Capital gain not payable on partition or family settlement

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. .

3. Further, before the Assessing Officer the appellant claimed that no tax should be levied on a sum of Rs. 208,64,396/- being long term capital gains arising from the transfer of shares out or family arrangement as per CLB order which was inadvertently offered by the appellant in its return of income for the assessment year under consideration.

4. The Assessing Officer rejected the aforesaid claim of the appellant on the technical ground that return of income was not revised by the appellant and therefore the aforesaid relief cannot be granted by him.

5. The appellant filed an appeal before the Ld. CIT(A) challenging the aforesaid order passed by the Assessing Officer. The Ld. CIT(A) deleted the addition of’ Rs. 50 lakhs. however did not grant relief to the appellant with respect to addition made by the Assessing Officer amounting to Rs. 74.565 and the relief claimed by the appellant with respect to inadvertent offer of income of Rs.2,08.64,396/- as long term capital gains.

6. Aggrieved with the aforementioned decision of the Ld. CIT(A). the Revenue as well as the appellant filed an appeal before the Hon’ble ITAT, Mumbai. The Hon’ble ITAT E’ Bench, Mumbai dealing with the assessee’s appeal no 1846/Mum/2009 and Departmenta l Appeal No. 987/Mum/2009 passed an order dated 04.11.2016 wherein the Hon’ble Tribunal held as under:

i. Confirmed the order of the Ld. CIT(A) and deleted the addition of Rs. 50 lakhs alleged to have been received from M/s.Natar Parikli Co. Ltd. (hereinafter referred to as ‘NPCL’).

ii. The addition of Rs. 74,565/- pertaining to alleged discrepancies in Jewellery confirmed by the Ld. CIT(A) was deleted.

iii. The additional ground raised by the appellant with respect to the capital gain received out of family settlement was allowed by the Hon’ble Tribunal and the issue was set- aside to the file of the Assessing Officer for deciding afresh in light of materials available on record.

7. The relevant portion of the order of the Hon’ble Tribunal is reproduced hereunder for ready reference:

“8. Ld. AR raised an additional ground to the effect that amount of capital gain so offered by the assessee was received out of family settlement, therefore, not liable to tax.

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.

8. While making the fresh assessment the Assessing Officer again denied the claim of the assessee by contending that the ‘family arrangement’ for selling of shares by of NPCI., under the order of Company Law Board is actually selling / transfer of shares by one of the exiting, large shareholder. The Assessing Officer also contended that the appellant received many other benefits drawn by it along-with its group members. The Company NPCL has treated this selling of shares as buyback of shares which is akin to a normal equity sale / purchase transaction. Further. the appellant has failed to file the petition submitted by it before the Company Law Board from which inference on the transfer of shares out of ‘family arrangement’ could be drawn.

9. The Assessing Officer further contended that the appellant had not revised his return of income and had voluntarily declared the receipt on sale of shares as long-term capital gains in his return o f income. Further reliance has been placed reliance on the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT reported at 284 ITR 323 (SC) (2006) wherein it was held that the Assessing Officer cannot entertain a claim for deduction otherwise than by filing of a revised return.

10. The appellant filed an appeal before the Ld. CIT(A) against the aforesaid order passed by the Assessing Officer u/s. 143(3).r.w.s. 254 of the Act. Before the Ld.CIT(A) the appellant had filed the Petition filed by him before the Company Law Board as an additional evidence and a remand report was called for by the Ld. CIT(A) with respect to the same. In the remand report. the Assessing Officer reiterated the contentions made by him in the assessment order as well as further stated that the petition is incomplete and inconclusive and cannot be accepted as additional evidence.

