Assessee received certain sum from his brother’s wife, ‘N’ .Assessee claimed said sum to be exempt under section 56(2)(v) . In her statement, ‘N’ stated that she gave impugned amount to assessee because of family settlement deed arrived at among family members .
Assessing Officer added impugned amount to income of assessee
Since assessee received sum out of family settlement, same was not taxable as by way of settlement only respective shares were determined
IN THE ITAT MUMBAI BENCH ‘C’
Deputy Commissioner of Income-tax
Paras D. Gundecha
AND N.K. BILLAIYA, ACCOUNTANT MEMBER
IT APPEAL NO. 8320 (MUM.) OF 2010
[ASSESSMENT YEAR 2007-08]
JANUARY 28, 2015
Smt. Parminder for the Appellant. Vimal Punmiya for the Respondent.
Joginder Singh, Judicial Member – The Revenue is aggrieved by the impugned order dt. 29th Sept., 2010 of the learned first appellate authority, Mumbai, on the ground that the learned CIT(A) erred in holding that the amount of Rs. 33 crore was received by the assessee on account of family settlement, hence, not liable to tax, ignoring the fact that the family settlement/agreement dt. 15th Dec, 2006 did not mention the impugned amount to be given to the assessee by Smt. Neeta Ashok Gundecha.
2. At the time of hearing, Smt. Parminder, learned CIT-Departmental Representative, advanced her arguments which are identical to the ground raised by supporting the addition made by the learned AO by further submitting that even the source of impugned receipt was not explained by the assessee and this is an income to the assessee which is liable to tax.
2.1 On the other hand, Shri Vimal Punamiya, learned counsel for the assessee, defended the conclusion arrived at in the impugned order by submitting that it is a family settlement as there was a division of property among the family members and the amount was received by way of family settlement as there was different valuation of different properties, thus, the impugned amount is not liable to tax as there was no income to the assessee.
2.2 We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee, an individual, is in the business of building/developing and also hotel business. The assessee was also Director of M/s Sea Princess Hotels and Properties (P) Ltd., declared total income of Rs. 86,994 in his return filed on 31st Oct., 2007. The case of the assessee was selected for scrutiny under CASS, consequently, notice under s. 143(2) of the IT Act, 1961 (hereinafter the Act) was issued and served upon the assessee. The assessee attended assessment proceedings and furnished the details. The assessee, during the year, received a sum of Rs. 33 crores from a close relative/family member namely, Ms. Neeta Ashok Gundecha (wife of the brother of the assessee) and claimed the same as exempt. The details of exempt income were filed in his return by the assessee. The assessee was askad to furnish bank statement, ledger extract and details of each income. The assessee vide letter dt. 21st Oct., 2009, submitted the ledger account along with copy of gift deeds. The AO asked the details of donor to which the assessee also filed the balance sheet/capital account of the donor (wife of younger brother of the assessee). From the record, it was found by the AO that there was total capital of Rs. 34,06,52,123 out of which a sum of Rs. 33 crores was given to the assessee. The AO examined the genuineness of the transactions and recorded the statement of Smt. Neeta Gundecha under s. 131 of the Act on 7th Dec, 2009. In her statement, she categorically stated that she gave the impugned amount to the assessee because of family settlement deed arrived at among the family members. The AO also noted that as on 31st March, 2006, she was partner in ten firms whereas on 31st March, 2007, she continued/remained partner in only one firm and at the same time, her investment in shares of M/s Sea Princess Hotels & Properties Ltd. increased to Rs. 15,89,651 from Rs. 3 lakh. On questioning by the AO, she explained that she retired from partnership of nine firms during the year and further along with her husband she retired from various partnership firms. She further tendered to settle the matter peacefully they retired from the firms and there was reshuffling of the company. The part of the statement has been reproduced in p. 3 onwards of the assessment order. Subsequently, vide letter dt. 14th Dec, 2009, the assessee furnished the details on behalf of Smt. Neeta Gundecha by mentioning the family arrangements which took place and the real estate business was taken over by the family of the assessee and the hotel business was by Shri Ashok Gundecha family (husband of donor). The AO was of the view that the assessee intentionally and deliberately understated the real consideration by adopting a colourable device, the gift deeds are not properly stamped. The AO issued a letter dt. 16th Dec, 2009 to which the assessee filed his reply vide letter dt. 22nd Dec, 2009 by reiterating that it was a family arrangement and the amount was received as a gift/family settlement, therefore, it is exempt under s. 56(2)(v) of the Act. The learned AO held that it was merely a colourable device and finally added the impugned amount to the income of the assessee.
