Paras D. Gundecha, Mumbai vs Department Of Income Tax

DCIT-2(3), Shri Paras D. Gundecha, Room No.556, बनाम 141, Gundecha House, बनाम/ Aayakar Bhavan, Jawahar Nagar, Mumbai-400020 Vs. Goregaon(W), Mumbai-400062 (राजःव /Revenue) (िनधा()रती /Assessee) P.A. No.AACPG2599L

राजःव क+ ओर से / Revenue by Smt. Parminder, CIT-DR िनधा()रती क+ ओर से / Assessee by): Shri Vimal Punmiya

सुनवाई क+ तार-ख / 20/01/2015 Date of Hearing :

घोषणा क+ तार-ख / 28/01/2015 Date of Pronouncement : आदे श / O R D E R

PER JOGINDER SINGH (Judicial Member):

The Revenue is aggrieved by the impugned order dated 29/09/2010 of the ld. First Appellate Authority, Mumbai, on the ground that the ld. Commissioner of Income tax (Appeals) 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 dated 2 Shri Paras D. Gundecha

15/12/2006 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, Ld. CIT- DR, advanced her arguments which are identical to the ground raised by supporting the addition made by the ld. Assessing Officer 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, ld. 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 Pvt. Ltd., declared total income of Rs.86,994/- in his return filed on 31st October, 2007. The case of the assessee was selected for scrutiny under CASS, consequently, notice u/s 143(2) of the Income Tax Act, 1961(hereinafter the Act) was issued and served up on the assessee. The 3 Shri Paras D. Gundecha

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 asked to furnish bank statement, ledger extract and details of each income. The assessee vide letter dated 21/10/2009, submitted the ledger account alongwith copy of gift deeds. The Assessing Officer 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 Assessing Officer that there was total capital of Rs.34,06,52,123/- out of which a sum of Rs.33crores was given to the assessee. The Assessing Officer examined the genuineness of the transactions and recorded the statement of Smt. Neeta Gundecha u/s 131 of the Act on 07/12/2009. 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 Assessing Officer also noted that as on 31/03/2006, she was partner in ten firms whereas as on 31/03/2007, 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 Assessing Officer, she explained that 4 Shri Paras D. Gundecha

she retired from partnership of nine firms during the year and further alongwith 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 page 3 onwards of the assessment order. Subsequently, vide letter dt. 14/12/2009, 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 Assessing Officer 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 Assessing Officer issued a letter dated 16/12/2009 to which the assessee filed his reply vide letter dated 22/12/2009 by reiterating that it was a family arrangement and the amount was received as a gift/family settlement, therefore, it is exempt u/s 56(2)(v) of the Act. The ld. Assessing Officer 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 ld. Commissioner of Income tax (Appeals), 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.

5 Shri Paras D. Gundecha

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 AR. There is no merit in the submission of the AR 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 av er t e i th er ex is ting or po te n ti al is sues r el ating to d is tr ibu tion 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 under statement 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 f ur th e r n o te d th at th e f ac t th a t th e ap p e l l an t r e c e i v e d th e 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 t1e 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 6 Shri Paras D. Gundecha

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 p ar t o f th e wi d e r te r ms of f am i l y s e t tl e me n t, wh ic h al s o in c l u d e d 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 AR, 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 AR.

5.2 There is no merit in the submissions of the AR that after the omission of the erstwhile section 10(3) with effect from 01.04.2003, 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 sec tion. H owe v er , the sourc e of the impugned r eceipt 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 riot applicable to the facts of the case on hand. Also, the AO has not brought any material on record as LO how the said amount qualifies to be held as "income" which was actually stated to be a gift but held t3 be a part of the family settlement receipt. Thus, even following the Assessing Officer'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 7 Shri Paras D. Gundecha

avo idanc e s inc e the under s tate d pric e of shares in the f amil y arrangement is not taxable as held in a number of court judgments quoted by the AR. 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 u/s 131 of the Act by Assessing Officer, assertions made by the ld. 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 Assessing Officer suspected the family settlement by treating it a colourable device. Even for argument sake, it is presumed that there was understatement of value of the property, as has been alleged by the Assessing Officer, and argued by the ld. CIT-DR, still the amount received by the assessee out of the family settlement cannot be said to be income because it is offshoot of capital asset of the joint family. It is not the case that new income was generated which escaped taxation. The statement of the donor was recorded u/s 131 of the Act by the Assessing Officer 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 31/03/2006, 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 8 Shri Paras D. Gundecha

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 Assessing Officer in para 6.1, in response to letter dated 14/12/2009, 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 Pvt. 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 Assessing Officer, cannot be less than 100 crores, meaning thereby, the factum of family settlement is not doubt. Now question arises whether the claim of exemption u/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 reason for denying the relief to the assessee by the Assessing Officer is that the written agreement was not produced by the assessee, whereas, the Hon'ble Apex Court in Take Bahadur Bhujil vs 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 vs Mukund Ram AIR 1955 (SC) 481 and Kale vs Dy. Director of Consolidation AIR 1976 (SC) 807 and Ziauddin Ahmad vs CGT (1976) 102 ITR 253 (Gau.). Even otherwise, no new property came in to 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 share and they relinquished their part of the share which went to another family members. Even capital gains is attracted when there is a 9 Shri Paras D. Gundecha

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 u/s 131 of the Act on 07/12/2009 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 shares holding of the company and division of the property of various concern was arrived at among the family members. This factual matrix has been duly recorded in para-5 (page-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 Assessing Officer 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 finding in para 5.2 of the impugned order that it was duly explained by the assessee. This factum was duly explained before the Assessing Officer during 10 Shri Paras D. Gundecha

examination/recording of statement of the 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 ld. CIT-DR 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 possible to divide the property in equal parts and it can be compensated by way of making the payment or by giving the 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 ld. CIT-DR and also mentioned in para 6.2 of the assessment order that shares of M/s. Sea Princess Hotel and 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 11 Shri Paras D. Gundecha

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 ld. Commissioner of Income tax (Appeals). The appeal of the Revenue is dismissed.

Finally, appeal of the Revenue is dismissed.

This Order was pronounced in the open court on 28 /01/2015.

आदे श क+ घोषणा 2दनांकः 28/01/2015 को क+ गई ।

Sd/- Sd/- (N.K.Billaiya) (Joginder Singh) लेखा सदःय / ACCOUNTANT MEMBER याियक सदःय / JUDICIAL MEMBER मुंबई Mumbai; 2दनांक Dated : 28/01/2015 f{x~{tÜ? P.S/.िन.स. आदे श क+ ूितिल प अमे षत/Copy षत of the Order forwarded to : 1. अपीलाथ= / The Appellant 2. ू>यथ= / The Respondent. 3. आयकर आयु?(अपील) / The CIT, Mumbai. 12 Shri Paras D. Gundecha

4. आयकर आयु? / CIT(A)- , Mumbai

5. वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड( फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स>या पत ूित //True Copy//

उप/ उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण, मुब ं ई / ITAT, Mumbai