High Court Of Karnataka
CIT vs. R. Nagaraja Rao
Section 2(47)
Kumar & Ravi Malimath, JJ.
ITA NO. 3048/2005
19th march, 2012
Counsel Appeared
G. Kamaladhar, Adv. For the Petitioner : A. Shankar & Sri M. Lava, Adv. For the Respondent.
JUDGMENT
The Revenue has preferred this appeal against the order passed by the Tribunal which held that the transactions and the family arrangement made between the assessee and the other family members cannot be treated otherwise than a family arrangement. Hence there is no transfer either of the movable or immovable as such. The assessee is not liable to pay any capital gains. There was a family arrangement by a deed dated 21-12-1992 between the children of late J.N. Radhakrishna and Saraswathi Bai. That each of the parties were holding apart from personal properties, the family properties and shares in different business concerns and each of the family business has been independently managed by one of the parties. Disputes arose between the parties. The dispute was referred to an arbitrator. The arbitrator suggested a settlement which the parties agreed. In terms of the settlement the assessee had to resign from Kaveri Breweries, a partnership firm and transfer has interest to Sri Neelakanta Rao for a consideration of Rs. 35,000/being the capital balance of the firm, Accordingly, the assessee transferred the shares, Sri Neelakanta Rao transferred the shares held by in favour of the assessee. The assessee claimed there was no transfer which give rise to any capital gains However, the assessing authority held that there was a transfer, there was a capital gain and therefore the assessee is liable to pay the tax. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (appeals). The appellate Commissioner confirmed the order of the assessing authority, Aggrieved by these two orders the assessee preferred an appeal to the Tribunal, The Tribunal after considering the judgment of the Apex Court in the case of RAM CHARAN DAS V. GIRJA NANDINI DEVI AIR 1966 SC 323 and also of the Gauhati High Court in the case of ZIAUDDIN AHMED V. CGT [1976] 102 ITR 253 held that admittedly there are lot of disputes between the family members of the asssessee who are none other than the relatives of one other and in that event, the family arrangement and settlement entered into between the parties on the suggestion made by the arbitrator cannot be termed as a transfer either in respect of movable or immovable properties or in respect of commercial properties. Therefore, the Tribunal held that there is no transfer and it was only a family arrangement. Therefore he was not liable to pay tax on capital gains. Accordingly he set aside the order passed by the lower authorities. Aggrieved by the said order the Revenue has preferred this appeal.
The substantial question of law which is framed in this appeal on 12-8-2006 reads as under:- “1, Whether, the Tribunal was correct in holding that the sale proceeds earned by the assessee out of sale of shares held in private limited companies cannot be treated as the income of the assessee and brought to capital gains tax. Whether, the Tribunal was correct in holding that the transfer of shares took place by virtue of family arrangement and there was no transfer as there was family disputes and such arrangement took place at the instance the arbitrator.
Whether, the Tribunal was correct in holding that the finding recorded by the Assessing Officer that the sale of shares held by the assessee in his individual capacity over various private limited companies can be brought to capital gains tax which came to be upheld by the Appellate Commissioner.”
3. This Court had an occasion to Consider the aforesaid questions in the case of K.N. Madhusudhan Gift Tax Appeal Nos. 1 & 2 of 2008 disposed off on 6th September, 2010, In the aforesaid Judgment it was held that the word transfer’ does not include partition or family settlement as defined under the Act, It is well-settled that a partition is not a transfer, What is recorded in a family settlement is nothing but a partition. Every member has an anterior title to the property which is the subject-matter of a transaction, that is, partition or a family arrangement. So there is a adjustment of shares, crystallization of the respective rights in the family properties and therefore it cannot be construed as a transfer in the eye of law. When there is no transfer there is no capital gain and consequently no tax on capital gain is liability to be paid. The tribunal on a proper consideration of the entire material on record has categorically held that the transaction question is a family arrangement. There is no transfer, there is no capital gain and therefore there is no liability to pay capital gain tax. The order is in accordance with law. The substantial questions of law are answered in favour of the assessee and against the revenue, No merits in this appeal. Accordingly, this appeal is dismissed.
[Citation : 352 ITR 565]
