COMMISSIONER OF INCOME TAX Vs. AL RAMANATHAN

JUDGEMENT

(1.) THE assessee is a Hindu undivided family. THE karta of this joint family is Shri A. L. Ramanathan, son of Shri L. Ala-gusundaram Chettiar. On April 12, 1952, there was a partition between Shri Alagusundaram Chettiar and his brother, Shri L. Narayanan Chettiar. On September 12, 1955, there was a partition in the joint family of which Alagusundaram Chettiar was the karta and his three sons, viz., Al. Laksh-manan, A1. Periannan and Al. Ramanathan, were the other co-parceners. Disputes arose in the family and an interim agreement was entered into on August 19, 1980, under which the assessee's side was to receive Rs. 8 lakhs and certain lands in Kothagai Village and in return they were required to transfer half of their shareholding in Mahalakshmi Textile Mills Ltd., Lakshmi Lines Ltd. and Charlie Engineering Co. Ltd., to the other side subject to full settlement later. On August 20, 1981, the final agreement was drawn up recording the oral agreement dated May 6, 1981, under which the assessee's side was to receive a further amount of Rs. 11 lakhs which was paid on June 19, 1981, in addition to Rs. 8 lakhs paid on September 9, 1980, and also keep the land transferred to them on September 10, 1990, as well as the brick chamber transferred by another registered transfer deed and, in return, the other side was to retain the shares in Mahalakshmi Textile Mills Ltd., Lakshmi Lines Ltd. and Charlie Engineering Co. Ltd., etc., transferred by the assessee's side to them in accordance with the earlier agreement dated August 19, 1980. So, by virtue of that agreement the rights between the parties were settled. THE assessee claimed that the agreements dated August 19, 1980, and June 20, 1981, should be taken as supplement to the earlier partition dated September 12,1955, thus not amounting to a transfer under Section 47 or in the alternative as a family arrangement not amounting to a transfer such that the capital gains from these transactions could not be assessed to tax. THE assessee further contends that the consideration paid was not only for the transfer of the assets but also to avoid continuous friction and to buy peace and the amount had to be excluded from the capital gains. THE Income-tax Officer rejected the contentions of the assessee and took the view that the transactions amounted to transfer of title in respect of which capital gains were exigible to tax. THE assessee preferred an appeal to the Commissioner of Income-tax and the Commissioner has rejected the contentions of the assessee. On appeal to the Tribunal, the Tribunal came to the conclusion that the transaction is only a family arrangement and it does not involve any transfer of title of the properties transferred and the transaction of family arrangement does not give rise to capital gains. On that, the reference has arisen and at the instance of the Revenue, the following question has been referred to this court for our opinion :

(2.) A perusal of the records goes to establish that the dispute arose in that family and the family arrangement was arrived at in consultation with the panchayatdars and accordingly re-alignment of interest in several properties had resulted. The family arrangement was arrived at in order to avoid continuous friction and to maintain peace among the family members. The family arrangement is an agreement between the members of the same family intended to be generally and reasonably for the benefit of the family 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. So, family arrangements are governed by principles which are not applicable to dealings between strangers and the family arrangement among them is for the interest of the family, for the harmonious way of living. So, such re-alignment of interest by way of effecting a family arrangement among the family members would not amount to transfer.

(3.) APPLYING the principles laid down in the decisions cited supra, we hold that the family arrangement involved in this case does not amount to transfer. The Tribunal is perfectly justified in taking the view that the transaction of the assessee being a family arrangement did not amount to transfer and therefore, there was no chargeable capital gain arising from that transaction. So, the transaction of the assessee did not amount to transfer and there was no chargeable capital gain arising from that transaction.