1. This appeal by the revenue before us, is with a grievance that the learned AAC, New Delhi, erred in holding, in his order dated 9-12-1983, that on the facts and in the circumstances of the case the provisions of Section 49(1)(iii) of the Income-tax Act, 1961 ('the Act') were applicable to the case of the assessee for the assessment year 1980-81 and as such the capital gains of Rs. 91,723 worked out by the ITO and included in the total income of the assessee on sale of jewellery disposed of by the assessee during the year under appeal were not taxable.
2. We have heard the parties in extenso on this issue. In order to appreciate their respective grievances we first record the facts which are relevant for the determination of the issue before us and which are not in dispute. The assessee, Smt. Sharda Seshadri, is the wife of Shri P. Rama Seshadri. Shri P. Rama Seshadri had a brother named Shri P.V.Acharya. In other words Shri Rama Seshadri and Shri P.V. Acharya were full blooded real brothers. Shri and Smt. P. Rama Seshadri, that is the assessee before us and her husband, had no issues. Shri P.V. Acharya was married to Mrs. Vishen Acharya. Mrs. Vishen Acharya had a sister, called Smt. Ram Kumari Khanna wife of Kishan Chand Khanna. They had sons ; Ramesh Khanna and Kamlesh Khanna. As on 9-7-1965, they were respectively aged 27 and 18 years. On that day Smt. Vishen Acharya thenshown as resident of Station Road, Jaipur, was aged about 45 years.
She was being looked after by abovenamed Khanna brothers. Therefore, out of love and affection due to services rendered by these brothers to Smt. Vishen Acharya, she made a will on 9-7-1965. A copy of this will appears at page 40 of the assessee's paper book.
3. In this will, she deposed that during her lifetime she will hold ownership rights of all her immovable and movable properties but on her death the said properties shall belong to Ramesh Khanna and Kamlesh Khanna in equal shares. She further averred in this will that nobody else shall have any right whatsoever on the properties left by her except the beneficiaries mentioned in this will. It was, however, provided in the will that till Kamlesh Khanna completed the age of 30 years, they shall have no right to transfer the said properties in any manner whatsoever. Until the contingency of Kamlesh Khanna reaching the age of 30 years, income arising out of the devised assets after meeting the expenses of the estate, shall belong to Ramesh Khanna and Kamlesh Khanna in equal shares. When this will was drawn by Mrs. Vishen Acharya, her husband Shri P.V. Acharya was alive. He died on 27-11-1966. Mrs. Vishen Acharya died on 11-7-1975. Shri P. Rama Seshadri also unfortunately expired on 10-11-1977.
4. On the death of Mrs. Vishen Acharya on 11-7-1975, the assessee, Smt.
Sharda Seshadri, made a claim that the properties left behind by Mrs.
Vishen Acharya would devolve upon her in accordance with law as she was sister-in-law of the deceased whose husband had already died. However, apparently this claim of the assessee was not acceptable to other interested parties. Therefore, the assessee filed a suit being Suit No.521 of 1975 before the Hon'ble Delhi High Court at Delhi on the side of Ordinry Original Civil Jurisdiction. In this plaint, she made various persons including Ramesh Khanna and Smt. Meera Khanna, widow of Shri Kamlesh Khanna, who apparently had predeceased his wife as defendants.
This plaint appears at pages 1 to 17 of the paper book. In this plaint, she claimed that the will claimed to have been left behind by Mrs.
Vishen Acharya was null and void as it was a spurious document. In the alternative, she claimed that if the Hon'ble Court held that the will was a genuine document then the right, title and interest testated in favour of Kamlesh Khanna in the impugned will should devolve on her because Shri Kamlesh Khanna had predeceased the testator. In other words, in the alternative, a claim was made for partition of the property left behind by Smt. Vishen Acharya.
