SUPREME COURT
IN RAM CHARAN DAS V.
GIRJANANDINI DEVI AIR 1966 SC 323
AND IN THE CASE OF KRISHNA
BIHARI LAL V. GULAB CHAND
GIRJANANDINI DEVI AIR 1966 SC 323
AND IN THE CASE OF KRISHNA
BIHARI LAL V. GULAB CHAND
Summarised Judgement
Apart
from the Income Tax Act, 1961, the word family has no where been defined. The
courts have in addition to the aforesaid definition given a wider meaning to
the word family, to exclude persons who have common tie or relation to be a
part of family.
from the Income Tax Act, 1961, the word family has no where been defined. The
courts have in addition to the aforesaid definition given a wider meaning to
the word family, to exclude persons who have common tie or relation to be a
part of family.
The
Hon’ble Supreme Court held that the word family had a much wider meaning. The
court in Paragraph 7 held: “…the word “family” in the context
of a family arrangement is not to be understood in a narrow sense of being a
group of persons who are recognized in law as having a right of succession or
having a claim to a share in the property in dispute.”
Hon’ble Supreme Court held that the word family had a much wider meaning. The
court in Paragraph 7 held: “…the word “family” in the context
of a family arrangement is not to be understood in a narrow sense of being a
group of persons who are recognized in law as having a right of succession or
having a claim to a share in the property in dispute.”
Therefore,
the requirement of existence of legal/succession of the family property has
been subsequently dispensed with in the view of the aforesaid judgements and a
broad interpretation.
the requirement of existence of legal/succession of the family property has
been subsequently dispensed with in the view of the aforesaid judgements and a
broad interpretation.
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PUNJAB AND HARYANA HIGH
COURT
COURT
BANSARI LAL V. CGT,
1998 230 ITR 114 (P&H)
1998 230 ITR 114 (P&H)
Summarised Judgement
The
entire purpose of having a Family Arrangement is to secure and settle the
rights of a person on a family’s property. For the purpose of Family
Arrangement, there must be some ancestral right over the property in dispute.
Subsequently, individual and self-acquired property are not taken into
consideration as ‘property’ for the purpose of Family Arrangement, until and
unless some ancestral title or claim is shown in the property.
entire purpose of having a Family Arrangement is to secure and settle the
rights of a person on a family’s property. For the purpose of Family
Arrangement, there must be some ancestral right over the property in dispute.
Subsequently, individual and self-acquired property are not taken into
consideration as ‘property’ for the purpose of Family Arrangement, until and
unless some ancestral title or claim is shown in the property.
In
this the Court disregarded a family arrangement as being collusive, in which
the property in dispute was an individual property. The court had held that
mere antecedent title or claim or interest on an individual property and
subsequent family arrangement would be set aside as being collusive and
obtained with a view to avoid payment of tax.
this the Court disregarded a family arrangement as being collusive, in which
the property in dispute was an individual property. The court had held that
mere antecedent title or claim or interest on an individual property and
subsequent family arrangement would be set aside as being collusive and
obtained with a view to avoid payment of tax.
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SUPREME COURT
SHAMBHU PRASAD V. PHOOL
KUMAR AIR 1971 SC 1337
KUMAR AIR 1971 SC 1337
Summarised Judgement
Dispute
in a family property is a prelude to Family Arrangement. The entire purpose of
having an arrangement is to settle the ‘dispute’ to maintain the harmony of the
family system. The dispute can be either in present or in future depending upon
the nature of the dispute.
in a family property is a prelude to Family Arrangement. The entire purpose of
having an arrangement is to settle the ‘dispute’ to maintain the harmony of the
family system. The dispute can be either in present or in future depending upon
the nature of the dispute.
Court
had held that for a family arrangement there must a dispute in property, either
actual or possible in future. Thus, a bona fide dispute, which has not arisen
yet but could arise in future is sufficient to arrive at Family Arrangement.
had held that for a family arrangement there must a dispute in property, either
actual or possible in future. Thus, a bona fide dispute, which has not arisen
yet but could arise in future is sufficient to arrive at Family Arrangement.
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SUPREME COURT
SK. SATTAR SK. MOHD.
CHOUDHARI V. GUNDAPPA AMABADAS BUKATE (1996) 6 SCC 373
CHOUDHARI V. GUNDAPPA AMABADAS BUKATE (1996) 6 SCC 373
Summarised Judgement
The
definition of the phrase ‘Family Arrangement’, has been elaborately explained
by the Supreme Court. The Hon’ble Court held that: “…A family
arrangement is a transaction between members of the same family for the benefit
of the family so as to preserve the family property, the peace and security of
the family, avoidance of family dispute and litigation and also for saving the
honour of the family.”
definition of the phrase ‘Family Arrangement’, has been elaborately explained
by the Supreme Court. The Hon’ble Court held that: “…A family
arrangement is a transaction between members of the same family for the benefit
of the family so as to preserve the family property, the peace and security of
the family, avoidance of family dispute and litigation and also for saving the
honour of the family.”
