FAMILY ARRANGEMENT
1. Succinct account of the nature of family arrangements and the conditions for their validity is found in Halsbury’s Laws of England, Third Edn., Vol. 17 at pp. 215-16: ‘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’ applies.
Had there been no family disputes, there would have been no great epics like Ramayana & Mahabharata. By nature, human beings unite and part. Be it Reliance or Mafatlal, split is inevitable.
Had there been no family disputes, there would have been no great epics like Ramayana & Mahabharata. By nature, human beings unite and part. Be it Reliance or Mafatlal, split is inevitable.
1. Succinct account of the nature of family arrangements and the conditions for their validity is found in Halsbury’s Laws of England, Third Edn., Vol. 17 at pp. 215-16: ‘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’ applies.
Had there been no family disputes, there would have been no great epics like Ramayana & Mahabharata. By nature, human beings unite and part. Be it Reliance or Mafatlal, split is inevitable.
Had there been no family disputes, there would have been no great epics like Ramayana & Mahabharata. By nature, human beings unite and part. Be it Reliance or Mafatlal, split is inevitable.
ESTOPPEL
2. The Hon’ble Chief Justice, C.J. Chagla, while dealing with the real nature of transaction in CIT v. Kolhia Hirdagarh Co. Ltd. [1949] 17 ITR 545 (Bom.), has deliberated as under :
“In taxation matters it is not necessary to construe documents from their purely legal aspect. It is open to us not merely to look at the documents themselves, but also to consider the surrounding circumstances so as to arrive at a conclusion as to what was the real nature of the transaction from the point of view of two businessmen who were carrying out this transaction. In all taxation matters more emphasis must be placed upon the business aspect of the transaction rather than on the purely legal and technical aspect.”
2. The Hon’ble Chief Justice, C.J. Chagla, while dealing with the real nature of transaction in CIT v. Kolhia Hirdagarh Co. Ltd. [1949] 17 ITR 545 (Bom.), has deliberated as under :
“In taxation matters it is not necessary to construe documents from their purely legal aspect. It is open to us not merely to look at the documents themselves, but also to consider the surrounding circumstances so as to arrive at a conclusion as to what was the real nature of the transaction from the point of view of two businessmen who were carrying out this transaction. In all taxation matters more emphasis must be placed upon the business aspect of the transaction rather than on the purely legal and technical aspect.”
FAMILY ARRANGEMENT AND CAPITAL GAINS
3. In the case of CIT v. A.L. Ramanathan [2000] 245 ITR 494/[2003] 128 Taxman 87 (Mad.), the assessee was an HUF. The Karta of this joint family was one R, the son of A. There was a partition in the joint family of which A was the Karta and his three sons, L, P and R, were the other coparceners. Disputes arose in the family and an interim agreement was entered into on August 19, 1980, under which the assessee’s side was to receive a certain sum of money and certain lands and in return they were required to transfer half of their shareholding in certain companies. On August 20, 1981, a final agreement was drawn up and there was again a realignment of family properties. The assessee claimed that the agreements dated August 19, 1980, and June 20, 1981, were in pursuance of a family arrangement and, hence, the capital gains from these transactions could not be assessed to capital gains tax. The ITO took the view that the transactions amounted to transfer of title in respect of which capital gains were exigible to tax. The Tribunal came to the conclusion that the transaction was a family arrangement and did not involve any transfer of title of properties. On a reference, it was held that the dispute arose in the family and the family arrangement was arrived at in consultation with the Panchayatdars and, accordingly, realignment of interest in several properties resulted. The family arrangement was arrived at in order to avoid continuous friction and to maintain peace among the family members. The family arrangement was governed by the principles which were not applicable to dealings between strangers. So, such realignment of interest by way of effecting family arrangements among the family members would not amount to transfer. The Tribunal found that the family arrangement was a bona fide one inasmuch as it was made voluntarily and was not induced by any fraud or collusion and the conduct of the parties was consistent with the bona fide family arrangement, particularly when it was arrived at in the presence of Panchayatdars. The family arrangement involved in the above case did not amount to transfer. Therefore, no capital gains arose.
Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement.
