Taxability of capital gain arising from transfer of shares pursuant to the family arrangement.

Facts of the case:

There was a transfer of shares between the assessee-firm, which consists of partners, who are family members, in that, certain new shares were acquired in exchange of old shares, as also some consideration in cash.  According to the assessees, the transfer was consequent to a family arrangement.  But, the Assessing Officer, after analysing the facts of the case and the legal aspects on the same, concluded that there was indeed a transfer involved and thus, subjected the Capital Gains Tax.

Issue:

Whether the transfer of shares pursuant to the family arrangement to avoid a possible litigation among the family members would attract the Capital Gains Tax.

Held:

In view of the settled propositions of law, we hold that the Tribunal was justified in arriving at the conclusion that the family arrangement among the assessees does not amount to any transfer and hence, not exigible to capital gains tax.  

(For full text of judgment - visit 2008 -TMI - 3709 - MADRAS HIGH COURT)