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Family Arrangement
By CA A. K. Jain



A family arrangement is a transaction between members of the same family which is for the benefit of the family generally. It is arrangement between member of a family descending from a common ancestor or near relation trying to sink their differences and disputes, settle and solve their conflicting claims once and for all to buy peace of mind and bring about harmony and goodwill in the family by an equitable distribution or allotment of assets and properties amongst member of the family. The object is to preserve the property and the good name of the family by recognising that it is not in the good interest of the family or the members to engage in fights or disputes.
Some of the important terms are described below:

1. Family


A family arrangement necessarily needs to be among family members, and not with outsiders. The term “family” has not been defined under any law. However, the courts have generally held that the term has to be understood in a wider connotation. A common tie of relation is enough to bring a person within the fold of a family. Also, the existence of legal/succession right to the family property is not a prerequisite to determine whether a person is a family member.

2.  Property

The family arrangement should be for working out the rights in the family property. Typically, common property or joint property in the family is considered for the purpose of family arrangement. Individual or self-acquired properties are generally not considered unless antecedent title, claim or interest in the property is shown to be in existence. In essence, an antecedent title of the participants in the subject property is the guiding factor for evaluating a bona fide family arrangement.
It is, however, not necessary that every party taking benefit under the arrangement must necessarily have, under the law, a claim to the property. It suffices if the parties are related to one another and have a possible claim to the property or a claim or even semblance of a claim on some other ground such as, say, affection.

3.  Dispute


Normally, a dispute is a prelude to a family arrangement. However, a pre-existing dispute is not always necessary. So, a bona fide arrangement in anticipation of a plausible dispute and to maintain harmony has also been held to be a valid family arrangement.

4.  Family Dispute

The dispute could relate to any aspect, but is usually relates to the rights or claims in respect of property, assets, enjoyment of rights in respect of properties, claims, shares, possible claims, family feuds, refusal to recognise rights of family members, etc. 
It could relate to any aspect which may threaten the rights of any member or the family as a whole, if the disputes are prolonged or escalated or in the nature of creating situations or circumstances that the members are not able to meet eye to eye. It could be a genuine dispute or a controversy, rival claims, assertions and denials. It is unfortunate that many disputes revolve around the sheer ego of the persons involved. The law takes it that these disputes are not in the best interest of the members of the family.

Valid Arrangements

The following are examples of family arrangements which have been supported by the Court.


1.  A settlement made by parents on the occasion of their child's marriage making provision for the mother, though outside the marriage consideration, on her giving up her right to dower in her husband's estate.

2.  An agreement between father and son altering the limitations of a family settlement.

3.  An agreement providing for payment of the son's debts in consideration of his giving up his interest in the family business.

4.  A covenant to settle property on a nephew, alienated from his father by a marriage without his father's consent, in order to reconcile father and son.

5.  A resettlement of the family property making provision for an illegitimate child.

6.  An agreement between members of a family to divide equally whatever they obtain under the will of an ancestor.

7.  An agreement between co-heiresses dividing the property between them.

Invalid Arrangements

The following are examples of family arrangements which cannot be supported:
1.  Any dealing between parent and child, before the latter is fully emancipated, exclusively for the advantage of the parent.

2.  A compromise of claim to estates founded on a mistake as to the title induced by misrepresentation of one of the parties to the compromise.

3.  An agreement as to division of property where the heir gave up property to which he had undoubted rights without consideration, and where he was ignorant, a drunkard, and without professional assistance, though there was no evidence of fraud or undue influence.

4.  An agreement as to family property not executed by all the intending parties to it.

Critical Aspects of a Family Arrangement

The arrangement should be made in good faith. Good faith can be stated to be the essence of the family arrangement. It should not be made with a view to circumvent provisions of law relating to stamp duty or provide an advantageous position with regard to stamp duty and registration costs. It must not be in the nature of extinguishing or limiting the rights of a family member who is not a consenting party to the arrangement. It should be in the nature of settling disputes, promoting harmony and not in the nature of inciting disputes or disrupting the harmony. There should not be any fraud or undue influence played in any member or members of the family. It must be a voluntary arrangement.

Consideration in Family Arrangement



Family settlement is arrived at between the members of the family with a view to compromise doubtful and disputed right. It, therefore, follows that the allotment of shares under a family settlement is not what a person is legally entitled to since some of the members can be allotted a much lesser share of asset than what they are entitled to under the law, while others a much larger share than what they are entitled to, yet some others may get a share to which are not legally entitled to since the main consideration is surely and certainly purchase of peace and amity amongst the family members and such a consideration cannot be deemed as being without consideration. 

In a family arrangement, the settlement of disputes, harmony within the family, honour of the family, prevention of disputes, compromise of disputes, preservation of property and, in general, matters in the nature of protecting the interest of all concerned will be treated as sufficient consideration, so long as the arrangement is made in good faith.

The basis on which the rights of the members to a family arrangement is recognised-
A family arrangement is not treated as a conveyance. It is only in the nature of allocation, distribution, re-distribution or recognition of pre-existing rights. This is like re-alignment of rights. In the process, some of the pre-existing rights of one of more members may even be extinguished by their consent. So long as it meets the other requirements of a valid family arrangement, this is also recognised. The matter to be considered is the recognition of a claim or a right and not the transfer of the same even though there could be relinquishment by one or more members or acknowledgement of rights of others by one or more members.

Registration of Family Arrangement

A family arrangement can be made orally. It need not be necessarily reduced to writing. If it is implemented in oral form, the question of stamping or registration does not arise. It is legally valid and recognised. However, all the critical factors of a valid family arrangement would be applied to find out whether such arrangement would be valid and fair. The circumstances have to be looked into. 

A family arrangement requires to be duly stamped and registered - This depends on the manner in which the document is made. Generally, if it is a memorandum recording a past transaction or is a record or a chit or a list merely reducing the earlier oral family arrangement, then there may not be any necessity for payment of stamp duty and registration charges as this is not a document of title. Otherwise, if it is intended to be a document of title containing declarations of rights of parties, then it has to be properly stamped and registered. This is the most difficult and controversial part of family arrangements.

A particular document relating to a family arrangement requires to be stamped and registered – It depends on various facts and circumstances and the document itself. One has to look into the manner in which it is made; the phraseology and wordings employed; the setting out of rights and terms and conditions; reference to pre-existing rights of the members; reference to the parties being members of Joint Hindu Family; timing of the document, besides other matters which may be relevant on a case to case basis.