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SUPREME COURT
RAM CHARAN DAS V. GIRJA
NANDINI DEVI AIR 1966 SC 323
NANDINI DEVI AIR 1966 SC 323
Summarised Judgement
It
held that the transaction amongst family members to put an end to bona fide
dispute would not amount to ‘transfer’ or creation of any interest. The court
held: “…here the transaction in question is a family settlement entered
into by the parties bona fide for the purpose of putting an end to the dispute
among family members.
held that the transaction amongst family members to put an end to bona fide
dispute would not amount to ‘transfer’ or creation of any interest. The court
held: “…here the transaction in question is a family settlement entered
into by the parties bona fide for the purpose of putting an end to the dispute
among family members.
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GAUHATI HIGH COURT
ZIAUDDIN AHMED VS
COMMISSIONER OF GIFT-TAX ON 5 AUGUST, 1975
COMMISSIONER OF GIFT-TAX ON 5 AUGUST, 1975
Summarised Judgement
Question of Law – “(1)
Whether, on the facts and circumstances of the case, the Tribunal was right in
holding that the provisions of Section 4(1)(a) of the Gift-tax Act, 1958, were
attracted and that there was a deemed gift taxable in the hands of the assessee
?
Whether, on the facts and circumstances of the case, the Tribunal was right in
holding that the provisions of Section 4(1)(a) of the Gift-tax Act, 1958, were
attracted and that there was a deemed gift taxable in the hands of the assessee
?
(2)
Whether, on the facts, the Tribunal was correct in law in holding that in
considering the quantum of taxable gift under Section 4(a) of the Gift-tax Act,
1958, the transfer of shares standing in the name of his minor son was not to
be considered ?.”
Whether, on the facts, the Tribunal was correct in law in holding that in
considering the quantum of taxable gift under Section 4(a) of the Gift-tax Act,
1958, the transfer of shares standing in the name of his minor son was not to
be considered ?.”
Court Observation:
From
the findings of the Tribunal in the instant case as quoted herein-above, it is
found that the allocation of 425 shares belonging to the deceased assessee was
made by way of family arrangement to settle existing and future disputes
regarding the shares in the two tea estates amongst the members of the family
of the deceased assessee and it has also been found by the Tribunal that there
was some arbitration and the shares were transferred at an agreed consideration
and such agreed consideration for 425 shares belonging to the deceased-assessee
was Rs. 3,00,050.
the findings of the Tribunal in the instant case as quoted herein-above, it is
found that the allocation of 425 shares belonging to the deceased assessee was
made by way of family arrangement to settle existing and future disputes
regarding the shares in the two tea estates amongst the members of the family
of the deceased assessee and it has also been found by the Tribunal that there
was some arbitration and the shares were transferred at an agreed consideration
and such agreed consideration for 425 shares belonging to the deceased-assessee
was Rs. 3,00,050.
Applying the observations of the Supreme Court in Ram Char an
Das’s case, we find that the allocation of 425 shares in the tea estate
concerned has been by way of family settlement and the transaction has been
made bona fide to put an end to the dispute amongst the members of the family
of the deceased-assessee and, therefore, this transaction is not a transfer. In
order to bring a case within the scope of Section 4(1)(a) of the Gift-tax Act,
1958, first there must be a transfer for consideration and such consideration
must be found to have been inadequate consideration. That being the case, in
our opinion, the provisions of Section 4(1)(a) (Section 4(a) unamended) of the
Gift-tax Act are not attracted to the facts and circumstances of the present
case and there was no deemed gift taxable in the hands of the assessee.
Das’s case, we find that the allocation of 425 shares in the tea estate
concerned has been by way of family settlement and the transaction has been
made bona fide to put an end to the dispute amongst the members of the family
of the deceased-assessee and, therefore, this transaction is not a transfer. In
order to bring a case within the scope of Section 4(1)(a) of the Gift-tax Act,
1958, first there must be a transfer for consideration and such consideration
must be found to have been inadequate consideration. That being the case, in
our opinion, the provisions of Section 4(1)(a) (Section 4(a) unamended) of the
Gift-tax Act are not attracted to the facts and circumstances of the present
case and there was no deemed gift taxable in the hands of the assessee.
In
the result we answer the first question of law in the negative and in favour of
the assessee.
the result we answer the first question of law in the negative and in favour of
the assessee.
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BOMBAY HIGH COURT
B.A. MOHOTA TEXTILE
PVT. LTD V. COMMISSIONER OF INCOME TAX – INCOME TAX APPEAL NO.73 OF 2002
PVT. LTD V. COMMISSIONER OF INCOME TAX – INCOME TAX APPEAL NO.73 OF 2002
Summarised Judgement
Question of Law:
a)
Whether in the facts and circumstances of the case and in law the Tribunal was
right in holding that the transaction of transfer of shares by the assessee
company in pursuance of family arrangement amounted to transfer and was
exigible to capital gains tax?
