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2015 (10) TMI 943 - ITAT KOLKATA

2015 (10) TMI 943 - ITAT KOLKATA - TMI - Capital Gains - transfer of property post family arrangement in name of family members as per the directions of the Court - Addition made towards Long Term Capital Gain assessable in the hands of the assessee on sale of property situated at Delhi - Held that:- A family arrangement by which each party takes a share in the property has been held as not amounting to a “conveyance of property” from a person who has the title to it to a person who has no title .....

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he borrowed fund has been used for repaying the old borrowings by the assessee which has been duly used for the purpose of business. It is not in dispute that the original borrowings were used by the assessee for the purpose of his business. Hence, the interest paid by the assessee on borrowings which were utilized by repaying the old business borrowings is squarely allowable as deduction. Accordingly, we direct the ld. AO to allow the sum towards interest paid on loan. - Decided in favour of as .....

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o as the act ) for A.Yr. 2006-07 vide its order dated 26.12.2008. 2. The first issue to be decided in this case is as to whether the ld. CIT(A) is right in confirming the addition made in the sum of ₹ 2,12,78,361/- towards Long Term Capital Gain assessable in the hands of the assessee on sale of property situated at Delhi. 3. The brief facts of the case are that the assessee had sold the land and building at Delhi on 04.01.2006 comprising of ground floor, first floor and second floor for & .....

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factual matrix of this case for proper disposal of this appeal. (1) The assessee obtained the property situated at Delhi (herein after referred to as the subject mentioned property) to the extent of 50% share pursuant to a Will executed by his father in the year 1987. The balance 50% share of the subject mentioned property was given to Smt. Kankawari Nahata pursuant to the Will. The assessee obtained the possession of balance 50% share of the subject mentioned property from Smt.Kankawari Nahata .....

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0.08.2001, the subject mentioned property inter-alia, among others , had to be transferred to assessee s wife and assessee s mother. In other words, the subject mentioned property had to go to assessee s mother and wife pursuant to the family arrangement, which was accordingly done by the assessee in the implementation of the family arrangement and in accordance with the directions contained in the order of Hon ble Calcutta High Court. (3) The possession of the subject mentioned property situate .....

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by the ladies in their respective returns and taxed accordingly. (4) The mother (Smt. Gulab Kanwar Bhandari) and wife of the assessee (Smt.Pushpa Bhandari) actually sold the property for ₹ 2,41,30,000/- during A.Y.2006-07, but the sale deed for the same was executed by the assessee herein i.e. Shri Kamal Bhandari. This was done because in the records of the Delhi Development Authority, the subject mentioned property was not mutated in the name of assessee s mother and assessee s wife. The .....

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onal investment purpose by way of investment in mutual funds and the redemption proceeds of mutual funds were handed over to the ladies on 29.03.2006 by the assessee. The profits derived from the mutual funds were duly offered to tax by the assessee in his return of income for A.Y.2006-07. 4. The ld. AO has added back the entire Long Term Capital Gain on sale of the subject mentioned property at Delhi in the hands of the assessee on the ground that the assessee failed to file the following docum .....

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(A) , who upheld the findings of the ld. AO on the ground that the sale proceeds of the property were deposited into the bank account of the assessee and the transfer of the property by the assessee to the ladies i.e. mother and wife of the assessee pursuant to the family arrangement shall not be recognized as transfer. In other words, the existence of family arrangement was also not appreciated and accepted by the ld. CIT(A) . 6. Aggrieved, the assessee challenged this issue before the Hon ble .....

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Hon ble Calcutta High Court. 1(c) For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the transfer of property through family settlement is not recognized as transfer for the purpose of Income Tax Act, 1961. 7. Shri S.M.Surana, Advocate, the ld. AR appeared on behalf of the assessee and Shri Subhrajyoti Bhatacharjee, JCIT, the ld. DR appeared on behalf of the revenue. 8. The ld. AR argued that the entire addition of long term capital gain on sale of t .....

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ment. He further argued that the ladies namely mother and wife of the assessee had independently entered into a lease deed to lease out the subject mentioned property to an outsider and derived rental income thereon and which was duly offered to tax in the returns of the ladies and taxed accordingly. He further argued that in the balance sheet of the ladies i.e. Smt. Gulab Kunwar Bhandari and Smt. Pushpa Bhandari as on 31.03.2002, the subject mentioned property at Delhi has been duly reflected t .....

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balance sheet of the ladies upto 31.03.2005 as the property owned and possessed by them. However, the property document was remaining in the name of the assessee and not mutated in the name of assessee s mother and wife in the records of Delhi Development Authority, due to which the assessee had to execute the sale deed on 04.01.2006 in favour of Arpit Realtors Pvt. Ltd., Sturn Collection Agencies Pvt.Ltd and Shiv Kripa Agencies Pvt. Ltd. The ld. AR further argued that the assessee having execu .....

