2015 (10) TMI 2120 - AT - Income Tax

Taxation on amount received on family settlement - accrual of income - Held that - Shares of M/s. Sea Princess Hotel and Properties ltd. were transferred lower than the book value and the impugned gift was not genuine is also not substantiated and also not borne out of facts because unless and until the family members agree by way of family settlement it cannot go through because there may be possibility of compensating the value in either terms of money or by providing equivalent share in another property but fact remains that the source of the impugned receipt has been duly explained. The family is consisting of businessmen/businesswomen and all the members are aware about the market value of the total property and how to safeguard their interest in a best manner therefore there is no question of understatement. Even if it is presumed that the valuation was understated it can be of the total property and not of the single property. Still fact remains that the entire property was in existence at the time of partition in which concerned family members were having their interest/shares therefore it was clearly a family settlement. Therefore the family arrangement is not taxable and no addition was warranted on the income which never arose to the assessee. As discussed earlier the entire property was already in existence having common shares and by way of the mutual settlement only the respective shares were determined. - Decided in favour of assessee.

Summary

Issues Involved:
1. Taxability of Rs. 33 crore received by the assessee as part of a family settlement.
2. Genuineness of the family settlement and the gift deed.
3. Source and nature of the impugned receipt.
4. Applicability of Section 56(2)(v) of the Income Tax Act, 1961.
5. Assessing Officer's suspicion of the transaction as a colorable device.

Issue-wise Detailed Analysis:

1. Taxability of Rs. 33 crore received by the assessee as part of a family settlement:
The Revenue contested that the amount of Rs. 33 crore received by the assessee was liable to tax, arguing that the family settlement/agreement did not explicitly mention this amount. The assessee claimed the amount as exempt, asserting it was received through a family settlement involving the division of property and was not taxable as income. The Tribunal noted that the amount received was part of a family settlement and not a new income, thus not taxable.

2. Genuineness of the family settlement and the gift deed:
The Assessing Officer suspected the family settlement, treating it as a colorable device. The Commissioner of Income Tax (Appeals) (CIT(A)) examined the facts and concluded that the source of the receipt was explained and the family settlement was genuine. The Tribunal upheld this view, stating that the family arrangement was a legitimate division of pre-existing family property and not a taxable event.

3. Source and nature of the impugned receipt:
The Assessing Officer questioned the source of the Rs. 33 crore, suspecting it to be understated consideration for shares transferred at a lower value. However, the Tribunal found that the source was adequately explained by the assessee and confirmed by the donor's statement under Section 131. The Tribunal held that the amount was part of the family settlement and not income.

4. Applicability of Section 56(2)(v) of the Income Tax Act, 1961:
The assessee argued that the amount received was exempt under Section 56(2)(v) as it was part of a family settlement. The Tribunal noted that family settlements could be oral and did not necessarily need to be documented. The Tribunal referenced various judicial pronouncements, including those by the Supreme Court, to support the view that family settlements are not taxable.

5. Assessing Officer's suspicion of the transaction as a colorable device:
The Assessing Officer suspected the transaction as a colorable device to avoid tax, arguing that the gift deeds were not properly stamped and the shares were transferred at an understated price. The Tribunal dismissed this suspicion, stating that the family settlement was a legitimate division of property among family members and not a tax avoidance scheme. The Tribunal emphasized that suspicion alone cannot replace concrete evidence.

Conclusion:
The Tribunal concluded that the Rs. 33 crore received by the assessee was part of a genuine family settlement and not taxable as income. The appeal of the Revenue was dismissed, affirming the CIT(A)'s order that the amount was not liable to tax. The Tribunal's decision was pronounced in the open court on 28/01/2015.