Depending on the wordings employed, facts and circumstances and other factors, it may or may not required to be stamped and registered. Each document has to be scrutinised on the basis of the wordings contained in the document to arrive at a conclusion whether the same requires to be stamped and registered or otherwise.

At times, it may only be stamped, but not registered in which case it can be looked into for collateral purposes. If it is required to be stamped and registered, but is not properly stamped and registered, it cannot be looked into for any purpose. Whether a purpose is collateral or not, is a matter which has to be gathered from the facts and circumstances concerned.

Family arrangement as such can be arrived orally or may be recorded in writing as memorandum of what had been agreed upon between the parties. The memorandum need not be prepared for the purpose of being used as a document on which future title of the parties be founded. It is usually prepared as a record of what had been agreed upon so that there be no hazy notions about it in future. It is only when the parties reduce the family arrangement in writing with the purpose of using that writing as proof of what they had arranged and, where the arrangement is brought about by the document as such, that the document would require registration as it would amount to a document of title declaring for future what rights in what properties the parties possess.

Another aspect that attracts our attention is whether family arrangement, if recorded in a document, requires registration as per the provisions of section 17(1)(b) of the Indian Registration Act, 1908. Section 17(1)(b) lays down that a document for which registration is compulsory should, by its own force, operate or purport to create declare, assign, limit or extinguish either in present or in future any right, title or interest in immovable property. Thus if an instrument of family arrangement is recorded in writing and operates or purports to create or extinguish rights, it has to be compulsorily registered. But where a document, merely records the terms and recital of the family arrangement after the family arrangement had already been made which per se does not create or extinguish any right in immovable properties, such document does not fall within the ambit of section 17(1)(b) of the Act and so it does not require registration.

According to the Supreme Court in Roshan Singh v. Zile Singh AIR 1988 SC 881, the true principle that emerges can be stated thus ‘If the arrangement, of compromise is one under which a person having an absolute title to the property transfers his title in some of the items thereof to others, the formalities prescribed by law have to be complied with, since the transferees derive their respective title through the transferor. If, on the other hand, the parties set up competing titles and the differences are resolved by the compromise, then, there is no question of one deriving title from the other and therefore, the arrangement does not fall within the mischief of section 17 (1) (b) it read with section 49 of the Registration Act as no interest in property is created or declared by the document for the first time.

Family Arrangement does not amount to transfer: The transaction of a family settlement entered into by the parties bonafide for the purpose of putting an end to the dispute among family members, does not amount to a transfer. It is not also the creation of an interest. For, as pointed out by the Privy Council in Hiran Bibi’s case AIR 1914 PC 44, in a family settlement each party takes a share in the property by virtue of the independent title which is admitted to that extent by the other party. It is not necessary, as would appear from the decision in Rangaswami Gounden v. Nachiappa Gounden AIR 1918 PC 196, that every party taking benefit under a family settlement must necessarily be shown to have, under the law, a claim to a share in the property. All that is necessary is that the parties must be related to one another in some way and have a possible claim to the property or a claim or even a resemblance of a claim on some other ground as say, affection.

It is well settled that registration would be necessary only if the terms of the family arrangement are reduced into writing. Here also, a distinction should be made between a document containing the terms and recitals of a family arrangement made under the document and a mere memorandum prepared after the family arrangement had already been made either for the purpose of the record or for information of the court for making necessary mutation. In such a case memorandum itself does not create or extinguish any rights in immovable properties and therefore does not fall within the mischief of section 17 of the Registration Act and is, therefore not compulsorily registrable –Kale v. Dy. Director AIR 1976 SC 807.

The family arrangement will need registration only if it creates any interest in immoveable property in present in favour of the party mentioned therein. In case however no such interest is created, the document will be valid despite its non-registration and will not be hit by section 17 of the Indian Registration Act, 1908. Maturi Pullaih v. Maturi Narasimhan AIR 1966 SC 1836.

Even a family arrangement, which was registrable but not registered, can be used for a collateral purpose, namely, for the purpose of showing the nature and character of possession of the parties .In pursuance of the family settlement. Kale v. Director of Consolidation AIR 1976 SC 807, (1976) 3 SCC 119.

Memorandum of Family Arrangement-Cum-Compromise

To record a family arrangement arrived at orally, a memorandum of family arrangement-cum-compromise is required to be drawn up wherein the properties and assets belonging to the parties to the family arrangement are required to be specified. Thereafter the fact of arriving at family arrangement some time in the past with the help of well-wishers and family friends is required to be mentioned. In the operative portion of the Memorandum of Family Arrangement-cum-Compromise the properties and business which have been allotted to different parties are required to be specified. 

In addition to the Memorandum of Family Arrangement –cum-Compromise, other documents like affidavits of each of the parties to the Family Arrangement are required to be obtained wherein each of the parties confirms on oath that he has received a particular asset and the family arrangement is arrived to his total satisfaction and it is binding on him. In such an affidavit the party giving up his right in other properties which are allotted to other parties to the Family Arrangement states that the said other properties may be transferred in the records of the registering authorities without notice to him. On the basis of the affidavit which is required to be executed before a Notary Public; mutation entries can be made by the concerned authorities.

In order to enable the member of the family to whom a particular property is allotted on arriving at a family arrangement, a power of attorney is required to be given by a member in whose name the said property was standing prior to the family arrangement to enable the party receiving the property to deal with the property as his own. Depending on the facts of each case, various other documents may be required to be drawn up to effect a proper and binding family arrangement.

Difference between Family Arrangement and Partition
A family arrangement may be based on disputed or potential or possible or even notional claims. In a partition, there should be very clear pre-existing rights. In a family arrangement, as is obvious, some degree of relationship is involved. A partition can be entered into between persons who have no family relationship, but are co-owners of property. A family arrangement can be in the nature of re-aligning, re-distributing or even consolidating certain claims and rights. A partition is always in the nature of division of property. There could be other differences on a case-to-case basis. 

Essentials of a Family Arrangement
The family arrangement should be for the benefit of the family in general.

(i)  The family arrangement must be bonafide, honest, voluntary and it should not be induced by fraud, coercion or undue influence.

