Law:

Section:

Section 45 of the Income-tax Act, 1961 - Capital gains - Chargeable as Re-arrangement of shareholdings in company to avoid possible litigation among family members is a prudent arrangement necessary to control company effectively by major shareholders to produce better prospects and active supervision and in case of such rearrangement of shareholding it cannot be held that there is transfer of shares liable to capital gains tax There was a transfer of shares in the assessee-firm which consisted of partners, who were family members. in that, certain new shares were acquired in exchange of old shares, as also some consideration was paid in cash. According to the assessees, the transfer was consequent to a family arrangement. But the Assessing Officer, after analyzing the facts of the case and the legal aspects on the same, concluded that there was indeed a transfer involved and, thus, subjected the transaction to capital gains tax. The Tribunal held that the re-arrangement of shareholdings in the company to avoid possible litigation among family members was a prudent arrangement necessary to control the company effectively by the major shareholders to produce better prospects and active supervision as otherwise there would be continuous friction and there would be no peace among the members of the family and held that such family arrangement could not be held as transfer which was exigible to capital gains tax. Held that the law on the point involved is well settled by the decisions of the Apex Court in Maturi Pullaiah v. Maturi Narasimham AIR 1966 SC 1836, and in Kale v. Dy. Director of Consolidation AIR 1976 SC 807 which are followed by this Court in CIT v. R. Ponnammal [1986] 54 CTR (Mad.) 319/[1987] 164 ITR 706 (Mad.) and in CIT v. AL. Ramanathan [2000]159 CTR (Mad) 255/[2000] 245 ITR 494 (Mad.). In view of the settled proposition of law, the Tribunal was justified in arriving at the conclusion that the family arrangement among the assessees did not amount to any transfer and, hence, was not exigible to capital gains tax. Accordingly, no substantial question of law arose. J. Narayanasamy for the Appellant. JUDGMENT 1. P. D. Dinakaran, J.-The Revenue has…

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