Income Tax Appellate Tribunal - Ahmedabad
Hansaben M. Tamboli, Bhavnagar vs Department Of Income Tax on 5 March, 2007
IN THE INCOME TAX APPELLATE TRIBUNAL : B' BENCH : AHMEDABAD
(Before Hon'ble Shri T.K. Sharma, J.M. & Hon'ble Shri D.C. Agrawal, A.M.)
I.T.A. No. 2668/AHD./2007
Assessment Year : 2004-2005
Income Tax Officer, Ward-1(1), Bhavnagar -vs.- Shri Manmohanbhai F. Tamboli (HUF)
Bhavnagar (PAN : AAAHT 4391 R)
(Appellant) (Respondent)
&
I.T.A. No. 2669/AHD./2007
Assessment Year : 2004-2005
Income Tax Officer, Ward-1(1), -vs.- Shri Chetanbhai Manmohanbhai F. Tamboli (HUF)
Bhavnagar Bhavnagar (PAN : AAAHT 4325 H)
(Appellant) (Respondent)
&
I.T.A. No. 2670/AHD./2007
Assessment Year : 2004-2005
Income Tax Officer, Ward-1(1), -vs.- Smt. Hansaben M. Tamboliboli
Bhavnagar Bhavnagar (PAN : AAFPT 9511 H)
(Appellant) (Respondent)
Assessees by : Shri S.N. Soparkar and Smt. Urvashi Shodhan
Department by : Smt. Neeta Shah, Sr. D.R.
ORDER
Per Shri T.K. Sharma, Judicial Member :
These three appeals filed by the different assessees are against the three separate orders all dated 05.03.2007 of Learned Commissioner of Income Tax(Appeals)-XIX, Ahmedabad for the same assessment year 2004-05.
2. The facts in brief are that all the three assessees were holding shares of Investment & Precision Castings Ltd. (IPCL) and the same have been transferred to IFT Group (Indubhai F. Tamboli Family Group) at the rate of Rs.143.25 for each share. However, all the three assessees had not shown capital gain on transfer of said shares. The Assessing Officer in the assessment order concluded that the transaction of transfer of shares of IPCL come within the purview of 2 ITA Nos. 2668-2670/AHD/2007 capital gain under section 45 read with section 2(47) of the Income Tax Act and having not been satisfied with the explanation of the assessee the sale consideration of the shares amounting to Rs.33,80,700/- in case of Shri Manmohanbhai F. Tamboli (HUF), Rs.23,20,650/- in case of Shri Chetanbhai Manmohanbhai Tamboli HUF and Rs.36,38,550/- in case of Hansaben M. Tamboli, had been brought to tax after allowing the cost price of the shares. The Assessing Officer computed the capital gain and brought to tax as long-term capital gain in respect of the assessees, which reads as under :-
Shri Manmohanbhai F. Tamboli (HUF) Rs.29,85,810/-
Chetanbhai Manmohanbhai Tamboli HUF Rs.18,39,150/-
Hansaben M. Tamboli Rs.33,83,550/-
Before the Learned Commissioner of Income Tax(Appeals), it was contended that various assessees and other members of their family and MFT Group were the promoters of two companies namely (i) Investment & precision Casting Ltd. (IPCL) and (ii) Steel Cast Ltd. (SCL). These two companies were being managed by the groups with S/Shri I.F. Tamboli (IFT)_, Bipin F. Tamboli (BFT) and M.F. Tamboli (MFT) group. There were disputes between these groups and the matter had gone to the litigation before the Court. The matter was referred to Shri P.N. Bhagwati, Retired Chief Justice of India, who was appointed as sole arbitrator. The matter was ultimately resolved as per the award. The MFT group had to handover the shares of IPCL to IFT group at a price fixed in the award. Similarly the IFT group had to handover the shares of SCL to MFT group at a price fixed in the award. All the three assessees received some amount for handing over the shares of IPCL and not liable to tax as capital gain tax in view of the fact that the amount was received under the family arrangement and had, therefore, claimed as exempt. Before the Learned Commissioner of Income Tax(Appeals), reliance was also placed on the decision of the Hon'ble ITAT, Channai Bench 'D' in the case of KAY ARR Enterprises [97 ITD 291 (Mad.)]. It was submitted that the said decision of the ITAT was based on the ratio laid down by the Hon'ble Madras High Court in the case of AL Ramanathan [245 ITR 494]. It was also submitted that the ratio laid down by the Hon'ble Madras High Court was based on the Hon'ble Apex Court's judgment in the case of Kale -vs.- Dy. Director of Consolidation 1976 AIR 807.
