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TMI Blog2025 (3) TMI 990X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous for the consequential erroneous conclusion reached by further reckoning the transaction as exchange for the purpose of justifying the levy of Capital Gains tax. We find force in the argument of the Ld. AR that transaction of settlement between the assessee and his brother for preventing future disputes and transaction of settlement between the brother and the assessee executed simultaneously is to be considered as independent transactions by the stamp duty authority and hence in the light of the stamp duty authority reckoning the deeds as settlement deeds not as exchange, the presumption of altering the legally executed settlement deed as exchange was not permissible in law. The settlement deed(s) as such executed as per the process known to law would definitely fall within the ambit of the exception of Section 47(iii) of the Act and consequently levy of Capital Gains tax would get negated /vitiated. In deciding the issue of settlement deed between the brothers in the case on hand, we take note of the decision of SS Pillai vs. KS Pillai [1972 (5) TMI 60 - SUPREME COURT] wherein it was held observed that if in the interest of the family, properties and family peace, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vitiate the search assessment order completely. 4. The CIT (Appeals)-18, Chennai erred in sustaining the addition of Rs. 6, 48, 31, 420/- as Long-term Capital Gains and a sum of Rs. 4, 74, 82, 926/-as Short-term Capital Gains in the computation of taxable total income without assigning proper reasons and justification. 5. The CIT (Appeals) -18, Chennai failed to appreciate that settlement deed dated 05.03.2010 entered between the late appellant and his brother, Mr. Rajarathinam for the mutual exchange of 30 properties for 55 properties respectively wrongly construed as transfer of property / extinguishment of rights on such immovable properties for the purpose of computing Capital Gains on such transfer, the consequential computation of LTCG & STCG on various facets was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law. 6. The CIT (Appeals) -18, Chennai failed to appreciate that a deed of settlement would not attract the charging provisions of Section 45 of the Act and further ought to have appreciated that the in absence of "transfer" within the ambit of provisions in Section 2(47) of the Act between the two individuals within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals) -18, Chennai failed to appreciate that there was no effective/proper opportunity given before passing the impugned order and ought to have appreciated that any order passed in violation of the principles of natural justice is nullity in law. 14. The Appellant craves leave to file additional grounds/arguments at the time of hearing. 3.0 The brief facts of the case are that the assessee is an individual and was Partner of certain concerns of Saravana Store Group. The Search & Seizure action u/s. 132 of the Act was conducted in the business premises and residence of the assessee on 18.08.2011 notice u/s. 153C of the Act was issued by the AO on 23.07.2013 and in response the assessee filed reply on 22.10.2013 stating that the original return filed may be treated as the return filed in response to notice u/s. 153C of the Act. After issuing statutory notices, the AO completed the assessment u/s. 153C r.w.s 153A r.w.s 143(3) of the Act dated 31.03.2014 by arriving total income of Rs. 12, 70, 75, 080/- after making the following additions: a) Income from house property - Rs.1, 34, 15, 885/- b) Income from other sources (commission) - Rs. 15, 000/- c) Income from other so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with his brothers have purchased certain properties jointly. Due to family arrangement, both the brothers agreed to partition the properties by way of settlement deed. The appellant by way of settlement dated 5.3.2010 has given certain properties to his brother Shri S. Rajaratnam as Gift. Similarly, Rajaratnam has also given certain properties to the appellant. But the AO has imposed Capital Gain tax by stating that the settlement deed made out by his brother, Shri Rajaratnam in favour of the appellant falls under "Transfer" as per section 2(47) of the Act. Thus, imposed STCG and LTCG on the difference between the Guideline value and value shown in the books. In the instant the first question to be addressed is whether property jointly purchased by brothers partitioned byway of settlement will amount to transfer within the meaning of section 2(47) of the Act or not. In an identical issue the jurisdictional Hon'ble High Court in the case of CIT VS A.L. Ramanathan in245 ITR 494 (MAD) has given its decision as under: 2. The family arrangement was arrived at in order to avoid continuous friction and to maintain peace among-the family members. The family arrangement is an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e artificial distinction made by the lower authorities with reference to the Gift and Settlement is not appropriate and we are of the opinion that for the purpose of -Sec.49(1)(i), there is no difference between the gift and settlement and in the present case, the settlement made with the assessee's brother Mr. S. Rajaratnam and there cannot be any capital gains on this count. The ground raised by the Revenue is dismissed. 16. In the result, the appeals of assessee in [ITA No.985, 986, 987 & 988/16 and the appeal of Revenue in 1038/16 are partly allowed for statistical purposes, and the appeal of Revenue in 1037/Mds./16 is dismissed." 8. Aggrieved by the order of the Chennai Tribunal, the revenue preferred an appeal at Hon'ble High Court of Madras. On perusal of the submissions made by the revenue the Hon'ble High Court of Madras, set aside the order of the Tribunal by allowing the appeal of the revenue and remitted the matter back to the CIT(A) by holding as under in TCA No.234 of 2018 dated 08.07.2020. "....23. The Revenue, being aggrieved by such an order, filed the appeal before the Tribunal. The Tribunal also did not consider the matter in a proper perspective and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brothers were Bonafide. Therefore, the settlement of joint holding properties between brothers would not fall under "transfer" as defined in section 2(47) of Act. iii) The properties received under gift would not attract tax. The transactions of settlement of properties clearly falls under gift to relatives and it would not attract tax. Even settlement of properties amongst various co-owners would not be covered by section 4(1)(c) of the Gift Tax Act. iv) The section 2(24) of the Indian Stamp Act 1899 reads "settlement" means any non-testamentary disposition, in