While deleting an addition of capital gain on account of transfer of shares as family arrangement, the Income Tax Appellate Tribunal (ITAT), Mumbai bench has held that a partition or family arrangement cannot be treated as “transfer” for the purpose of the Income Tax Act, 1961.
The assessee, Sujan Azad Parikh is one of the family member of the Parikh Group and the above group has two divergent groups identified as SAP Group and ANP Group represented by the respective family heads. The assessee being one of the family head, who was representing the SAP Group. Due to dispute in the functioning of the company NPIL and other group concerns, in order to restore the peace and harmony in the family, all have agreed to family arrangements by filing petition before CLB. It is facton record that based on the direction of the CLB and their resolutions, the assessee, representing the SAP Group, agreed to transfer the shares either to ANP Group or to the company itself. On agreed terms, the assessee transferred to the shares to company on buy back agreement and received the compensation. The AO observed that the above transfer attracts capital gain tax.
Overruling the orders of the lower authorities, the Tribunal bench comprising Aby T. Varkey (Judicial Member) and Shri S. Rifaur Rahman (Accountant Member) since the assessee has transferred the shares only on the direction of the CLB. As per the direction of CLB, the assessee has to either transfer the shares to ANP Group or to the company whichever is acceptable to the ANP Group.
“As far as assessee is concerned, he has agreed to transfer the shares, it is irrelevant for him how the shares to being transferred, as long as he receives the compensation as set out by the CLB. In this case, the ANP Group has decided to buy back the shares in the NPCL itself. Therefore, it is not proper on the part of the tax authorities to take divergent view without their being proper reasons,” the Tribunal said.
Allowing the plea of the assessee, the Tribunal held that“there is no doubt that there is a family arrangement and based the condition specified in the order passed by CLB, the shares were transferred to the company on the buyback terms. In the given case, the transferor is an individual whereas in the case relied by the CIT(A) in which the transferor is the legal entity. As held in the case of R Nagaraja Rao (supra), the Hon’ble Karnataka High Court observed that Partition or family settlement is not transfer. When there is no transfer there is no capital gain and consequently no tax on capital gain is liable to be paid. Therefore, in the given case, the assessee has transferred the shares based on the family settlement as per the direction of CLB, which the Ld CIT(A) has accepted in his order. Therefore, we are incline to accept that the assessee has transferred the shares under family arrangements only. Therefore, we direct the Assessing Officer to allow the claim of the assessee even though the assessee has paid the tax by calculating the capital gain under mistaken belief that this transaction istaxable.”
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