3ITA Nos. 2668-2670/AHD/2007
3. After considering the aforesaid submissions, in the impugned order, the Learned Commissioner of Income Tax(Appeals) held that family arrangement made among the family members would not amount to transfer. The reasons given by the Learned Commissioner of Income Tax(Appeals) are identical in all the three cases. For the sake of convenience, the reasons given in the case of Shri Chetanbhai Manmohanbhai Tamboli (HUF) are as under :-
"5.4. I have gone through the agreements made between both the groups for settlement of dispute through arbitrator. I have carefully considered the award passed by the arbitrator. After considering the overall facts, I have no hesitation to hold the whole transactions carried out to settle the family dispute come in the purview of family arrangement. The transactions effected in view of family arrangements among the family members would not amount to transfer. 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. It has been decided by various judicial courts that the transactions by way of effecting family arrangement among the family members would not amount to transfer. Hon'ble Supreme Court in the case of Maturi Pullaiah vs. Maturi Narasimham AIR 1966 SC 1836 has observed that members of a Joint Hindu family, may, to maintain peace or to bring about harmony in the family, enter into such a family arrangements. If such an arrangement is entered into bonafide and the terms thereof are fair in the circumstances of a particular case, courts will more readily given assent to such an arrangement than to avoid it. Hon'ble Supreme Court in the case of Kale -vs.- Dy. Director of Consolidation 1976 AIR 807 has laid down the propositions which are the essentials of a family arrangement. The same are reproduced for ready reference :
(i) The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable divisions or allotment of properties between the various members of the family.
(ii) The said settlement must be voluntary and should not be induced by fraud coercion or undue influence".
In the present case, both the above ingredients for family arrangements are available and appear to be a bona fide one inasmuch as it has been shown to have been made voluntary and not induced by fraud, coercion or undue influence. Following said principles laid down by Hon'ble Supreme Court. Hon'ble Madras High Court in the case of CIT -vs.- A.L. Ramanathan has held that :
"The family arrangement involved in this case does not amount to transfer. The Tribunal is perfectly justified in taking 4 ITA Nos. 2668-2670/AHD/2007 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 the transaction. So, the transaction of the assessee did not amount to transfer and there was no chargeable capital gain arising from that transaction".
In view of the above judicial rulings, the transactions made among both the groups in the present case come in the purview of family arrangements. The share of IPCL held by the family members of MFT Group have been transferred to IFT group as per the decision of arbitrator. It is merely a family arrangement made with intent to maintain peace in the family and prosperity of the business and as per judicial rulings, family arrangement is not covered u/s. 45 r.w.s. 2(47) of the Income Tax Act. Therefore, the action of the Assessing Officer is not found to be justified. The family arrangement made among the family members would not amount to transfer. Therefore, no capital gain arises. The Assessing Officer is, therefore, directed to delete the addition of Rs.18,39,150/-. This ground of appeal is allowed".
4. Aggrieved by this order of Learned Commissioner of Income Tax(Appeals), the Revenue are in appeals before us on the ground that the Learned Commissioner of Income Tax(Appeals) erred in deleting the addition of Rs.18,39,150/- in case of Shri Chetanbhai Manmohanbhai Tamboli (HUF), Rs.29,85,810/- in case of Shri Manmohanbhai Fulchandbhai Tamboli (HUF), and Rs.33,83,550/- in case of Smt. Hansaben M. Tamboli, which were made by the A.O. on account of long-term capital gain on transfer of shares.
5. At the time of hearing, on behalf of Revenue Smt. Neeta Shah, Sr. D.R. appeared and contended that all the three assessees were holding shares of IPCL, which were transferred to other family group for money. The transaction is a transfer within the meaning of section 2(47) of the Income Tax Act and taxable under section 45 of the Income Tax Act as capital gain, which is correctly worked out by the Assessing Officer and taxed in the assessment order under section 45 of the Income Tax Act as long-term capital gain. The ld. D.R. also pointed out that there is a transfer within the meaning of section 2(47) of the Income Tax Act, 1961, therefore, the addition made by the Assessing Officer be restored. She also pointed out that Piyush Indulal Tamboli HUF(Bigger) is also assessed to tax and in the return of income for the assessment year 2004-05 had shown long-term capital loss of Rs.(-)69,884/- on transfer of shares of SCL to MFT group. This capital loss of Rs.69,884/- was settled against the profit, arising on transfer of bonus shares 5 ITA Nos. 2668-2670/AHD/2007 of SCL group to MFT group. She submitted that similar transaction had been shown by one of the groups as capital gain for realization of transfer of shares, then why the other group, i.e. Chetanbhai Manmohanbhai Tamboli (HUF) has claimed the same as exempt on the ground that it is not covered within the meaning of section 2(47) of the Income Tax Act, 1961.