Whether in the facts and circumstances of the case and in law the Tribunal was
right in holding that the transaction of transfer of shares by the assessee
company in pursuance of family arrangement amounted to transfer and was
exigible to capital gains tax?
b)
Whether in the facts and circumstances of the case and in law the Tribunal was
right in not accepting the fact that the transfer of shares by the assessee
company being only incidental and in consequence of allotment and control of
management of companies in pursuance of family arrangement, took the
transaction out of purview of Section 2 (47) of I.T. Act, 1961 ?
Whether in the facts and circumstances of the case and in law the Tribunal was
right in not accepting the fact that the transfer of shares by the assessee
company being only incidental and in consequence of allotment and control of
management of companies in pursuance of family arrangement, took the
transaction out of purview of Section 2 (47) of I.T. Act, 1961 ?
c)
Whether in the facts and circumstances of the case and in law merely because
the assessee/company has a corporate veil, will it make the transfer of shares
by it assessable to capital gains tax even though such transaction is in
pursuance of family arrangement ?
Whether in the facts and circumstances of the case and in law merely because
the assessee/company has a corporate veil, will it make the transfer of shares
by it assessable to capital gains tax even though such transaction is in
pursuance of family arrangement ?
In
the case of B.A. Mohota Textile Traders Pvt. Ltd. v. Commissioner of Income Tax
Income Tax Appeal No. 73 of 2002 (Bombay), pursuant to a family settlement (by
way of an arbitration), the appellant/assessee transferred the shares held by
him in a company in favour of his family members collectively in the year 1995.
the case of B.A. Mohota Textile Traders Pvt. Ltd. v. Commissioner of Income Tax
Income Tax Appeal No. 73 of 2002 (Bombay), pursuant to a family settlement (by
way of an arbitration), the appellant/assessee transferred the shares held by
him in a company in favour of his family members collectively in the year 1995.
During
the assessment proceedings in the year 1995-1996, the appellant filed return of
income of Rs. 58 lakhs contending that the same was done in pursuance of family
arrangement and was not exigible for any capital gain tax.
the assessment proceedings in the year 1995-1996, the appellant filed return of
income of Rs. 58 lakhs contending that the same was done in pursuance of family
arrangement and was not exigible for any capital gain tax.
However,
the Assessing Officer refuted the contentions of the assessee and held that the
same was liable to capital gain tax as the Company being a separate legal
entity was distinct from its shareholder and was not a part of family
settlement/ arrangement.
the Assessing Officer refuted the contentions of the assessee and held that the
same was liable to capital gain tax as the Company being a separate legal
entity was distinct from its shareholder and was not a part of family
settlement/ arrangement.
Court Decision:
Further,
lifting of corporate veil at the instance of the assessee would mean that it is
denying it’s corporate existence. This, after taking advantage of the separate
existence of a Company under the Act. Therefore, after having incorporated the
Limited Company and given it separate existence from it’s share holders, it is
not open to the Company to urge “Please ignore my separate existence and look
at the persons behind me.“ If that be so, the Appellant/Company must opt for
voluntarily winding up and then the shares being allotted to the individual
members on liquidation would be governed by the family arrangement/settlement.
lifting of corporate veil at the instance of the assessee would mean that it is
denying it’s corporate existence. This, after taking advantage of the separate
existence of a Company under the Act. Therefore, after having incorporated the
Limited Company and given it separate existence from it’s share holders, it is
not open to the Company to urge “Please ignore my separate existence and look
at the persons behind me.“ If that be so, the Appellant/Company must opt for
voluntarily winding up and then the shares being allotted to the individual
members on liquidation would be governed by the family arrangement/settlement.
In
the above view, the Tribunal was correct in holding that the transaction of
transfer of shares by the independent corporate entity was assessable to
capital gain tax. Therefore, the substantial questions of law which arise for
our consideration are all decided in favour of the respondent/revenue and
against the appellant/assessee. Accordingly, the appeal is dismissed.
the above view, the Tribunal was correct in holding that the transaction of
transfer of shares by the independent corporate entity was assessable to
capital gain tax. Therefore, the substantial questions of law which arise for
our consideration are all decided in favour of the respondent/revenue and
against the appellant/assessee. Accordingly, the appeal is dismissed.
The
decision of Bombay High Court cannot be held to be final position of law and
the matter is still pending before the Supreme Court.
decision of Bombay High Court cannot be held to be final position of law and
the matter is still pending before the Supreme Court.
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PUNJAB AND HARYANA HIGH
COURT
COURT
CIT V. ASHWANI CHOPRA
(2013) 352 ITR 620 (P&H).
(2013) 352 ITR 620 (P&H).
Summarised Judgement
In
that case the assessing officer found that the assessee (Group A) had received
compensation from Group B at the time of partition of properties of group of
M/s. Hind Samachar Ltd. and that the said amount has been kept in fixed
deposits as per the orders passed by the High Court as well as by the Supreme
Court.
that case the assessing officer found that the assessee (Group A) had received
compensation from Group B at the time of partition of properties of group of
M/s. Hind Samachar Ltd. and that the said amount has been kept in fixed
deposits as per the orders passed by the High Court as well as by the Supreme
Court.
The
assessing officer considered the family settlement and found that 8.56% of Rs.