5. However, on 20-9-1978, Smt. Sharda Seshadri, the assessee, and Shri Ramesh Khanna and others, being plaintiff and defendants, respectively, moved an application under Order No. XXIII, Rule 3 and Section 151 of the Code of Civil Procedure, 1908 being IT Appeal No. 3272 of 1978 in Suit No. 521 of 1975 for compromise decree on the ground that this was being done to save the peace and honour of the families and in order to prevent unnecessary litigation which was very expensive and ruinous to all concerned and in order to arrive at a settlement which is beneficial to all. It was stated in this application that the parties have entered into a family settlement and decided that the plaintiff will be content with having 45 per cent share in the properties of the deceased. Shri Ramesh Khanna, defendant No. l, will be content with 40 per cent share and Smt. Meera Khanna, widow of Kamlesh Khanna, both for herself and as guardian of her minor son, will be content with 15 per cent share being given to her minor son, Master Himansu Khanna, defendant No. 8. The Hon'ble Court passed a preliminary decree accordingly through the Hon'ble Mr. Justice M.S. Joshi on 20-9-1982.
The assessee received some assets including jewellery which she later on sold on the basis of this settlement arrived at through the Court.
6. The assessee filed her return of income for the assessment year under appeal on 16-7-1980, declaring income of Rs. 37,960 under the head 'Income from other sources' comprised of dividends, interest and income from U.T.I. During the course of the assessment proceedings, the ITO found that the assessee had sold jewellery weighing 1166 grams on 4-9-1979 for a sum of Rs. 1,04,483 and the assessee had made fixed deposit of Rs. 1 lakh with Canara Bank, Chanakyapuri, New Delhi, out of sale proceeds on 12-10-1978. The ITO, therefore, went into the background as to how the assessee came to acquire the jewellery and recorded the historical background as noted supra in his impugned order dated 19-3-1983 made under Section 143(3) of the Act. According to the ITO the assets acquired by the assessee, including the jewellery sold, were by succession, inheritance or devolution and attracted the provisions of Section 49(1)(iii) for the purpose of determination of capital gains. This was, however, opposed by the assessee on the ground that the assets were received under a family settlement and such assets were acquired neither by succession, inheritance nor devolution.
7. The ITO had sought advice from the IAC in the form of directions issued under Section 144A of the Act on 15-3-1983. The IAC directed the ITO 'to cover this case under Section 49(1)(iii) of the 1961 Act, and compute the capital gains according to rules'. Accordingly, the ITO computed the capital gains in the following manner :Less: 1,04,483(i) Value as on 1-1-1964 12,760keeping in view the price of gold Thereafter, certain deductions were allowed and the assessment completed on 19-3-1983.
8. The assessment so framed by the ITO was taken up in appeal before the ACC. The learned ACC held that the properties left behind by the deceased were not received by the assessee under the Hindu Succession Act, 1956, or any other statute. According to him, these properties were, in fact, received by way of family settlement. He further observed that family settlement is also recognised as one of the modes which gives proper title to a person. For this he relied upon the authorities cited before him on behalf of the assessee as recorded in paragraph 6 of his impugned order. The learned AAC, therefore, held that the assessee had become owner of the properties sold by way of family settlement and the properties were not received by any of the modes mentioned in Section 49(1)(iii). Therefore, the cost of jewellery to the assessee had to be taken as the market value prevailing on the date of acquisition of these assets and that date according to the learned AAC was August 1979. Since the properties (jewellery) was sold immediately thereafter, the learned AAC held that there was no material change in their cost and no capital gain could arise from the sale thereof. The capital gains of Rs. 91,723 included in the total income of the assessee were, therefore, directed to be deleted.