5.1. The ld. D.R. further submitted that a family arrangement is done where members of a family with known relationship and common interest in the family arrangement and family business transfers their investments. Further, if shares are held by independent entities and ownership rights exercised and thereafter shares are transferred in an arrangement for transfer of business interest, then it will be only a business arrangement and not family settlement. Further family arrangement would mean that all the family members had a joint and several interests in those assets or investments even though they might have been held in the name of individual person. Once de facto ownership is common and joint ownership though de jure ownership is independent ownership is mixed as de facto-cum- de jure ownership, then it will be a family arrangement but where assets are held from the very beginning itself independently, de facto and de jure, and thereafter they are transferred from one owner to another owner, then it will only be a transfer within the meaning of section 2(47) of the Income Tax Act and not a transfer as family arrangement. In the present case, the ld. D.R. submitted that when concerned entities could not exercise/ independent power on these assets, and no consideration is passed on transfer, only then it would come within the ambit of family arrangement but where consideration is passed after proper valuation of shares, i.e. transfer was for consideration as in kind plus cash, then it is a sale to other parties and not a transfer or re-allocation of ownership in family arrangement. According to ld. D.R., a distinction should be made between family arrangement and business arrangement. If business arrangement is pre-dominantly high and family arrangement is consequential only, then capital gains would be liable on such transfer. But where family arrangement is pre-dominant and business arrangement is consequential, then in that situation only capital gain may not be levied in view of the judgment of the Hon'ble Madras High Court in the case of KAY ARR Enterprises (supra) as referred to the assessee. The present case is not covered by facts of the case of KAY ARR Enterprises. There family arrangement was pre- dominant and business arrangement was consequential, but in the present case, business consideration in the shape of taking over the control of different business entities was pre-
6ITA Nos. 2668-2670/AHD/2007 dominant and it was like an independent businessman's decision whereby control over the companies was transferred from one person to another person. Even though these were technically only related family members otherwise there was nothing in common such as common exercise of power over the shares held by one entity, which was subsequently transferred to another entity.
6. On the other hand, Shri S.N. Soparkar alongwith Smt. Urvashi Shodhn appearing on behalf of the assessee filed a paper book containing 40 pages, which, inter alia, include the following particulars :-
Sr. No. Particulars Pages
1. Submissions before CIT.(A)-XIX, Ahmedabad 1-6
2. Arbitration award by Shri P.N. Bhagwati, in the
case of Indubhai F. Tamboli & Family and
Manmohanbhai F. Tamboli & Family -
(i) Minutes of the arbitration meeting 07-08
held on 06.05.2003
(ii) Minutes of the arbitration meeting
held on 12.05.2003 09-10
(iii) Minutes of the arbitration meeting
11-12
held on 15.05.2003.
(iv) Award 13-19
3. General agreement between Shri Indubhai F. 20-38
Tamboli & Family, Shri Bipinbhai F. Tamboli &
Family and Shri Manmohanbhai F. Tamboli &
Family alongwith necessary documents
4. Letter to ITO,(OSD), Range-1, Bhavnagar, dated 39-40
13.11.2006
The ld. counsel of the assessee in support of each and every documents furnished before us as contained in the paper book contended that the facts of the present case are identical with that of the decision of the Hon'ble ITAT, Chennai Bench 'D' in the case of KAY ARR Enterprise reported in 97 ITD 291 (Mad.), wherein it was held that rearrangement of shareholdings in companies by way of family arrangement to avoid possible litigation among family members and to control companies effectively by major shareholders, could be held as a transfer within the meaning of section 2(47), which is exigible to capital gains tax. The ld. counsel pointed out that the view taken by the Hon'ble ITAT, Chennai in the case of KAY ARR Enterprises (supra) is 7 ITA Nos. 2668-2670/AHD/2007 also upheld by the Hon'ble Madras High Court as reported in [2008] 299 ITR page 348 (Mad.). The head notes of the said judgment of the Hon'ble Madras High Court reads as under :-
"It is 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".
7. The ld. counsel of the assessee further submitted that the Hon'ble ITAT, Ahmedabad, 'A' Third Member Bench in the case of Dr. K.M. Shah -vs.- ACIT reported in 90 ITD 1 (Ahd.)(TM) has also in accordance with the majority view held that if it is a case of bona fide family arrangement then there is no transfer. The ld. counsel of the assessee accordingly contended that in the impugned order the Learned Commissioner of Income Tax(Appeals) has given cogent reason, therefore, the view taken by the Learned Commissioner of Income Tax(Appeals) be upheld.
