Soni Sonu Mirchandani v. ACIT [ITA No.
1286/Del/2020, dt. 28-9-2020] : 2020 TaxPub(DT) 3874 (Del-Trib)
Alleged Owelty in a Family Settlement vs. Capital gains
Facts:
Assessee was in possession of 59,998 shares of a listed
entity called Guviso Holdings Ltd. and 4,978 shares of Iwai Electronics Ltd.
which was received as a gift from her father and sons. The said shares were
sold by the assessee to one Gulu Mirchandani for a consideration of Rs. 93.88
crores and thus capital gains was suo moto returned in the income as
capital gains for Rs. 92.33. Arising out of the share sale deal it was also
agreed that certain compounding fees paid for Excise duty liabilities of the
entities would be settled by the purchaser which would exonerate the assessee
from criminal proceedings. This compounding fee Excise duty payment was also
considered as part of the sale consideration of the shares by the assessing
officer. Assessee while offering the capital gains claimed indexation from the
date of original holding of the shares by her father and sons, the assessing
officer did not agree with this. On higher appeal the Commissioner (Appeals)
allowed the indexation benefit but declined to admit that the Compounding fee
Excise duty payment was not capital gains. Aggrieved the assessee went to ITAT
wherein they raised a fresh issue before the ITAT that the receipt of Rs. 93.88
crores was not taxable capital gains in the first place and it was owelty which
had risen in the course of a family settlement. The case was remanded to the assessing
officer for fresh consideration where in the assessing officer once again did
not agree with the claim that the capital gains had risen out of family
settlement amount as owelty. This was upheld by the Commissioner (Appeals). On
second round of appeal the assessee went to the ITAT.
Held against the assessee that the claim was not owelty
received in a family settlement. It was taxable capital gains for alienation of
the shares.
In this case there was no manifestation of any antecedent
title on the property by the family members involved in the settlement besides
no manifestation of any feud etc. or claim on any title holding as well which
also worked against the assessee.
Assessee relied on the following cases where in it was held
that amount received on a family settlement is not transfer subject to capital
gains --
Ram Charan Cas v. Girija
Nandini Devi & Ors. AIR 1966 SC 323.
Dewas Cine Corporation (1968)
68 ITR 240 (SC) : 1968 TaxPub(DT) 304 (SC).
CIT v. Bankey Lal Vaidya
(1971) 79 ITR 594 (SC) : 1971 TaxPub(DT) 316 (SC)
CIT v. Kay ARR Enterprises
(2008) 299 ITR 348 (Mad) : 2008 TaxPub(DT) 795 (Mad-HC) SLP dismissed by Hon'ble Supreme Court.
Ravinder Kaur Grewal &
Ors. v. Manjit Kaur & Ors. [CA. No. 7764 of 2014, dated 31-7-2020]
CIT v. Sachin P. Ambulkar 42 taxmann dot com 22 (Bom)
CIT v. R. Nagaraja Rao (2013)
352 ITR 565 (Karnataka) : 2012 TaxPub(DT) 2079 (Karn-HC)
CGT v. K.N. Madhusudan [GTA
Nos.1 & 2/2008 (Karnataka HC)]
CIT v. Ashwani Chopra (2013)
352 ITR 620 (P&H-HC) : 2013 TaxPub(DT) 786 (P&H-HC)
Shri Govind Kumar Khemka,
Delhi v. ACIT, Circle-47(1), New Delhi, dated 16-9-2019 in ITA No.
2963/Del./2019 : 2019 TaxPub(DT) 6433 (Del-Trib)
The compounding fee for Excise duty liability was not
consideration which arose on relinquishment of the shares to the assessee and
she did not receive the same was impressed upon by the assessee before the ITAT
who refused to concur.
Editorial Note:
(A) Contents of a family settlement are explained in
this verdict as quoted from Kale v. Dy. Director of Consolidation AIR 1976 SC
807
"In other words to put the
binding effect and the essentials of a family settlement in a concretized form,
the matter may be reduced into the form of the following propositions :--
(1) The family settlement must
be a bona fide one so as to resolve family disputes and rival claims by
a fair and equitable division or allotment of properties between the various
members of the family;
(2) The said settlement must be
voluntary and should not be induced by fraud, coercion or undue influence;
(3) The family arrangement may
be even oral in which case no registration is necessary;
(4) It is well-settled that
registration would be necessary only if the terms of the family arrangement are
reduced into writing. Here also, a distinction should be made between a
document containing the terms and recitals of a family arrangement made under
the document and a mere memorandum prepared after the family arrangement had
already been made either for the purpose of the record or for information of
the court for making necessary mutation. In such a case the memorandum itself
does not create or extinguish any rights in immovable properties and therefore
does not fall within the mischief of section 17(2) of the Registration Act and
is, therefore, not compulsorily registerable.
(5) The members who may be
parties to the family arrangement must have some antecedent title, claim or
interest even a possible claim in the property. It which is acknowledged by the
parties to the settlement. Even if one of the parties to the settlement has no
title but under the arrangement the other party relinquishes all its claims or
titles in favour of such a person and acknowledges him to be the sole 9 owner,
then the antecedent title must be assumed and the family arrangement will be
upheld and the Courts will find no difficulty in giving assent to the same:
(6) Even if bona fide
disputes, present or possible, which may not involve legal claims are settled
by a bona fide family arrangement which is fair and equitable the family
arrangement is final and binding on the parties to the settlement."
(B) What is an Owelty is described in this decision
"10.5. We may note that
Owelty is an equalisation charges. It is the amount that one co-owner must pay
to another after a Lawsuit to Partition real estate, so that each co-owner
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. However, Family Settlement should always be undertaken with a bona fide
intention of Resolution of Disputes in a family and that it results in tax
planning should be an extra benefit and not a primary concern.