Sujan Azad Parikh Vs DCIT (ITAT Mumbai)
Partition or family settlement is not transfer. When there is no transfer there is no capital gain and consequently no tax on capital gain is liable to be paid.
Facts-
AO did not allow the claim of the assessee that No tax should be levied on a sum of ₹.2,08,64,396.72/- as LTCG admittedly arising from transfer of shares out of family arrangement by CLB order, although the same was included in the total taxable income calculated by the assessee in his ROI. AO rejected the claim of the assessee during the assessment proceeding on the technical ground that the return of income of the assessee filed originally was not revised on this account u/s. 139 of the Act and therefore this plea cannot be considered. On appeal the Ld. CIT(A) vide order dated 06.03.2009 upheld the decision of the AO. Aggrieved by the decision, assessee preferred appeal before ITAT.
Conclusion-
We observe that in the case under consideration, there is no doubt that there is a family arrangement and based the condition specified in the order passed by CLB, the shares were transferred to the company on the buyback terms.
As held in the case of R Nagaraja Rao, the Hon’ble Karnataka High Court observed that Partition or family settlement is not transfer. When there is no transfer there is no capital gain and consequently no tax on capital gain is liable to be paid. Therefore, in the given case, the assessee has transferred the shares based on the family settlement as per the direction of CLB, which the Ld CIT(A) has accepted in his order. Therefore, we are incline to accept that the assessee has transferred the shares under family arrangements only. Therefore, we direct the Assessing Officer to allow the claim of the assessee even though the assessee has paid the tax by calculating the capital gain under mistaken belief that this transaction is taxable.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals)-49, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 11.12.2020 for the A.Y.2007-08.
2. Brief facts of the case are, assessee has filed its return of income on 01.08.2007 declaring total income of ₹.2,81,83,911/-. Subsequently case was selected for scrutiny and an assessment order u/s 143(3) r.w.s 153B(1)(b) of Income-tax Act, 1961 (in short “Act”) was passed by the then Assessing Officer vide order dated 24.10.2008 wherein the then Assessing Officer did not allow the claim of the assessee that No tax should be levied on a sum of ₹.2,08,64,396.72/- as long term capital gain admittedly arising from transfer of shares out of family arrangement by CLB order, although the same was included in the total taxable income calculated by the assessee in his return of income. Assessing Officer rejected the claim of the assessee during the assessment proceeding on the technical ground that the return of income of the assessee filed originally was not revised on this account u/s. 139 of the Act and therefore this plea cannot be considered. On appeal the Ld. CIT(A) vide order dated 06.03.2009 upheld the decision of the Assessing Officer with regards to payment of tax on sum of ₹.2,08,64,397/- which was voluntarily declared in the ITR filed by the assessee as long term capital gain.
3. Aggrieved by the decision, assessee preferred appeal before ITAT and the ITAT vide its order no. 1846/Mum/2009 and ITA No.2987/Mum/2009 dated 04.11.2016 restored the issue of levy of tax on LTCG of ₹.2,08,64,396.72/- to file of the Assessing Officer with the following remarks: –
“9. We have considered rival contentions and found that this ground was raised before the AO, however, in view of the fact that assessee has not filed any revised return with regard to the capital gains originally offered in the return of income, the AO has declined to consider assessee’s claim of amount having been received under family settlement and not liable to tax. By the impugned order the CIT(A) confirmed the action of AO. From the record we found that during the year assessee sold shares of NPCL to the company self. under a family arrangement scheme, endorsed by Company Law Board’s order dated 30.03.2006, 13.04.2006 & 26.02.2007. Long term Capital gain arising out of said sale is Rs. 16.23.94.604/-. Assessee invested the same in house property u/s 54F and residual amount of Rs.2,08,64,396/- was offered for capital gain and paid taxes accordingly Assessee filed its return of income for the present year under assessment on 01.08.2007 declaring a total income of Rs. 2,81,83.911/- which includes the said capital gain. The said return was filed voluntarily by the assessee u/s 139 (1). No revised return has been filed by the assessee till date. However vide AR letter dated 15.05.2008, it is stated that out of ignorance of legal position this has been referred as capital gain although it is not a capital gain.AR relied on the following judgements:
CIT Vs. Kay Arr Enterprises & Ors. (2008) 215C1R (Mad) 244
CIT Vs.AL Ramanathan (2000) 245 ITR 494 (Mad)
CIT Vs. R. Ponnammal (1987) 164 ITR 706 (Mad)
10. We have considered rival contentions and gone through the orders. of the authorities below. In view of the decision o f Hon’ble Supreme Court in case of National Thermal Power Co. Ltd., 229 ITR 383, we accept the additional ground raised which is purely legal in nature. All the related facts are already on the record of the lower authorities, therefore, there is no hesitation in accepting the legal ground. In the interest of substantial justice, we restore this ground back to the file of the AO for deciding afresh in the light of the materials already available in its record. We direct accordingly. ”
4. In denovo assessment, based on the facts and in the circumstances of the case and in law the Assessing Officer has sustained the addition in passing the order with levy of tax on a sum of ₹.2,08,64,396,72/- as long term capital gain, arising from the transfer of shares out of family arrangement by CLB orders, as opposed to the submissions of the assessee that in the facts being similar to the ratio laid down in the case of CIT K Art Enterprises and Others (2008) 215 CTR (mad) 244 and held to be not taxable as capital gain. In spite of the plea of the assessee during the course of the assessment proceedings as such receipt was offered for tax wrongly under absence of knowledge of law and improper advice in the return of income for the relevant assessment year u/s 139(1) of the Act.
5. The Assessing Officer observed in para 6.1 of the assessment order that from material available on the record and the fact stated above, the transaction of selling of shares of the NPCL by the assessee cannot be termed as family arrangement and the same is exit of the large stake holder/director from the company which is taxable as LTCG. In addition to the above, the AO has raised the same issues as in original assessment order for not accepting the plea of the assessee like (i) Assessee not filed the revised return of the income for the claim applying the decision of Apex Court in the case of Goetze (India ) Ltd, and (ii) Allowing the claim would lead to assessed income less than returned income not permitted under the act relying on the decision of Apex Court in the case of Kalidas DhanjiBhai v. State of Bom bay and Absalon v. Talbot.
6. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) after considering the detailed submissions filed by the assessee and also considering the averments made in the Assessment Order, sustained the addition made by the Assessing Officer. Against this order assessee is in appeal before us.
7. Assessee has raised following grounds in its appeal: –
“1. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in confirming the assessment made by the Ld.AO u/s 143(3) r.w.s. 254 of the Act on the ground of levying tax on LTCG of Rs.2,08,64,397/- being capital gains arising from the transfer of shares because of family arrangement.
2. The Appellant craves to add, alter or delete all or modify any or all the above grounds of appeal. ”
8. At the time of hearing, Ld. AR filed written submissions vide letter dated 13.12.202, for the sake of clarity it is reproduced below: –
“2. The brief facts of the case are that the appellant had filed his return of income on 01.08.2007 declaring total income of Rs.2.81.83.911/- for the A.Y. 2007-08. The assessment order was completed us. 143(3) r.w.s. 153B(1)(b) of the Act on 24.10.2008 determining total income at ₹.3,32,58,476/-, after making the following additions. .