8. We have given our careful consideration to the rival submissions made before us and have perused the orders of authorities below. In the impugned order, the Learned Commissioner of Income Tax(Appeals) has held that the transactions made among both the groups in the present case come in the purview of family arrangements. The share of IPCL held by the family members of MFT Group have been transferred to IFT group as per the decision of arbitrator. It is merely a family arrangement made with intent to maintain peace in the family and prosperity of the business and as per judicial rulings, family arrangement is not covered u/s. 45 read with section 2(47) of the Income Tax Act. Therefore, the action of the Assessing Officer is not found to be justified. The family arrangement made among the family members would not amount to transfer. Therefore, no capital gain arises, therefore, he directed the Assessing Officer to delete the addition of Rs.18,39,150/-. The facts of the present case are identical with the decision of the ITAT, Chennai in the case of M/s. KAY ARR Enterprises (supra). This decision of the Tribunal was affirmed by the Hon'ble Madras High Court in the case of CIT -vs.- Kay Arr Enterprises [2008] 299 ITR 348. The Madras High Court relied on CIT -vs.- R. Ponnammal [1987] 164 ITR 706/ [1986] 28 Taxman 26 (Mad.); CIT -vs.- A. Ramanathan [2000] 245 ITR 494/ [2003] 128 Taxman 87 (Mad.); Kale -vs.- Deputy Director of Consolidation AIR 1976 SC 807 and Maturi 8 ITA Nos. 2668-2670/AHD/2007 Pullaiah -vs.- Maturi Narasimham AIR 1966 SC 1836 while deciding the issue in favour of the assessee.
It is pertinent to note that ITAT, Chennai Bench in the case of KAY ARR Enterprises (supra) held as under :-
"....the word 'family' in the context of a family arrangement is not to be understood in a narrow sense of being a group of persons who are recognized in law s having a right of succession or having a claim to a share in the property in dispute. If it is settled in one between near relations then the settlement of such a dispute can be considered as a family arrangement..... a compromise or family arrangement is based on the assumption that there is an antecedent title of some sort in the parties and the agreement acknowledges and defines what that title is, each party relinquishing all claims to property other than that falling to his share and recognizing the right of the others, as they had previously asserted it to the portions allotted to them respectively. These observations do not mean that some title must exist as a fact in the persons entering into a family arrangement. They simply mean that it is to be assumed that the parties to the arrangement had an antecedent. It is also to be noted that a family arrangement by which the property is equitably divided between the vari0ous contenders so as to achieve an equal distribution of wealth instead of concentrating the same in the hands of a few is, undoubtedly a milestone in the administration of social justice. That is why the term family has to be understood in a wider sense so as to include within its fold not only close relations or legal heirs but even those persons who may have some sort of antecedent title, a semblance of a claim or even if they have a spes succession is so that future disputes are sealed for ever and the family instead of fighting claims inter se and wasting time, money and energy on such fruitless or futile litigation is ale to devote its attention to more constructive work in the larger interest of the country......" (P. 303) In the impugned order the Learned Commissioner of Income Tax(Appeals) has followed the decision of the ITAT, Chennai Bench in the case of KAY ARR Enterprises (supra) and the ld. D.R. could not convinced us in what respect the said decision of the ITAT, Chennai Bench is not applicable to the facts of the assessee. In our opinion, the facts are almost identical, therefore, the Learned Commissioner of Income Tax(Appeals) has given cogent reason for holding that all the three assessees are not liable to capital gains tax under section 45 read with section 2(47) of the Income Tax Act, 1961 because no transaction of transfer of shares is involved as it is a case of bona fide family arrangement. We, therefore, incline to uphold the order of Learned 9 ITA Nos. 2668-2670/AHD/2007 Commissioner of Income Tax(Appeals) and reject the ground in respect of all the appeals filed by the Revenue.
9. In the result, all the appeals filed by the Revenue are dismissed.
The Order was pronounced in the Court on 22.02.2010
Sd/- Sd/-
(D.C. Agrawal) (T.K. Sharma)
Accountant Member Judicial Member
DATED : 22/ 02 / 2010
Copy of the order is forwarded to :
1) The Assessee
(2) The Department.
3) CIT(A) concerned, (4) CIT concerned, (5) D.R., ITAT, Ahmedabad.
True Copy By Order Deputy Registrar, ITAT, Ahmedabad Laha/Sr.P.S.