TMI Blog1990 (12) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... is three sons, AL. Lakshmanan, AL. Periannan and AL. Ramanathan were the other coparceners. Subsequently disputes arose between AL. Ramanathan and his son R. Lakshmanan on the one side and Alagusundaram Chettiar, AL. Lakshmanan and Periannan Shanmugam on the other side. The claim made by the assessee's side was that the division effected on 12-9-1955 was not fair and in addition there were also quarrels about the management of the company Mahalakshmi Textile Mills Ltd. in which all of them had shares. The disputes led to civil and criminal proceedings against each other. Since the disputes affected the family peace and honour, a rapprochement was made through two Panchayatdars, Sri RM. Muthupalaniappa Chettiar and Sri S.P.S. Subramanian Che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irms, Lakshmi Plantations and Jayalakshmi Credit Corporation. Similarly the other side was to give up the Directorship in Mahalakshmi Textile Mills Employees' Co-operative Credit Society Ltd. and R. Unnamalai Achi was to retire from the firm, Rajalakshmi Credit Corporation. 3. On these facts, the assessee claimed that the agreements dated 19-8-1980 and 20-6-1981 should be taken as supplement to the earlier partition dated 12-9-1955 thus not amounting to a transfer under section 47 or in the alternative as a family arrangement not amounting to a transfer such that the capital gains from these transactions could not be assessed to tax. Another stand taken by the assessee was that the consideration paid was not merely for the transfer of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nanced because such a theory will open the flood-gates of tax avoidance as every transfer will be described as a family arrangement for avoiding gift-tax and capital gains tax. He further held that the transfer of the shares took effect only when it was registered with the company and such registration of the shares took place in two accounting years ended 31-3-1981 and 31-3-1982. He further noted that the actual consideration received by the assessee included also the extinguishment of debts and payment of amount to Unnamalai Achi so that the total consideration should be worked out to Rs. 28,05,985. He was of the opinion that 50% of this amount had to be brought to tax in the assessment year under consideration and after giving notice to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-6-1981 stated that AL. Ramanathan was on leave from 9-9-1980, an explanation had been called for on 5-5-1981, a day prior to the oral agreement dated 6-5-1981 calling for explanation for his recent actions as Secretary of the company thus belying the statement. It was also pointed out that Shri AL. Ramanathan had made a gift of diamonds to his sister out of the joint family funds which was inconsistent with the case that the parties were at loggerheads. It was argued that the family arrangement could be accepted only if it was bona fide and in view of the conduct of the assessee which showed trust in each other in their other transactions in spite of the alleged quarrels, the agreements could not be accepted as a genuine family arrangemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be fatal to the validity of similar transactions between strangers are not objections to the binding effect of family arrangements. " This statement of the law has been affirmed by our Supreme Court in the case of Kale. This position has been reiterated by the Madras High Court in the case of R. Ponnammal. In the present case, the existence of disputes and the fact that the arrangement was made in consultation with Panchayatdars are not in dispute. Every such arrangement will necessarily result in realignment of interest in several properties. But yet, Courts have recognised that such realignment of interest would not amount to a transfer. For instance, in the case of Ziauddin Ahmed, as in the present case, shares in a company were all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he intervening years. This contention proceeds on a misapprehension that the transaction is a supplementary partition or that it dates back to the original partition. The transaction of a family arrangement does not date back but only re-distributes the rights prospectively without effecting any transfer. The assumption underlining the family arrangement is that the parties had antecedent rights in all the assets and this proposition of law leads to the legal inference that the family arrangement does not amount to any transfer of title. The other contention of the revenue was that since a family arrangement was not listed in section 47, it could not be excluded from the application of section 45. This contention also cannot be accepted bec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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