CASE LAWS PERTAINING TO FAMILY SETTLEMENTS
S.NO CASE TITLE
.
1. CIT v. A.L. Ramanathan
1998 SCC Online Mad 1242
gain arising from that transaction.
2. The Commissioner Of Gift Tax vs The word ‘transfer’ in section 45 does not include partition or family settlement as defined
Sri K N Madhusudhan
Gift Tax Appeal No. 2/2008
3. CIT Vs. A.N. Naik Associates
(2004) 187 CTR Bom 162
PARTICULARS
The Tribunal, on the facts, found that the family arrangement involved in this case appears
to be a bona fide one inasmuch as it has been shown to have been made voluntarily and not
induced by any fraud or collusion and the conduct of the parties referred to by the Revenue
is consistent with the bona fide family arrangement particularly when it was arrived at in
the presence of panchayatdars. So, the family arrangement is a bona fide one and it was
effected to dissolve the family dispute. The Tribunal is perfectly justified in taking the view
that the transaction of the assessee being a family arrangement did not amount to transfer
and therefore, there was no chargeable capital gain arising from that transaction. So, the
transaction of the assessee did not amount to transfer and there was no chargeable capital
in the Income Tax Act. The facts recorded in the family settlement are akin to a partition
and hence cannot be taxed. Family members under the scheme of arrangement have an
anterior title to the property which is a subject matter of partition or a family arrangement.
Thus, under family settlement there is an adjustment of shares, crystallization of respective
rights in the family properties and therefore it cannot be construed as a transfer in under the
Taxing statutes. Thus, as there is no transfer in the eyes of law, there is no capital gain and
therefore no capital gain tax can be levied on such transfer.
The Memorandum of Family Settlement it was decided by the parties thereto that the
business of six firms as set out therein would be distributed in terms of the family
settlement, as decided by the parties concerning various matters relating to business and
 CASE LAWS PERTAINING TO FAMILY SETTLEMENTS

assets thereto be divided separately and partitioned. Under the terms and condition of the
settlement, it was set out that the assets proposed to be divided in partition under the
settlement were held by the firms and the individual partners. With reference to the firms,
the manner in which the firms were to be reconstituted by retirement and admission of new
partners was also set out. Based on these documents and subsequent deeds of retirement of
Partnership an order of the assessment was made holding that the respondents was liable for
tax on capital gains. The Tribunal held that the business continued to be run and there was
no dissolution of the firm and consequently Sec. 45(4) of the Act was not attracted.
4. Bansari Lal Aggarwal Vs. CGT  The family arrangement arrived at between the husband on the one side and wife & four
1985 14 ITD 475 Chd son on the other as collusive one effected with a view to avoid payment of tax. In the said
Bench – 2 case, property owned by the assessee was an individual property. Wife and four sons had
only lent money to husband to buy the said property. Mere creating an antecedent title,
claim or interest of the five persons in the individual property of husband and consequently,
the family arrangement decree obtained by the parties concerned was set aside on the
ground of being collusive, obtained with a view to avoid payment of tax.
5. Shambhu Prasad Singh v. Phool The arrangement under challenge has to be considered as a whole for ascertaining whether
Kumari it was made to allay disputes, existing or apprehended, in the interest of harmony in the
(1971) 2 SCC 28  family or the preservation of property. It is not necessary that there must exist a dispute,
Bench – 3 actual or possible in the future, in respect of each and every item of property and amongst
all members arrayed one against the other. It would be sufficient if it is shown that there
were actual or possible claims and counter-claims by parties in settlement whereof the
arrangement as a whole had been arrived at, thereby acknowledging title in one to whom a
 CASE LAWS PERTAINING TO FAMILY SETTLEMENTS

particular property falls on the assumption (not actual existence in law) that he had an
anterior title therein.
6. Ravinder Kaur Grewal & Ors. Vs Supreme Court stated that, as noted clause (v) of Section 17(2) is attracted, which pertains
Manjit Kaur & Ors.  to execution of any document creating or extinguishing right, title or interest in an
immovable property amongst the family members. No registration is necessary if a
2020 SCC OnLine SC 612
document is only a memorandum of family settlement and not a document containing the
Bench -2
terms and recitals of a family settlement.
SC concluded that the High Court committed manifest error in interfering with and in
particular reversing the well considered decision of the first appellate Court, which had
justly concluded that document dated 10.3.1988 executed between the parties was merely a
memorandum of settlement, and it did not require registration.