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TMI Blog2020 (10) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... n described as purchaser of the shares and assessee as seller in the Memorandum of Family Settlement which could never be regarded as Family Settlement Deed. The assessee did not have any antecedent, title of any family property because whatever shares/asset assessee has possessed as owner have been sold subject to consideration because the assessee has acquired the shares of two Companies by way of gift from her father and sons. Thus, it was not a family property which could have been divided between the assessee and Shri Golu L. Mirchandani. The assessee did not receive any share from the family of her husband. The facts also clearly established that there is no equitable partition or distribution of family shares/ assets. The chart reproduced above shows that it was merely sale transaction of shares which could not be considered as Family Settlement. Thus, it cannot be said that the impugned amount was given to assessee for equalisation of interest in the family property and thus, it was not an owelty as is claimed by the assessee. Since shares were the personal property of the assessee, therefore, when same were transferred to Shri Golu L. Mirchandani, it would amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u Gupta, C.A. For the Revenue : Shri Shyam Anuragi, Sr. DR ORDER PER BHAVNESH SAINI, J.M. This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-24, New Delhi, Dated 11.02.2020 for the A.Y. 2009-2010, on the following grounds : 1. That the Commissioner of Income-tax (Appeals) [ CIT(A) ] erred on facts and in law in confirming the action of the assessing officer in assessing the income of the appellant at ₹ 92,84,18,760. 1.1. That the C1T(A) failed to appreciate that the findings of the assessing officer were contrary to and in blatant violation of the binding decision/ finding of the CIT(A)/ Tribunal in the appellant s own case. 2. That the CIT(A) erred on facts and in law in holding owelty of ₹ 93,88,81,656 received by the appellant pursuant to a family settlement to be taxable as long-term capital gain on transfer of shares. 2.1. That the CIT(A) erred in concluding that the amount received by the appellant was not towards equalization of family interests and was thus, not in the nature of owelty, but was consideration received for transfer of shares, being personal property 2.2. That the CIT(A) erred o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn the long term capital gains of ₹ 92,33,99,485/-. Later on, the case was selected for scrutiny and the assessment was completed under section 143(3) on 11.11.2011 after certain additions at the assessed income of ₹ 93,84,18,760/-. In this Order, the following additions were made by the A.O. (a) Indexed cost of acquisition for LTCG shown by assessee on sale of the shares was restricted to ₹ 75,75,001/- as against ₹ 99,80,872/- claimed by the assessee by taking cost of asset when assessee became owner by gift and not the asset hold earlier by previous owner. (b) ₹ 45 lakhs was taxed in the hands of the assessee as long term capital gains under section 45 of the I.T. Act, 1961 received indirectly on relinquishment of her right to manage Monica Electronics Ltd., and Onida Saka Ltd., 3.1. Aggrieved by this Order, assessee preferred an appeal before the Ld. CIT(A), who gave part relief of ₹ 24,05,871/- by allowing the indexation of assets (shares received as gift) from the date of ownership by the previous owner instead of from the first year in which the assessee became owner. The addition of ₹ 45 lakhs as LTCG was confirmed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee suo-motu declared capital gain on the same transaction. 3.4. However, this issue was raised before the Tribunal for the first time and the matter was set aside to the A.O. to reconsider as per Law on admission of additional ground above. The A.O. in compliance to the directions of the Tribunal, issued notice under section 142(1) calling the details and supporting evidence on the aforesaid issue remanded by the Tribunal. The assessee filed the written submissions along with supporting evidences and details before A.O. on the set aside issue. The written submissions of the assessee is reproduced in the assessment order, in which, the assessee briefly explained that family settlement was arrived at between the husband of the assessee Mr. Sonu Mirchandani s family and family of his brother Mr. Gulu L Mirchandani. To execute the same, a family settlement was drawn on 31.05.2008. In pursuance of the same, the shares held by the assessee were in GUVISO Holding Ltd., [GUVISO] and M/s. IWAI Electronics P. Ltd., [IWAI] were given to Mr. Gulu L. Mirchandani and the assessee received amount of ₹ 93,88,81,656/- for this transfer. The consideration was received as owelty t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e right in any asset, therefore, addition of ₹ 45 lakhs is wholly unjustified. The assessee further submitted that A.O. is bound to allow the legitimate deduction/relief and allowance to correctly determine the income of assessee and A.O. is bound to follow the Order of the Tribunal on additional ground so admitted. 