₹6 Crore Bona Fide Family Settlement Not Taxable; Non-Interference Clause Incidental: Pune ITAT

By CA Vijayakumar Shetty Income Tax Judiciary August 20, 2026

Case Name: R S Jhaveri & Co Vs ACIT (ITAT Pune)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2014-15
Courts: All ITAT, ITAT Pune

Upgrade to Basic or Premium to download.

Already Upgraded? Log in.

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.

Separately, the disallowance of ₹36 lakh commission expenditure for AY 2016-17 was restored to the Assessing Officer. The assessee was given a final opportunity to establish that the recipient had offered the commission to tax and to explain how the payment made by another group concern on its behalf was accounted for.

List of Cases Discussed / Relied Upon

ITO Vs Mohammed Afzal Muchhada (ITAT Mumbai)
S.A. Builders Ltd. v. CIT (2007) 288 ITR 1
Bengal Enamel Works Ltd. v. CIT (1970) 77 ITR 119

FULL TEXT OF THE ORDER OF ITAT PUNE

The above 2 appeals filed by the assessee are directed against the separate orders dated 02.09.2025 of the Ld. CIT(A), Pune-12 relating to assessment years 2014-15 and 2016-17 respectively. Since identical grounds have been raised in both the appeals, therefore, these appeals were heard together and are being disposed of by this common order for the sake of convenience.

ITA No.2441/PUN/2025 (A.Y. 2014-15)

2. Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of steel plates. The said firm is having agency of Dillinger GTS Ventes (DGV) which is a foreign company and the said firm has been procuring orders as a commission agent for and on behalf of the said company from various buyers. It filed its return of income on 30.11.2014 declaring total income of Rs.1,47,63,530/-. The case was selected for scrutiny under CASS and accordingly notice u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued and served on the assessee. Subsequently notice u/s 142(1) along with a questionnaire was issued and served on the assessee in response to which the assessee filed the requisite details.

3. The Assessing Officer noted that a search and seizure action u/s 132 was carried out at the residential premises of Shri Rajnikant Sarabhai Jhaveri at 5/C, Ridge Apt, 18 Ridge Road, Near Marbar Hills, Mumbai during which loose papers were seized as per bundle No.3, having pages 1 to 34. As per page Nos.1 to 11 which is a Memorandum of Understanding dated 09.07.2013 made between Shri R.S. Jhaveri family and Shri Sandeep Jhaveri family, the assessee firm M/s. R.S. Jhaveri & Company has received a sum of Rs.6 crores towards relinquishing all its interest and control over agency business of DGV, France. He, therefore, asked the assessee to explain as to whether this amount of Rs.6 crores has been shown as income and if not offered the same for taxation, to explain as to why the above amount of Rs.6 crores should not be treated as unexplained money u/s 69 and added the same to the total income of the assessee.

4. The Assessing Officer further noted that during the course of search and seizure action the statement of Smt. Nishita Jhaveri, being elder member of R.S. Jhaveri & family was recorded u/s 132(4) on 20.08.2014. In question No.14 she was asked as to whether she has paid any tax on the amount of Rs.6 crores received as compensation as per MoU dated 09.07.2013 where she has handed over the agencies to Shri Sandeep Jhaveri. In reply to this question, she has answered that no return has been filed yet and taxes will be paid in respect of this transaction. In view of the above reply of Smt. Nishita Jhaveri, the Assessing Officer was of the opinion that M/s. R.S. Jhaveri & Co. has received Rs.6 crores as income on relinquishing all its agency business to Shri Sandeep Jhaveri family. However, while filing the return in response to the notice u/s 153A the assessee has directly credited the capital account of the firm with the amount received for relinquishing all the agency business and treated the same as capital receipt. Further, the compensation so received has been transferred by the assessee firm to its partner’s capital accounts i.e. in the account of Shri Abhishek Jhaveri, Shri Aniket Jhaveri and Shri Arihant Jhaveri at Rs.1,65,91,577/- each totaling to Rs.4,97,74,731/- after claiming certain expenditure. Therefore, he was of the opinion that the assessee firm has transferred its income i.e. compensation received from the aforesaid agency business at Rs.5,25,00,000/- in assessment year 2014-15 (Rs.75,00,000/- in assessment year 2015-16). Further, all the three aforesaid partners of the firm have credited the said income in their respective capital accounts showing addition to their capital accounts.

5. The Assessing Officer noted from the MoU dated 09.07.2013 that as per the said MoU it was agreed that w.e.f. 07.06.2013 the assessee company has surrendered its agency business to Sandeep Jhaveri family. Further it has been agreed between the parties that as M/s. R.S. Jhaveri & Company has relinquished all its interest and control over the said agency business, the party of second part shall in lump sum pay sum of Rs.6 crores only to R.S. Jhaveri Company. Hence, it is again clear that the assessee firm has received Rs.6 crore as income i.e. revenue receipts and not capital receipts as claimed by the assessee. On being questioned by the Assessing Officer the assessee submitted that the aforesaid amount of Rs.6 crores received by the assessee is a capital receipt and hence not taxable and not offered for taxation.

6. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. According to him, transferring the agency business of DGV, France to Sandeep Jhaveri family does not mean that the assessee has shut down its business activities and its firm but the business activities of the assessee firm are still going on. Further, the assessee firm has transferred its agency business to another person i.e. from R.S. Jhaveri family to Shri Sandeep Jhaveri. After transfer of its agency business, Sandeep Jhaveri is no more partner in the said firm. In this case, the assessee firm has received compensation for transfer of its agency business to the tune of Rs.6 crores and the said firm has treated this compensation as capital receipt and considered it as exempt from taxation. Further, the amount of Rs.5,25,00,000/- has been transferred to three partners in equal share. Therefore, the Assessing Officer was of the opinion that the said amount received is for termination of agency business rights which can never be treated as capital receipt, it must be a revenue receipt only as the said receipt was obviously related to that business and was not income from new and independent source. For the above proposition, he relied on various decisions.

7. The Assessing Officer further referred to the provisions of section 28(va) and held that the amount of Rs.6 crores to be received by the assessee firm is against an agreement for not carrying activity of interference in relation to agency business of DGV. Therefore, the amount of Rs.6 crores is clearly a business receipt earned by the assessee firm. Without prejudice to the above discussion, the Assessing Officer held that even if it is assumed that the said receipts cannot be treated as income from business, it will surely form part of income from other sources u/s 56.

8. Without prejudice to the above, the Assessing Officer further held that the said transfer of agency business also constitutes as slump sale within the meaning of section 2(42C) of the Act and therefore, profits arising from the said transfer may be treated as capital gain in case of slump sale as per the provisions of section 50B of the Act. In view of the above discussion, the Assessing Officer made addition of Rs.5,25,00,000/- to the total income of the assessee for the impugned assessment year by observing as under:

“8. By considering all these facts and circumstance of case and position of all, it is crystal clear that said receipts are not exempt receipts and subject to tax as per above discussion. Thus, the amount so received at Rs.5,25,00,000/- during the year under consideration, out of total consideration at Rs.6,00,00,000/- treated as taxable Receipts in the hands of the assessee Firm i.e. M/s R.S. Jhaveri & Company for AY under consideration and needs to be taxed in its hands. Hence, the said amount of Rs.5,25,00,000/- received by the assessee firm on account of relinquishment of all its interest and control over the said agency business and received lumpsum amount of Rs.5,25,00,000/- (out of Rs.6,00,00,000/-, Rs.75,00,000/- has been received by assessee during F.Y. 2015-16) is treated as its income for AY under consideration and added the same to the total income of the assessee. Penalty proceedings u/s.271(1)(c) of the Act are separately initiated for furnishing inaccurate particulars thereby concealment of his Income.”