24 crores of compensation is the share of the assessee and accordingly, levied
long term capital gain on the said amount.
assessing officer considered the family settlement and found that 8.56% of Rs.
24 crores of compensation is the share of the assessee and accordingly, levied
long term capital gain on the said amount.
The
CIT (A) upheld the action of the assessing officer which was subsequently
affirmed by the Tribunal.
CIT (A) upheld the action of the assessing officer which was subsequently
affirmed by the Tribunal.
Court Decision:
In
view of the aforesaid principles of law, we find that the payment of Rs.24
crores to Group A is to equalize the inequalities in partition of the assets of
M/s Hind Samachar Ltd. The amount so paid is immovable property. If such amount
is to be treated as income liable to tax, the inequalities would set in as the
share of the recipient will diminish to the extent of tax.
view of the aforesaid principles of law, we find that the payment of Rs.24
crores to Group A is to equalize the inequalities in partition of the assets of
M/s Hind Samachar Ltd. The amount so paid is immovable property. If such amount
is to be treated as income liable to tax, the inequalities would set in as the
share of the recipient will diminish to the extent of tax.
Since
the amount paid during the course of partition is to settle the inequalities in
partition, therefore deemed to be immovable property. Such amount is not an
income liable to tax. Thus, the amount of owelty i.e. compensation deposited by
Group B is to equalize the partition represents immovable property and will not
attract capital gain.
the amount paid during the course of partition is to settle the inequalities in
partition, therefore deemed to be immovable property. Such amount is not an
income liable to tax. Thus, the amount of owelty i.e. compensation deposited by
Group B is to equalize the partition represents immovable property and will not
attract capital gain.
The
argument that the assessee is liable to tax being interest on cash, suffice it
to say, that such question or fact does not arise from the orders of the
Tribunal. Consequently, the question of law is answered against the Revenue and
in favour of the assessee leading to the dismissal of appeal though on
different grounds.
argument that the assessee is liable to tax being interest on cash, suffice it
to say, that such question or fact does not arise from the orders of the
Tribunal. Consequently, the question of law is answered against the Revenue and
in favour of the assessee leading to the dismissal of appeal though on
different grounds.
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MADRAS HIGH COURT
COMMISSIONER OF INCOME
TAX V. KAY ARRT ENTERPRISES 299 ITR 348
TAX V. KAY ARRT ENTERPRISES 299 ITR 348
Summarised Judgement
Question of Law:
(i)
Whether on the facts and in the circumstances of the case, the Appellate
Tribunal was right in law in holding that the family arrangement as arrived by
the assessee to rearrange the share holdings to avoid possible litigation
themselves will not attract Capital Gains Tax under the Income-tax Act, 1961 ?
Whether on the facts and in the circumstances of the case, the Appellate
Tribunal was right in law in holding that the family arrangement as arrived by
the assessee to rearrange the share holdings to avoid possible litigation
themselves will not attract Capital Gains Tax under the Income-tax Act, 1961 ?
(ii)
Whether on the facts and in the circumstances of the case, the Appellate Tribunal
was right in law in holding that, the re-arrangement of share holdings in the
company to avoid possible litigation among family members to be a prudent
arrangement, the same cannot be held as a transfer of shares which is exigible
to Capital Gains Tax ?”
Whether on the facts and in the circumstances of the case, the Appellate Tribunal
was right in law in holding that, the re-arrangement of share holdings in the
company to avoid possible litigation among family members to be a prudent
arrangement, the same cannot be held as a transfer of shares which is exigible
to Capital Gains Tax ?”
It
held that transfer of shares by way of family arrangement would not amount
transfer and therefore would not attract capital gain tax.
held that transfer of shares by way of family arrangement would not amount
transfer and therefore would not attract capital gain tax.
Court Decision:
In
the instant case also, the Tribunal found that the re-arrangement of
shareholdings in the company to avoid possible litigation among family members
is a prudent arrangement which is necessary to control the company effectively
by the major share holders to produce better prospects and active supervision
or otherwise there would be continuous friction and there would be no peace
among the members of the family. Such a family arrangement intended either by
compromising doubtful or disputed rights or by preserving the family property
or the peace and security of the family by avoiding litigation or by saving its
honour cannot be concluded as any other dealings between strangers, as such a
family arrangement is for the interest of the family and for the harmonious way
of living.
the instant case also, the Tribunal found that the re-arrangement of
shareholdings in the company to avoid possible litigation among family members
is a prudent arrangement which is necessary to control the company effectively
by the major share holders to produce better prospects and active supervision
or otherwise there would be continuous friction and there would be no peace
among the members of the family. Such a family arrangement intended either by
compromising doubtful or disputed rights or by preserving the family property
or the peace and security of the family by avoiding litigation or by saving its
honour cannot be concluded as any other dealings between strangers, as such a
family arrangement is for the interest of the family and for the harmonious way
of living.
Therefore,
such a re-alignment of interest by way of effecting a family arrangement among
the family members would not amount to transfer.
such a re-alignment of interest by way of effecting a family arrangement among
the family members would not amount to transfer.