3.6. The A.O. considering the explanation of assessee and material on record reproduced the Memorandum of Family Settlement Dated 31.05.2008 in the assessment order and noted that the receipt of money in lieu of sale of share is not in dispute. The assessee has accepted that amount of ₹ 93,88,81,656/- was indeed received from Mr. Gulu L. Mirchandani in lieu of sale of shares of GUVISO Holdings Ltd., and IWAI Electronics Ltd. The A.O. also noted that Family Settlement is an agreement whereby sale of shares have been done and parties have recognized themselves as purchaser and seller. The A.O, therefore, noted that it is clearly established that it was a transaction for sale and purchase of shares and assessee has received consideration for transfer of share. Thus, it cannot be said that the money was given to the assessee for equalisation of interest in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mination of Managing Directors and other Directors, namely, M/s. Monika Electronics Ltd., and M/s. Onida Saka Ltd. The Ld. CIT(A), therefore, held that the relinquishment of such right is covered within the meaning of Transfer of Capital Asset in accordance with Section 2(47)(i) of the I.T. Act, 1961 and accordingly, the same was held taxable . The Tribunal has, however, restored the matter back to the file of Assessing Officer to verify Whether this transaction being part of family settlement is taxable or not ? . The A.O. noted that assessee has received this amount for relinquishing her rights to manage the two companies i.e., the consideration for her assets. She has not received this amount as owelty as there were no division of assets. She had to forego her assets for a consideration but she did not receive any asset/right in reciprocation, nor was the money paid for equalisation of interests. Thus, the money received by her though indirectly, was sale consideration for transfer of her rights and not owelty. The A.O, therefore, held that ₹ 45 lakhs is liable to be taxed as capital gain. The addition was accordingly made. The A.O. assessed the income of assessee at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there would be no transfer as is settled by several Judgments. The A.O. shall have to determine the income only in accordance with Law even if assessee has inadvertently offered the same for taxation. The assessee relied upon several decisions in support of the contention. It was submitted that ₹ 45 lakhs was not received by assessee as it was compounding fees paid through Family Settlement for settling the prosecution fees payable by MEL to Chief Commissioner of Central Excise and that assessee has not received any consideration. Thus, it could not be taxed in the hands of assessee as this transaction was carried-out as a consequence of Family Settlement and same would have no tax implication. It was also submitted that A.O. has failed to appreciate that out of the total compounding fees of ₹ 45 lakhs, compounding fees relatable to the assessee was amounted to ₹ 10 lakhs only. Therefore, no addition could be made of ₹ 45 lakhs. 5. The Ld. CIT(A) considering the submissions of the assessee and material on record held that A.O. has followed the directions of the Tribunal and decided the issue on facts and submissions on record. There is no violation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per Law vide Order Dated 29.02.2016 [PB-91]. The authorities below did not consider the issue in the light of Family Settlement Deed and repeated the additions. PB-113 is Family Tree prior to the Settlement. As per the Family Settlement various family assets were divided/distributed to the families of GLM and SLM in the year 2003 pursuant to the execution of Will of their Mother. At that stage, two families had common shareholding and joint control in various companies as are referred in PB-113. The two families thereafter decided to re-align their respective rights, interests in the running businesses of Mirchandani Group which were jointly managed and controlled by GLM Group and SLM Group through Family Settlement Deed. He has submitted that family re-alignment/arrangement is intended to be generally and reasonably for the benefit of the family either by comprising doubtful or disputed rights or by preserving family property or peace and security of the family by avoiding litigation or by saving the family honour. The essential of a Family Settlement and binding effect of such Settlement has been expounded by the Hon ble Supreme Court in the case of Kale vs., Dy. Director o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that Family Arrangement being in the nature of re-alignment/redistributing, relinquishing or even consolidating certain claims, rights between the Members of the Family bonafide by putting an end to the dispute among themselves is not regarded as Transfer and the amount received has been held not liable to tax under the Income Tax Act and relied upon the following decisions : 1. Kale vs., Deputy Director of Consolidation 3 SCC 119 2. Ram Charan Das vs., Girja Nandini Devi Ors. AIR 1966 SC 323 3. Judgment of Hon ble Supreme Court in the case of Ravinder Kaur Grewal Ors. Vs., Manjit Kaur Ors. CA.No.7764 of 2014 Dated 31.07.2020 4. Judgment of Hon ble Madras High Court in the case of CIT vs., Kay ARR Enterprises 299 ITR 348 (Madras). SLP dismissed by Hon ble Supreme Court. 5. Judgment of Hon ble Bombay High Court in the case of CIT vs., Sachin P. Ambulkar 42 taxmann.com 22 6. Judgment of Hon ble Karnataka High Court in the case of CIT vs., R. Nagara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.4 submitted that this issue was considered and decided in favour of the assessee in the first round of proceedings by the Ld. CIT(A) vide Order Dated 14.03.2013 which was affirmed by the Tribunal vide Order Dated 31.01.2014 [PB-48 to 90]. He has, therefore, submitted that the addition made by the A.O. and confirmed by the Ld. CIT(A) on account of difference in indexed cost of acquisition of share will not survive. 