9. The revenue contended before us that the order of the learned AAC is erroneous both on facts and in law. It should, therefore, be set aside and in its place that of the ITO restored. It was contended that a family settlement can take place where a family is already the owner of the property. It was contended that in this case, the assessee claimed her right, title and interest to the properties because of her relationship with the deceased on the ground that she was entitled to succeed her under the Hindu Succession Act. The assessee had claimed, it was contended that the will dated 9-7-1965 was null and void. If the will was null and void then the assessee could get the properties of the deceased only by way of succession, inheritance or devolution. When the assessee went to the Court for vindication of her rights, her claim was not based upon family settlement but was on account of provisions of law of succession, applicable to Hindus in India. The so-called family settlement, it was argued, was settlement of a claim made and, in fact, was not a family settlement regarding properties already belonging to a family. In nut shell, it was argued that the properties received by the assessee, including the jewellery sold, devolved upon her by succession and the mere cover of family settlement through a Court would not change the position insofar as the computation and eligibility of capital gains is concerned. It was emphasised that the Court had merely recognised the continuation of her right, title and interest in the properties in view of succession. The learned AAC was, therefore, in error in holding that the provisions of Section 49(1)(iii) were not attracted in this case.
10. In the alternative, it was argued that even if it may be considered that the assessee received the properties under a family settlement, the ITO is entitled to go behind the family settlement to find out the intent and purpose of the parties to the settlement. For this proposition, reliance was placed upon the judgment of the Supreme Court in the case of CIT v. Panipat Woollen & General Mills Co. Ltd. [1976] 103 ITR 66 and the Gujarat High Court judgment in the case of Keshavlal Punjaram v. CIT [1983] 141 ITR 466. It was further contended by the revenue that while interpreting the terms of an agreement such as a family settlement, the Court has to look to the substance rather than the form of it as held by the Supreme Court in the case of Bhopal Sugar Industries Ltd. v. STO [1977] 40 STC 42. It was, therefore, emphasised that in a case where a party relied on self-servicing recitals in such a document, it was for that party to establish the truth of those recitals. Further the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals as held by the Supreme Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540. It was contended that if the settlement arrived at by the assessee with others is examined in the light of the above guidelines given by the Courts, it would become clear that the assessee had merely availed of the family settlement to avoid liability to proper tax. The AAC, therefore, erred in accepting the claim of the assessee as he did. His order may be reversed.
11. Opposing these contentions, the learned counsel for the assessee submitted that the revenue is making very far fetched and untenable allegations. The chronological development of events culminating in the death of Mrs. Vishen Acharya could not be said to be any plan or design by the assessee. The assessee had claimed her rights on the properties, described in the will dated 9-7-1965 of Mrs. Vishen Acharya who was the assessee's sister-in-law. It was submitted that the will was made by Mrs. Vishen Acharya on 11-7-1965 when husband of the testator was alive. However, Shri P.V. Acharya, husband of Mrs. Vishen Acharya died on 27-11-1966. Mrs. Vishen Acharya died on 11-7-1975. Thereafter, husband of the assessee also died on 10-11-1977. Thus, the assessee claimed that she was entitled to the properties left behind by Mrs.
Vishen Acharya. However, her claim at this stage, was opposed by the other interested parties mentioned supra who claimed that only they were entitled to the properties as mentioned in the will dated 9-7-1965. The assessee, therefore, had no alternative but to go to the Court. The family settlement approved by the Court was to maintain peace and honour of the families concerned. Such family settlements are recognised by law. Therefore, the revenue cannot claim that the family settlement was a device or artifice envisaged with an intent to defraud the revenue.
12. The learned counsel for the assessee submitted that the Hindu Succession Act does not apply to testamentary disposition, In this case, the Court has recognised existence of the will and it was on that basis that the assessee received properties by way of settlement approved by the Court. The properties received by the assessee, therefore, were only because of settlement because any other rights of the parties which they may have had prior to settlement were supersded.
Family settlement is recognised in Hindu law as is clear from article 248B of Hindu Law by Mulla, Thirteeth edn. by S.T. Desai. He also placed reliance for the above proposition on the Supreme Court judgment in the case of Maturi Pullaiah v. Maturi Narasimham AIR 13. The learned counsel further contended that a family need not be understood in a narrow sense of the term as the concept of family is wider as explained by the Supreme Court in the case of Ram Charan Das v. Girja Nandini Devi AIR 1966 SC 323. In the context of this case, it was submitted by him that the beneficiaries under the will were Mrs.
Vishen Acharya's sister's sons. They were, therefore, related to the assessee and the settlement arrived at is really a family settlement as recognised by the Court.