(ii)  The purpose of the family arrangement should be to resolve present or possible family dispute and rival claims not necessarily legal claims by a fair and equitable division of the property amongst various members.

(iii)  The parties to the family arrangement must have antecedent title, claim or interest. Even if a possible claim in the property which is acknowledged by the parties to the settlement will be sufficient.

(iv)  The consideration for entering into family arrangement should be preservation of family property, preservation of peace and honour of the family and avoidance of litigation. Kale v. Deputy Director of Consolidation (AIR 1976 SC 807)

(v)  Family peace is sufficient consideration.

Antecedent title, claim or interest or even a possible claim
The members who may be parties to the family arrangement must have some antecedent title, claim or interest or even a possible claim in the property which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld and the Court will find no difficulty in giving assent to the same. 

But where the person, in whose favour certain properties have been transferred under the guise of a family arrangement, has no and cannot have any claim or possible claim against the transferor, & therefore, the same cannot be regarded as a family arrangement.

1.  A family settlement is considered as a pious arrangement by all those who are concerned and also by those who administer law. A family settlement is not within the exclusive domain of the Hindu Law but equality applies to all families governed by other religions as well. Thus, it shall apply to Muslims, Christians, Jews, Parsees and other faiths equally.

2.  The concept of family arrangement is an age old one. It is not only applicable to Hindus but also to other communities in which there is a common unit, common mess and joint living. In the case of Bibijan Begum v. Income Tax Officer (34 TTJ 557), the Gauhati Bench of the Appellate Tribunal in a very elaborate judgment held that there is no bar for Mohammedans to effect a family arrangement. In that case the assessee had an absolute right over her Mehr property and in exchange of that land the assessee received another land over which a multi-storeyed building was to be constructed. The assessee’s two daughters and two sons had antecedent right to the properties in the capacity as her heirs though their shares were not specified. The Tribunal held that by a family arrangement the rights of those children had been specified. The family arrangement by which the assessee and her four children received 1/5th share each in the multi-storeyed building was, therefore, valid. The Tribunal therefore, held that the assessee lady could not be assessed in respect of that share of house property which was given to her children pursuant to the family arrangement.

3.  Three parties to the settlement of a dispute concerning the property of a deceased person comprised his widow, her brother and her son-in-law. The latter two could not under the Hindu Law be regarded as the heirs of the deceased, yet, bearing in mind their near relationship to the widow, the settlement of the dispute was very properly regarded as a settlement of a family dispute – Ram Charan Das v. Girija Nandini Devi AIR 1996 SC 323 at page 329.

4.  A family arrangement differs from partition in as much as in a family settlement there can be a division of income without the distribution of assets and there is no bar to a partial partition. The provision of section 271 of the Act, which places restriction on a partial positions do not apply to a family settlement.

5.  The Gauhati High Court in the case of Ziauddin Ahmed v. CGT, 102 ITR 253 held that the family arrangement amongst the members of Mohammedan family is valid and therefore, the shares given by a father to his sons at less than market value in order to preserve the family peace is not liable to gift tax.

Miscellaneous

1.  Hence a purely voluntary act of giving up one’s right in property without compelling circumstances indicating an existing or a possible dispute resulting in a compromise may well constitute a conveyance by way of gift and not valid family arrangement. It is, therefore, necessary that the preamble to the family arrangement should advert to the existence of difference which are likely to escalate to possible litigation and cause lack of peace and harmony in the family and likely to bring dishonor to the family name and prestige.

2. The amendment brought out w.e.f. 25th March, 1989 has removed the distinction as regards to a son or a daughter in respect thereto coparcenary property of Joint Hindu family as governed by Mitakshara law and daughters are clearly treated as coparceners.

Thus, Family Arrangement is a settlement of disputes within the family in a spirit of give and take. Family arrangements are arrived at for a consideration namely, to resolve the disputes amongst the parties, to preserve the family peace and harmony and to avoid litigation. The Transaction of a family settlement entered into by the parties bonafide for the purpose of putting an end to the dispute amongst family Members does not involve Transfer.

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Family Arrangement: Judgements 

The Supreme Court in its landmark judgment, in Kale & Others vs Deputy Director of Consolidation, has explained and examined the essentials of a family arrangement. The Court held as under;

"The principles which apply to the case of ordinary compromise between strangers, do not equally apply to the case of compromises in the nature of family arrangements. Family arrangements are governed by a special equity peculiar to themselves, and will be enforced if honesty made, although they have not been meant as a compromise, but have proceeded from an error of all parties, originating in mistake or ignorance of fact as to that their rights actually are, or of the points On which their rights actually depend." The object of the arrangement is to protect the family from long drawn litigation cr perpetual strifes which mar the unity and solidarity of the family and create hatred and bad blood between the various members of the family. Today when we are striving to build up an egalitarian society and are trying for a complete reconstruction of the society, to maintain and uphold the unity and homogeneity of the family which ultimately results in the unification of the society and, therefore, of the entire country, is the prime need of the hour. A family arrangement by which the property is equitably divided between the various contenders so as to achieve an equal distribution of wealth instead of concentrating the same in the hands of a few is undoubtedly a milestone in the administrating of social justice. That is why the term "family" has to be understood in a wider sense so as to include within its fold not only close relations or legal heirs but even those persons who may have some sort of antecedent title, a semblance of a claim or even if they have a spes successions so that future disputes are sealed for ever and the family instead of fighting claims inter se and wasting time, money and energy on such fruitless or futile litigation is able to devote its attention to more constructive work in the interest of the country. The Courts have, therefore, leaned in favour of upholding a family arrangement instead of disturbing the same on technical or trivial grounds. Where the Courts find that the family arrangement suffers from a legal lacuna or a formal defect the rule of estoppel is pressed into service and is applied to shut out plea of the person who being a party to family arrangement seeks to unsettle a settled dispute and claims to revoke the family arrangement under which he has himself enjoyed some material benefits. The law in England on this point is almost the same. In Halsbury's Laws of England, Vol. 17, Third Edition, at pp. 215-216, the following apt observations regarding the essentials of the family settlement and the principles governing the existence of the same are made: "A family arrangement is an agreement between members of the same family, intended to be generally and reasonably for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving-its honour.

The agreement may be implied from a long course. Of dealing, but it is more usual to embody or to effectuate the agreement in a deed to which the term "family arrangement" is applied.