9. In appeal, the Ld. CIT(A) upheld the action of the Assessing Officer by observing as under:

5.4 I have carefully considered the rival contentions, the assessment order, the seized material, the written submissions of the appellant, and the case laws relied upon by both sides. The appellant has argued that the sum of Rs. 5.25 crores received during the year under consideration, being part of the total compensation of Rs. 6 crores, was in the nature of a capital receipt and thus not chargeable to tax. Alternatively, it has been claimed that the said sum was received in the course of a family settlement to bring about peace and to avoid litigation, and therefore did not partake the character of taxable income. On the other hand, the Revenue has contended that the said receipt is nothing but business compensation for relinquishing rights in an ongoing agency business, squarely taxable as a revenue receipt or, in the alternative, taxable under section 28(va) or as capital gains on slump sale under section 50B of the Act.

5.5 The arguments advanced by the appellant emphasise that the agency business of Dillinger GTS Ventes (DSV) was a “source of income,” and once such a source itself is transferred, the receipt is capital in nature. Reliance has been placed on judicial pronouncements such as P.H. Divecha v. C/T (48 ITR 222), CIT v. TI & M Sales Ltd. (259 ITR 116), and more recently Ramona Pinto v. DCIT (156 taxmann.com 282) to submit that compensation received on loss of source of income amounts to capital receipt. It has also been stressed that the arrangement arose out of family disputes and coercion, and that the sum received cannot be considered as flowing from free consent or normal business transaction, but as consideration to preserve family peace. The assessee has also urged that the provisions of section 28(ii)(a) to (e) do not apply, as there was no termination of agency by the principal nor any managing agency agreement of the kind contemplated in those clauses.

5.6 The AO, however, has cogently rebutted these arguments. It is a matter of record that the seized Memorandum of Understanding dated 09.07.2013 clearly stipulated that the appellant firm had relinquished all rights and control over the agency business in favour of the Sandeep Jhaveri group for a lump-sum consideration of Rs. 6 crores. The receipt therefore directly emanates from a business arrangement and not from any fortuitous or casual circumstance. The statement of Smt. Nishita Jhaveri recorded u/s 132(4) further corroborates that taxes would be paid on this amount, recognising it as income. The fact that the assessee firm continued its other business activities also demonstrates that this was not a case of extinction of the entire business, but merely transfer of one agency to another group. The reliance placed by the assessee on capital receipt jurisprudence is misplaced, because the authorities in Gillanders Arbuthnot & Co. Ltd. v. C/T (53 ITR 283), CIT v. Best & Co. (P) Ltd. (60 ITR 11), and Chidambaram Mulraj & Co. (P) Ltd. v. C/T (102 ITR 7) clearly lay down that compensation for termination or transfer of an agency business, where the assessee continues to carry on business otherwise, constitutes revenue receipt.

5.7 Further, section 28(va) expressly brings to tax any sum received under an agreement for not carrying out any activity in relation to any business. The covenant in the MOU that the assessee shall not have any right, title or interest in the agency business of DGV and shall not interfere in future clearly falls within the ambit of this provision. Even if one were to view the arrangement as a transfer of an undertaking, the provisions of section 50B dealing with slump sale arc attracted, under which profits from such transfer are taxable as capital gains. Thus, under every possible head—business income, capital gains on slump sale, or even income from other sources—the impugned receipt cannot escape taxation.

5.8In view of these facts, I find merit in the stand of the AO that the receipt of Rs. 5.25 crores is not a capital receipt outside the scope of taxation. The plea that the payment was in the nature of a family settlement is also not convincing, since the MOU in clear terms documents the transfer of valuable business rights, and the payment is directly linked to such relinquishment. A family settlement may ordinarily operate to divide or reallocate existing assets among members, but where the subject matter is a commercial contract and the consideration is fixed for surrendering business rights, the transaction assumes the character of a business receipt. Accordingly, the addition of Rs.5,25,00,000/- made by the AO for AY 2014-15 is upheld. Grounds 1 and 2 of the appeal are, therefore, dismissed.

10. Aggrieved with such order of the Ld. CIT(A) the assessee is in appeal before the Tribunal by raising the following grounds:

1. Nature of Receipt-Capital vs Revenue

The learned Commissioner of Income tax Appeals NFAC erred on facts and in law in sustaining the addition of ? 5,25,00000 being amount received for loss of a source of income. The learned Commissioner of Income tax Appeals failed to appreciate the factual background and the nature of the transaction whereby the appellant permanently lost its income-generating agency business, making the receipt a capital receipt not chargeable to tax.

2. Chargeability-No Tax Without Income

The learned Commissioner of Income tax Appeals NFAC erred in not appreciating the settled principle that the charge of income tax applies only to income and where, on examination, it is found that a particular receipt is not in the nature of income, no tax can be levied thereon.

3. Background of Family Dispute and Coercive Circumstances

The learned Commissioner of Income tax Appeals NFAC failed to appreciate that the receipt represents amount received pursuant to the same family settlement and coercive circumstances under which the appellant was compelled to relinquish its agency business.

4. Law of Contract-Agreement Under Coercion

The learned Commissioner of Income tax Appeals NFAC erred on facts and in law in not recognizing that the agreement resulting in payment of ?5,25,00,000 was executed under coercion and therefore could not be regarded as a voluntary commercial transaction giving rise to taxable income.

5. Slump Sale-Cost of Acquisition Unascertainable

The learned Commissioner of Income tax Appeals -NFAC erred in law and on facts in not appreciating that once the Assessing Officer admits the transaction of surrender of business as a slump sale constituting transfer of an undertaking, the natural consequence is that the cost of acquisition of such undertaking is unascertainable, making the theory of capital gain emanating therefrom unworkable.

6. Failure to Consider Evidence and Submissions:

The learned Commissioner of Income tax Appeals NFAC erred in passing the impugned order without properly considering the detailed submissions, evidences, and judicial precedents relied upon by the appellant, thereby violating the mandate of section 250(6) of the Income tax Act 1961.

The appellant craves leave to add to, alter, amend, or withdraw any of the above grounds of appeal at the time of hearing or thereafter as may be deemed fit.

11. The Ld. Counsel for the assessee strongly challenged the order of the Ld. CIT(A) in confirming the addition of Rs.5,25,00,000/- made by the Assessing Officer. He submitted that the said receipt is not taxable u/s 28(va) or u/s 50B as the transaction in question was fundamentally a family settlement / business separation agreement and not a commercial transaction of the nature contemplated under the aforesaid provisions. The Ld. Counsel for the assessee drew the attention of the Bench to the MoU dated 09.07.2013 where it has been mentioned as under:

“Whereas certain differences cropped up between the members of RSJ group and SBJ group in respect of carrying out said businesses activities and because of said disputes and differences, smooth working of various group entities could have been adversely affected and

Whereas both the groups have been desirous of settling all the differences and accordingly deliberations, discussions and negotiations are held between the parties.”

12. Similarly, referring to the said MoU, he drew the attention of the Bench to the following clause:

“Whereas both the groups have arrived at amicable settlement on certain terms and conditions and they are desirous of reducing the same in writing. Therefore they have entered into this agreement.”

13. He submitted that the MoU was entered into between the family members belonging to the two groups and comprehensively dealt with the restricting / division of rights and obligations in relation to multiple family controlled entities / businesses including (a) M/s. R S Jhaveri & Co., (b) M/s. R S Jhaveri Steels Pvt. Ltd. and (c) M/s. Jhaveri Flexo (India) Ltd. He submitted that the arrangement was therefore not confined to any isolated commercial transaction but constituted an overall family / business realignment intended to ensure peaceful separation and independent future functioning of the two family groups.