14. It was submitted by him further that peace and harmony in the family are good reasons for arriving at family settlement as held by the Gauhati High Court in the case of Ziauddin Ahmed v. CGT[1976j 102 ITR 253. It was submitted that family settlement could not be arrived at under the Hindu Succession Act. The family settlement arrived at was based upon the claim for title of the parties to the properties. The opposite parties were claiming the entire properties in view of the will left by Mrs. Vishen Acharya and it was by compromise that the assessee and those parties arrived at a family settlement to establish complete right, title and interest upon the properties received. Since the source of the complete right, title and interest to these properties was the family settlement, the properties were received and can be traced back as having been received only due to the family settlement. It was once again emphasised by the learned counsel for the assessee that there could not be any suggestion of any artifice or device because the events took place naturally over a long period of time, and these were not in the contemplation of the parties who arrived at the family settlement. Therefore, the learned AAC was fully justified in arriving at the decision as he did. The revenue has not made out a case for an interference in his order. The appeal of the revenue may be dismissed.
15. In the rejoinder, the revenue contended that it has not been established that the property was self-acquired by the assessee, that in view of challenge to the will of the deceased by the assessee, the will was not operative and the provisions of the Hindu Succession Act, Sections 15 and 16 were applicable and that for purpose of family settlement the relationship of the parties must be within the ambit of Section 2(41) of the Income-tax Act which is not so in this case.
Hence, the AAC's order is bad in law. It may be set aside.
16. We have given careful consideration to the rival submissions. From the narration of the facts given supra, it becomes clear that the rights of the parties prior to approval of family settlement by the Court were inchoate. None of the parties could claim an absolute right, title and interest in the properties left by the deceased Mrs. Vishen Acharya due to disputes and counter claim. On the one hand, the above-named Khanna brothers were claiming that all the properties that Mrs. Vishen Acharya had left behind belonged to them. Their claim was based upon the will of the deceased made on 9-7-1965. The assessee, on the other hand, was claiming that she, by virtue of her relationship with the deceased, was entitled to properties by way of inheritance, succession or devolution because there was no other closer blood relation surviving the deceased. As mentioned earlier, apparently none of the parties was able to exercise the right, title and interest over the properties left by the deceased. Therefore, the dispute was taken up before the High Court.
17. In the Court, there was no adjudication upon the rights of the parties on the merits because before that contingency happened the parties arrived at a family settlement 'to save the peace and honour of the families and in order to prevent unnecessary litigation'. This compromise settlement got approval of the Court as pet judgment dated 20-9-1978 with the result that the application made by the plantiff that is the assessee in Suit No. 521 of 1975, became infructuous and was accordingly filed. It was under this family settlement that the rights of the parties to the ownership of the properties left by the deceased, Mrs. Vishen Acharya, in the proportion mentioned in the settlement, became final. Therefore, the right, title and interest that the assessee got over the assets received by way of 45 per cent of the share of the assets left by the deceased Mrs. Vishen Acharya became final and enforceable with the approval of the Court by way of family settlement.
18. In view of what is stated above, it is clear to us that regarding the properties, including the jewellery which was sold by the assessee subsequently, the date of acquisition by the assessee has to be taken with ' reference to the family settlement and not with reference to any other right which was in an unsettled state earlier. The argument of the revenue, therefore, that she got the properties by virtue of the provisions of the Hindu Succession Act is not tenable. Since the properties were received in view of and by way of family settlement, the date of acquisition for the purpose of computation of capital gains on sale of jewellery will be with reference to this family settlement.
19. We have looked into relevant provisions of Hindu law regarding family arrangement or family settlement. In article 248B it has been recorded that family arrangement or family settlement as it is sometimes termed generally meets with the approval of the Courts and the Court always leans in favour of a transaction relating to any such arrangement as it ensures peace and goodwill among the family members.
This does not rest on any special rule of Hindu law, but flows from general principles and policy of law.