11. The Ld. CIT(A) admitted the petition filed before the Company Law Board as additional evidence u/s. 46A of the Act deeming the evidence crucial and in the interest of substantial Justice. As far as the contention of the Assessing Officer that the appellant had not filed revised return to claim the voluntarily declared the receipt on sale of shares as long-term, capital gains in his return of income, the Ld. CIT(A) observed that the issue of claim of long term capital gains as non-taxable being a family arrangement was matter sub-judice before the Hon’ble ITAT who had restored the matter to the file of the Assessing Officer to decide the matter afresh in the light of material on record and therefore the Ld. C1T(A) proceeded to adjudicate the issue on merits.

12. However on merits, the Ld. C1T(A) denied the claim of the appellant by raising the following contentions in the appellate order:

i. On a perusal of the terms of settlement. it is found that it is not a case of family settlement wherein pre-existing rights of the parties were realigned or adjudicated upon.

ii. Further. reliance has been placed on the judgment of the Hon’ble Jurisdictional High Court in the case of B. A. Mohota Textiles Traders (P.) Ltd. vs. DC1T reported at 397 ITR 616 (‘Born.) where it has been held that capital gains arising on transfer of shares by a company to another company in favour of certain family members. will be required to pay the capital gains tax since the assessee was a separate legal entity being incorporated as a limited company.

13. The appellant is now before Your Honours and has raised the following grounds of 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. 113(3) r.w.s. 254 of the Act on 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.”

Submissions of the Appellant:

14. It is the humble submission of the appellant that he belongs to Parikh Group which carries out business in the name and style of its two main companies viz. NPIL and NPCL together with other small private limited companies and partnership firms. The assessee Sujan Parikh. Ms Avani Parikh. Soha Parikh alias Singh and Enakshi Parikh are known as SAP Group. Sri Apurva Parikh and all other family members are known as ANP Group. In the year 2004. some dispute arose in the family in relation to conducting the business of NPIL and other business concerns. In order to settle the dispute and to bring peace and harmony among the members of the family and to avoid litigation family arrangement was arrived at and orders by way of consent terms of the Company Law Board. Principal Bench, New Delhi dated 30.3.2006 (Page No 1-11 of the Paperbook) in the cases of NPCL and NPIL.

15. The Petition filed by the appellant before the Company Law Board (Page No 12-37 of the Paperbook) and provided as additional evidence before the Ld. CIT(A) brings out the following facts:

i. That the entire shareholding of the NPCL is being held by the Petitioners i.e. SAP group and` Respondent Nos. 2 to 7 i.e. ANP Group. The SAP group as well as AM Group are all descendants of Natwar C. Parikh and are related to each other as per their family tree (para 2 of the Petition). Further the shareholding of the SAP Group and ANP Group has been tabulated in the para 2.1 of the Petition.

ii. At para 5(b) and 5(c) of the Petition, it has been stated that even-though NPCL is a private company. it is a glorified partnership. It had various businesses including the business of development of immovable properties.

iii. At para 5(d) of the aforesaid Petition, it has been clearly mentioned that the appellant (being the 1^st Petitioner) had from time to time sent e-mail messages and letters complaining about the mismanagement, financial impropriety and oppression by the ANP Group (being the Respondents) in the affairs of NPCL

iv. At paras 5(e) to 5(r) of the Petition. the appellant has explained in detail the allegations on how the mismanagement and the financial impropriety was carried out by the ANP Group in various functions of NPCI, including selling of TDR at lower than market rates. Further at para 5(n) of the Petition. the ANP Group had alleged that the appellant had lost faith in the family and could not work together. On which. the appellant had replied that a separation was possible and without prejudice to the same, talks could be held and in any event, not to sell further TDR without the prior consent of the appellant.

16. Thus, from the above, it is evident that the arrangement was entered into by the families to put an end to the disputes that had arisen between them in the conduct and management of various common businesses. Ultimately, certain proposals were accepted by the two groups and accordingly businesses were divided in the manner accepted by both the groups. The process of division of the businesses involved certain mutual adjustments amongst themselves which in turn involved a give and take of the various assets such as membership of the firms, shares held in group companies. capita l equalization, etc. All this was done in a bonafide manner and with a view to settle the disputes.