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of the sale proceeds of the property on behalf of his wife and mother. He further argued that the transfer of monies was also made in order to comply with the terms and conditions mutually agreed upon in the family arrangement. The ld. AR further argued that the ladies i.e. Smt. Gulab Kunwar Bhandari (mother) and Smt. Pushpa Bhandari (wife) had duly disclosed this long term capital gain on sale of the subject mentioned property at Delhi in their respective returns for A.Y.2006-07 as they are the .....

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of the same while framing the assessment. Accordingly, he pleaded for the deletion of long term capital gain in the hands of the assessee in the sum of ₹ 2,12,78,361/- added in the hands of the assessee. 9. In response to this, the ld. DR vehemently supported the orders of the lower authorities. 10. We have heard the rival submissions and perused the materials available on record. We have also gone through the paper book filed by the assessee numbering from pages 1 to 303 comprising of va .....

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order of the assessment by disbelieving the existence of the family arrangement entered into by the family members in order to resolve their dispute and in order to promote peace and harmony among the family members. It is seen from the said family arrangement, the assessee Shri Kamal Bhandari apart from other assets had to hand over the possession of the land and building situated at Delhi to his mother and wife which was accordingly done by him. This fact is evident from the fact that the lan .....

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ed in the names of assessee s mother and wife which led the assessee to execute the sale deed on 04.01.2006 in favour of a third party for the purpose of convenience. In other words, the assessee stepped into to execute the sale deed only to avoid explaining the complete background for family arrangement vis-à-vis the total assets to be distributed among the family members which was also later approved by the Hon ble Calcutta High Court, to the registration authorities and in order to avo .....

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and the balance sheets as on 31.03.2002 of the assessee and the family members i.e. mother and wife. We cannot close our eyes on the fact that the lease deed of the subject mentioned property was executed on 01.04.2003 by the ladies i.e. mother and wife and the rental income derived therein have been duly offered to tax by the ladies in their respective returns to the deed of sale and the ladies have also duly disclosed the capital gains on sale of the subject mentioned property i.e. sale deed d .....

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d to them (i.e. mother and wife of the assessee) in these years, income there from duly taxed by the department in their respective years. To this extent the observations of the ld. AO for justifying the long term capital gain addition in the hands of the assessee are not justified. It is also seen from the ld. CIT(A) s order that he had concluded to justify the disallowance on the ground that the family arrangement is not recognized under the Income Tax Act. We find that this observation of the .....

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o those which are specifically recognized under law. The transfer of immovable or movable property, as the case may be, does take place under the arrangement, but it is substantially different from the one that is contemplated under the Transfer of Property Act or the Sale of Goods Act. No formal registered document is executed and the nature of consideration is not amenable to any legal analysis. By virtue of a family settlement or arrangement members of a family descending from a common ancest .....

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mily arrangement which may be extracted thus :- The principles which apply to the case of ordinary compromise between strangers do not equally apply to the case of compromises in the nature of family arrangements. Family arrangements are governed by a special equity peculiar to themselves, and will be enforced if honestly made, although they have not been meant as a compromise, but have proceeded from an error of all parties, originating in mistake or ignorance of fact as to what their rights ac .....

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econstruction of the society, to maintain and uphold the unity and homogeneity of the family which ultimately results in the unification of the society and, therefore, of the entire country, is the prime need of the hour. A family arrangement by which the property is equitably divided between the various contenders so as to achieve an equal distribution of wealth instead of concentrating the same in the hands of a few is undoubtedly a milestone in the administration of social justice. That is wh .....

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interest of the country. The courts have, therefore, leaned in favour of upholding a family arrangement instead of disturbing the same on technical or trivial grounds. Where the courts find that the family arrangement suffers from a legal lacuna or a formal defect the rule of estoppel is pressed into service and is applied to shut out plea of the person who being a party to family arrangement seeks to unsettle a settled dispute and claims to revoke the family arrangement under which he has himse .....

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Court in 371 ITR 386 We, therefore, are of the view that the family arrangement, whatever it exists and is proved, is a sui generis i.e. a class by itself, with full legal enforceability, de hors the fact that it is not dealt with under any specific provision of an enactment. The settlement deserves to be given full effect and the legal consequences flowing there from cannot be ignored, on the ground that they do not fit into any specific provision of law. The purport of the family arrangement .....

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ts 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. A distinction should however be made between a document containing the terms 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. .....

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ll its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld and the courts will find no difficulty in giving assent to the same. 6. Even if bona fide disputes, present or possible, which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable. The family arrangement is final and binding on the parties to the settlement. It is for thi .....

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al precedents recognizing the family arrangement in the eyes of law, the action of the ld. AO in bringing to tax the long term capital gain of ₹ 2,12,78,361/- is illegal and is hereby directed to be deleted in the hands of the assessee. 11. The next issue is as to whether the ld. CIT(A) is justified in confirming the disallowance of ₹ 45,000/- towards interest paid on loans. 12. The brief facts of the case are that the assessee borrowed loan to re-pay his earlier loan borrowed by him .....

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