MRS. SHALINI ARAVIND vs. ACIT, BANGALORE

This appeal by the assessee is against the order dated 4.11.2013 of the CIT(Appeals)-I, Bangalore relating to assessment year 2009-10.

The only issue that arises for consideration in this appeal is as to whether the revenue authorities were right in holding that relinquishment of the share of assessee in the property comprising of land situated at Padmarao Nagar Colony, Secunderabad in favour of her sisters was a transfer within the meaning of section 2(47) of the Act and capital gain accruing on such transfer was exigible to capital gains tax u/s. 45 of the Act.

The facts and circumstances under which the aforesaid issue arises for consideration are as follows. The assessee is an individual. The property comprising of land and building at Padmarao Nagar Colony, Secunderabad [hereinafter referred to as "the Secunderabad property"] belonged to one C.S. Venkatesan, he having purchased the same in the year as a plot of land on which he had put up construction of building in the year 1976. C.S. Venkatesan died on 27.2.2003 intestate leaving behind his wife, Mrs. Shanti Venkatesan and three daughters viz., Mrs. Shalini Aravind (the assessee herein), Mrs. C.V. Ranjini and Mrs. Malini Rajkumar. The Wife and the three daughters of C.S. Venkatesan were each entitled to 1/4th share over the Secunderabad property. Mrs. Shanthi Venkatesan and Mrs. Malini Rajkumar by registered release deed dated 9.1.2009 relinquished their share of right, title and interest over the Secunderabad property in favour of Mrs. C.V. Ranjini, one of the daughters of late C.S. Venkatesan. The assessee for releasing her 1/4th share of right, title and interest over the property, received a sum of Rs.25 lakhs.

In the return of income filed for A.Y. 2009-10, the assessee did not declare any capital gain on relinquishment of her 1/4th share of right, title and interest over the aforesaid property.

The AO held that relinquishment of assessee's right over the property gave rise to long term capital gains and accordingly the sum of Rs.25 lakhs was brought to tax as long term capital gains.

Before the CIT(Appeals), the assessee submitted that u/s. 47(1) of the Act, any distribution of capital assets on the total or partial distribution of HUF cannot be regarded as transfer. The assessee further submitted that relinquishment of her share over the property was nothing but part of a family settlement whereby one of the sisters of the deceased whereby one of deceased Venkatesan's wife and mother of assessee and two daughters were looked after by C.V. Ranjini and therefore the property was given to her by way of relinquishment by other sharers. The assessee relied on the decision of the Hon'ble High Court of Karnataka in CIT v. R. Nagaraja Rao, 362 ITR 565 and K.N. Madhusudhan, GTA Nos. 1 & 2/2008 dated 6.9.2010.

The CIT(A) did not agree with the aforesaid submissions of the assessee. He, firstly, found that the decision of R. Nagaraja Rao (supra) was a case where there was transfer of shares, pursuant to a family arrangement, whereby family disputes were settled at the instance of arbitrators. The Hon'ble High Court of Karnataka after making a reference to the decision of K.N. Madhusudan (supra) came to the conclusion that the word "transfer" does not include partition or family settlement as defined under the Act. It came to the conclusion that every member has an anterior title to the property which is the subject matter of a transaction, i.e., partition or family arrangement. By a transfer pursuant to family arrangement, there is only an adjustment of how shares or crystallization of respective rights over the properties, which cannot be construed as transfer in the eye of law. The Hon'ble Court finally held that when there is no transfer, there is no capital gain. According to the CIT(A), the aforesaid decision was not applicable to the case of assessee because there was no family settlement and on the other hand, there was only relinquishment of rights of co-sharers in favour of one of the co-sharer. He further drew support for the above conclusions from the decision of the Chandigarh Bench of the Tribunal in the case of Lalit Ratnam v. ITO (2013) 153 TTJ Chd. Trib. 59. In the said case, the assessee and her brother got by way of gift 40% and 60% share of property from their father. The assessee released her 40% share in favour of her brother. The transaction was considered as not giving rise to capital gains by the assessee. The Tribunal held that the case of release/relinquishment of right would be covered by the definition of ‘transfer’ given in section 2(47)(i) of the Act. Even otherwise in case of family settlement when various properties were involved a member may get lesser share or such share for consideration of release of share but in this case only the property involved was share in the said property which had been released against the receipt of cash and therefore instrument of release could not be called a family settlement. The CIT(A) therefore dismissed the appeal of assessee.