Family arrangements are governed by principles which are not applicable to dealings between strangers. The court, when deciding the rights of parties under family arrangements or claims to upset such arrangements, considers what in the broadest view of the matter is most for the interest of families, and has regard to considerations which in dealing with transactions between persons not members of the same family, would not be taken into account. Matters which would be fatal to the validity of similar transactions between strangers are not objections- to the binding effect of family arrangements".
In other words to put the binding effect and the essentials of a family settlement in a concretised form, the matter may be reduced into the form of the following propositions:

(1) The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family;

(2) The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence:

(3) The family arrangement may be even oral in which case no registration is necessary;

(4) It is well-settled that registration would be necessary only if the terms of the family arrangement are reduced into writing. Here also, a distinction should be made between a document containing the terms and recitals of a family arrangement made under the document and a mere memorandum pre pared after the family arrangement had already been made either for the purpose of the record or for in formation of the court for making necessary mutation. In such a case the memorandum itself does not create or extinguish any rights in immovable properties and therefore does not fall within the mischief of s. 17(2) of the Registration Act and is, therefore, not compulsorily registrable;

(5) The members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property 'It which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole  owner, then the antecedent title must be assumed and the family arrangement will be upheld and the Courts will find no difficulty in giving assent to the same;

(6) Even if bona fide disputes, present or possible, which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable the family arrangement is final and binding on the parties to the settlement.

The principles indicated above have been clearly enunciated and adroitly adumbrated in a long course of decisions of this Court as also those of the Privy Council and other High Courts, which we shall discuss presently. In Lala Khunni Lal & Ors. v. Kunwar Gobind Krishna Narain and Anr.(1) the statement of law regarding the essentials of a valid settlement was fully approved of by their Lordships of the Privy Council. In this connection the High Court made the following observations , which were adopted by the Privy Council:

The learned judges say as follows:

"The true character of the transaction appears to us to have been a settlement between the several members of the family of their disputes, each one relinquishing all claim in respect of all property in dispute other than that falling to his share, and recognizing the right of the others as they had previously asserted it to the portion allotted to them respectively. It was in this light, rather than as conferring - a new distinct title on each other, that the parties themselves seem to have regarded the arrangement, and we think that

(1) L. R. 38 T. A. 87. 102.

it is the duty of the Courts to uphold and give full effect to such an arrangement."

Their Lordships have no hesitation in adopting that view."
This decision was fully endorsed by a later decision of the Privy Council in Mt. Hiran Bibi and others v. Mt. Sohan Bipi
(1). In Sahu Madho Das and others v. Pandit Mukand Ram and another(2) this Court appears to have amplified the doctrine of validity of the family arrangement to the farthest possible extent, where Bose, J., speaking for the Court, observed as follows:

"It is well settled that compromise or family arrangement is based on the assumption that there is an antecedent title of some sort in the parties and the agreement acknowledges and defines what that title is, each party relinquishing all claims to property other than that falling to his share and recognising the right of the others, as they had previously asserted it, to the portions allotted to them respectively. That explains why no conveyance is required in these cases to pass the title from the one in whom it resides to the person receiving it under the family arrangement. It is assumed that the title claimed by the person receiving the property `, under the arrangement had always resided in him or her so far as the property falling to his or her share is concerned and therefore no conveyance is necessary. But, in our opinion, the principle can be carried further and so strongly do the Courts lean in favour of family arrangements that bring about harmony in a family and do justice to its various members- and avoid in anticipation, future disputes which might ruin them all, and we have no hesitation in taking the next step. (fraud apart) and upholding an arrangement under which. One set of members abandons all claim to all title and interest in all the properties in dispute and acknowledges that the sole and absolute title to all the properties resides in only one of their number (provided he or she had claimed the whole and made such an assertion of title) and are content to take such properties as are assigned to their shares as gifts pure and, simple from him or her, or as a conveyance for consideration when consideration is present."

In Ram Charan. DAS v. Girjanandini Devi & Ors. (3), this Court observed as follows:

"Courts give effect to a family settlement upon the broad " and general ground that its object is to settle existing or future disputes regarding property amongst members of a family. The word 'family' in the content is not to be under stood in a narrow sense of being a group of persons who are recognised in law as having a right of succession or

(1) A.I.R. 1914 P.C.44. (2) [1955] 2 S.C.R. 22, 42-43. (3) [1965] 3 S.C.R. 841, 850-851.
having a claim to a share in the property in dispute. . . . . . . . The consideration for such a settlement, if one may put it that way, is the expectation that such a settlement will result in establishing or ensuring amity and goodwill amongst persons bearing relationship with one another. That consideration having been passed by each of the disputants the settlement consisting of recognition of the right asserted by each other cannot be permitted to be impeached thereafter."

In Tek Bahadur Bhujil v. Debi Singh Bhujil and others(1) it was pointed out by this Court that a family arrangement could be arrived 4 at even orally and registration would be required only if it was reduced into writing. It was also held that a document which was no more than a memorandum of what had been agreed , to did not require registration. This Court had observed thus: "Family arrangement as such can be arrived at orally. Its terms may be recorded in writing as a memorandum of what had been agreed upon between the parties. The memorandum need not be prepared for the purpose of being used as a document on which future title of the parties be founded. It is usually prepared as a record of what had been agreed upon so that there be no hazy notions about it in future. It is only when the parties reduce the family arrangement in writing with the purpose of using that writing as proof of what they had arranged and, where the arrangement is brought about by the document as such, that the document would require registration as it is then that it would be a document of title declaring for future what rights f in what properties the parties possess."

Similarly in Maturi Pullaiah and Anr. v. Maturi Narasimham and ors.(2) it was held that even if there was no conflict of legal claims but the settlement was a bona fide one it could be sustained by the Court. Similarly it has also held that even the disputes based upon ignorance of the parties as to their rights were sufficient to sustain the family arrangement. In this connection this Court observed as follows: -

"It will be seen from the said passage that a family arrangement resolves family disputes, and that even disputes based upon ignorance of parties as to their rights may afford a sufficient ground to sustain it.
Briefly stated, though conflict of legal claims in praesenti or in future is generally a condition for the validity of a family arrangement, it is not necessarily so. Even bona fide disputes, present or possible, which may not involve legal claims will suffice. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family,

(1) A.I.R. 1966 S.C. 292, 295. (2) A.I.R. 1966 S.C. 1836.

enter into such a family arrangement. If such an arrangement is entered into bona fide and the terms thereof are fair in the circumstances of a particular case, Courts `will . more readily give assent to such an arrangement than to avoid it."