8. Learned Counsel for the Assessee as regards Ground No.5 submitted that A.O. has repeated the addition of ₹ 45 lakhs being compounding fees paid by Monica Electricals Ltd., to the Central Excise Department. In doing so, the A.O. has alleged that indirectly money was received by the assessee for relinquishing of her rights to manage two companies which is confirmed by the Ld. CIT(A). He has submitted that pursuant to the aforesaid Family Settlement, it was inter alia, also mutually agreed that Mr. Golu L Mirchandani shall be the sole management and control of the two listed companies i.e., MEL and OSL, including right to nominate the Managing Directors and Directors of both MEL and OSL, subject to the condition that GLM Group would identify the SLM Group aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to exclusion of the impugned amount from taxability of income. The additional ground was remanded to the A.O. for consideration as per Law. The authorities below though have decided the issue, but, have somewhere observed that assessee may not be entitled to get the income excluded once it is offered for taxation in the return of income. It may be noted here that it is an admitted fact that earlier Order of the Tribunal Dated 29.02.2016 was not challenged before the Hon ble High Court by the Revenue and as such, the earlier Order of the Tribunal have become final. The Hon ble Madras High Court in the case of Mr. T.S. Santhanam vs., Expenditure Tax Officer, Company Circle-II(1), Madras [1973] 87 ITR 582 (Mad.) held that the essential principle as to the Rule of Finality of an assessment is that the A.O. cannot change his mood and try to reopen a closed state of affairs. The Hon ble Supreme Court in the case of Commissioner of Income Tax, Delhi and Rajasthan vs., Rao Thakur Narayan Singh [1965] 56 ITR 234 [SC] in the context of Rule of Finality held as under : Held that as the order of the Appellate Tribunal became final, the findings of the Tribunal, even though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere holding M/s. GOVISO Holding Ltd., and M/s. IWAI Ltd., which are unlisted Companies. M/s. GOVISO Holding Ltd., has controlled by M/s. Mirc Electronics Ltd., [Listed Company]. The other group companies are M/s. Onida Saka Ltd., [ OSL ] and M/s. Monica Electronics Ltd., [MEL] the listed companies. The Family Settlement provides GLM is First Party and SLM, Mrs. Soni Sonu Mirchandani [Assessee] and her sons are 2nd to 5th Party. The details of the properties/assets are mentioned. It is mentioned in the Family Settlement that GLM and SLM being brothers have decided that in view of expanding family and in order to avoid disputes, differences and misunderstanding within the Family Members, it would be in the interests of both the GLM Group and SLM Group that they separate their businesses. As GLM has been incharge of day-to-day management of M/s. MIRC, GLM Group and SLM Group have decided to separate their businesses. The parties have, therefore, decided to record their Settlement by way of Memorandum. As per Memorandum of Family Settlement, Assessee transferred share holdings of GOVISO [59988 shares] to GLM. The assessee transferred shareholdings of IWAI [4978 shares] to GLM, subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r receives equal value from the property. The Webster Law Dictionary defines Owelty A Lien created or a peculiar sum paid by Order of the Court to effect an equitable partition of property when such partition in kind would be impossible, impracticable or prejudicial to one of the parties of an Owelty Award. The legal definition of the Owelty defines the difference which is paid or secured by one coparcener to another, for the purpose of equalising the partition. 10.5.1. Family Arrangements involve settlement of disputes, relating to family property in which Members must have an antecedent title or claim. Family Settlement Memorandum, once acted upon, is binding on the parties despite being unregistered. The literal interpretation of Family Settlement would imply an existence or anticipation of a dispute between the Members of Family. 10.5.2. From the taxation perspective, the Family Settlement is in the nature of Partition which is not regarded as Transfer under section 2(47). When there is no transfer, there is no capital and, therefore, no tax on capital gain is liable to be paid. Using Family Settlement for the purpose of tax planning is not outside the purview of Law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, it could not be considered as owelty received by the assessee. The husband of the assessee did not transfer any share/property, so, where is the question of distribution of asset between the family of her husband and his property ? No owelty paid on alleged Family Settlement. No other transfer of family asset took place between the parties to the Family Settlement. It is a sale transaction between the two parties only i.e, assessee and Shri Golu L. Mirchandani. The authorities below did not accept the genuine Family Settlement because the authorities below have held it to be a simple transaction of sale and purchase of shares, subject to consideration. In other group companies no reasons explained to surrender the right or car etc., The assessee received market price for sale of shares and surrendered/relinquished her right in various companies, subject to impugned consideration. In the present case, the assessee has received impugned money as sale consideration for sale of shares and not as Owelty for equalisation of interest in the family property. Since shares were the personal property of the assessee, therefore, when same were transferred to Shri Golu L. Mirchandani, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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