COMMISSIONER OF INCOME TAX Vs. AL RAMANATHAN

JUDGEMENT

(1.) THE assessee is an HUF. THE Karta of this joint family is shri A. L. Ramanathan son of Shri L. Alagusundaram Chettiyar. On 12th April, 1952, there was a partition between Shri Alagusundaram Chettiyar and his brother Shri L. Narayanan Chettier. On 12th September, 1955, there was a partition in the joint family of which L. Alagusundaram Chettiyar was the Karta and his three sons viz. A. L. Lakshmanan, AL. Periannan and A. L. Ramanathan were the other co-parceners. Dispute arose in the family and an interim agreement was entered into on 19th August, 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 share holdings in mahalakshmi Textile Mills Ltd. Lakshmi Lines Ltd. , and Charlie Engineering Co. Ltd. to the other side subject to full settlement later. On 20th August, 1981, the final agreement was drawn up according the oral agreement dt. 6th May, 1981 under which the assessee's side was to receive a further amount of Rs. 11 lakhs which was paid on 19th June, 1981, in addition to Rs. 8 lakhs paid on 9th september, 1980 and also to keep the land transferred to them on 10th september, 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 Engg. Co. Ltd. etc. transferred by the assessee's side to them in accordance with the earlier agreement dt. 19th August, 1980. So, by virtue of that agreement the rights between the parties were settled. THE assessee claimed that the agreements dt. 19th August, 1980, and 20th June, 1981, should be taken as supplement to the earlier partition dt. 12th September, 1955, thus not amounting to a transfer under s. 47 or in the alternative as a family arrangement net 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 assets but also to avoid continuous friction and to buy peace and, the amount had to be excluded from the capital gains. THE ITO rejected the contentions of the assessee and took the view that the transactions amounted to transfer of title in respect of which capital gains was exigible to tax. THE assessee preferred appeal to the CIT (A) and the CIT (A) 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, "whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the transactions of the assessee amount to a family arrangement and cannot be termed as a transfer and there was no chargeable capital gains arising from that transaction ""

(2.) A perusal of the records goes to establish that dispute arose in that family and the family arrangement was arrived at in consultation with the panchayatdars and accordingly realignment 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 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, the 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 realignment of interest by way of effecting family arrangement among the family members would not amount to transfer.