3. In the case of CIT v. A.L. Ramanathan [2000] 245 ITR 494/[2003] 128 Taxman 87 (Mad.), the assessee was an HUF. The Karta of this joint family was one R, the son of A. There was a partition in the joint family of which A was the Karta and his three sons, L, P and R, were the other coparceners. Disputes arose in the family and an interim agreement was entered into on August 19, 1980, under which the assessee’s side was to receive a certain sum of money and certain lands and in return they were required to transfer half of their shareholding in certain companies. On August 20, 1981, a final agreement was drawn up and there was again a realignment of family properties. The assessee claimed that the agreements dated August 19, 1980, and June 20, 1981, were in pursuance of a family arrangement and, hence, the capital gains from these transactions could not be assessed to capital gains tax. The ITO took the view that the transactions amounted to transfer of title in respect of which capital gains were exigible to tax. The Tribunal came to the conclusion that the transaction was a family arrangement and did not involve any transfer of title of properties. On a reference, it was held that the dispute arose in the family and the family arrangement was arrived at in consultation with the Panchayatdars and, accordingly, realignment of interest in several properties resulted. The family arrangement was arrived at in order to avoid continuous friction and to maintain peace among the family members. The family arrangement was governed by the principles which were not applicable to dealings between strangers. So, such realignment of interest by way of effecting family arrangements among the family members would not amount to transfer. The Tribunal found that the family arrangement was a bona fide one inasmuch as it was made voluntarily and was not induced by any fraud or collusion and the conduct of the parties was consistent with the bona fide family arrangement, particularly when it was arrived at in the presence of Panchayatdars. The family arrangement involved in the above case did not amount to transfer. Therefore, no capital gains arose.
Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement.
HARMONY
4. In the case of Maturi Pullaiah v. Maturi Narasimham AIR 1966 SC 1836, the Apex Court held that although conflict of legal claims in praesenti or in future is 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 thereof are fair in the circumstances of a particular case, the Courts will more readily give assent to such an arrangement than 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.
4. In the case of Maturi Pullaiah v. Maturi Narasimham AIR 1966 SC 1836, the Apex Court held that although conflict of legal claims in praesenti or in future is 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 thereof are fair in the circumstances of a particular case, the Courts will more readily give assent to such an arrangement than 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.
ANTECEDENT TITLE
5. The Hon’ble Supreme Court in the case of S.K. Sattar S.K. Mohd. Choudhari v. Gundappa Ambadas Bukate [1996] 6 SCC 373 has held in respect of family arrangement that 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 who has title to it to a person who has no title.
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.
Recently, in the case of Kay Arr Enterprises v. Jt. CIT [2005] 97 ITD 291 (Chennai), it was held that the expression ‘family’ has a very wide connotation and it is not that 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 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 title. 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. 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.
5. The Hon’ble Supreme Court in the case of S.K. Sattar S.K. Mohd. Choudhari v. Gundappa Ambadas Bukate [1996] 6 SCC 373 has held in respect of family arrangement that 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 who has title to it to a person who has no title.
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.
Recently, in the case of Kay Arr Enterprises v. Jt. CIT [2005] 97 ITD 291 (Chennai), it was held that the expression ‘family’ has a very wide connotation and it is not that 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 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 title. 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. 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.
ADMISSION IS NOT CONCLUSIVE
6. In the case of Kay Arr Enterprises (supra), it was held that as regards the admission of the transaction in question as a transfer and, accordingly, payment of capital gains tax, it is well-settled in law that admission is best evidence of a point in issue and though not conclusive, is decisive of the matter unless successfully withdrawn or proved erroneous. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is always open to the person who made the admission to show that it is incorrect. In the present case, the admission was not made by the assessee; rather the other party had accepted the transaction as a transfer and, accordingly, paid capital gains tax. That would not debar the assessee from contesting the issue from the facts and circumstances of the case. It was clear that this was an admission of other party, which would not bind the present assessees. In view of the above discussion and after considering the case laws of the Apex Court and jurisdictional High Court, it was held that the rearrangement of shareholdings in the companies to avoid possible litigation among family members seemed to be a prudent arrangement which was necessary to control the companies effectively by the major shareholders to produce better prospects and active supervision. Accordingly, the same could not be held as a transfer of shares, which was exigible to capital gains tax. No doubt the family arrangement was not reduced in writing, there was no need to reduce the family arrangement in writing compulsorily and it did not need to be registered in view of the ratio of the decision of the Hon’ble Supreme Court in Kale (supra). From the above, it was clear that the two families were part of bigger families, which was very clear from the family tree. Accordingly, it was held that those transactions were not exigible to capital gains tax.