Hence,
the Tribunal has righly found that the impugned transfer of shares by way of
family arrangement would not attract Capital Gains Tax, as the same is a
prudent arrangement to avoid possible litigation among the family members and
is made voluntarily and not induced by any fraud or coercion and therefore,
cannot be doubted.
the Tribunal has righly found that the impugned transfer of shares by way of
family arrangement would not attract Capital Gains Tax, as the same is a
prudent arrangement to avoid possible litigation among the family members and
is made voluntarily and not induced by any fraud or coercion and therefore,
cannot be doubted.
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.
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.
Accordingly,
finding no substantial question of law arises for our consideration in these
appeals, the same are dismissed. Consequently, connected miscellaneous
petitions are also dismissed.
finding no substantial question of law arises for our consideration in these
appeals, the same are dismissed. Consequently, connected miscellaneous
petitions are also dismissed.
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KARNATAKA HIGH COURT
CIT VS. M/S. MILLENNIA
DEVELOPERS (P) LTD – 19-11-2018
DEVELOPERS (P) LTD – 19-11-2018
Summarised Judgement
Facts of the Case:
The
assessee is a private limited company carrying on the business as a
developer/builder. It commenced a project known as woodsvage at Nandidurga
Road, Bangalore. It constructed 25 flats.
assessee is a private limited company carrying on the business as a
developer/builder. It commenced a project known as woodsvage at Nandidurga
Road, Bangalore. It constructed 25 flats.
In
respect of the Assessment Year 2003-2004, the assessee filed the return of income
claiming a sum of Rs.6,03,08,000/- as bad debts, which are written off.
respect of the Assessment Year 2003-2004, the assessee filed the return of income
claiming a sum of Rs.6,03,08,000/- as bad debts, which are written off.
The
Assessing Officer disallowed the claim for bad debts. Aggrieved by the same, an
appeal was filed before the CIT (Appeals)-VI, Bangalore, which was allowed. The
claim of the assessee was allowed and the addition was deleted.
Assessing Officer disallowed the claim for bad debts. Aggrieved by the same, an
appeal was filed before the CIT (Appeals)-VI, Bangalore, which was allowed. The
claim of the assessee was allowed and the addition was deleted.
The
plea of the assessee is that it is a private limited company consisting of two
Directors. That even though there was a partition effected between the brothers
of one of the Directors, the other brothers were demanding a share in the
properties.
plea of the assessee is that it is a private limited company consisting of two
Directors. That even though there was a partition effected between the brothers
of one of the Directors, the other brothers were demanding a share in the
properties.
One
of such properties, standing in the name of the Director, was located at No.78,
Nandidurga Road, Bangalore, which was purchased by the assessee-Company
consisting of the Director shareholders. The entire property was divided into
three blocks.
of such properties, standing in the name of the Director, was located at No.78,
Nandidurga Road, Bangalore, which was purchased by the assessee-Company
consisting of the Director shareholders. The entire property was divided into
three blocks.
Thereafter,
an order was passed under Section 171 of the Income Tax Act, 1961 (Act for
short). A copy of the family arrangement dated 05.08.2002 and partition deed
dated 18.03.2003 were also filed along with the return of income.
an order was passed under Section 171 of the Income Tax Act, 1961 (Act for
short). A copy of the family arrangement dated 05.08.2002 and partition deed
dated 18.03.2003 were also filed along with the return of income.
The
Assessing Officer came to the conclusion that it cannot be said that the
balance of sale consideration is not recoverable. That the only ground that
there could be future disputes/quarrels/ differences between the members of HUF
cannot constitute a ground to hold that the same are bad debts. That the future
disputes are only apprehended and it is not a definite event. That even before
the debt became due, it came to be written off for the very same year in which
the debt arose. Therefore, he came to be conclusion that all these are created
documents and hence, disbelieved the case of the assessee.
Assessing Officer came to the conclusion that it cannot be said that the
balance of sale consideration is not recoverable. That the only ground that
there could be future disputes/quarrels/ differences between the members of HUF
cannot constitute a ground to hold that the same are bad debts. That the future
disputes are only apprehended and it is not a definite event. That even before
the debt became due, it came to be written off for the very same year in which
the debt arose. Therefore, he came to be conclusion that all these are created
documents and hence, disbelieved the case of the assessee.
The
CIT (Appeals) considered the documents produced by the assessee. In terms of
the partition effected, it held that the assessee came to know that the debts
could not be recovered.
CIT (Appeals) considered the documents produced by the assessee. In terms of
the partition effected, it held that the assessee came to know that the debts
could not be recovered.
That
the family arrangement has been made only to avoid future disputes between the
family members since some of them were Directors of the assessee-Company.
the family arrangement has been made only to avoid future disputes between the
family members since some of them were Directors of the assessee-Company.
It
was of the view that a debt may become bad and irrecoverable either by an order
of the court of law or by the act of contracting parties. That in the normal
circumstance, a creditor tries to get back the loan amount, but when he fails
to get, he writes it off.
was of the view that a debt may become bad and irrecoverable either by an order
of the court of law or by the act of contracting parties. That in the normal
circumstance, a creditor tries to get back the loan amount, but when he fails
to get, he writes it off.
