TMI Blog2013 (8) TMI 934X X X X Extracts X X X X X X X X Extracts X X X X ..... d intestate, in the year 1975 leaving behind him, his wife Smt.Kamalamma, 4 sons and 6 daughters. Smt Kamalamma died intestate in the year 1995. Thus the 4 sons and 6 daughters of Sri BLBS became entitled to 1/10th share of over the property. Four out of the 6 daughters of Sri BLBS instituted a suit for partition of separate possession their 1/10th share each against the 4 sons and 2 other daughters. The XXII Addl. City Civil Court Judge, Bangalore by judgment and decree dated 28-07-2006 granted a decree for partition and separate possession as well as mesne profits in respect of 1/10th share each of the Plaintiffs. The 4 sons of Shri BLBS preferred appeal against the order of the Addl. City Civil Court, Bangalore before the Hon'ble High Court of Karnataka in RFA No.2411/2006. The 4 sons and 6 daughters ultimately, entered into a compromise memo dated 11.1.2008 whereby the 4 sons retained the property for themselves. The whole property was valued at ₹ 8.75 Crores. The sons agreed that they will deposit a sum of ₹ 5.25 Crores towards 1/10th share of each of the 6 daughters over the property in 4 months from the date of compromise namely dated 11-01-2008. The sons agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gain . The assessee took a stand that the sum in question was a receipt consequent to a family arrangement and therefore, there was no transfer of any capital asset so as to attract provisions of Sec.45 of the IT Act, 1961. The AO was of the view that there was a direct sale by the 6 daughters in favour of the developer (M/s Sampurna Builders) and therefore, there was a transfer by 6 daughters giving raise to long term capital gains. In coming to the aforesaid conclusion the AO relied on the submissions of one Shri Lakshman Gupta (S/o BLBS) in which he had stated that the 6 daughters received money for surrendering their rights in favour of M/s Sampurna Builders. The AO also relied on the submission of another son Shri Sridhar Murthy, who again submitted that the rights of the daughters over the property directly went to M/s Sampur Builders. The AO also relied on the submission of Managing Partner of M/s Sampur Builders, whereby they had affirmed they paid ₹ 5.35 Crores (5.25 Crores ₹ 10.00 Lakhs on account of penalty) to acquire the 1/6th share each of the 6 daughters over the property. The AO therefore, held that there was a long term capital gain on transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this regard, our attention was drawn to a decision of the ITAT, Bangalore Bench in the case of Mrs. P. Sheela v ITO [2009] 120 ITD 159 wherein the Hon'ble Tribunal had to deal with a question as to whether the amount received on transfer of shares pursuant to a family arrangement would constitute transfer so as to attract capital gain. The Hon'ble Tribunal held that there was no transfer when the terms of family arrangement are given effect to. Our attention was also drawn to the decision of the Hon'ble Karnataka High Court in the case of CIT v R. Nagaraja Rao [2013] 352 ITR 565/[2012] 207 Taxman 236/21 taxmann.com 101. In the aforesaid decision and one of the substantial question of law which arose our consideration by the Hon'ble High Court was as to 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 of the arbitrator. The Hon'ble Court held as follows; This Court had an occasion to consider the aforesaid questions in the case of the Commissioner of Gift Tax Another v. K.N.Madhusudhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the present case. 9. We have considered the rival submissions of both the parties. Sec.45 of the Act lays down that any profit or gain arising from the transfer of a capital asset effected in the previous year shall be chargable to income tax under the head capital gains and shall be deemed to be the income of the previous year in which the transfer took place. The provisions of Sec.45 are attracted only when there is a transfer effected in the previous year . It is therefore necessary to see the definition of transfer under the Act. Sec.2(47) of the Act defines transfer for the purpose of the Act and it reads thus: (47) transfer , in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in trade of a business carried on by him, such conversion or treatment; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement is an agreement between members of the same family, intended to be generally and reasonably for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour. The agreement may be implied from a long course of dealing but it is more usual to embody or to effectuate the agreement in a deed to which the term family arrangement is applied.' The principles the Courts should bear in mind in appreciating the scope of such family arrangement are stated thus - Family arrangements are governed by principles which, are not applicable to dealings between strangers. The Court, when deciding the rights of parties under family arrangements or claims to upset such arrangements, considers what in the broadest view of the matter is most for the interest of families, and has regard to considerations which, in dealing with transactions between persons not members of the same family, would not be taken into account. Matters which would be fatal to the validity of similar transactions between strangers are not objections to the binding effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not regarded as transfer and therefore in the present case which was not a case of partition of a HUF, there is a transfer u/s.2(47) of the Act. We do not think that the view expressed by the CIT(A) is acceptable. The provisions are intended to clarify that when a partition is made no gains are made by the HUF and therefore levy of tax on capital gain, which can only be on the transferor, does not arise at all. Even in the absence of such a provision the revenue cannot seek to levy tax on capital gain because tax on capital gain can be imposed only on transferor and the HUF on a partition receives nothing. Therefore it cannot be said that provisions of Sec.47(i) of the Act by implication can justify levy of tax on capital gain wherever there is a partition between co-owners of properties which does not involve a HUF. 14. Partition is any division of real property or Personal Property between co-owners, resulting in individual ownership of the interests of each. In the present case, on death of Shri.BLBS and his wife, their 10 children, 4 sons and 6 daughters became entitled to 1/10th share each over the property by way of intestate succession. A partition of the share of ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the legal heirs. The answer is obviously in the negative. Suppose money is received in lieu of a share over immovable property of the deceased, as in the present case, it cannot be brought to tax, as it is not in the nature of income. In such an even it is not possible to compute the capital gain as there would be no cost of acquisition. The provisions of Sec.55(2) (b) Sec.55(3) of the Act which provides for determining cost of acquisition in different situations cannot also be applied because, those provisions are applicable only for the purpose of Sec.48 and 49 of the Act. Sec.48 and 49 of the Act would apply only when Sec.45 of the Act applies i.e., there is a transfer of a capital asset giving raise to capital gain. The AO was therefore not right in computing the capital gain in the manner in which he did so. 16. We did not have the benefit of any direct decision rendered by Hon'ble High Courts on the issue brought to our notice by either of the parties. There are decisions rendered in the context of whether partition would amount to transfer under the Transfer of Property Act, 1872 or would require registration under the Indian Registration Act, 1950. Those d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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