14. Referring to clause 9 of the MoU, the Ld. Counsel for the assessee drew the attention of the Bench to the same where it has been mentioned as under:

“9) It is agreed between both the groups that they shall independently carry out business & activities of each other businesses independently.”

15. Referring to clause 25 of the MoU, he drew the attention of the Bench to the same which reads as under:

“25) It is hereby agreed that all the differences and disputes between the parties are amicably settled and both the parties shall have no claim against each other in respect of aforesaid three entities i.e. M/s R S Jhaveri & Company, M/s R S Jhaveri Steels Pvt. Ltd. and M/s Jhaveri Flexo (India) Ltd. It is hereby agreed that henceforth they shall not interfere into their individual or group businesses of each other and both the parties shall be responsible and liable for their respective activities.”

16. He accordingly submitted that the dominant purpose of the arrangement was family / business separation and peaceful future functioning and not earning of income in ordinary course of business. He submitted that in furtherance of the said arrangement it was agreed that the DI agency business thereafter would be handled by the SBJ Group and the RSJ Group would no longer participate therein. The Ld. Counsel for the assessee next drew the attention of the Bench to clause 1 of the MoU which reads as under:

“1) M/s R S Jhaveri & Company is a partnership firm and is carrying on business of steel plates. The said firm is having agency of DGV which is a foreign company and said firm has been procuring orders as a commission agent for and on behalf of said company from various buyers. It was agreed that with effect from 7/6/2013 M/s R S Jhaveri & Company shall surrender this agency and inform the principal DGV accordingly and Mr. Sandeep Jhaveri shall take said agency with effect from 7/6/2013 in his new firm M/s. Jhaveri Steel and accordingly said fact is informed by M/s RS Jhaveri & Company to the principal DGV and agency stood transferred from the said firm to party of second part 2A M/s. Jhaveri Steel.”

17. He thereafter, drew the attention of the Bench to clause 2 of the MoU which reads as under:

“2) It has been agreed that RSJ group shall have no control or any interest in the agency business of DGV and they shall not claim any right, title or interest in the said agency business which is exclusively taken over by party of second part 2A (SBJ group). It is hereby agreed that henceforth M/s R S Jhaveri & Company or any member of RSJ group shall not interfere in this agency business of SBJ group. It has also been agreed that party of second part 2A may hire some employees of M/s R S Jhaveri & Company by giving prior intimation to M/s R S Jhaveri & Company.”

18. He submitted that agency acquisition agreement dated 05.09.2013 was merely an implementing / consequential document executed pursuant to and in furtherance of the larger family settlement recorded in the MoU. He submitted that the consideration of Rs.6 crores was directly credited to partner’s capital accounts and treated as capital receipt.

19. Relying on various decisions, he submitted that bonafide family settlements are governed by equitable principles intended to preserve family peace and avoid future disputes and are not ordinary commercial transactions undertaken for earning profits.

20. Referring to the decision of Hon’ble Supreme Court in the case of Kale & Ors vs. Deputy Director of Consolidation reported in (1976) 3 SCC 119, he submitted that the Hon’ble Supreme Court in the said decision has held that the Courts have consistently leaned in favour of family arrangements.

21. Referring to the decision of Hon’ble Madras High Court in the case of CIT vs. Kay Arr Enterprises reported in (2008) 299 ITR 348 (Mad), he submitted that the Hon’ble High Court in the said decision has held that the amount received under the family arrangement cannot be treated as income liable to tax.

22. He submitted that the present arrangement must therefore be viewed in overall context of settlement of family disputes and realignment of family controlled business interests. Referring to the following decisions, he submitted that amounts received under family arrangement cannot be treated as income liable to tax:

i) Abhivan Malik vs. ITO vide ITA No.3525/Del/2024 order dated 27.12.2024 for assessment year 2016-17

ii) DCIT vs. Shri Arvind Kapoor vide ITA No.280/Agra/2013 order dated 10.02.2016 for assessment year 2008-09

iii) Sonal A. Zaveri vs. ITO vide ITA No.5968/MUM/2013 order dated 15.11.2017 for assessment year 2007-08

iv) ACIT vs. SKM Shree Shivakumar vide ITA No.73/Mds/2016 order dated 11.08.2016 for assessment year 2009-10

23. So far as the argument of the Assessing Officer that the provisions of section 28(va) are applicable are concerned, he submitted that the said provision was introduced to tax non-compete fees and restrictive covenant receipts. Referring to the Memorandum explaining the Finance Bill, 2002, he submitted that the Memorandum itself clarifies that the provision was introduced to tax receipts for (a) not carrying out any activity in relation to any business and (b) not sharing any know-how, patent, copyright, trademark etc. Thus, the legislative intent was to tax pure restrictive covenant / non-compete receipts. He submitted that the present transaction was not principally or predominantly a restrictive covenant arrangement. He submitted that the so-called non-interference clauses appearing in the MoU are merely incidental and consequential provisions intended to ensure peaceful implementation of the family settlement and avoid future disputes between the two groups.

24. Referring to clause 25 of the MoU, he drew the attention of the Bench to the same where it has been held that “henceforth they shall not interfere into their individual or group businesses of each other”. Similarly, in clause 26 which records “RSJ group will continue these businesses independently and party of second part SBJ group or its employees shall not do anything which is detriment or detrimental to these businesses”. He submitted that such clauses are routinely found in family settlements and business separation arrangements and cannot by themselves alter the true character of the transaction. He emphasized that the dominant purpose of the arrangement was family / business separation and equalization of family controlled business interests and not payment for abstaining from carrying on business.

25. Referring to the decision of Hon’ble Supreme Court in the case of Guffic Chem (P.) Ltd. vs. CIT reported in (2011) 332 ITR 602 (SC), he submitted that the Hon’ble Supreme Court in the said decision has held that prior to 01.04.2003, a non-compete fee under a negative covenant was always treated as a capital receipt and it becomes taxable only w.e.f. 01.04.2003 vide section 28(va). He accordingly submitted that section 28(va) specifically targets non-compete receipts. Therefore, the Revenue’s interpretation would effectively result in every family business separation containing mutual non-interference obligations being treated as a taxable non-compete arrangement u/s 28(va) which is clearly beyond the legislative object of the provision. Further he submitted that the consideration was not separately identified, quantified or allocated towards any alleged restrictive covenant.

26. Referring to clause 4 of the MoU, he submitted that the said clause merely records that the amount was payable because “M/s. R S Jhaveri & Company has relinquished all its interest and control over the said agency business” and the receipt therefore cannot be artificially isolated and characterized as non-comppete fee u/s 28(va).

27. So far as the alternate argument of the Assessing Officer that the amount is taxable u/s 50B is concerned, he submitted that the same is also wholly misconceived. He submitted that section 50B applies only where an undertaking is transferred as a going concern. However, no such transfer occurred in the present case.

28. Referring to the MoU, he submitted that the agreements do not evidence transfer of (a) a business undertaking as a whole, (b) all assets and liabilities, (c) organizational infrastructure and (d) a going concern undertaking. He submitted that clause 3 of the MoU specifically records that the commissions relating to earlier orders remain receivable by the assessee firm. Similarly, clause 8 records “RSJ group shall be responsible and liable for all claims or outstanding which third party may be having against and / or said firm”. He accordingly submitted that (a) the receivables remained with the firm, (b) the liabilities remained with the RSJ group and (c) there was no transfer of business undertaking as a going concern. The Ld. Counsel for the assessee submitted that no undertaking valuation was conducted, no net worth computation was undertaken and no slump sale mechanism contemplated u/s 50B was ever followed.