However,
in exceptional circumstances, the creditor may himself write off the bad debt.
That there is no provision under the Act which postulates any situation where
such an act cannot be performed by the assessee.
in exceptional circumstances, the creditor may himself write off the bad debt.
That there is no provision under the Act which postulates any situation where
such an act cannot be performed by the assessee.
Therefore,
the appeal was allowed and the order of the Assessing Officer being reversed,
relief was granted to the assessee.
the appeal was allowed and the order of the Assessing Officer being reversed,
relief was granted to the assessee.
Therefore,
in the facts and circumstances of the case, it can be clearly seen that the
reason for entering into a family arrangement was with the hope to avoid all
future disputes and litigations inter se between the members of the HUF. It is
for this reason, the family arrangement was entered into. Therefore, it cannot
be said that it is a colorable device and, therefore, the allowance should not
be granted to the assessee.
in the facts and circumstances of the case, it can be clearly seen that the
reason for entering into a family arrangement was with the hope to avoid all
future disputes and litigations inter se between the members of the HUF. It is
for this reason, the family arrangement was entered into. Therefore, it cannot
be said that it is a colorable device and, therefore, the allowance should not
be granted to the assessee.
With
regard to colorable device adopted by the assessee, we find strength from the
judgment of the Supreme Court in the case of commissioner of income tax,
gujarat vs. A.raman and co., reported in (1968) 67 ITR 11 wherein, it was held
as follows: But the law does not oblige a trader to make the maximum profit
that he can out of his trading transactions. Income which accrues to a trader
is taxable in his hands: income which he could have, but has not earned, is not
made taxable as income accrued to him. By adopting a device, if it is made to
appear that income which belonged to the assessee had been earned by some other
person, that income may be brought to tax in the hands of the assessee, and if
the income has escaped tax in a previous assessment a case for commencing a
proceeding for reassessment under section 147(b) may be made out. Avoidance of
tax liability by so arranging commercial affairs that charge of tax is
distributed is not prohibited.
regard to colorable device adopted by the assessee, we find strength from the
judgment of the Supreme Court in the case of commissioner of income tax,
gujarat vs. A.raman and co., reported in (1968) 67 ITR 11 wherein, it was held
as follows: But the law does not oblige a trader to make the maximum profit
that he can out of his trading transactions. Income which accrues to a trader
is taxable in his hands: income which he could have, but has not earned, is not
made taxable as income accrued to him. By adopting a device, if it is made to
appear that income which belonged to the assessee had been earned by some other
person, that income may be brought to tax in the hands of the assessee, and if
the income has escaped tax in a previous assessment a case for commencing a
proceeding for reassessment under section 147(b) may be made out. Avoidance of
tax liability by so arranging commercial affairs that charge of tax is
distributed is not prohibited.
A
taxpayer may resort to a device to divert the income before it accrues or
arises to him. Effectiveness of the device depends not upon considerations or
morality, but on the operation of the Income-tax Act. Legislative injunction in
taxing statues may not, except on peril of penalty, be violated, but it may
lawfully be circumvented.
taxpayer may resort to a device to divert the income before it accrues or
arises to him. Effectiveness of the device depends not upon considerations or
morality, but on the operation of the Income-tax Act. Legislative injunction in
taxing statues may not, except on peril of penalty, be violated, but it may
lawfully be circumvented.
Court Decision:
In
the circumstances, we do not find any ground to interfere with the orders of
the CIT (Appeals) as well as the Tribunal. Therefore, the first substantial
question of law in ITA No.734 of 2009 is answered by holding that both the
authorities were right in holding that the amount claimed as bad debts to an
extent of Rs.6,03,08,000 should be treated as bad debts.
the circumstances, we do not find any ground to interfere with the orders of
the CIT (Appeals) as well as the Tribunal. Therefore, the first substantial
question of law in ITA No.734 of 2009 is answered by holding that both the
authorities were right in holding that the amount claimed as bad debts to an
extent of Rs.6,03,08,000 should be treated as bad debts.
Insofar
as the Circular is concerned, we are of the view that the contentions of the
Revenue cannot be accepted. The Circular clearly suggests that all pending
appeals should be withdrawn. Merely relying on the first sentence of the
Circular, that it pertains only with regard to filing of appeals on the issue
of allowability of bad debts that are written off as irrecoverable cannot be
accepted. The matter pertains to grant of disallowance with regard to bad
debts. Hence, even insofar as the Circular is concerned, the appeal would have
to be dismissed.
as the Circular is concerned, we are of the view that the contentions of the
Revenue cannot be accepted. The Circular clearly suggests that all pending
appeals should be withdrawn. Merely relying on the first sentence of the
Circular, that it pertains only with regard to filing of appeals on the issue
of allowability of bad debts that are written off as irrecoverable cannot be
accepted. The matter pertains to grant of disallowance with regard to bad
debts. Hence, even insofar as the Circular is concerned, the appeal would have
to be dismissed.