17. In order to put the said family arrangement in place. consent terms were arrived at before the Company Law Board in the case o f Company Petition No 61 of 2005 between Sujan Parikh & Others Vs. Natwar Parikh & Company Private Limited & others. The Company law Board vide order dated 30.3.2006 (Page No 1-11 of the Paperbook) passed minutes of the, order wherein it was decided that SAP group shall transfer their entire shareholding 41.06% in Natwai’ Parikh & Co Pvt Ltd to either ANP group or NPCL on receipt of the aggregate consideration comprising of:

(a) 21,57,50.000/- to be received by SAP group from either AN group or NPCL as the case may be and

(b) various other payments and benefits.

18. In this regard, attention is invited to the order of Company Law Board dated 13.4.2006 (Page No 38- 41 of the Paperbook) which states as under:

`NPCL shall pay a sum of Rs. 19,01,80,753/- to the SAP Group on or before 28.4.2006. The consideration so paid of Rs. 19,01,80753/- (being the net amount payable to SAP group) shall either be adjusted against the reserves of NPCL or the credit in the Profit & loss A/c of NPCL at the time of buy back of shares by it. The said order further states that ‘it is clarified that implementation of the aforesaid buy hack scheme and the making payment of the aforesaid sum of Rs.19,01,80,753/- to SAP ,group. shall not in any manner affect the 50% of the profit of Phase I project agreed to be paid over to and ‘or to be compensated to SAP group under the said order dated 30.3.2006. Para 1(c) of the order farther clearly states that ‘the amount of Rs.19,01.80,753/- received by SAP group shall be treated as consideration received in respect of such transfer and ANP group shall not be required to make any further payment to SAP group fin- purchase of the ST-11’grow) shareholding.’

19. The consideration received by the SAP group is as under:

Sujan Parikh                   16,23,94.604/-

Mrs. Enakshi Parikh      2,77,86,149/-

19,01,80,750/-

20. From the above it is abundantly clear that the consideration was received by the assessee as a result of re-arrangement of shareholdings in the company, controlled by the joint family, out o f a bonafide family arrangement to avoid possible litigation among family members.

21. Various authorities have held that a family arrangement entered into with a view to settle the disputes that have arisen among the family members does not involve a transfer. Reliance here is placed on the following judgments:

Ram Char-in Das v. Girja Nandini Devi [AIR 1966 SC 3231 (Page No 42-53 Of the Paperbook)

The Supreme Court considering the meaning of family settlement. family, etc.. held that the consideration for the family settlement being compromise between parties even to a previous suit would be a family settlement. The Supreme Court observed in this context the word family% is not to be understood in .a narrow sense of being a group of persons whom the law recognizes as having a right of succession or having a claim to a share in the disputed property. The consideration for a family settlement is the expectation that such a settlement will result in establishing or ensuring amity and goodwill amongst the relations. That consideration having passed by each of the disputants the settlement consisting of recognition of the right asserted by each other cannot be impeached thereafter”.

The transaction of a family settlement entered into by the parties who are members of a family bona fide to put an end to the dispute among themselves, is not a transfer. It is not also the creation of an interest. For, in a family settlement each party takes a share in the property by virtue of the independent title which is admitted to that extent by the other parties. Every party who takes benefit under it need not necessarily be shown to have, under the law, a claim to a share in the property. All that is necessary to show is that the parties are related to each other in some way and have a possible claim n to the property or a claim or even a semblance of a claim on some other ground as, say, affection.

Kale v. Deputy Director of Consolidation, MIR 1976 SC 8071 (Page No 54-77 of the Paperbook)

In the above case, the Hon’ble Supreme Court considered the family settlement. the principles behind it, the purpose of the settlement, antecedent title and many more. The/Supreme Court observed he 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. The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence. The members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner. then the antecedent title must be assumed and the family arrangement will he upheld and the courts will find no difficulty in giving assent to the same-.

