TMI Blog2017 (11) TMI 1211X X X X Extracts X X X X X X X X Extracts X X X X ..... what is discussed above we hold that the amount received by the assessee in terms of family settlement agreement cannot be treated on account of transfer of capital asset and cannot be chargeable to tax under the head capital gains. Appeal of the assessee is allowed. - ITA.No.5968/MUM/2013 - - - Dated:- 15-11-2017 - SHRI G.S. PANNU, HON'BLE ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER For The Assessee : Shri Satish Mody For The Revenue : Shri V. Janardhanan ORDER PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) 27, Mumbai dated 19.07.2013 for the Assessment Year 2007-08. 2. The assessee has raised the following grounds in her appeal: - ( 1) The CIT(A) has erred in holding that the assessment is validly reopened. It is submitted that the notice u/s. 148 as well as the reopening proceedings u/s. 147 suffer from inherent technical defects and since reopening proceedings are also not applicable on merits, the CIT(A) ought to have held that he assessment is wrongly reopened u/s. 147/148. ( 2) Without prejudice to above, the CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... render of their occupancy/possessory rights the assessee along with her brother and sister was to receive a lumpsum amount of ₹.4,08,00,000/- as per the family settlement i.e. ₹.1,36,00,000/- each directly from the purchaser of the said flat. The said arrangement was entered into as the other faction of the family did not have adequate cash flow to pay to the assessee, her brother and sister for giving the vacant possession of the property. It was understood between the parties of the family settlement that the assessee, her brother and sister had a charge and an overriding title over the sale consideration of the said flat. 4. The assessee is an individual deriving income in the form of remuneration from partnership firm and interest income, filed return on 29.10.2007 declaring taxable income of ₹.1,36,000/-. The assessment was completed under section 143(3) r.w.s. 147 on 20/12/2011 determining total income at ₹.57,36,000/- after making an addition of ₹.56,00,000/- as long term capital gains arising out of sale of the right pursuant to the family settlement. While finalizing the assessment the AO did not accept the submissions of the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate forum that the assessee's case is not covered by the definition of the term tenancy as referred to above, the cost of acquisition of the said flat in the hands of the entire Sonal Zaveri Group shall be ₹ 9,30,000/- only and her share of capital gain shall be computed proportionately (page 31 and 32 of the order of the Ld.CIT(A)) 6. The Learned Counsel for the assessee before us submits that the said sum of ₹.1,36,00,000/- has been received by the assessee pursuant to the family settlement. As per clause 6(xvi) pursuant to the family settlement, the assessee had to vacate and handover the peaceful possession of the said flat and in lieu of which the assessee was entitled to receive the lumpsum money. The flat was sold to an outsider to generate adequate cash flow to pay to the assessee and others which they were eligible to receive by virtue of family settlement. The other fact as stated in the said clause that the assessee has an overriding title over the sale consideration and not flat, clearly shows that it was not that the assessee s right that was recognized by the family settlement as stated by the AO and Ld.CIT(A) while confirming the order but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 55(2)(a) of the Act. It is further submitted that possessory rights/occupancy rights cannot be equated with tenancy right as the said rights are different from each other. The assessee had possessory/occupancy right which is also acknowledged in the family settlement. The Learned Counsel for the assessee referring to the Hon ble Kerala High Court in the case CIT v. M. Appukutty [253 ITR 0159 (ker)] submits that possessory rights are a self-generated asset and there is no guideline on the basis of which possessory right, which is different from tenancy right can be valued. Therefore, the amount received by the assessee as consideration for transfer of possessory right was not chargeable to tax as capital gains. In view of the above the counsel submits that without prejudice if it is held that the assessee is not covered under the family settlement then the assessee has transferred possessory right which is not chargeable to capital gains. 10. It is further submitted that the said flat came into the possession of the assessee by adverse possession as there is neither any agreement nor assessee is paying any rent for tenancy hence no value as calculated by the Ld.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed her entitlement for continuing to have occupancy rights over the flat which was owned by the company Industrial Jewel Pvt. Ltd., The Assessing Officer also took note of the fact that she derived the occupancy rights and since the said flat was sold to an outside party there was a transfer within the meaning of section 2(47) of the Act and the amount realized on surrender of occupancy right in the said flat according to the Assessing Officer falls within the meaning of definition of transfer and would accordingly be subject to capital gains tax. This view of the Assessing Officer was affirmed by the Ld.CIT(A). 14. On a reading of the family settlement deed, we observe that it was entered into by the five groups namely MMP Group, JMP Group, RMP Group, AMP Group and ARP Group which were carrying on various businesses jointly as family members through various companies namely Industrial Jewel Pvt. Ltd., Hindustan Jewels Pvt. Ltd., and Acrysil Ltd. Assessee belongs to MMP Group. MMP represents Mansukhlal Mohanlal Parekh who is the father of the assessee and he was the Chairman and Managing Director of Industrial Jewel (P) Ltd., Mansukhlal Mohanlal Parekh was occupying the flat own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That was converted into partnership. Thus, the partnership came into possession of the building in 1962. Apparently, no amount was paid for getting possession. It can be said to be as self-generated asset. It is true that possessory right is different from tenancy right. Salmond on Jurisprudence, 12th Edn at P 266 it is stated as follows: Possession differs from ownership in another quite different respect. Ownership, as we saw, consists of a combination of legal rights, same or all of which may be present in any particular instance; and such rights imply the existence of legal rules and a system of law. With possession this is not so. A possessor is not so much one who has certain rights as one who actually has possession. Whether a person has ownership depends on rules of law; whether he has possession is a question that could be answered as a matter of fact and without reference of law at all. According to us, there is no guideline on the basis of which this right can be valued. Further, in this case, it cannot be said that any cost was incurred for acquiring possessory right. 16. In the case of Mrs. Urmila Mahesh Nathani v. ITO in ITA No.5921/MUM/2012 A.Y. 2009-2010, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be held that it s a case of transfer of a capital asset. The assessee had merely inherited the share on behalf of her late husband from the property belonging to her father-in-law. This share had been relinquished under the family arrangement, wherein all the parties who had antecedents rights have mutually agreed upon for settlement of the shares. Such a family settlement or arrangement does not tantamount to any transfer of a title, albeit it is akin to a partition of the family asset amongst the members, which is not regarded as a transfer u/s 47(i). In case of a family settlement, it only settles the conflicting claims which had pre-existing joint interest, to a separate interest and there is no conveyance of a property or transfer of a property. Here it is not a transfer of a capital asset but an arrangement for settling the interest and rights of the family members. The Hon ble Madras High Court in the case of CIT vs Kay Arr Enterprises Others, reported in [2008] 299 ITR 348, held that when the parties entered into a family arrangement, that would not attract capital gain as the same was prudent arrangement to avoid possible litigation among family members. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X
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