2012 (10) TMI 1160 - HC - Income Tax

Capital Gain under Section 45 - Consideration received under the family settlement on transfer of right, title and interest in the family property - transfer under Section 2(47) - Held that - ITAT following the decision of the Apex Court in the case of Maturi Pullaiah and Anr. v. Maturi Narasinham and ors. 1966 (3) TMI 81 - SUPREME COURT held that there is no transfer of assets in the family arrangement and the amount received by the assessee is part of the family arrangement and not towards the transfer of any capital assets and hence no Capital Gains Tax liability arises. In our opinion, the decision of the ITAT is based on finding of facts, hence no question of law arises.

Summary

Issues:
1. Whether consideration received under a family settlement on transfer of right, title, and interest in family property is a transfer under Section 2(47) of the I.T. Act and liable to be taxed as Capital Gain under Section 45 of I.T. Act?
2. Whether the consideration received by the assessee on transfer of right, title, and interest in family property under a family settlement is a Capital Gain liable to be taxed under Section 45 of I.T. Act?

Analysis:
1. The Revenue raised questions regarding the taxability of consideration received under a family settlement. The ITAT noted a genuine dispute among family members leading to a family arrangement and a Consent Decree passed by the Bombay High Court. The ITAT emphasized that family arrangements involve the settlement of property rights among family members without actual transfer of assets. Citing the Supreme Court's decision in Maturi Pullaiah case, the ITAT concluded that no transfer of assets occurred in the family arrangement, and the amount received was part of the settlement, not towards the transfer of capital assets, thereby no Capital Gains Tax liability arose. The High Court upheld the ITAT's decision, stating it was based on factual findings, and dismissed the appeal.

2. The ITAT's decision was grounded in the factual matrix of the case, emphasizing the nature of family arrangements as resolving disputes without actual transfers of assets. By referring to the Maturi Pullaiah case, the ITAT held that the amount received by the assessee was part of the family arrangement and not subject to Capital Gains Tax. The High Court concurred with the ITAT's reasoning, highlighting that the settlement merely defined preexisting joint interests as separate without involving conveyance of assets, thereby negating the need for registration. The High Court's dismissal of the appeal affirmed the non-taxability of the consideration received under the family settlement as Capital Gain under the I.T. Act.