R S Jhaveri & Co Vs ACIT (ITAT Pune)
₹6 Crore Received Under Bona Fide Family Settlement Not Taxable; Non-Interference Clause Is Merely Incidental: Pune ITAT
In R.S. Jhaveri & Co. v. ACIT, the assessee-firm received ₹6 crore under a family settlement for relinquishing its interest and control over the agency business of Dillinger GTS Ventes, France in favour of another family group. Of this, ₹5.25 crore was received in AY 2014-15 and ₹75 lakh in AY 2016-17.
The Assessing Officer treated the compensation as taxable business income, invoking section 28(va). Alternatively, he proposed taxation as income from other sources or as capital gains arising from a slump sale under section 50B.
The Pune ITAT examined the Memorandum of Understanding and held that it represented a bona fide family settlement intended to resolve disputes and achieve an equitable separation of family businesses. Amounts received under such a family arrangement cannot be treated as taxable income.
The Tribunal further held that:
- Section 50B was inapplicable, as no undertaking was transferred as a going concern.
- Section 28(va) was also inapplicable, since the transaction was not predominantly a non-compete or restrictive-covenant arrangement.
- Clauses restraining the two family groups from interfering with each other’s businesses were merely incidental provisions intended to ensure peaceful implementation of the family settlement.
- Such clauses could not alter the true character of the transaction.
Accordingly, the Tribunal directed deletion of the additions of ₹5.25 crore for AY 2014-15 and ₹75 lakh for AY 2016-17.