In Krishna Biharilal v. Gulabchand and others(1) it was pointed out that the word 'family' had a very wide connotation and could not be confined only to a group of persons who were recognised by law as having a right of succession or claiming to have a share. The Court then observed:

"To consider a settlement as a family arrangement, it is not necessary that the parties to the compromise should all , belong to one family. As observed by this Court in Ram Charan Das v. Girjanandini Devi and ors.[1965] 3 SCR 841 at pp. 850 & 851-the word "family" in the context of a family arrangement is not to be understood in a narrow sense of being a group of persons who are recognised in law as having a right of succession or having a claim to a share in the property in dispute. If the dispute which is settled is one between near relations then the settlement of such a dispute can be considered as a family arrangement see Ramcharan Das's case.

The courts lean strongly in favour of family arrangements to bring about harmony in a family and do Justice to its various members and avoid in anticipation future disputes which might ruin them all."

In a recent decision of this Court in S. Shanmugam Pillai and others v. K. Shanmugam Pillai & others(2) the entire case law was discussed and the Court observed as follows:

"If in the interest of the family properties or family peace the close relations had settled their disputes amicably, this Court will be reluctant to disturb the same. The courts generally lean in favour of family arrangements.
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Family Arrangement: Judgements 

Sea Rock judgement - In this case, the shareholders of the assessee company (Sea Rock Investments Ltd) were family members of the Manipal Pai group. There was a dispute among the members, and the dispute was referred to arbitration. According to the terms of the arbitration award, the assessee company had to transfer certain investments (shares in a firm) to certain family members for an agreed consideration.

The company argued that the transfer of shares should not be treated as a taxable transfer as the transaction was undertaken pursuant to a family dispute settlement in terms of the arbitration award. The assessing officer did not accept the transaction as family arrangement as the transferee assessee company was separate from it shareholders and it had actually received consideration for the transfer.

The high court held that the assessee company was a separate legal entity; thus, even though the shareholders were members of a joint family and the transfer by the company was in settlement of a family dispute, the transfer cannot be said to have been pursuant to such a family arrangement as the shareholders did not have a direct legal right on the investments held by the assessee company, which were the subject matter of the transfer. Further, the assessee company, having received consideration for the transfer, should be held liable for the capital gains. It seems that had the transfer been by the family members, the transfer would not have been liable to capital gains.

Incidentally, in this case, the taxpayer had also argued that it had not received any consideration (which aspect is not very clear) and, hence, on that point, the case had been sent back to the tax tribunal for a fresh adjudication.

Conclusion - Indian courts have consistently held a family arrangement to merely represent the working out of the rights in the common property, between the family participants and, hence, not a taxable transfer.

The Sea Rock judgement, while acknowledging the above principle, held that since the realignment was effected for a consideration through the group’s holding company, which is a separate legal entity from the shareholders, it would not fall within the ambit of a family arrangement. Now, it is not uncommon for promoter groups to hold investments through private holding companies. A realignment of ownership under a family arrangement may thus entail transfer of shares of such a holding company by the individual participants between themselves or transfer of investments by the holding company itself. Undoubtedly, even the latter transfer is, in substance, part and parcel of, and to give effect to, a family arrangement and, respectfully, should also be out of the tax net. The Sea Rock judgement, to that extent, merits reconsideration on this principle.

Interestingly, the proposed direct tax code (DTC) has widened the definition of the term “transfer” to include any disposition, settlement or an arrangement; it remains to be seen whether DTC would overturn the settled judicial thinking on the subject

Halsbury’s Law of England in para 303(2) states that an agreement dividing up family property, though entered into under misapprehension of legal rights of the parties, can be supported as a family arrangement provided the misapprehension is not induced by any party to the agreement, even where misapprehension existed has been established by any subsequent legal decision.

In the case of Shambhu Prasad Vs. Phool Kumar [AIR 1971 SC 1337], In this case Court observed by holding that there must exist a dispute, actual or possible in future, in respect of each and every item of property and amongst all members arrayed by one against the other. It would suffice if it is shown that there were actual or possible claims by parties in settlements whereof the arrangement as a whole has been arrived at, thereby acknowledging title in one to whom a particular property falls on the assumption (not actual existence in law) that he had an interior title therein. In the present case, the property was purchased by father out of his own money. The adopted son could not have claimed any share in such property. In spite of this position, the Apex Court held that – “But, as stated earlier, a dispute or contention, the settlement of which can constitute family arrangement, need not be one which is actually sustainable in law.”
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Family Arrangement: Judgements 

In the case of S.K. Sattar S.K. Mohd. Vs. Gundappa Ambadas [(1996) 6-SCC-373 ] Court described ‘family arrangement’ as a transaction between members of the same family for the benefit of the family so as to preserve the property, peace, and security of the family, avoidance of family dispute and litigation and for saving the honour of family. Such an arrangement is based on the assumption that there was an antecedent title in the parties and the agreement acknowledges and defines what title is.

Tax Implication, Transfer under Sec. 2(47) and Sec. 45(4) of the Income-tax Act, 1961:-

In the case of Roshan Singh Vs. Zile Singh [AIR 1988 SC 881] the Supreme Court held that parties to a Family arrangement set up competing claims to the properties and there was an adjustment of the rights of the parties. By family arrangement it was intended to set at rest competing claims amongst various members of the family to secure peace and amity. The compromise was on the footing that there was antecedent title of the parties to the properties and the settlement acknowledged and defined title of each of the parties.

In the case of CIT Vs. A.N. Naik Associates [265 ITR346, Bom], by the Memorandum of Family Settlement dated 30th January, 1997 it was agreed between the parties thereto that the business of six firms as set out therein would be distributed in terms of the family settlement as the parties desired that various matters concerning the business and 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.