29. Referring to the decision of Hon’ble Bombay High Court in the case of CIT vs. Bharat Bijlee Ltd. reported in (2014) 365 ITR 258 (Bom), he submitted that the Hon’ble High Court in the said decision has held that for a slump sale there should be transfer of an undertaking as a going concern together with assets and liabilities. Since in the instant case it is not a transfer of an undertaking as a going concern together with assets and liabilities, therefore, the provisions of section 50B are not applicable and the arrangement cannot be characterized as a slump sale of an undertaking.

30. The Ld. Counsel for the assessee submitted that the receipt in question must be examined in its true commercial and familial context. He submitted that the arrangement represents family settlement, business separation, realignment of family controlled business interests and settlement of inter se claims and disputes and not generation of income in ordinary commercial course. Thus, the amount so received falls outside the scope of the charging provisions sought to be invoked by the Revenue. He also relied on the following decisions:

i) CIT vs. Best and Co. (Private) Limited reported in (1966) 60 ITR 11 (SC)

ii) Oberoi Hotel (P.) Ltd. vs. CIT reported in (1999) 236 ITR 903 (SC)

iii) Kettlewell Bullen & Co. Ltd. vs. CIT reported in (1964) 53 ITR 261 (SC)

iv) PCIT vs. Surbhi Milk Foods and Beverages Ltd. reported in (2024) 165 com618 (Guj)

31. He accordingly submitted that the receipt of Rs.5,25,00,000/- for the year under consideration and Rs.75,00,000/- in assessment year 2016-17 is not taxable either u/s 28(va) or 50B or under any other charging provisions of the Act and therefore, the order of the Ld. CIT(A) be set aside and the grounds raised by the assessee be allowed.

32. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A). He submitted that the exact nature of transaction between the assessee and Shri Sandeep B. Jhaveri can be established by conjoint reading of the MoU dated 09.07.2013 and the Agency Acquisition Agreement dated 05.09.2013. He submitted that the conjoint reading of the MoU dated 09.07.2013 and the Agency Acquisition Agreement dated 05.09.2013 clearly demonstrates that the transactions / agreements are in the nature of non-compete and exclusivity agreements. He submitted that combined reading of paras 1 to 3 of the terms and conditions on page 4 of the MoU clearly demonstrates that sum of Rs.6 crores have been paid by Shri SBJ to the assessee firm for not carrying out business activities in relation to the DI agency so that SBJ has exclusive access to the agency business of DI. For the above proposition, he relied on the relevant paragraphs of MoU which read as under:

“1) M/s RS Jhaveri & Company is a partnership firm and is carrying on business of steel plates. The said firm is having agency of DGV which is a foreign company and said firm has been procuring orders as a commission agent for and on behalf of said company from various buyers. It was agreed that with effect from 7/6/2013 M/s RS Jhaveri & Company shall surrender this agency and inform the principal DGV accordingly and Mr. Sandeep Jhaveri shall take said agency with effect from 7/6/2013 in his new firm M/s. Jhaveri & Company to the principal DGV and agency stood transferred from the said firm to party of second part 2A – M/s Jhaveri Steel.

2) It has been agreed that RSJ group shall have no control or any interest in the agency business of DGV and they shall not claim any right, title or interest in the said agency business which is exclusively taken over by party of second part 2A (SBJ group). It is hereby agreed that henceforth M/s RS Jhaveri & Company or any member of RSJ group shall not interfere in this agency business of SBJ group. It has also been agreed that party of second part 2A may hire some employees of M/s RS Jhaveri & Company

3) It is hereby agreed that various orders secured from the customers by M/s RS Jhaveri & Company are still pending with principal DGV. According to the business practice, as and when goods are dispatched by principal to the buyer and payment is received by principals, they release commission to the agent i.e. M/s RS Jhaveri & Company and it is hereby agreed that amount of commission so accrued for the order booked till 7/6/2013 and which shall be released by DGV and party of 1A shall not be required to share the same with party of second 2A. However, since R S Jhaveri & company shall no more in contact with DGV, party of second part 2A shall ensure that they receive the commission as per commission due to them. It is further agreed that Mr. Sandeep Jhaveri shall arrange for all particulars relating to orders booked for which commission is still due from DGV and by when same shall be payable and he shall furnish the same to the party of first part.”

33. He submitted that the Agency Acquisition Agreement dated 05.09.2013 also put restrictions on the assessee firm in respect of agency business of DI. For the above proposition, he drew the attention of the Bench to the following points:

“2…

(b) The firm represents and warrants that :

(i) It shall not have any control or any interest in the DI Agency Business and shall not claim any right, title or interest in the said DI Agency Business from the effective Date and

(ii) It shall not interfere in the DI Agency Business of Jhaveri Steel and will not have any contact with DI from the Effective Date.

Jhaveri Steel’s obligation

3. Jhaveri Steel may hire some of the employees of the firm to conduct the D.I. agency business by giving prior intimation.”

34. He accordingly submitted that the assessee firm has surrendered its agency business which was to be taken over by the proprietorship of Shri Sandip B. Jhaveri. It was also decided that the agency firm or any member of R.S.J. Group shall not interfere in this new business of S.B.J. Group. It was also decided that henceforth the agency firm shall have no more contact with the principal D.I, the pending commission from the principal will be collected by Shri Sandip Jhaveri and then handed over to the agency firm. In fact, the clause regarding SBJ hiring the employees of the assessee firm also shows that SBJ wanted to employ the experienced employees of the assessee firm, who specialized in agency business of DI business. Thus, the assessee firm relinquished all its interest and control over the said business to the SBJ Group for Rs.6 crores under a restrictive negative worded covenant. The words such as “surrender”, “no control or any interest”, “shall not interfere”, “exclusively taken over” etc. show that the intention of S.B.J. Group is to carry out the business of D.I. exclusively without any interference/competition from the assessee firm and payment made to the assessee firm was to secure its non-interference in the agency business. Hence, the sum received is non-compete fee under a negative covenant and same is taxable under section 28(va).

35. So far as the argument of the Ld. Counsel for the assessee that it is a part of the family settlement and Rs.6 crores is a capital receipt and that there is no restrictive covenant and therefore, it is not a taxable receipt and it is a capital receipt relying on the decision of Hon’ble Supreme Court in the case of Best & Co. reported in [1966] 60 ITR 11 (SC) is concerned, the Ld. DR submitted that no doubt that there was settlement of disputes between two branches of Jhaveri family but the MoU as well as the Agency Acquisition arrangements which are the source of the sum of Rs.6 crore are carefully drafted legal documents which set out the rights and obligations of both parties. They clearly mention the willingness of the parties to agree to amicable settlement. He submitted that the language of this legal document clearly show that the sum of Rs.6 crores was paid by S.B.J. to the assessee firm for not carrying out the business activity in relation to agency business of D.I. Thus though there may have been family settlement, the source of the non-compete fee received by the assessee was the legal documents which clearly demarcate the terms and conditions for receipt of non-compete fee.

36. So far as the contention of the assessee that there was no imposition of any restrictive covenant upon the assessee firm from carrying on any business activity is concerned, he submitted that this contention is not borne out of facts of the record. He submitted that paras 1 to 4 of the memorandum of understanding dated 09.07.2013 and Paras 2(b) and 3 of the agency acquisition agreement dated 05.09.2013 clearly shows that the assessee firm was not to carry out any business activity in competition with the proprietorship concerned of S.B.J.