20. The revenue raised a contention before us that the assessee's rights flowed from her vested interest under the provisions of the Hindu Succession Act and as such those rights could not be compromised in a family settlement. Moreover, the members who arrived at the settlement cannot be called members of a family in view of the provisions of Section 2(41) of the Income-tax Act. To our mind, this approach of the revenue is not tenable because Khanna brothers with whom the settlement was arrived at are Mrs. Vishen Acharya's sister's sons. They constituted a family and apparently had antecedent rights to the properties of the deceased as the assessee was claiming right, title and interest over the properties because of her close relationship and the Khanna brothers were staking their claims on the basis of the will of the deceased dated 9-7-1965. The settlement was, therefore, nothing but a family settlement and the rights of the parties accrued and were finally settled on account of that settlement.
To such facts, the provisions of Section 2(41) are not applicable as is clear from the judgment of the Supreme Court considered infra.
21. The transaction of a family settlement entered into by the parties who are members of a family bona fide to put an end to the dispute among themselves, is not a transfer. It is not also the creation of an interest. For, in a family settlement each party tabs a share in the property by virtue of the independent title which is admitted to that extent by the other parties. Every party who tabs benefit under it need not necessarily be shown to have, under the law, a claim to a share in the property. All that is necessary to show is that the parties are related to each other in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other grounds as, say, affection. These are the observations of the Hon'ble Supreme Court in the case of Ram Charan Das (supra).
22. The Hon'ble Court has further laid down that Courts give effect to a family settlement upon the broad and general ground that its object is to settle existing or future dispute regarding property amongst members of a family. In this context, the word 'family' is not to be understood in a narrow sense of being a group of persons whom the law recognises as having a right of succession or having a claim to share in the disputed property. The consideration for a family settlement is the expectation that such a settlement will result in establishing or ensuring amity and goodwill amongst the relations. That consideration having passed by each of the disputants, the settlement consisting of recognition of the right asserted by each other cannot be impeached thereafterRamgowda Annagowda Patil v. Bhausaheb AIR 1927 PC 227.
23. From what is stated above, it is clear that the objection of the revenue regarding the lack of relationship amongst the parties to arrive at a family settlement has no substance. It also meets with the contentions of the revenue that the assessee had right, title and interest to the properties on the basis of the Hindu Succession Act, because the Court has clearly shown that a family settlement does not necessarily flow from such existing rights as pointed out by the revenue.
24. The proposition projected from the side of the revenue that the ITO is entitled to go behind an instrument and find out the substance of the matter to establish the intention of the parties cannot be disputed. However, what is necessary and is required in this case is to see whether such a proposition is applicable to the facts of this case.
The narration of fact given supra, shows that the 'will' of the deceased was made as far back as 9-7-1965. Thereafter, there were natural events upon which no one can claim to have control whatsoever.
These events were the death of the husband of the assessee, the death of the brother of the husband of the assessee and finally the death of the testator on 11-7-1975. All these natural events culminated into a position from where the assessee claimed her rights to the properties testated in the will dated 9-7-1965 by the deceased. On such facts, a settlement followed in the way and to the extent described by us, supra. To such a settlement, the allegations of the type that it was an artificial device to defraud the revenue cannot but be described as flights of fanciful imagination. Even if the ITO had a right to look behind the family settlement, there was nothing for him but the facts as stated to confront with. Therefore, these arguments of the revenue are devoid of substance and have to be rejected.
25. We have shown supra that the Hon'ble Supreme Court has observed that consideration having passed by each of the disputants, the settlement consisting of recognition of the right asserted by each other cannot be impeached thereafter. Now in the case before us, family settlement had been recognised and approved by the Court. Such a settlement cannot be impeached even by the revenue.
26. Since the family settlement was binding on the parties and the assessee received the properties including the jewellery sold under this settlement, the conclusion drawn by the learned Commissioner (Appeals) that the assessee did not acquire the property by any of the means mentioned in Section 49 is fully justified. His decision following such a conclusion is on facts and law unassailable. We, therefore, have no reason to interfere in his order at the instance of the revenue. The appeal of the revenue is, therefore, dismissed.