Both
the substantial questions of law raised in ITA No.734 of 2009 are, therefore,
answered against the Revenue and in favour of the assessee.
the substantial questions of law raised in ITA No.734 of 2009 are, therefore,
answered against the Revenue and in favour of the assessee.
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MADRAS HIGH COURT
CIT V. KAY ARRT
ENTERPRISES 299 ITR 348:
ENTERPRISES 299 ITR 348:
Summarised Judgement
It
held that transfer of shares by way of family arrangement would not amount
transfer and therefore would not attract capital gain tax.
held that transfer of shares by way of family arrangement would not amount
transfer and therefore would not attract capital gain tax.
The
court held: “the Tribunal had rightly found that the transfer of shares by
way of family arrangement would not attract capital gains tax, as the same was
a prudent arrangement to avoid possible litigation among the family members and
was made voluntarily and not induced by any fraud or coercion and therefore,
could not be doubted. The Tribunal was justified in arriving at the conclusion
that the family arrangement among the assessee did not amount to any transfer
and hence was not exigible to capital gains tax.”
court held: “the Tribunal had rightly found that the transfer of shares by
way of family arrangement would not attract capital gains tax, as the same was
a prudent arrangement to avoid possible litigation among the family members and
was made voluntarily and not induced by any fraud or coercion and therefore,
could not be doubted. The Tribunal was justified in arriving at the conclusion
that the family arrangement among the assessee did not amount to any transfer
and hence was not exigible to capital gains tax.”
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SUPREME COURT
MANGAMMAL THULASI VS.
T.B. RAJU – 19-04-2018
T.B. RAJU – 19-04-2018
Summarised Judgement
Hindu
Succession Act, 1956 (HUF Law): U/s 29-A of the TN Amendment, only daughters of
a coparcener who were not married at the time of commencement of the amendment
of 1989 are is entitled to claim partition in the Hindu Joint Family Property.
Married daughters are not coparceners and are not entitled to institute suit
for partition and separate possession.
Succession Act, 1956 (HUF Law): U/s 29-A of the TN Amendment, only daughters of
a coparcener who were not married at the time of commencement of the amendment
of 1989 are is entitled to claim partition in the Hindu Joint Family Property.
Married daughters are not coparceners and are not entitled to institute suit
for partition and separate possession.
Any
property inherited upto four generations of male lineage from the father,
father’s father or father’s father’s father i.e. father, grand father etc., is
termed as ancestral property. In other words, property inherited from mother,
grandmother, uncle and even brother is not ancestral property. In ancestral
property, the right of property accrues to the coparcener on birth. The concept
of ancestral property is in existence since time immemorial.
property inherited upto four generations of male lineage from the father,
father’s father or father’s father’s father i.e. father, grand father etc., is
termed as ancestral property. In other words, property inherited from mother,
grandmother, uncle and even brother is not ancestral property. In ancestral
property, the right of property accrues to the coparcener on birth. The concept
of ancestral property is in existence since time immemorial.
In
the State of Tamil Nadu, in order to give equal position to the females in
ancestral property, in the year 1989, the State Government enacted the Hindu
Succession (Tamil Nadu Amendment) Act, 1989 effective from March 25, 1989 which
brought an amendment in the Hindu Succession Act, 1956 (for brevity “the Act”)
by adding Section 29-A vide Chapter II-A under the heading of Succession by
Survivorship.
the State of Tamil Nadu, in order to give equal position to the females in
ancestral property, in the year 1989, the State Government enacted the Hindu
Succession (Tamil Nadu Amendment) Act, 1989 effective from March 25, 1989 which
brought an amendment in the Hindu Succession Act, 1956 (for brevity “the Act”)
by adding Section 29-A vide Chapter II-A under the heading of Succession by
Survivorship.
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SUPREME COURT
DANAMMA SUMAN SURPUR VS
AMAR – 01-02-2018
AMAR – 01-02-2018
Summarised Judgement
The
very factum of birth in a coparcenary creates the coparcenary. Therefore the
sons and daughters of a coparcener become coparceners by virtue of birth. The
amendment to s. 6 of the Hindu Succession Act, 1956 in 2005 statutorily
recognizes the rights of coparceners of daughters as well since birth.
Consequently, married daughters can be said to be the coparceners in the HUF
and are entitled to the ancestral property even if they were born prior to the
amendment to the Hindu Succession Act.
very factum of birth in a coparcenary creates the coparcenary. Therefore the
sons and daughters of a coparcener become coparceners by virtue of birth. The
amendment to s. 6 of the Hindu Succession Act, 1956 in 2005 statutorily
recognizes the rights of coparceners of daughters as well since birth.
Consequently, married daughters can be said to be the coparceners in the HUF
and are entitled to the ancestral property even if they were born prior to the
amendment to the Hindu Succession Act.
Section
6, as amended, stipulates that on and from the commencement of the amended Act,
2005, the daughter of a coparcener shall by birth become a coparcener in her
own right in the same manner as the son.
6, as amended, stipulates that on and from the commencement of the amended Act,
2005, the daughter of a coparcener shall by birth become a coparcener in her
own right in the same manner as the son.
