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TMI Blog2007 (7) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the family arrangement as arrived by the assessee to rearrange the share holdings to avoid possible litigation themselves will not attract Capital Gains Tax under the Income-tax Act, 1961 ? (ii) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that, the re-arrangement of share holdings in the company to avoid possible litigation among family members to be a prudent arrangement, the same cannot be held as a transfer of shares which is exigible to Capital Gains Tax ?" under the following facts and circumstances of the case, which are common in all the three appeals. 2. The assessment year involved in these appeals is 1996-97. There was a transfer of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he family members would attract the Capital Gains Tax. 4. The law on the point is well settled by the decisions of the Apex Court in Maturi Pullaiah and another v. Maturi Narasimham and others [A.I.R. 1966 (SC) 1836], and in Kale and Others v. Deputy Director of Consolidation and others [A.I.R. 1976 (Supreme Court) 807] which are followed by this Court in Commissioner of Income-tax v. Ponnammal [(1987) 164 I.T.R. 706], and in Commissioner of Income-tax v. AL.Ramanathan [(2000) 245 I.T.R. 494]. It is a settled law that when parties enter into a family arrangement, the validity of the family arrangement is not to be judged with reference to whether the parties who raised disputes or rights or claimed right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [(1987) 164 I.T.R. 706], referred supra, held that, "... 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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d there would be no peace among the members of the family. Such a family arrangement intended 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 cannot be concluded as any other dealings between strangers, as such a family arrangement is for the interest of the family and for the harmonious way of living. Therefore, such a re-alignment of interest by way of effecting a family arrangement among the family members would not amount to transfer. 10 Hence, the Tribunal has rightly found that the impugned transfer of shares by way of family arrangement would not attract Capital Gains Tax, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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