Gift under Sec. 2(xii) and Sec. 4(1) of the Gift Tax Act, 1958:-

In the case of CGT Vs. D. Nagrirathinam (266-ITR-342, Mad.), the assessee was the owner of a half share in the building which consisted of ground floor and first floor. She also owned a residential house and a building. Pursuant to the dispute between the assessee and her son, at the intervention of the Panchayatdars, the assessee executed the deed of partition with a view to settle dispute with her son. As per the deed of partition, one of the properties was absolutely allotted to the son which was belonging to the assessee. Therefore, the gift tax assessment was made in respect of the value of the said property allotted to the son. The Tribunal held that only to solve the family dispute and bring harmony in the family the transactions were entered into and there was a family arrangement which did not constitute gift within the meaning of Sec. 2(xii) and 4(1)(a). The said decision of the Tribunal was upheld by the Court on the ground that the family members intended to maintain peace in the family and therefore, the family arrangement was arrived at which was bona fide one. Hence, the transaction did not constitute gift within the meaning of Sec. 2(xii) and 4(1)(a) of the Gift-tax act.

After analyzing various decisions and the facts of the case the ITAT Madras Bench in the case of Kay Arr Enterprises v.Joint Commissioner of Income-tax  (2005) 97 ITD 291 (Chennai)/(2006)-99-TTJ(Chennai)411 held as under-

The word "family" in the context of a family arrangement is not to be understood in a narrow sense of being a group of persons who are recognized in law as having a right of succession or having a claim to a share in the property in dispute. If it is settled in one between near relations then the settlement of such a dispute can be considered as a family arrangement. A compromise or family arrangement is based on the assumption that there is an antecedent title of some sort in the parties and the agreement acknowledges and defines what that title is, each party relinquishing all claims to property other than that falling to his share and recognizing the right of the others, as they had previously asserted it to the portions allotted to them respectively. These observations do not mean that some title must exist as a fact in the persons entering into a family arrangement. They simply mean that it is to be assumed that the parties to the arrangement had an antecedent. It is also to be noted that a family arrangement by which the property is equitably divided between the various contenders so as to achieve an equal distribution of wealth instead of concentrating the same in the hands of a few is undoubtedly a milestone in the administration of social justice. That is why the term "family" has to be understood in a wider sense so as to include within its fold not only close relations or legal heirs but even those persons who may have some sort of antecedent title, a semblance of a claim or even if they have a spes successionis so that future disputes are sealed for ever and the family instead of fighting claims inter se and wasting time, money and energy on such fruitless or futile litigation is able to devote its attention to more constructive work in the larger interest of the country.

This decision of the Tribunal was affirmed by the Madras High Court in Commissioner of Income-tax v.Kay Arr Enterprises 2008-299-ITR-348(Mad). The Madras High Court relied on CIT v. Ponnammal (R.) [1987] 164 ITR 706 (Mad) ; CIT v. Ramanathan (Al) [2000] 245 ITR 494 (Mad) ; Kale v. Deputy Director of Consolidation [1976] AIR 1976 SC 807 and Maturi Pullaiah v. Maturi Narasimham [1966] AIR 1966 SC 1836 while deciding the issue in favour of  the assessee.

It is to be noted that on 18-07-2008 their Lordships S. H. Kapadia and B. Sudershan Reddy JJ. dismissed the Department’s special leave petition against the judgment dated July 6, 2007 of the Madras High Court in T. C. (A) No. 521 of 2007 reported in 299 ITR 348 whereby the High Court dismissed the Department’s appeal on the ground that no substantial question of law arose from the order of the Tribunal which had held that transfer of shares by way of family arrangement would not attract capital gains tax as the arrangement was to avoid possible litigation amongst family members and was made voluntarily and was not induced by fraud or coercion : CIT v. Ms. R. Jayanthi : S. L. P. (C) No. 18050 of 2008.

The Hon’ble Supreme Court in the case of Maturi Pullaiah v. Maturi Narasimham AIR 1966 SC 1836 has held as under:

“Although conflict of legal claims in praesenti or in future in generally a condition for the validity of family arrangement, it is not necessarily so. Even bona fide disputes, present or possible, which may not involve legal claims would be sufficient. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement. If such an arrangement is entered into bona fide and the terms thereto are fair in the circumstances of a particular case, the Courts will more readily give assent to such an arrangement than to avoid it. In England also the Courts are averse to disturb family arrangements but try to sustain them on broadest considerations of the family peace and security.

The family arrangement will need the registration only if it creates any interest in immovable property in praesenti in favour of the parties mentioned therein. In case however no such interest is created, the document will be valid despite its non-registration and will not be hit by section 17 of the Registration Act.”

In this Apex Court judgment, the principles of family arrangement are depicted at paras 9 and 17 which reads as under :

“(9) A brief summary of the nature of family arrangements and the conditions for their validity is found in Halsbury’s Laws of England, 3rd Edn., Vol. 17 at pp. 215-26 :

 ‘A family arrangement is an agreement between members of the same family, intended to be generally and reasonably for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour.

The agreement may be implied from a long course of dealing, but it is more usual to embody or to effectuate the agreement in a deed to which the term “family arrangement” applied.’

The principles the Courts should bear in mind in appreciating the scope of such family arrangement are stated thus:

‘Family arrangements are governed by principles which are not applicable to dealings between strangers. The Court, when deciding the rights of parties under family arrangements or claims to upset such arrangements, considers what in the broadest view of the matter is most for the interest of families, and has regard to considerations which, in dealing with transactions between persons not members of the same family, would not be taken into account. Matters which would be fatal to the validity of similar transactions between strangers are not objections to the binding effect of family arrangements.’

This passage indicates that even in England Courts are averse to disturb family arrangement but would try to sustain them on broadest considerations of the family peace and security. This concept of a “family arrangement” has been accepted by Indian Courts but has been adapted to suit the family set up of this country which is different in many respects from that obtaining in England. As in England so in India, Courts have made every attempt to sustain a family arrangement rather than to avoid it, having regard to the broadest considerations of family peace and security.

(17) Briefly stated, though conflict of legal claims in praesenti or in future is generally a condition for the validity of a family arrangement, it is not necessarily so. Even bona fidedisputes, present or possible, which may not involve legal claims will suffice. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement. If such an arrangement is entered into bona fide and the terms thereof are fair in the circumstances of a particular case, Courts will more readily give assent to such an arrangement than to avoid it.”