37. So far as the argument of the Ld. Counsel for the assessee that sum of Rs.6 crores was a capital receipt relying on the decisions is concerned, he submitted that the clause (va) of section 28 was inserted w.e.f. 01.04.2002. Before insertion of this clause, the Hon’ble Courts had often held that compensation attributable to restrictive/non-compete covenant as a capital receipt. However, after insertion of the clause (va) to section 28, the Hon’ble Supreme Court in the case of Guffic Chem (P.) Ltd. v. CIT reported in [2011] 332 ITR 602 (SC) has held that the payment of amount received as non-compete fee under a negative covenant was treated as a revenue receipt from the AY 2003-04 onwards. Thus, the decisions of Hon’ble Supreme Court before 01.04.2003 does not help the case of the assessee.

38. So far as the argument of the Ld. Counsel for the assessee that it has lost a source of income, therefore, the compensation in lieu of the source of income should be considered as capital receipt is concerned, he submitted that this contention of the assessee is also not acceptable since the assessee firm has only surrendered its rights related to agency business of D.I. It is free to carry on its business in the same area of business of indenting agents except that it cannot procure order for D.I. It is however free to procure orders for other manufacturers including other European firms which is clear from para 25 of the memorandum of understanding dated 09.07.2013 where in para 25 it is clearly mentioned that the assessee firm and its related parties will continue the business of steel agency with other European companies. In view of the above, he submitted that it cannot be said that the assessee had transferred completely its right to carry on any business, in fact, the assessee had continued to do his activity in the same line even after entering into this non-compete agreement. He submitted that the agreement not to compete with SBJ in agency business of DI will not encompass totality of right to carry on any business.

39. Referring to the decision of the Mumbai Bench of the Tribunal in the case of in Nayan C. Shah reported in [2011] 14 com 155 (Mumbai) he submitted that the Tribunal in the said decision has held that the agreement not to complete with business of the person would not amount to restriction of carrying on of business or complete loss of source of income.

40. Without prejudice to the above he submitted that even if the sum of Rs.6 crores is concerned as capital receipt in lieu of transfer of right to carry out business then it is eligible to capital gains and the cost of acquisition in respect of the transfer of right to carry on business would be considered as nil as per section 55(2)(a)(iii). Hence, the entire Rs.6 crores should be considered as capital gain. However, he emphasized that the nature of transaction clearly falls u/s 28(va).

41. He accordingly submitted that the order of the Ld. CIT(A) being in accordance with law should be upheld and the grounds raised by the assessee be dismissed.

42. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case during the course of search and seizure action u/s 132 carried out at the residential premises of Shri Rajnikant Sarabhai Jhaveri, an MoU dated 09.07.2013 between Shri R.S. Jhaveri family and Shri Sandeep Jhaveri family was found according to which the assessee firm M/s. R.S. Jhaveri & Company has received a sum of Rs.6 crores towards relinquishing all its interest and control over agency business of DGV, France. In the statement recorded u/s 132(4), Smt. Nishita Jhaveri, being the elder member of R.S. Jhaveri & family in response to question No.14 has stated that no return has been filed yet and taxes will be paid in respect of this transaction. However, the assessee did not pay any tax on this amount while filing the return in response to the notice u/s 153A and has directly credited the capital account of the firm with the amount received for relinquishing all the agency business by treating the same as capital receipt. The Assessing Officer rejecting the various explanations given by the assessee made addition of Rs.5,25,00,000/- for the assessment year 2014-15 and Rs.75 lakhs for the assessment year 2016-17. While doing so, the Assessing Officer was of the opinion that as per the MoU dated 09.07.2013 it was agreed that w.e.f. 07.06.2013 the assessee company has surrendered its agency business to Sandeep Jhaveri family and it has been agreed between the parties that M/s. R.S. Jhaveri & Company has relinquished all its interest and control over the said agency business. According to the Assessing Officer since an amount of Rs.5,25,00,000/- has been transferred to three partners in equal share, therefore, the amount so received is for termination of agency business rights which can never be treated as capital receipt and should be a revenue receipt. The Assessing Officer also referred to the provisions of section 28(va) and was of the opinion that the amount of Rs.6 crores to be received by the assessee firm is against an agreement for not carrying activity of interference in relation to agency business of DGV. Therefore, the amount of Rs.6 crores is clearly a business receipt earned by the assessee firm. Without prejudice to the above, the Assessing Officer was of the opinion that even if it is assumed that the said receipts cannot be treated as income from business, it will surely form part of income from other sources. The Assessing Officer without prejudice to the above further held that the said transfer of agency business also constitutes as slump sale within the meaning of section 2(42C) of the Act and therefore, the profits arising from the said transfer may be treated as capital gain in case of slump sale as per the provisions of section 50B of the Act. In view of the above discussion, the Assessing Officer made addition of Rs.5,25,00,000/- to the total income of the assessee for the impugned assessment year and Rs.75 lakhs for assessment year 2016-17.

43. We find the Ld. CIT(A) upheld the addition made by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the various clauses of MoU clearly shows that the dominant purpose of the arrangement was family / business separation and peaceful future functioning and not for earning of income in ordinary course of business. Further, the MoU was entered into between the family members belonging to the two groups and comprehensively dealt with the restricting / division of rights and obligations in relation to multiple family controlled entities / businesses and therefore, the arrangement was not confined to any isolated commercial transaction but constituted an overall family / business realignment intended to ensure peaceful separation and independent future functioning of the two family groups. It is also his submission that the provisions of section 28(va) are not applicable since the present transaction was not principally or predominantly a restrictive covenant arrangement. It is his submission that the so-called non-interference clauses appearing in the MoU are merely incidental and consequential provisions intended to ensure peaceful implementation of the family settlement and avoid future disputes between the 2 groups. So far as the argument of the Revenue that the amount is taxable u/s 50B of the Act is concerned, it is his submission that the said provision applies only where the undertaking is a going concern. However, in the present case, the agreement does not evidence the transfer of (a) a business undertaking as a whole, (b) all assets and liabilities, (c) organizational infrastructure and (d) a going concern undertaking.

44. It is the submission of the Ld. DR that a conjoint reading of the MoU dated 09.07.2013 and the Agency Acquisition Agreement dated 05.09.2013 clearly demonstrates that the transactions / agreements are in the nature of non-compete and exclusivity agreements. According to him the Agency Acquisition Agreement dated 05.09.2013 also put restrictions on the assessee firm in respect of agency business of DI. It is his submission that although there was settlement of disputes between two branches of Jhaveri family but the MoU as well as the Agency Acquisition arrangements which are the source of the sum of Rs.6 crore are carefully drafted legal documents which set out the rights and obligations of both parties. They clearly mention the willingness of the parties to agree to amicable settlement. Further, it cannot be said that the assessee has completely transferred his right to carry on business. In fact the assessee had continued to do his activity in the same line even after entering into this non-compete agreement. Therefore, it is his submission that the order of the Ld. CIT(A) was fully justified.

45. In the light of the above arguments and counter arguments, we have to decide the taxability of the amount of Rs.6 crores received by the assessee pursuant to the agreement entered into amongst the members of Shri R.S. Jhaveri and Shri Sandeep Jhaveri.

46. We find in page 3 of the MoU it has been mentioned as under:

Whereas both the groups have been desirous of settling all the differences and accordingly deliberations, discussions and negotiations are held between the parties.”