Relying on the above judgments the Income-tax Appellate Tribunal— Bangalore in the case of Mrs.P. Sheela V. Income Tax officer 120091 308 ITR (A, T,) 0350 (Page No 78-83 0/ the Paperbook) held the following:

notwithstanding the fact that the assessee is a married woman, and becomes a member of husband’s family by virtue of marriage, the antecedents with Ramesh Pars family remains intact and family ties are not severed. She being part of Ramesh Pars family and carrying that name still as a daughter of the family, with a view to ensure peace and amity for her parents, had to necessarily surrender her interest in ICDS Ltd., by giving away the shares at the price determined by the arbitrator. Therefore, this would clearly partake of the character of total partition of Hindu undivided family.

For the foregoing reasons’, we are of the view that the claim of the assessee deserves to be upheld as per the sanction of the Supreme Court (supra) and we, accordingly, uphold the claim that the amount received by the assessee on transfer of various shares in the course of the family arrangement would not result in any capital gains within the meaning of the Income-tax Act as it does not amount to transfer. ‘

22. In this connection, it is pertinent to note that the Assessing Officer in the original assessment order passed u/s. 143(3) r.w.s. 153B(l)(b) of the Act on 24.10.2008 (Page No 84-89 of the Paper Book) has admitted and accepted the shares transferred by the appellant is out of a family arrangement endorsed by Company Law Board orders and does not amount to transfer. The para 5 of the original assessment order is reproduced hereunder for ready reference:

“I have gone through the submissions of the AR. On going through the records and submissions made as well the various company law boards order, the shares transferred out of family arrangement endorsed by the CLB orders and ratio laid down in the case of CIT vs. Kay Arr Enterprises & Ors. (2008) 215 CTR (Mad) 244 are similar to that of the assessee. But however the fact remains that the return filed u/s. 139(1) by the assessee is voluntary and the assessee has himself offered the same as capital gains. assessee has not filed any revised return. Assessee ‘s request to rectify the same also cannot he entertained as the mistake is not apparent from record. Hence, the capital gains offered voluntary in return of income is accepted and no interference in the same is made.

23. Further, even the Hon’ble Tribunal in its order passed on 04.11.20 16 in the case of’ the appellant while disposing the appeals filed by the appellant and the Department for the assessment year under consideration, at para 9 has categorically given a finding that that the appellant had sold the shares to NPCL under a family arrangement scheme, as endorsed by the Company Law Boards’ order dated 30.03.2006, 13.04.2006 and 26.02.2007. The relevant para of’ the order of the Hon* Me Tribunal is reproduced hereunder as ready reference:

“9. We have considered rival contentions and found that this ground was raised he/ore 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 itself, under a family arrangement scheme, endorsed hi’ Company Law Board’s order dated 30.03.2006, 13.04.2006 & 26.02.2007….

24. Thus, the Ld. AO as well as the Ld. CIT(A) cannot now divert from the view taken by the Assessing Officer in the original assessment order passed u/s. 143(3) r.w.s. 153B(1)(b) of’ the Act on 24.10.2008 and the binding decision of the Hon’ble Tribunal vide order dated 04.11.2016 wherein it has been categorically found that transfer of shares by the appellant was due to family arrangement. Further, the family dispute over the business functioning is also evident from the Petition filed by the appellant before the Company Law Board as explained in detail hereinabove. Therefore, the contention of the Ld. AO and the Ld. CIT(A) that the said arrangement is not a family settlement is totally incorrect and without any basis.

25. The appellant places reliance on the decision of Hon’ble Karnataka High Court in the case of Commissioner of Income Tax and Anr vs R. Nagar Rao reported at (2(113) 352 1TR 565 (Kar) (Page No 90-93 of the Paperbook) wherein the facts of the case were that there was a family and in terms of the settlement the assessee had to resign from the partnership firm i.e. Kaveri Breweries and transfer his interest to Mr. Neelakanta Rao for a consideration of Rs. 35.000 being the capital balance of the firm. Accordingly. the assessee transferred the share of the said firm and Mr. Neelakanta Rao transferred the shares held by him in favour of the assessee.