The Supreme Court in the case of Kale v. Dy. Director of Consolidation AIR 1976 SC 807, has held as under:

Before dealing with the respective contentions put forward by the parties, we would like to discuss in general the effect and value of family arrangements entered into between the parties with a view to resolving disputes once for all. By virtue of a family settlement or arrangement members of a family descending from a common ancestor or a near relation seek to sink their differences and disputes, settle and resolve their conflicting claims or disputed titles once for all in order to buy peace of mind and bring about complete harmony and goodwill in the family. The family arrangements are governed by a special equity peculiar to themselves and would be enforced if honestly made. In this connection, Kerr in his valuable treatise ‘Kerr on Fraud’ at p. 364 makes the following pertinent observations regarding the nature of the family which may be extracted thus :

‘The principles which apply to the case of ordinary compromise between strangers, do not equally apply to the case of compromises in the nature of family arrangements. Family arrangements are governed by a special equity peculiar to themselves, and will be enforced if honestly made, although they have not been meant as a compromise, but have proceeded from an error of all parties, originating in mistake or ignorance of fact as to what their rights actually are, or of the points on which their rights actually depend.’ The Supreme Court in Kale v. Dy. Director of Consolidation AIR 1976 SC 807,(supra) relying on the decision in the case of K. Shanmugam Pillai v. K. Shanmugam Pillai AIR 1972 SC 2069 after an exhaustive consideration of the authorities on the subject, observed as under :

“Equitable principles such as estoppel, election, family settlement, etc., are not mere technical rules of evidence. They have an important purpose to serve in the administration of justice. The ultimate aim of the law is to secure justice. In the recent times in order to render justice between the parties, Courts have been liberally relying on those principles. We would hesitate to narrow down their scope.”

The  Supreme Court in the case of SK. Sattar SK. Mohd. Choudhari v. Gundappa Ambadas Bukate [1996] 6 SCC 373 has held in respect of family arrangement as under:

“Section 5 contemplates transfer of property by a person who has a title in the said property to another person who has no title. A family arrangement, on the contrary, is a transaction between the members of the same family for the benefit of the family so as to preserve the family property, the peace and security of the family, avoidance of family dispute and litigation and also for saving the honour of the family. Such an arrangement is based on the assumption that there was an antecedent title in the parties and the agreement acknowledges and defines what that title is. It is for this reason that a family arrangement by which each party takes a share in the property has been held as not amounting to a ‘conveyance of property’ from a person.


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Family Arrangement: Judgements 

 BOMBAY HIGH COURT

Daughters are entitled to Ancestral Property 

A Full Bench of the Bombay High Court comprising Mohit Shah C.J, M. S Sanklecha  and M.S Sonak, JJ,  delivered a noteworthy judgment on daughter’s right to  ancestral property in a joint HUF on 14th August, 2014. The Bench was constituted on a reference by Single Judge R.G. Ketkar J. who doubted the correctness of the decision of the Division Bench in the case of Vaishali S. Ganorkar & others v. Satish Keshavrao Ganorkar & others,. Prior to the enactment of the Hindu Succession (Amendment) Act, 2005 (hereinafter the Amendment Act), the Hindu Succession Act, 1956 (hereinafter the Principal Act) did not provide any rights to daughters in respect of partition of property or the right to demand partition or claim shares in the coparcenary property. A coparcener is a person who has equal rights in the undivided property of a HUF. The Amendment Act now entitles women to an interest in the HUF property by amending Section 6 of the Principal Act and makes a daughter a coparcener in her own right, thereby upholding the fundamental right to equality and non discrimination on the basis of gender enshrined in the Constitution. In the current case the point of contention was not, therefore, whether daughters are also entitled to an interest in the HUF property like their male counterparts, which has been duly settled, but whether the Amendment Act has a prospective or retrospective effect, the determination of which will have a direct bearing on the controversial issue of whether daughters born before 2005 are also entitled to be coparceners in their own right in the same way that daughters born on or after 9 September 2005 are now entitled. A Division Bench upheld the prospective operation of the Amendment Act in Vaishali S. Ganorkar v. Satish Keshavrao Ganorkar, which in effect disentitles all daughters born before 9 September 2005 to claim their equal interest in the Joint HUF governed under the Mitakshara law. Further, the Bench interpreted the amended section to mean that daughters born before 2005 would get rights in the coparcenary property only on the death of the father-coparcener on or after 9 September, 2005.

This provision effectively leaves the daughters remediless if a male coparcener, in the interim, decides to dispose of the property by testament/will. Disagreeing with the decision of the Division Bench, Single Judge R.G Ketkar J. held that the amended section has retrospective effect from the date of the enactment of the Principal Act and is applicable to all daughters who are born before or after 2005 as a daughter becomes a coparcener in her own right by virtue of her birth. The matter was thus referred by the Single Judge to the Full Bench in order to reconcile the differing opinions and reach a reasoned decision bound to impact the lives of millions in the country. Although Hindu women were considered a part of the HUF under the Shastric/Customary Law for the purpose of maintenance, they did not have a right in the property and it transmitted only to male coparceners by way of survivorship. Today, modern thinking has slowly shaped society to accept equality of the genders which has thankfully seeped into the laws of intestate succession resulting in the Amending Act, 2005.  However, the amended Section 6 has left ample scope to the courts for interpretation and this is precisely the critical space where equality needs to be reasoned and upheld. More than just seeing this issue through the lens of feminist movements for equality, the case throws light on the current trend of the courts in application of the rules of interpretation.

The Full Bench concurring with the opinion of the Single Judge stated “We agree with the Respondents that normally a statute should be construed on its plain meaning. However, when the plain reading of the provision is not very clear then, in that case, one has to apply an appropriate tool of interpretation to unearth the intent, object and purpose of the enactment. In such cases, particularly, in cases of socio-economic legislations like the one we are concerned with, we must apply the Mischief or Purposive Rule of interpretation to find out the true meaning of the Statute”. The Mischief Rule propounded in 1584 from Heydon’s case, essentially seeks to rectify the existing defect in the common law and thus allows interpretation to keep in tune with the changing social philosophies of the time. Applying the Purposive Rule to this case, the Full Bench has determined the prospective v. retrospective operation of the Amendment Act. As is well established, the interpretation of statutes raises a presumption against retrospective operation of statues unless expressly or impliedly specified by the legislation itself, as it would result in the dire and chaotic consequence of unsettling already vested rights. However, the courts must not be restrained by the black letter of the law which subverts the justice and equality due to millions of daughters born before 9 September 2005.

