COMMISSIONER OF INCOME TAX Vs. R. NAGARAJA RAO

JUDGEMENT

(1.) The Revenue has preferred this appeal against the order passed by the Tribunal which held that the transactions and the family arrangement made between the assessee and the other family members cannot be treated otherwise than a family arrangement. Hence there is no transfer either of the movable or immovable as such. The assessee is not liable to pay any capital gains. There was a family arrangement by a deed dated 21-12-1992 between the children of late J.N. Radhakrishna and Saraswathi Bai. That each of the parties were holding apart from personal properties, the family properties and shares in different business concerns and each of the family business has been independently managed by one of the parties. Disputes arose between the parties. The dispute was referred to an arbitrator. The arbitrator suggested a settlement which the parties agreed. In terms of the settlement the assessee had to resign from Kaveri Breweries, a partnership firm and transfer has interest to Sri Neelakanta Rao for a consideration of Rs. 35,000/- being the capital balance of the firm, Accordingly, the assessee transferred the shares, Sri Neelakanta Rao transferred the shares held by in favour of the assessee. The assessee claimed there was no transfer which give rise to any capital gains However, the assessing authority held that there was a transfer, there was a capital gain and therefore the assessee is liable to pay the tax. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The appellate Commissioner confirmed the order of the assessing authority. Aggrieved by these two orders the assessee preferred an appeal to the Tribunal. The Tribunal after considering the judgment of the Apex Court in the case of Ram Charan Das v. Girja Nandini Devi, 1966 AIR(SC) 323 and also of the Gauhati High Court in the case of Ziauddin Ahmed v. CGT, 1976 102 ITR 253 held that admittedly there are lot of disputes between the family members of the assessee who are none other than the relatives of one other and in that event, the family arrangement and settlement entered into between the parties on the suggestion made by the arbitrator cannot be termed as a transfer either in respect of movable or immovable properties or in respect of commercial properties. Therefore, the Tribunal held that there is no transfer and it was only a family arrangement. Therefore he was not liable to pay tax on capital gains. Accordingly he set aside the order passed by the lower authorities. Aggrieved by the said order the Revenue has preferred this appeal. The substantial question of law which is framed in this appeal on 12-8-2006 reads as under:-