Capital Gains on adjustment of shares among family members

Partition is not a transfer. What is recorded in a family settlement is nothing but a partition. Every member has an anterior title to the property which is the subject-matter of a transaction, that is, partition of a family arrangement. So there is a adjustment of shares, crystallization of the respective rights in the family properties, and, therefore, it cannot be construed as a transfer in the eye of law. When there is no transfer, there is no capital gains and, consequently, no tax on capital gains is liable to be paid. 

The Karnataka High Court in the case of CIT v. R. Nagaraja Rao (2013) 352 ITR 565 held that mere partition is not treated as a transfer and in a family settlement which is recorded one. It is nothing but a partition. The hon’ble judges were of the view that the word “transfer” does not include partition or family settlement as defined under the Act. 

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