition among family members as per the last wish. of Dr. B. Sivanthi Adityan, and he has also clarified that the amount....
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....ITA No.2278/Mds/2012 & 1965/Mds/2011, has held that when there is any distribution of assets pursuant to family arrangement or HUF partial/total partition, such transactions will not amount to transfer of asset attracting tax liability in the hands of the recipient under the provisions of the Act. In that case, on piercing the corporate veil with respect to the two private limited companies viz. M/s. SKM Animals Feeds and Foods (India) Ltd. and M/s. SKM Siddha and Ayurvedic Medicines India Pvt Ltd., the entire Intermingled transactions could be seen only as the family settlement arrived at through Arbitration Award amongst Hindu family members. Further there are no transfers of assets with respect to the public limited company M/s. SKM Egg Products Exports (India) Ltd. Therefore, the Hon'ble ITAT came to a conclusion that considering the facts and circumstances of the case, the provisions of section 2(22)(e), 2(24)(iv) or Sec.56(2)(vi) could not be invoked and the Assessing Officer's addition was deleted. B) The Hon'ble Gauhati High Court in the case of Commissioner of Income Tax V. S.N.Zaman And S.M.Elahi reported in [1996] 221 ITR 842 has observed that the Me....
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....n'ble Madras High Court in the case of Ld. CIT Vs. Shanthi Chandran reported in (2000) 241 ITR 347, has held that where an asset is acquired on a family arrangement, it is on par with an asset acquired on partition or any other succession. H) In the case of Rangasami Gounden v Nachiapa Gounden 46 Ind. App 72; (AIR 1918 PC 196), it was held that, "Every party taking benefit under a family settlement necessarily be shown to have under the law, a claim to a share in the property. All that is necessary is that the parties must be related to one another in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other ground, as say, affection" I) The Hon'ble Supreme Court in the case of Ram Charan Das vs. Girja Nandini Devi AIR 1965 SC 323, has elaborated that a transaction of a family settlement entered into by the parties who are members of a family bona-fide with the object to put an end to disputes among themselves is not a transfer, and that it is also not the creation of an interest. In a family settlement, each party would take a share in the property by virtue of the independent title which is admitted to the....
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.... that the immovable property received by the appellant through the oral will of Dr. B. Sivanthi Adityan is not covered under the ambit of provisions of Section 56(2)(vii). Therefore, the AO's aforesaid addition is deleted. The appellant's grounds are allowed. It was thus held by Ld. CIT(A) that the provisions of Sec.56(2)(vii) shall not be applicable in respect of transfer of any property received under a will or by way of inheritance. The property under consideration was received by the assessee through the oral will of her father Dr. B. Sivanthi Adityan and therefore, this transaction would not be covered under the ambit of provisions of Section 56(2)(vii). Aggrieved as aforesaid, the revenue is in further appeal before us. Our findings and Adjudication 7. From the facts, it emerges that during assessment proceedings, the assessee was confronted with the applicability of s.56(2)(vii) since the assessee purchased a property from GTPL for a consideration of Rs.10 Lacs as against its stamp duty value which was much higher. The assessee was show-caused as to why the market value of property as per s. 56(2)(vii) of the Act be not taken as 'income from other sources' a....
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....nderstanding between the members which resolves the family disputes and the rival claims of the members of the family are settled provided the settlement was bona-fide and fair in the allotment of properties amongst the members of the family. Settlement of bona-fide disputes, the purpose of which is to bring about harmony or maintaining peace or tranquility amongst family members would be sufficient consideration for a family settlement. Such settlement could not be termed as 'transfer' under the Income Tax Act. 11. The Hon'ble Supreme Court in the case Tek Bahadur Bhujil V/s Devasingh Bhujil AIR 1966 SC 292 has held that a family arrangement could be arrived at orally and its terms may be recorded in writing subsequently as memorandum of what has been agreed upon between the parties at an early date and such a document do not require registration. 12. Further, Hon'ble Supreme Court in the case of Ram Charan Das V/s Girja Nandini Devi AIR 1965 SC 323 held that bona-fide family settlement amongst family members to put an end to disputes between themselves would not amount to 'transfer' and it is also not the creation of an interest. In a family settlement, each party would tak....
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.... ". . . the family arrangement had been brought about by the intervention of the panchayatdars and this clearly showed that the sons and daughters of the assessee were laying claims to the property which the assessee got under the will of her father and it was not relevant at the time when the family arrangement was entered into to find out as to whether such claims if made in a court of law would be sustained or not. If the assessee found it worthwhile to settle the dispute between herself, her sons and 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." 4. It is the settled law that when parties enter into a family arrangement....
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....o chargeable capital gain arising from that transaction. 8. We answer the question of law in favour of the assessee and against the Revenue. No costs. This case law also support the case of the assessee. 16. This Tribunal in the case of SKM Shree Shivkumar vs. ACIT in ITA No.2278/Mds/2012 & 1965/Mds/2011 dated 17-07-2014, has held that when there is any distribution of assets pursuant to family arrangement or HUF partial / total partition, such transactions will not amount to 'transfer' of asset attracting tax liability in the hands of the recipient under the provisions of the Act. In that case, on piercing the corporate veil with respect to the two private limited companies viz. M/s. SKM Animals Feeds and Foods (India) Ltd. and M/s. SKM Siddha and Ayurvedic Medicines India Pvt Ltd., it was held that the entire Intermingled transactions could be seen only as the family settlement arrived at through Arbitration Award amongst Hindu family members. Further there would be no transfer of assets with respect to the public limited company M/s. SKM Egg Products Exports (India) Ltd. Finally, it was held that the provisions of section 2(22)(e), 2(24)(iv) or Sec.56(2)(vi) could....