On the above facts it was held as under:

“2. The substantial questions of law which are framed in this appeal on 12th Aug., 2006 read as under :

“1. Whether, the Tribunal was correct in holding that the sale proceeds earned by the assessee out of sale of shares held in private limited companies cannot be treated as the income of the assessee and brought to capital gains tax?

2. Whether, the Tribunal was correct in holding that the transfer of shares took place by virtue of family arrangement and there was no transfer as there was family dispute and such arrangement took place at the instance of the arbitrator ?

3 Whether, the Tribunal was correct in holding that the finding recorded by the AO that the sale of shares held by the assessee in his individual capacity over various private limited companies can be brought to capital gains tax which came to be upheld by the CIT(A)?”

This Court had an occasion to consider the aforesaid questions in the case of Madhusudhan, GT Appeal Nos. I and 2 of 2008 disposed of on 6th Sept., 2010. In the aforesaid Judgment it was held that the word ‘transfer’ does not include partition or family settlement as defined under the Act. It is well-settled that a partition is not a transfer. What is recorded in a family settlement is nothing hut a partition. Every Member has an anterior title to the property which is the subject-matter of a transaction, that is, partition or a family arrangement. So there is a adjustment of shares. crystallization of the respective rights in the family properties and therefore it cannot the construed as a transfer in the eye of law. When there is no transfer, there is no capital gain and consequently no tax on capital gain is liable to he paid. The Tribunal on a proper consideration of the entire material on record has categorically held that the transaction in question is a family arrangement. There is no transfer, there is no capital gain and therefore there is no liability to pay capital gain lax. The order is in accordance with law. The substantia l questions of law are answered in favour of the assessee and against the Revenue. No merits in this appeal. Accordingly, this appeal is dismissed.

26. Reliance is also placed on the decision of the Hon’ble Delhi Tribunal in the case of Gonad Kumar Khemka vs. ACIT reported at (2020) 207 TTJ (Del) 393 (Page No 94-105 of the Paperbook) wherein the Hon’ble Delhi Tribunal has held that it is well settled law that partition or family settlement is not a transfer. The relevant para of the order is reproduced as under:-

“The authorities below did not doubt the execution of the family settlement deed and it is not the case of the authorities below that assessee and his brothers have not acted upon the family settlement deed. It is well settled law that partition or family settlement is not a transfer. We rely upon judgment of Hon’ble Karnataka High Court in the case of CIT vs. R.Nagaraja Rao (supra) in which it was held as under

“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.

27. As far as the contention of the Ld. CIT(A) is concerned that the aforesaid sale of share by the appellant was an arrangement for buyback of shares. the same is completely incorrect since the buyback of shares, of the appellant by NPCL was optional and only one of means of concluding the settlement of disputes between SAP Group i.e. appellant group and ANP group. Therefore. it cannot be said that the order of Company Law Board was solely for buyback of shares of the appellant by NPCL. Further., even the Ld. AO as wel l as the Ld. CIT(A) have accepted that Company Law Board order contained settlement of other rights over the family dispute. The aforesaid view gets fortified from order of the Company Law Board (Page No 2 Of the Paperbook) which has stated in its opening para that “ordered and decreed that SAP Group shall transfer their entire shareholding of 41.06% in Natvar Parikh & Company Private Limited (NM.) to either the ANP Group or NPCL on receipt of aggregate consideration”.

28. The Ld. CIT(A) has also placed reliance on the order of the Hon’ble Jurisdictional High Court in the case of B. A. Mohota Textiles Traders (P.) Ltd. vs. DCIT reported at 397 ITR 616 (Bono (Page No 106-1.15 Of the Paperbook) has through the court which required the assessee company to transfer shares held by it in another company in favour of certain family members, will be required to pay the capital gains tax since the assessee was a separate legal entity being incorporated as a limited company.

