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Issues involved: Appeal against the order of CIT(A) regarding the treatment of exchange of shares under family arrangement and its impact on capital gains.
Summary: The appeal was filed by an individual assessee against the CIT(A)'s order concerning the treatment of the exchange of shares under a family arrangement, as determined by an arbitrator, in relation to capital gains. The dispute arose within the Pai Group of Mangalore, involving two families, Mohandas Pai and Ramesh Pai, seeking a settlement to divide business activities without interference. The appellant, a member of Ramesh Pai's family, had to surrender her shares in ICDS Ltd. as per the arbitration award to maintain family peace. The CIT(A) upheld the Assessing Officer's view, emphasizing the lack of common funds between the families and the absence of exchange of shares within the family. The Tribunal noted the necessity of arbitration due to family differences, resulting in a clear division of business activities between the two families. The agreement specified the transfer of control and management of companies, including the sale of shareholdings to the controlling group. The Tribunal highlighted the appellant's obligation to honor the arbitrator's award for family harmony, akin to a total partition of HUF. Citing Supreme Court precedents on family settlements, the Tribunal concluded that the exchange of shares did not attract capital gains tax as it did not constitute a transfer under the IT Act. Therefore, the Tribunal allowed the appeal, ruling in favor of the assessee based on the principles of family settlement and the absence of capital gains implications in the share exchange under the family arrangement.
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