2.3 On appeal, before the learned CIT(A), the facts were examined, finally it was concluded that the source of the impugned receipt has been duly explained and on the reasoning contained in the impugned order decided in favour of the assessee. The relevant portion from the concluding para is reproduced hereunder for ready reference :
“5. I have considered the facts of the issue and the submissions made by the Authorised Representative. There is no merit in the submission of the Authorised Representative that the impugned gift given by Mrs. Neeta Ashok Gundecha to the appellant was a genuine gift. A gift is given out of natural love and affection without any consideration. In the present case, the family settlement has taken place which could he to avert either existing or potential issues relating to distribution of property/assets. Obviously, in these circumstances, there could be no natural love and affection. Besides, it is noted that the date on which the impugned gift has been purportedly given and the date on which family settlement was made are the same. This means that this “gift deed” was made/signed simultaneously with the family settlement deed. Also, the AO has noted in para 6.2 of the order that the shares of M/s Sea Princess Hotels & Properties Ltd. were transferred in the family settlement at an understated price of Rs. 100 per share which was significantly lower than their book value and intrinsic value. The AO has also noted that it was to offset this understatement in value of shares that the appellant chose to take the money from his brother’s wife in the guise of a gift. Hence, the contention of the appellant that the impugned gift was a genuine gift cannot be accepted in these facts of the case. Hence, the ground relating to genuineness of the gift is dismissed.
5.1 It is further noted that the fact that the appellant received the impugned amount from Mrs. Neeta Ashok Gundecha is not in question since that fact also stands confirmed by the AO in the assessment order. Further, the identity and creditworthiness of Mrs. Neeta, from whom the money has flowed to the appellant is also not in question. Once it is held that the said payment represents part consideration for the shares of M/s Sea Princess Hotel which the AO admitted having been transferred at lower than their market value, the next question to be addressed is whether such receipt would be exigible to tax in the facts and circumstances of the case. It has already been noted above that the transfer of shares of the said hotel was a part of the wider terms of family settlement, which also included division/distribution of a large number of assets including the ownership of various firms and companies owning construction/hotel business. Looking at all the facts and circumstances of the case including the case laws quoted by the Authorised Representative, there is merit in the plea of the appellant that if the said receipt is treated as a part of the family arrangement, then the same would not be liable to tax in view of the ratio of the various pronouncements of the Courts including the apex Court as brought out by the Authorised Representative.
5.2 There is no merit in the submissions of the Authorised Representative that after the omission of the erstwhile s. 10(3) w.e.f. 1st April, 2003, casual income is not chargeable to tax. It is noted that such income is still chargeable to tax and only the exemption has been withdrawn by the omission of the said section. However, the source of the impugned receipt has been duly explained by the appellant. The source of this receipt also stands admitted during examination before the AO by the person who made the said payment. The principles discussed in the various judicial pronouncements quoted by the AO are not applicable to the facts of the case on hand. Also, the AO has not brought any material on record as to how the said amount qualifies to be held as “income” which was actually stated to be a gift but held to be a part of the family settlement receipt. Thus, even following the AO’s finding that the gift was a device to compensate the donee’s family for the stated understatement of the value of the shares of Sea Princes Hotel, still there is no tax avoidance since the understated price of shares in the family no tax avoidance since the understated price of shares in the family arrangement is not taxable as held in a number of Court judgments quoted by the Authorised Representative. Hence, it is held that no addition on account of casual income could have been made by the AO in the circumstances of the case. The ground questioning the taxation of receipt of the said amount as income of the appellant is therefore allowed.”