47. We find clause 1 of the MoU reads as under:

48. We find clause 2 of the MoU reads as under:

49. We find clause 4 of the MoU reads as under:

“4) It has been agreed between the parties that as M/s RS Jhaveri & Company has relinquished all its interest and control over the said agency business, party of second part 2A shall in lumpsum pay a sum of Rs.6,00,00,000/- (Rupees six crore only) to said the firm as a consideration for the same. It is agreed that consideration payment shall be made either by party of second part 2A or his proprietary firm M/s Jhaveri Steels to whom the said agency is being transferred. The said payment shall be made as mentioned in para 4 of this MOU.”

50. Similarly, we find clause 9 of the MoU reads as under:

“9. It is agreed between both the groups that they shall not interfere in the business activities of each other and shall carry on businesses independently.”

51. We find clause 25 of the MoU reads as under:

“25) It is hereby agreed that all the differences and disputes between the parties are amicably settled and both the parties shall have no claim against each other in respect of aforesaid three entities i.e. M/s RS Jhaveri & Company, M/s RS Jhaveri Steels Pvt. Ltd. and M/s Jhaveri Flexo (India) Ltd. It is hereby agreed that henceforth they shall not interfere into their individual or group businesses of each other and both the parties shall be responsible and liable for their respective activities.”

52. We find clause 27 of the MoU reads as under:

“27) It is agreed that this is the final document of amicable settlement entered into between the parties and all prior communications, letters, emails and documents agreements executed/exchanged between the parties shall stand cancelled and annulled.”

53. A perusal of the above clauses clearly show that this MoU was entered into between the family members belonging to the two groups and comprehensively dealt with the restricting / division of rights and obligations in relation to multiple family controlled entities / businesses including (a) M/s. R S Jhaveri & Co., (b) M/s. R S Jhaveri Steels Pvt. Ltd. and (c) M/s. Jhaveri Flexo (India) Ltd. We, therefore, find merit in the argument of the Ld. Counsel for the assessee that the arrangement was not confined to any isolated commercial transaction but constituted an overall family / business realignment intended to ensure peaceful separation and independent future functioning of the two family groups. We find force in the argument of the Ld. Counsel for the assessee that dominant purpose of the arrangement was family / business separation and peaceful future functioning and not earning of income in ordinary course of business. The various clauses of the MoU would show that the agency acquisition agreement dated 05.09.2013 was merely an implementing / consequential document executed pursuant to and in furtherance of the larger family settlement recorded in the MoU. We, therefore, find force in the argument of the Ld. Counsel for the assessee that the present arrangement should be viewed in overall context of settlement of family disputes and realignment of family controlled business interests.

54. It has been held in various decision that the amount received under family arrangement cannot be treated as income liable to tax. We find the Hon’ble Madras High Court in the case of CIT vs. Kay ARR Enterprises and others reported in (2008) 299 ITR ITR 348 (Mad) has held that the amount received under family arrangement cannot be treated as income liable to tax. The relevant observations of Hon’ble High Court read as under:

“3. The core issue that arises for consideration in these appeals is whether the transfer of shares pursuant to the family arrangement to avoid a possible litigation among the 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 rights in certain properties had in law any such right or not.

5.1. In Maturi Pullaiah and another v. Maturi Narasimham and others [A.I.R. 1966 (SC) 1836], cited supra, the Apex Court has held as follows:

” Briefly stated, though conflict of legal claims in praesenti or de futuro is generally a condition for the validity of a family arrangement, it is not necessarily so. Even bona fide disputes, present or possible, which may not involve legal claims will suffice. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement. If such an arrangement is entered into bona fide and the terms thereof are fair in the circumstances of a particular case, courts will more readily give assent to such an arrangement than to avoid it.”

5.2. In Kale and Others v. Deputy Director of Consolidation and others [A.I.R. 1976 (Supreme Court) 807], cited supra, the Apex Court has laid down the propositions which are the essentials of a family arrangement and the same read as follows:

” (1) The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family;

(2) The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence.”

5.3. This Court, in Commissioner of Income-tax v. Ponnammal [(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 dated December 17, 1971, had to be held to be a valid piece of document and, hence, the Tribunal was right in its view that no transfer of property was involved within the meaning of section 2(xxiv) of the Gift-tax Act and, hence, there was no liability to gift-tax either under section 4(1)(a) or under section 4(2) and consequently no question of inclusion of the income of the minor in the hands of the assessee would also arise.”

Accordingly, in the said case, applying the principles laid down in the decisions of the Apex Court and the decision of this Court referred supra, this Court held as follows:

” The Tribunal, on the facts, found that the family arrangement involved in this case appears to be a bona fide one inasmuch as it has been shown to have been made voluntarily and not induced by any fraud or collusion and the conduct of the parties referred to by the Revenue is consistent with the bona fide family arrangement particularly when it was arrived at in the presence of panchayatdars. So, the family arrangement is a bona fide one and it was effected to dissolve the family dispute.”

6.1. In the instant case also, the Tribunal found that the re-arrangement of shareholdings in the company to avoid possible litigation among family members is a prudent arrangement which is necessary to control the company effectively by the major share holders to produce better prospects and active supervision or otherwise there would be continuous friction and 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.

6.2. Hence, the Tribunal has rightly found that the impugned transfer of shares by way of family arrangement would not attract Capital Gains Tax, as the same is a prudent arrangement to avoid possible litigation among the family members and is made voluntarily and not induced by any fraud or coercion and therefore, cannot be doubted.

In view of the settled propositions of law, we hold that the Tribunal was justified in arriving at the conclusion that the family arrangement among the assessees does not amount to any transfer and hence, not exigible to capital gains tax.

Accordingly, finding no substantial question of law arises for our consideration in these appeals, the same are dismissed. Consequently, connected miscellaneous petitions are also dismissed.”

55. We find the Delhi Bench of the Tribunal in the case of Abhinav Malik vs. ITO vide ITA No.3525/Del/2024 order dated 27.12.2024 for assessment year 2016-17 while deciding somewhat similar issue has held that the amount received by way of family settlement is not exigible to capital gain. The relevant observations of the Tribunal read as under:

“…..

10. As rightly submitted by the assessee, a family settlement was nothing but an arrangement or an understanding between the members which resolves the family disputes and the rival claims of the members of the family are settled provided the settlement was bona-fide and fair in the allotment of properties amongst the members of the family. Settlement of bona-fide disputes, the purpose of which is to bring about harmony or maintaining peace or tranquility amongst family members would be sufficient consideration for a family settlement. Such settlement could not be termed as ‘transfer’ under the Income Tax Act.

11. The Hon’ble Supreme Court in the case Tek Bahadur Bhujil V/s Devasingh Bhujil AIR 1966 SC 292 has held that a family arrangement could be arrived at orally and its terms may be recorded in writing subsequently as memorandum of what has been agreed upon between the parties at an early date and such a document do not require registration.

12. Further, Hon’ble Supreme Court in the case of Ram Charan Das V/s Girja Nandini Devi AIR 1965 SC 323 held that bona-fide family settlement amongst family members to put an end to disputes between themselves would not amount to ‘transfer’ and it is also not the creation of an interest. In a family settlement, each party would take a share in the property by virtue of independent title which is admitted to the extent by the other party. All the members of the family have a sole right for equitable division of properties. If any dispute arises, it may involve family arrangement which is nothing but a device by which disputes or foreseeable disputes between the family members as to their respective property rights are settled. The settlement only defines pre-existing joint-interest as separate interest and hence, there would be no conveyance.

13. The decision in CIT V/s Shanthi Chandran 241 ITR 371 also support the case of the assessee wherein it was held that where an asset is acquired on a family arrangement then it is at par with an asset acquired on partition or any other succession.