The Court, to mete out justice, resorted to the application of an intermediary category known as ‘Retroactive Statute’ which does not operate backwards and does not take away vested rights, but successfully provides rights to those daughters who are alive at the time of the Amendment Act, irrespective of whether they were born before or after 2005. In case the coparcener has died before 2005, then the pre-amended law is applicable but by passing of the Amendment Act, all daughters who are alive ipso facto become coparceners, thus settling the interpretation of the amended Section 6. “The only requirement is that when an Act is being sought to be applied, the person concerned must be in existence/living. The Parliament has specifically used the word ‘on and from the commencement of Hindu Succession (Amendment) Act, 2005’ so as to ensure that rights which are already settled are not disturbed by virtue of person claiming as an heir to a daughter who had passed away before the Amendment Act came into force.”, the Court said.

SUPREME COURT JUDGEMENT- HUF

SC says daughters whose fathers died before amendment in Hindu Succession Act have no right to inheritance

A bench of Justices Anil R Dave and Adarsh K Goel held that the date of a daughter becoming coparcener (having equal right in an ancestral property) is "on and from the commencement of the Act".
The Supreme Court has said that a daughter's right to ancestral property does not arise if the father died before the amendment to Hindu law came into force in 2005.
According to an Indian Express report, the apex court held that amended provisions of the Hindu Succession (Amendment) Act, 2005, do not have retrospective effect. The father would have to be alive on September 9, 2005, if the daughter were to become a co-sharer with her male siblings.
A bench of Justices Anil R Dave and Adarsh K Goel held that the date of a daughter becoming coparcener (having equal right in an ancestral property) is "on and from the commencement of the Act".

The Hindu Succession Act, 1956 did not give daughters inheritance rights in ancestral property. However, the Congress-led UPA government modified this Act on September 9, 2005. Earlier, women could only ask for sustenance from a joint Hindu family.
The only restriction in force after the passage of this amendment was that women could not ask for a share if the property had been alienated or partitioned before December 20, 2004, the date the Bill was introduced. But now the Supreme Court has added this new restriction.
Indian Express says that the apex court ruling overrules some high court judgements which say that the amendment being in the form of a gender legislation, should apply retrospectively for the sake of removing discrimination.

The top court shot down the argument that a daughter acquires right by birth, and even if her father had died prior to the amendment, the shares of the parties were required to be redefined. "The text of the amendment itself clearly provides that the right conferred on a 'daughter of a coparcener' is 'on and from the commencement' of the amendment Act. In view of plain language of the statute, there is no scope for a different interpretation than the one suggested by the text," it said. 
Further, there is neither any express provision for giving retrospective effect to the amended provision nor necessary intent, noted the court, adding "even a social legislation cannot be given retrospective effect unless so provided for or so intended by the legislature".


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Capital Gain in case of Family Settlement

The Madras High Court in a judgment reported as Palanikumar Pillai Vs. Palanikumar Pillai & others (1988) 1 LW 448 explained the scope of 'provision of owelty'. While referring to the Supreme Court judgment in Badri Narain Prasad Choudary & others Vs. Nil Rattan Sarkar (1978) 3 SCR 467, held to the following effect:


A Court may also be confronted with a situation, namely, that the item of property is not capable of physical partition or is such that, if divided, it will lose its intrinsic worth, in such a case, that item is allotted to one and compensation in money value is given to the other and if such a course is not possible it is sold outright and the sale proceeds divided between the joint owners. All the aforesaid and similar other methods are adopted by Courts in making an equitable partition of the joint properties either with the consent of the parties or where such consent is not forthcoming in exercise of its own discretion.

Whatever method is adopted, it is only to implement the process of equitable partition. It would well-night be impossible for a Court to effectuate a partition on an equitable basis, if it should be held that it is under a legal obligation to divide every item of the joint property in specis. Where properties are susceptible of such division, the Court adopts it. Where it is not, it adopts one or other of the alternative methods narrated above.

The Madras High Court in AL. Ramanathan's case (supra) returned a finding that an amount of Rs.8 lacs received in a family settlement to settle the disputes between the family is not subject to capital gain. It was observed as under:

A perusal of the records goes to establish that dispute arose in that family and the family arrangement was arrived at in consultation with the panchayatdars and accordingly realignment of interest in several properties had resulted. The family arrangement was arrived at in order to avoid continuous friction and to maintain peace among the family members. The family arrangement is an agreement between the members of the same family intended be generally and reasonably for the benefit off the family either by compromising doubtful or disputed rights or by preserving the family property or the peace and security off the family by avoiding litigation or by saving its honour. So, the family arrangements are governed by principles which are not applicable to dealings between strangers and the family arrangement among them is for the interest of the family, for the harmonious way of living. So, such realignment of interest by way of effecting family arrangement among the family members would not amount to transfer."

In Kay Arr Enterprises case (supra), there was transfer of shares as also consideration in cash. The Court held that such rearrangement of shareholding in the Company is to avoid possible litigation among the family members and is prudent arrangement and such transfer of shares is not alienation. The Court held to the following effect:

In the instant case also, the Tribunal found that the rearrangement of shareholdings in the company to avoid possible litigation among family members is a prudent arrangement which is necessary to control the company effectively by the major shareholders to produce better prospects and active supervision or otherwise there would be continuous friction and there would be no peace among the members of the family. Such a family arrangement intended either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour cannot be concluded as any other dealings between strangers, as such a family arrangement is for the interest of the family and for the harmonious way of living. Therefore, such a realignment of interest by way of effecting a family arrangement among the family members would not amount to transfer."

The Division Bench of Karnataka High Court in R. Nagaraja Rao's case (supra) has held that partition is not a transfer and adjustment of shares, crystallization of the respective rights in the family properties cannot be construed as a transfer in the eye of law. When there is no transfer of asset, there is no capital gain and consequently there is no liability to pay tax on capital gains.

3 comments:

  1. SIR IS FAMILY ARRANGEMENT AND FAMILY SETTLEMENT IS SAME....

    ReplyDelete
  2. Once a family arrangement has been written and duly registered can a fresh unregistered and unstamped family arrangement be written subsequently altering the contents of registered family arrangement. If No/Yes then relevant authority in either scenario.
    The essentials of a family arrangement is to maintain peace and harmony amongst family members. If after the family arrangements whether registered or unregistered the family members are still not happy with their share and are involved in litigation after 40 years of a family arrangement then what is the status of such family arrangements.

    ReplyDelete

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