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.
6. In the case of Kay Arr Enterprises (supra), it was held that as regards the admission of the transaction in question as a transfer and, accordingly, payment of capital gains tax, it is well-settled in law that admission is best evidence of a point in issue and though not conclusive, is decisive of the matter unless successfully withdrawn or proved erroneous. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is always open to the person who made the admission to show that it is incorrect. In the present case, the admission was not made by the assessee; rather the other party had accepted the transaction as a transfer and, accordingly, paid capital gains tax. That would not debar the assessee from contesting the issue from the facts and circumstances of the case. It was clear that this was an admission of other party, which would not bind the present assessees. In view of the above discussion and after considering the case laws of the Apex Court and jurisdictional High Court, it was held that the rearrangement of shareholdings in the companies to avoid possible litigation among family members seemed to be a prudent arrangement which was necessary to control the companies effectively by the major shareholders to produce better prospects and active supervision. Accordingly, the same could not be held as a transfer of shares, which was exigible to capital gains tax. No doubt the family arrangement was not reduced in writing, there was no need to reduce the family arrangement in writing compulsorily and it did not need to be registered in view of the ratio of the decision of the Hon’ble Supreme Court in Kale (supra). From the above, it was clear that the two families were part of bigger families, which was very clear from the family tree. Accordingly, it was held that those transactions were not exigible to capital gains tax.
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.
RESOLUTION OF DISPUTES
7. The Hon’ble Supreme Court in the case of Kale v. Dy. Director of Consolidation AIR 1976 SC 807, has held as under :
“(a) 9. 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 object of the arrangement is to protect the family from long drawn litigation or 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 administration of social justice. . . .
The law in England on this point is almost the same. In Halsbury’s Laws of England, Vol. 17, Third Edn., at pp. 215-216, apt observations regarding the essentials of the family settlement and the principles governing the existence of the same are made:”
7. The Hon’ble Supreme Court in the case of Kale v. Dy. Director of Consolidation AIR 1976 SC 807, has held as under :
“(a) 9. 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 object of the arrangement is to protect the family from long drawn litigation or 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 administration of social justice. . . .
The law in England on this point is almost the same. In Halsbury’s Laws of England, Vol. 17, Third Edn., at pp. 215-216, apt observations regarding the essentials of the family settlement and the principles governing the existence of the same are made:”
ESSENTIALS OF A FAMILY ARRANGEMENT TO MAKE IT BINDING
8. To put the binding effect and the essentials of a family settlement in a concretized form, the matter may be reduced into the form of the following propositions :
Courts are averse to disturb family arrangement but would try to sustain them on broadest considerations of the family peace and security.
(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 arrangements 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 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, the memorandum itself does not create or extinguish any rights in immovable properties and, therefore, does not fall within the mischief of section 17(2) [(sic) section 17(1)(b)] 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, 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 Apex Court relying on the decision in the case of S. 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, the Courts have been liberally relying on those principles. We would hesitate to narrow down their scope.
8. To put the binding effect and the essentials of a family settlement in a concretized form, the matter may be reduced into the form of the following propositions :
Courts are averse to disturb family arrangement but would try to sustain them on broadest considerations of the family peace and security.
(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 arrangements 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 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, the memorandum itself does not create or extinguish any rights in immovable properties and, therefore, does not fall within the mischief of section 17(2) [(sic) section 17(1)(b)] 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, 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 Apex Court relying on the decision in the case of S. 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, the Courts have been liberally relying on those principles. We would hesitate to narrow down their scope.
CONCLUSION
9. 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 in 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 f broadest considerations of family peace and security. Rearrangement of shareholdings in the companies to avoid possible litigation among family members and to control companies effectively by major shareholders is not a transfer exigible to capital gains tax.
9. 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 in 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 f broadest considerations of family peace and security. Rearrangement of shareholdings in the companies to avoid possible litigation among family members and to control companies effectively by major shareholders is not a transfer exigible to capital gains tax.