14. Further, in the decision of Hon’ble Supreme Court in Rangasami Gounden V/s Nachiapa Gounden (AIR 1918 PC 196) it was held that family settlement was nothing but realignment of interest among the family members and such an arrangement would not amount to ‘transfer’.

15. The Hon’ble High Court of Madras in CIT V/s AL Ramanathan (245 ITR 494), considering the principle laid down by Hon’ble Supreme Court in Kale V/s Deputy Director of Collection (1976 AIR 807), held as under: –

“2. A perusal of the records goes to establish that the dispute arose in that family and the family arrangement was arrived at in consultation with the panchayatdars and accordingly re-alignment of interest in several properties had resulted. The family arrangement was arrived at in order to avoid continuous friction and to maintain peace among the family members.”

The family arrangement is an agreement between the members of the same family intended to be generally and reasonably for the benefit of the family 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. So, family arrangements are governed by principles which are not applicable to dealings between strangers and the family arrangement among them is for the interest of the family, for the harmonious way of living. So, such re-alignment of interest by way of effecting a family arrangement among the family members would not amount to transfer.

3. This court has held in CIT v. R. Ponnammal [1987] 164 ITR 706 that (headnote):

“. . . 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 dated December 17, 1971, had to be held to be a valid piece of document and, hence, the Tribunal was right in its view that no transfer of property was involved within the meaning of section 2(xxiv) of the Gift-tax Act and, hence, there was no liability to gift-tax either under section 4(1)(a) or under section 4(2) and consequently no question of inclusion of the income of the minor in the hands of the assessee would also arise.”

4. It is the 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 rights in certain properties had in law any such right or not. In Maturi Pullaiah v. Maturi Narasrmham, AIR 1966 SC 1836, the Supreme Court has observed that (page 1841) ;

“Briefly stated, though conflict of legal claims in praesenti or de future is generally a condition for the validity of a family arrangement, it is not necessarily so. Even bona fide disputes, present or possible, which may not involve legal claims will suffice. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement. If such an arrangement is entered into bona fide and the terms thereof are fair in the circumstances of a particular case, courts will more readily give assent to such an arrangement than to avoid it.”

5. In Kale v. Deputy Director of Consolidation, , the Supreme Court has laid down the propositions which are the essentials of a family arrangement that (page 812):

“(1) The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family; (2) The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence ;”

6. The Tribunal, on the facts, found that the family arrangement involved in this case appears to be a bona fide one inasmuch as it has been shown to be made voluntarily and not induced by fraud or collusion and the conduct of the parties referred to by the Revenue is consistent with the bona fide family arrangement particularly when it was arrived at in the presence of panchayatdars. So, the family arrangement is a bona fide one and it was effected to dissolve the family dispute.

7. Applying the principles laid down in the decisions cited supra, we hold that the family arrangement involved in this case does not amount to transfer. The Tribunal is perfectly justified in taking the view that the transaction of the assessee being a family arrangement did not amount to transfer and therefore, there was no chargeable capital gain arising from that transaction. So, the transaction of the assessee did not amount to transfer and there was no chargeable capital gain arising from that transaction.

56. The various other decisions relied on by the Ld. Counsel for the assessee also supports his case to the proposition that the amount received under any family arrangement cannot be treated as income liable to tax.

57. So far as the argument of the Revenue that the amount is taxable u/s 50B is concerned, we are of the considered opinion that the said provisions are not applicable to the facts of the present case since the undertaking has not been transferred as a going concern.

58. So far as the argument of the Revenue that the provisions of section 28(va) are applicable is concerned, we find the said provisions are also not applicable to the facts of the present case since the legislative intent as per the Memorandum explaining the Finance Bill, 2002 is to tax pure restrictive covenant / non-compete receipts. The present transaction in our opinion was not principally or predominantly a restrictive covenant arrangement and the so-called non-interference clauses appearing in the MoU are merely incidental and consequential provisions intended to ensure peaceful implementation of the family settlement and avoid future disputes between the two groups. We find force in the argument of the Ld. Counsel for the assessee that the reference in clause 5 “henceforth they shall not interfere into their individual or group businesses of each other= or the reference in clause 26 “RSJ group will continue these businesses independently and party of second part SBJ group or its employees shall not do anything which is detriment or detrimental to these businesses= are routinely found in family settlements and business separation arrangements and cannot by themselves alter the true character of the transaction. In this view of the matter and respectfully following the decisions cited (supra), we hold that the MoU so found being a bonafide family settlement, the amount received under the family agreement cannot be treated as income liable to tax. We, therefore, set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the addition. The grounds raised by the assessee are accordingly allowed.

ITA No.2440/PUN/2025 (A.Y. 2016-17)

59. Grounds raised by the assessee are as under:

1. Nature of Receipt-Capital vs Revenue

The learned Commissioner of Income tax Appeals NFAC erred on facts and in law in sustaining the addition of ?75,00,000 being amount received for loss of a source of income. The learned Commissioner of Income tax Appeals failed to appreciate the factual background and the nature of the transaction whereby the appellant permanently lost its income-generating agency business, making the receipt a capital receipt not chargeable to tax.

2. Chargeability – No Tax Without Income

3. Background of Family Dispute and Coercive Circumstances

The learned Commissioner of Income tax Appeals NFAC failed to appreciate that the sum of ? 275,00,000 represents the amount received pursuant to the same family settlement and coercive circumstances under which the appellant was compelled to relinquish its agency business. The facts and circumstances being identical to those for AY 2014-15, the receipt is capital in nature and not chargeable to tax.

4. Law of Contract – Agreement Under Coercion

The learned Commissioner of Income tax Appeals NFAC erred on facts and in law in not recognizing that the agreement was executed under coercion and therefore could not be regarded as a voluntary commercial transaction giving rise to taxable income.

5. Slump Sale-Cast of Acquisition Unascertainable

6. Disallowance of Commission-? 36,00,000:

The learned Commissioner of Income tax Appeals NFAC erred in law and on facts in confirming the disallowance of ? 36,00,000 made by the Assessing Officer towards commission paid. The learned CIT-Appeal failed to appreciate that all relevant documents and confirmations were furnished to substantiate the genuineness of the payment and the same was made for business purposes through banking channels.

The appellant craves leave to add to, alter, amend, or withdraw any of the above grounds of appeal at the time of hearing or thereafter as may be deemed fit.

60. Grounds of appeal No.1 to 5 by the assessee are identical to the grounds of appeal No.1 to 5 raised in ITA No.2441/PUN/2025. We have already decided the said grounds and allowed the appeal of the assessee. Following similar reasonings, we allow the grounds of appeal No.1 to 5 raised by the assessee.

61. Ground of appeal No.6 relates to the disallowance of commission of Rs.36,00,000/-.

62. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed from the documents submitted by the assessee that the assessee has claimed to have paid commission/professional fee of Rs.36,00,000/- for sale of shares of M/s Jhaveri Flexo India Limited to Shri Suketu Jhaveri (M/s Suketu Enterprises). However, he noted from the documents that the said amount has been paid by M/s Union Steel Associates to Shri Suketu Jhaveri (M/s Suketu Enterprises). He, therefore, asked the assessee to furnish documentary evidences to support its claim. However, there was no response from the side of the assessee for which the assessee was again asked to substantiate the claim. After considering the submissions filed by the assessee, the Assessing Officer held that the assessee failed to discharge its onus on genuineness of its claim by observing as under:

2.4 From the above discussion and submissions made by the assessee, it is clear that the assessee has failed to discharge its onus on genuineness of the transaction. In particular, the assessee:

1. Has not justified and explained as to why the amount payable to Shri Suketu Jhaveri (M/s Suketu Enterprises) by the assessee has been paid by M/s Union Steel Associates to Shri Suketu Enterprises (M/s Suketu Enterprises).