2.4 If the observation made in the assessment order, leading to addition of the impugned amount, material available on record, reply filed by the assessee, statement of donor recorded under s. 131 of the Act by AO, assertions made by the learned respective counsel, if kept in juxtaposition and analyzed, we find that there was a family agreement/arrangement for distributing the property of the bigger family/joint family. The AO suspected the family settlement by treating it a colourable device. Even for argument sake, if it is presumed that there was understatement of value of the property, as has been alleged by the AO, and argued by the learned CIT Departmental Representative, still the amount received by the assessee out of the family settlement cannot be said to be income because it is offshoot of capital assets of the joint family. It is not the case that new income was generated which escaped taxation. The statement of the donor was recorded under s. 131 of the Act by the AO himself wherein M/s Neeta Ashok Gundecha, specifically tendered that the impugned amount was offshoot of the family settlement while dividing the property among the family members, in reply to question No. 14, she explained, while tendering statement, that as on 31st March, 2006, she was partner in ten firms and due to family settlement (division of property) she remained partner in only one firm and the hotel business went to their share and the property business went to the assessee. If the statement tendered by the donor is analyzed, the identity of the donor, genuineness of the transaction and source of the amount is not in dispute. Even the AO in para 6.1, in response to letter dt. 14th Dec, 2009, himself admitted this fact. In para 6.2 of the assessment order, it has been specifically mentioned that 53,220 shares of M/s Sea Princess Hotels & Property (P) Ltd. were transferred from the family members of the assessee and their other concern to the family of donor out of the total shares to the tune of 75,000. The hotel/five-star hotel was situated at the prime location in Mumbai, the value of which, as per the AO, cannot be less than Rs. 100 crores, meaning thereby, the factum of family settlement is not in doubt. Now question arises whether the claim of exemption under s. 56(2)(v) of the Act, under the facts available on record, can be denied to the assessee. We note that one of the reasons for denying the relief to the assessee by the AO is that the written agreement was not produced by the assessee, whereas the Hon’ble Apex Court in Take Bahadur Bhujil v. Devi Singh Bhujil AIR 1966 SC 292 held that family arrangement can be arrived at orally. Identical ratio was laid down in Sahu Madho Das v. Mukund Ram AIR 1955 SC 481 and Kale v. Dy. Director of Consolidation AIR 1976 SC 807 and Ziauddin Ahmad v. CGT  102 ITR 253 (Gau.). Even otherwise, no hew property came into existence or to the assessee because the assessee was already having a right/share in the undivided property. Due to family settlement/arrangement, the individual persons became full owners of the property of their respective shares and they relinquished their part of the share which went to other family members. Even capital gain is attracted when there is a transfer of property. Under the present fact, it is not a transfer of property rather is a family settlement through which their individual shares were determined out of the property which they were already having. It is not the case that the property was received from a third party where the assessee was having no interest at all. The family settlement was arrived at to resolve the family dispute by peaceful equitable division of the property among the units/family members of the joint/undivided family system. The family settlement was voluntary and was not by inducement or fraud. So far as the contention of the Revenue that it was a gift is also not substantiated by the fact that the statement of Ms. Neeta Ashok Gundecha was recorded under s. 131 of the Act on 7th Dec, 2009 and in. response to a specific query whether there was a family arrangement, she specifically tendered that to settle the matter peacefully, her family reshuffled the shareholding of the company and division of the property of various concerns was arrived at among the family members. This factual matrix has been duly recorded in para 5 (p. 3) of the assessment order itself. Regarding division of property has been mentioned in para 6.1 onwards of the assessment order itself. Therefore, the suspicion of the AO is not based on documentary evidence. In such a situation, it can be said that suspicion cannot take the shape of evidence however strong it may be, more specifically, when by way of family settlement, the property was divided among the family members.
2.5 So far as source of the impugned receipt is concerned, there is uncontroverted filing in para 5.2 of the impugned order that it was duly explained by the assessee. This factum was duly explained before the AO during examination/recording of statement of Ms. Neeta Gundecha. The totality of facts clearly indicates that the impugned amount cannot be said to be income in the hands of the assessee as the same was offshoot of family settlement of the property which was already in existence.
2.6 Another argument taken by the learned CIT-Departmental Representative that there was no natural love and affection by the donor when there was a division of property. We are unable to appreciate this type of contention because when there is a division of property, it was not a marriage like ceremony and secondly, if the division of the property is by way of mutual settlement, definitely the family avoided prolonged litigation and completed the settlement peacefully, therefore, it cannot be presumed that there will be natural love and affection. Even otherwise, while distributing the property, the market value is determined on the basis of market valuation and other considerations and it is always not passive to divide the property in equal parts and it can be compensated by way of making the payment or by giving another property to the other family members. The property cannot be physically weighed on the scale and is to be valued only for settling the matter.
2.7 Another contention raised by the learned CIT-Departmental Representative and also mentioned in para 6.2 of the assessment order that shares of M/s Sea Princess Hotels & Properties Ltd. were transferred lower than the book value and the impugned gift was not genuine is also not substantiated and also not borne out of facts, because unless and until the family members agree by way of family settlement, it cannot go through because there may be possibility of compensating the value in either terms of money or by providing equivalent share in another property but fact remains that the source of the impugned receipt has been duly explained. The family is consisting of businessmen/businesswomen and all the members are aware about the market value of the total property and how to safeguard their interest in a best manner, therefore, there is no question of understatement. Even if it is presumed that the valuation was understated, it can be of the total property and not of the single property. Still fact remains that the entire property was in existence at the time of partition in which concerned family members were having their interest/shares, therefore, it was clearly a family settlement. Therefore, the family arrangement is not taxable and no addition was warranted on the income which never arose to the assessee. As discussed earlier, the entire property was already in existence having common shares and by way of the mutual settlement only the respective shares were determined. Thus, we find no infirmity in the conclusion drawn by the learned CIT(A). The appeal of the Revenue is dismissed.
Finally, appeal of the Revenue is dismissed.