It
is apparent that the status conferred upon sons under the old section and the
old Hindu Law was to treat them as coparceners since birth. The amended
provision now statutorily recognizes the rights of coparceners of daughters as
well since birth.
is apparent that the status conferred upon sons under the old section and the
old Hindu Law was to treat them as coparceners since birth. The amended
provision now statutorily recognizes the rights of coparceners of daughters as
well since birth.
The
section uses the words in the same manner as the son. It should therefore be
apparent that both the sons and the daughters of a coparcener have been
conferred the right of becoming coparceners by birth. It is the very factum of
birth in a coparcenary that creates the coparcenary, therefore the sons and daughters
of a coparcener become coparceners by virtue of birth.
section uses the words in the same manner as the son. It should therefore be
apparent that both the sons and the daughters of a coparcener have been
conferred the right of becoming coparceners by birth. It is the very factum of
birth in a coparcenary that creates the coparcenary, therefore the sons and daughters
of a coparcener become coparceners by virtue of birth.
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ITAT AHMEDABAD
GYANCHAND M. BARDIA V.
ITO [2018]
ITO [2018]
Summarised Judgement
The
assessee claimed that gift of certain amount received from his Hindu undivided
family (HUF) was exempt from tax under section 56(2)(vii). However, the
Assessing Officer held that the term ‘relative’ in Explanation (e) to Section
56(2)(vii) does not include HUF as donor and, therefore, added the impugned
amount to assessee’s income under Section 68.
assessee claimed that gift of certain amount received from his Hindu undivided
family (HUF) was exempt from tax under section 56(2)(vii). However, the
Assessing Officer held that the term ‘relative’ in Explanation (e) to Section
56(2)(vii) does not include HUF as donor and, therefore, added the impugned
amount to assessee’s income under Section 68.
On
further appeal, the Tribunal held in favour of revenue that as per Explanation
to Section 56(2)(vii) members of an HUF are its relatives. Therefore, if HUF
receives any sum from any of its member, such sum shall not be chargeable to
tax. However, in vice-versa cases when member receives any sum from the HUF,
same would be chargeable to tax as the term ‘relatives’ defined under said
Explanation does not include HUF as a relative of such individual. The
legislative intent is very clear that an HUF is not to be taken as a donor in
case of an individual recipient. Thus, the assessee’s plea of having received a
valid gift from his HUF was rightly declined and impugned addition was to be
upheld.
further appeal, the Tribunal held in favour of revenue that as per Explanation
to Section 56(2)(vii) members of an HUF are its relatives. Therefore, if HUF
receives any sum from any of its member, such sum shall not be chargeable to
tax. However, in vice-versa cases when member receives any sum from the HUF,
same would be chargeable to tax as the term ‘relatives’ defined under said
Explanation does not include HUF as a relative of such individual. The
legislative intent is very clear that an HUF is not to be taken as a donor in
case of an individual recipient. Thus, the assessee’s plea of having received a
valid gift from his HUF was rightly declined and impugned addition was to be
upheld.
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HIGH COURT HYDERABAD
PENDURTHI CHANDRASEKHAR
V. DCIT [2018]
V. DCIT [2018]
Summarised Judgement
In
the Instant case, additions were made under section 68 on the grounds that
assessee had failed to show why, without any occasion, Rs. 73 Lakhs had been
gifted by the maternal aunt without any consideration. The appellate
authorities also upheld the action of the Assessing Officer. On further apeal,
the High Court held in favour of assessee that an occasion is not necessary to
accept a gift from a relative. Section 56 does not envisage any occasion for a
relative to give a gift, it was almost impermissible for any authority and even for the Court to import the concept of
occasion and develop a theory based on such concept.
the Instant case, additions were made under section 68 on the grounds that
assessee had failed to show why, without any occasion, Rs. 73 Lakhs had been
gifted by the maternal aunt without any consideration. The appellate
authorities also upheld the action of the Assessing Officer. On further apeal,
the High Court held in favour of assessee that an occasion is not necessary to
accept a gift from a relative. Section 56 does not envisage any occasion for a
relative to give a gift, it was almost impermissible for any authority and even for the Court to import the concept of
occasion and develop a theory based on such concept.
The
Court further held that when donor had given a confirmation letter that she had
transferred Rs. 73 lakhs to her nephew as a gift out of natural love and
affection, the AO should not have further doubted her. The donor in instant
case was assessee’s own maternal aunt and was covered within the definition of
‘relative’ defined under explanation to section 56(2)(v). Therefore,
unexplained addition under section 68 with respect to gift of Rs. 73 lakh
received by assessee from his maternal aunt was to be deleted.
Court further held that when donor had given a confirmation letter that she had
transferred Rs. 73 lakhs to her nephew as a gift out of natural love and
affection, the AO should not have further doubted her. The donor in instant
case was assessee’s own maternal aunt and was covered within the definition of
‘relative’ defined under explanation to section 56(2)(v). Therefore,
unexplained addition under section 68 with respect to gift of Rs. 73 lakh
received by assessee from his maternal aunt was to be deleted.
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