2. The assessee has not justified the business expediency of paying such a large commission on sale of shares.

3. In the ledger account of Shri Suketu Jhaveri (M/s Suketu Enterprises) as appearing in the books of M/s Union Steel Associates, there are different entries like Rs. 36,00,000/-, Rs. 1,00,000/-, Rs. 2,00,000/-, Rs. 25,00,000/- and Rs. 32,50,000/-. Hence, it is evident that there is neither any single entry of 36,00,000/- nor two or more entries which add up to Rs. 36,00,000/-. The assessee has no explanation to offer for this discrepancy.

4. From the ITR of Shri Suketu Jhaveri it is seen that there is no commission income. The assessee has no answer for this discrepancy.

5. The assessee has also claimed that a total of Rs. 62,50,000/- has been paid by M/s Union Steel to Shri Suketu Jhaveri (M/s Suketu Enterprises), out of which Rs. 36,00,000/- is towards commission. However, in the ITR of Shri Suketu Jhaveri the entry of Rs. 62,50,000/- has been mentioned under the head sale of services. There is no answer for this discrepancy from the side of the assessee.

6. Confirmation letter given by Mr. Suketu R Jhaveri is also unable to throw clear light on this transaction. In confirmation letter submitted by the assessee, Mr. Suketu R Jhaveri has confirmed that he has received commission of Rs. 62,50,000/- during the concerned year towards consultancy and guidance of sale of shares between R. S. Jhaveri Co. and Sundeep Jhaveri group. Whereas, in reality the claim made by the assessee towards commission expenses is only of Rs. 36,00,000/-.

2.5 In view of the above facts and circumstances, the commission paid at Rs. 36,00,000/- by the assessee to Shri Suketu Jhaveri (M/s Suketu Enterprises) is hereby disallowed as expenses and accordingly the long term capital loss claimed by the assessee of Rs. 61,99,770/- is decreased by this much amount. Penalty proceedings u/s 271(1)(c) are hereby initiated separately for furnishing inaccurate particulars of income on this issue.

[Addition: Rs. 36,00,000/-]

63. In appeal, the Ld. CIT(A) upheld the addition made by the Assessing Officer by observing as under:

6.4 I have carefully considered the rival contentions, the assessment order, the submissions of the appellant, and the material placed on record. The issue in this ground pertains to disallowance of Rs.36,00,000/-, claimed as commission paid to Shri Suketu Jhaveri for facilitating the sale of shares of M/s Jhaveri Flexo India Pvt. Ltd.

6.5 On behalf of the appellant, it has been argued that the commission was a genuine and necessary expenditure incurred wholly and exclusively for effecting transfer of shares through a private, off-market arrangement. The appellant emphasised that the sale involved 22,42,666 equity shares, and that such a large block of shares could not have been conveniently liquidated in the open market without a significant impact on the price. It was therefore commercially expedient to engage an intermediary to secure a bulk purchaser at a fair price. The commission at the rate of 7.8% was claimed to be reasonable given the circumstances. The appellant has also contended that the payments were made through banking channels, duly supported by confirmations, and hence there was no ground for suspicion about the genuineness of the expenditure.

6.6 The Revenue, on the other hand, has strongly rebutted the claim. The Assessing Officer has pointed out several material discrepancies which go to the root of the matter. Firstly, the payment of commission is not reflected in the books of the assessee itself but appears to have been made by another concern, M/s Union Steel Associates, to Shri Suketu Enterprises, raising serious doubts about the nexus of the expenditure with the assessee’s own transaction. Secondly, the ledger entries in the books of Union Steel Associates do not match the figure of Rs.36,00,000/-, but show fragmented payments aggregating to Rs.62,50,000/-. Thirdly, while the assessee claimed commission of Rs.36,00,000/-, the confirmation of Shri Suketu Jhaveri refers to Rs.62,50,000/- received towards “consultancy and guidance,” thereby creating internal inconsistencies. Fourthly, in the income tax return of Shri Suketu Jhaveri, the amounts were declared under “sale of services” and not under “commission income,” further undermining the assessee’s stand. Most importantly, the assessee failed to furnish a proper agreement, correspondence, or contemporaneous evidence to establish that Shri Suketu Jhaveri was indeed engaged for this transaction and that the payment was made out of business necessity.

6.7 Having weighed both sides, I find that the appellant has failed to discharge the primary onus of proving the genuineness of the expenditure. The mere fact that the transaction was routed through banking channels or that commission was claimed to be reasonable does not by itself suffice when glaring contradictions exist in the documentation and accounting trail. The shifting of payment through another concern, inconsistency between the amount claimed and the confirmation given, and lack of clarity in the recipient’s tax return cumulatively show that the assessee’s version lacks credibility. In contrast, the Assessing Officer’s findings are cogent, supported by objective discrepancies, and point towards the claim being unsubstantiated as genuine. Accordingly, I hold that the disallowance of Rs.36,00,000/- made by the AO was justified. The addition made to reduce the short-term capital loss is therefore sustained. Ground No. 3 of the appeal is dismissed.

64. Aggrieved with such order of the Ld. CIT(A) the assessee is in appeal before the Tribunal.

65. The Ld. Counsel for the assessee submitted that the commission was paid to Shri Suketu Jhaveri from the account of M/s. Union Steel Associates which requires verification at the level of the Assessing Officer. He submitted that the recipient has accepted that he has received the same which has been paid by another agency of the group on its behalf. He submitted that given an opportunity, the assessee can substantiate its case by filing the requisite details.

66. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A). Referring to the decision of Hon’ble Bombay High Court in the case of Umakant B. Agrawal vs. DCIT reported in (2014) 369 ITR 220 (Bom), he submitted that Hon’ble Bombay High Court in the said decision has held that since appellant failed to produce evidence regarding sub-agency commission paid by showing nature of services rendered by sub-agents, said expenditure could not be allowed. He submitted that the SLP filed by the assessee has been dismissed by Hon⁹ble Supreme Court as reported in (2015) 57 taxmann.com 137 (SC). He accordingly submitted that the order of the Ld. CIT(A) be upheld and the grounds raised by the assessee be dismissed.

67. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case disallowed the commission expenses of Rs.36 lakhs on the ground that the assessee failed to discharge the onus cast on it by substantiating the genuineness of the transaction. We find the Assessing Officer has given his reasoning which has already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the amount of Rs.36 lakhs has been paid by M/s. Union Steel Associates on behalf of the assessee and the recipient has accepted that he has received the same. Merely because the payment has been made by M/s. Union Steel Associates instead of the assessee the same does not call for disallowance of the said expenses. It is his alternate contention that given an opportunity the assessee is in a position to substantiate his case by establishing the genuineness of the payment. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one final opportunity to the assessee to substantiate as to how Shri Suketu Jhaveri has declared the commission as his income and that how the assessee has repaid or shown the liability towards M/s. Union Steel Associates, who on behalf of the assessee has paid the commission to Shri Suketu Jhaveri. Needless to say the Assessing Officer shall decide the issue as per fact and law and after providing due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised on this by the assessee are allowed for statistical purposes.

68. In the result, the appeal filed by the assessee vide ITA No.2441/PUN/2025 is allowed and the other appeal vide ITA No.2440/PUN/2025 is allowed for statistical purposes.

Order pronounced in the open Court on 18^th August, 2026.