writing, of movable or immovable property made a) In consideration of marriage; b) For the purpose of distributing property of the settler amongst his family or those for whom desires to provide or for the purpose of providing for some person dependent on him, or c) For any religious or charitable purpose; From the above definition it is very clear that settlement deed is possible for consideration of marriage or purpose of distribution property among family members or for religious or charitable purpose. v) Transactions not regarded as transfer as per section 45 of the Act "Nothing contained in section 47 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and his brother transferred 55 properties to the assessee. The assessee also paid an amount of Rs. 17 crores to his brother. The impugned properties in this case are not joint family properties and they were held by two individuals (though closely related) in their names with distinct shares. ii) The assessee affirmed that the properties are held by them without any dispute and are on freehold. iii) No evidence has been produced by the assessee to show that there was some dispute or even possibility of any future dispute. No evidence has been produced that the properties are under any dispute. Hence, the claim that it is case of family arrangement has not borne out of facts of the case. iv) The deed of family partition has been drawn in respect of individual properties of the assessee and his brother with none of the other family members have any say in them which is confirmed by the assessee. Thus, the camouflaged family partition deed is made in respect of non-inherited properties and hence, cannot be considered as family partition at all. v) Therefore, the deeds of settlement would come within the ambit of the definition transfer' u/s 2(47) of the Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted a paper book containing 309 pages consisting of written submission made before the ld.CIT(A) after remanded the case by the Hon'ble Madras Court, copies of judicial precedents relied by the assessee, copy of settlement deed by S.Yogarathinam to S.Rajarathnam, settlement deed by S.Rajarathnamto S.Yogarathinam, death certificate of S.Yogarathinam, Legal heir certificate of S.Yogarathinam, copies of financial statements of S.Yogarathinam and S.Rajarathnam and the Journal Extract for list of properties settled between parties on 05.03.2010. Further, the ld. AR argued that the 'gift' includes settlement as per the erstwhile Gift Tax Act, 1958 and Section 2(xii) of the same Act defines gift of movable or immovable property by means of transfer while the transfer of the property is defined in Section 2(xxiv) of the said Act so as to include settlement. Therefore, the ld.AR submitted that there was no confusion in understanding the scope of gift and the settlement deed under consideration should be viewed as gift falling within the provisions in Section 47 (iii) of the Act and the exception being such transaction not to be regarded as transfer for the purpose of imposing Capital Ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Madras High Court in the first round proceedings in TC Appeal No.234 of 2018 dated 08.07.2020 filed under Section 260A of the Act by the revenue against the this Tribunal order dated 15.03.2017 in ITA No.1037/MDS/2016. 13. The Hon'ble High Court vide their judgement at para 25 had set aside the order of First Appellate Authority rendered in the first round of proceedings as well as the decision of this Tribunal in remanding the matter to the file of the First Appellate Authority for a fresh consideration of the issues emanating from the assessment order dated 31.03.2014 passed in terms of Section 153C r.w.s 143(3) of the Act. 14. The impugned order passed by the ld.CIT(A) in the remand / 2nd round of proceedings had squarely summarised the entire issues for adjudication at para 15.2 of the said order forming part of page no. 67. Thus, it can be said that the major issue involved in the present appeal is on the correctness of levy of Capital Gains on the transaction between the assessee and his brother through the settlement deed dated 05.03.2010. 15. The Ld.CIT(A) in the impugned order at para 15.6.13 had considered the settlement of undivided share in certain propertie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at attempt of the ld. CIT(A) in clubbing both the settlement deeds (one by the assessee in favour of the brother and the other by the brother in favour of the assessee) was legally erroneous for the consequential erroneous conclusion reached by further reckoning the transaction as exchange for the purpose of justifying the levy of Capital Gains tax. 22. We find force in the argument of the Ld. AR that transaction of settlement between the assessee and his brother for preventing future disputes and transaction of settlement between the brother and the assessee executed simultaneously is to be considered as independent transactions by the stamp duty authority and hence in the light of the stamp duty authority reckoning the deeds as settlement deeds not as exchange, the presumption of altering the legally executed settlement deed as exchange was not permissible in law. 23. The settlement deed(s) as such executed as per the process known to law would definitely fall within the ambit of the exception of Section 47(iii) of the Act and consequently levy of Capital Gains tax would get negated /vitiated. 24. Further, we note that the transactions are not regarded as transfer as per secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air, courts will normally give assent to such an arrangement rather than avoid it. Even if a party to the settlement has no title under the arrangement but the other party relinquishes all his claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed, and the family arrangement will be upheld. 29. Therefore, respectfully following the decision of the jurisdictional High court decision, we cannot agree with the ld.CIT(A) for taxing the settlement deeds of the assessee with his brother considering it as 'transfer' under section 2(47) of the Act and hence we are inclined to delete capital gains added by the AO. 30. Hence, in the present facts and circumstances of the case and respectfully following the various judicial precedents discussed(supra), we are of the considered view for the reasons stated above, the ld.CIT(A) has erred in confirming the disputed addition made by the AO and hence we are setting aside the order of the ld.CIT(A) by allowing the grounds of appeal of the assessee by directing the AO to delete the additions of long-term Capital Gain of Rs. 6, 48, 31, 420/- and short-term capital gain of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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