Capital gain: A. Y. 2007-08: Family settlement: Principle of owelty: Payment to assessee to compensate inequalities in partition of assets: Amount paid is immovable property: No capital gain arises:

In the course of the assessment for the A. Y. 2007-08, the Assessing Officer found that the assessee (Group A) had received compensation from group B at the time of partition of properties of the group of HSL and that the amount had been kept in fixed deposit receipts in accordance with the orders passed by the High Court and by the Supreme Court. The Assessing Officer considered the family settlement and found that 8.56% of Rs. 24 crore of compensation was the share of the assessee and levied long term capital gains on the amount. The Commissioner (Appeals) held that the distribution of assets including the sum of Rs. 24 crore was not complete during the relevant year as the matter was subjudice and the assessee was not allowed to use the money by the order of this court, and therefore, the sum of  Rs. 24 crore transferred to the assessee and the other members of the Group A did not accrue to the income of this group including the assessee. The Tribunal upheld this decision.

The Punjab and Haryana High Court dismissed the appeal filed by the Revenue and held as under:

“i) The payment of Rs. 24 crore to the assessee was to equalize the inequalities in partition of the assets of HSL. The amount so paid was immovable property. If such amount was to be treated as income liable to tax, the inequalities would set in as the share of the recipient would diminish to the extent of tax.

ii) Since the amount paid during the course of partition was to settle the inequalities in partition, it would be deemed to be immovable property. Such amount was not an income liable to tax.

iii) Thus, the amount of owelty, i.e. compensation deposited by group B was to equalise the partition and represented immovable property and would not attract capital gains.”