With respect to the aforesaid judgement, it is submitted that the said judgement is distinguishable on facts. In the aforesaid case, the appellant company had transferred shares held by it in Mis Rekhchand Mohota Spinning & Weaving Mills Ltd. and M/s Vaibhav Textiles (P) Ltd. to’ other family members in pursuance of family arrangement/settlement. The Revenue had objected by stating that the appellant company was not a family member and therefore. the were not part of family settlement. It has been categorically stated by the Hon’ble Bombay High Court that it is not dealing with the case of the family members, who were party to the family settlement but the sale of shares by the appellant company who was not a part of the family settlement.

With respect to the same, it is stated that the in the case of appellant. it is not the case of transfer of shares by any company to another person rather in the case of the appellant, being a family member i.e. SAP Group & ANP Group he himself had sold his shares in NPCL as a part of the family settlement and has received consideration towards the same. The Company Law Board had provided an option to ANP Group to either buyback the shares of the appellant through NPCL or directly purchase the shares from the appellant. The appellant, part of the SAP Group is a family member and had disputes with ANP Group. To settle the dispute, the appellant being a family member and part of the family settlement transferred its shares in NPCL as per the order of the Company Law Board. In no manner can it be said that the aforesaid transfer of shares was not part of the family settlement arrived between SAP Group and ANP Group. Thus, the decision of Hon’ble Bombay High Court is rendered on transfer of shares by a company and not rendered on family members is based on a completely different footing and is distinguishable and cannot be applied in the case the appellant.

29. In light of the submissions and decisions cited above, it is clear that the sale of shares by the appellant to NPCL is a part of family settlement cannot be considered as transfer and therefor no capital gains tax is payable on the same. ”

9. DR vehemently supported the orders of the authorities below.

10. Considered the rival submissions and material placed on record. We observe that the assessee is one of the family member of the Parikh Group and the above group has two divergent groups identified as SAP Group and ANP Group represented by the respective family heads. The assessee being one of the family head, who was representing the SAP Group. Due to dispute in the functioning of the company NPIL and other group concerns, in order to restore the peace and harmony in the family, all have agreed to family arrangements by filing petition before CLB. It is fact on record that based on the direction of the CLB and their resolutions, the assessee, representing the SAP Group, agreed to transfer the shares either to ANP Group or to the company itself. On agreed terms, the assessee transferred to the shares to company on buy back agreement and received the compensation. These facts were brought on record by the assessee before the AO and CIT(A). Ld CIT(A) agreed that the assessee has transferred the shares on family arrangement only however, he refused to entertain the claim of the assessee by observing that it is an arrangement for buyback of shares by the assessee. We do not agree with the above observation since the assessee has transferred the shares only on the direction of the CLB. As per the direction of CLB, the assessee has to either transfer the shares to ANP Group or to the company whichever is acceptable to the ANP Group. As far as assessee is concerned, he has agreed to transfer the shares, it is irrelevant for him how the shares to being transferred, as long as he receives the compensation as set out by the CLB. In this case, the ANP Group has decided to buy back the shares in the NPCL itself. Therefore, it is not proper on the part of the tax authorities to take divergent view without their being proper reasons.

11. Coming to another objection raised by the Ld CIT(A) that as per the decision in the case of B A Mohota Textiles (supra), it was held that the assessee company to transfer shares held by it in another company in favour of certain family members, will be required to pay the capital gains tax since the assessee was a separate legal entity. 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. In the given case, the transferor is an individual whereas in the case relied by the CIT(A) in which the transferor is the legal entity. As held in the case of R Nagaraja Rao (supra), 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. The appellate authorities can direct the Assessing Officer to allow the legal claim of the assessee as held in the case of Goetze India (supra).

12. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 13^th July, 2022.