Aggrieved, the assessee has preferred the present appeal before the Tribunal. The ld. counsel for the assessee made identical submissions before the Tribunal as that made before the CIT(A). In addition, he also relied on the decision of Bangalore Bench of the Tribunal in the case of Smt. T. Gayatri v. ITO, 150 ITD 48 (Bang).

The ld. DR relied on the order of CIT(Appeals).

We have given a very careful consideration to the rival submissions. It is no doubt true that amount received on transfer pursuant to family arrangement would not constitute transfer so as to attract capital gains because such transfers are only for the purpose of giving effect to family arrangement, whereby family disputes are settled inter se between the parties. In the present case, however, there was no such family dispute which was settled pursuant to which deed of release came to be executed by the assessee in favour of her sisters. In the case of Smt. T. Gayatri (supra), the facts were, one ‘B’, father of assessee died intestate leaving behind four sons and six daughters including assessee. After expiry of ‘B’, assessee along with other sisters filed a suit for partition of self acquired property of their father. The suit was ultimately compromised between the parties duly recognized by Court. In terms of memorandum of compromise daughters agreed to receive their 1/10th share each in property coming to Rs. 87.50 lakh from their brothers. The assessee’s brothers subsequently entered into a joint development agreement of property in question. In terms of said agreement, the developer directly paid amount of Rs. 87.50 lakh each to daughters of ‘B’ including assessee therein. The daughters of ‘B’ thereupon executed a release deed of disputed property in favour of their brothers. For the relevant year, the assessee filed her return wherein amount of Rs. 87.50 lakhs was not offered to tax under the head ‘capital gain’. The assessee took a stand that the sum in question was a receipt consequent to a family arrangement and therefore, there was no transfer of any capital asset so as to attract provisions of section 45.

The Tribunal dealt with the aforesaid issue and came to the conclusion that sum received by assessee is traceable to the realisation of rights as legal heir of intestate succession and not to any sale, relinquishment or extinguishment of right to property. The Tribunal took note of the fact that there was a suit for partition in which the assessee became entitled to 1/10th share over the property. The Tribunal also took note of the fact that there was a compromise recorded between the parties before the appellate court, whereby assessee agreed to receive Rs.87.50 lakhs towards her 1/10th share over the property in lieu of 1/10th share of property physically delivered after division by metes and bounds. It is in these circumstances that the Tribunal came to the conclusion that the sum received by assessee was nothing but realization of assessee's rights as legal heir. The Tribunal also took note of the subsequent release deed executed by assessee in favour of developers, who purchased the property from other co-sharers, as a document for perfecting the title of the third party to the property and not for any other purpose. The Tribunal ultimately came to the conclusion that there was no transfer within the meaning of section 2(45) of the Act and therefore capital gain was not exigible.

In the present case, however, the assessee transferred her share of right title and interest over the property in favour of other co-owners of the property. This was clearly a transfer. If the assessee had sold her share of property to third party, it would have certainly been exigible to capital gains tax. The fact that the transferee is another co-sharer of the property will not make any difference. We are therefore of the view that in the facts and circumstances of the present case, there was a transfer of capital asset and therefore capital gain on such transfer was rightly brought to tax by the revenue authorities. We do not find any grounds to interfere with the order of CIT(Appeals).

Consequently, the appeal by the assessee is dismissed.