Family Settlement & Wills

Family arrangements are governed by principles which are not applicable to dealing between strangers. When deciding the rights of parties under a family arrangement or a claim to upset such an arrangement, the court considers what in the broadest view of the matter is most in the interest of the family, and has regard to considerations which, in dealing with transactions between persons not members of the same family, would not be taken into account (para 304 of Halsbury’s Laws of England).

Should be bona fide

Since the consideration for a family arrangement is partly value and partly love and affection, the pecuniary worth of the consideration is not regarded too closely. The court will not, as a general rule, inquire into the adequacy of the consideration, but there is an equity to set aside a family arrangement where the inadequacy of the consideration is so gross as to lead to the conclusion that the party either did not understand what it was about, or was the victim of some imposition (see para 312 of Halsbury’s Laws of England).

What is family

The word “family” is not to be interpreted in the narrow sense of members of a joint Hindu family as defined in Hindu Law but it would include wide range of persons who belong to one family in its comprehensive sense. The basis on which such family settlements are held as valid and binding between all parties is the mutual consideration which flows between the parties while putting an end to the claims and counter claims between them. It has been held under the law of contract that it is lawful consideration for a party when he gives up his claim to any property in return for any payment or transfer of property made to him or any obligation undertaken by the party. Existence of the right in the property is not necessary in order to make the family settlement valid and binding for a valuable consideration. The existence of the dispute or a threatened dispute between the members of the family is considered to be a precondition for a valid family settlement and such disputes and the consequent giving up of claims and counter-claims between the various members of the family constitutes good and valid consideration between the parties for enforcement of the rights and obligations created by such a family settlement. The family settlement, therefore, is not founded on existing rights or liabilities but rather on existing claims and disputes between the parties which are amicably resolved; notices may be given by contending parties, even suits may be filed matters may be referred to arbitration and award may work out as family settlement.

Some principles governing family arrangements

Except where there is a specific provision of the IT Act which derogates from any other statutory law or personal law, the provision will have to be considered in the light of the relevant branches of law. – CIT v. Bhagyalakshmi & Co., 55 ITR 660 (SC). In other words, while construing family settlements for tax purposes, the courts would apply the settled principles applicable to such settlements.

1) In Maturi Pullaiah & Anr. v. Maturi Narasimham & Ors. AIR 1966 SC 1836, the Apex Court has held as follows :

“Briefly stated, though conflict of legal claims in praesenti or de futuro 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, 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.”

2) The real consideration in a family arrangement is based upon a recognition of a pre-existing right hence, there is no transfer of property at all. The Hon’ble Apex Court in CGT v. NS Getti Chettiar 82 ITR 599 (SC) based its observation on that ground in a case of unequal family partition and held that it is not transfer, hence no gift tax liability is attracted.

3) The Hon’ble Supreme Court in Sahu Madho Das v. Pandit Mukand Ram AIR 1955 SC 481 has laid down the principles of family settlement and the requirement of registration of a document of family settlement. The Hon’ble Apex Court observed as under:

“It is well-settled that a compromise or family settlement 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 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 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 and are content to take such properties as are assigned to their shares as gifts pure and simple from ……..”.

4) A family arrangement does not result into a transfer or a conveyance Ramcharan Das v. Girija Devi AIR 1966 SC 323. In this case, the Hon’ble Apex Court held as under:

In Mst. Hiran Bibi v. Mst. Sohan Bibi AIR 1914 PC 44 (3) L.R. 53 I. All approving the earlier decision in Khunni Lal v. Govind Krishna Narain IL..R. 33. An. 356, the Privy Council held that a compromise by way of family settlement is in no sense an alienation by a limited owner of family property. Once it is held that the transaction being a family settlement is not an alienation, it cannot amount to the creation of an interest. As the Privy Council pointed out in Mst. Hiran Bibi’s (supra), case, 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 parties.

5) It is not necessary, as would appear from the decision in Rangasami Gounden v. Nachiappa Gounden L.R. 46 I.A. 72, 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 semblance of a claim on some other ground as, say, affection.

6) That apprehended conflict can also be a ground for such settlement – AIR 1932 Cal 600, AIR 1932 Cal 664.

7) Even the parties to family settlement need not belong to the same family. The word ‘family’ in this context is quite flexible. The family is not to be taken in its rigid connotation in common parlance. It is enough if the parties are relations. Even collaterals having a remote common ancestor may join in an arrangement and can have relinquished or altered even their interest in expectancy – Krishna Baharilal v. Gulab Chand & Ors. AIR 1971 SC 104. The court, in that case, encountered by the question whether the want of direct family bond amongst the parties to the settlement detracts from the family character of the settlement. The answer is in the negative. Even though the parties were nothing but mere relations and not members of the same family, the dispute between the parties was in respect of certain property which was originally owned by their common ancestors, that was considered sufficient for a family settlement or arrangement. Thus, the family for the purpose of such settlement has a broad sense to embrace parties not belonging to the family.

Registration of the family deed

8) Section 17 of the Registration Act, 1908 enlists the documents which shall be registered under the Act. Clause (b) of Section 17(1) reads:

Other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property.

Section 17(2), inter alia, provides that nothing in clause (b) of Section (1) of Section 17 applies to:

(v) Any document other than the documents specified in sub-section(1A)] not itself creating, declaring, assigning, limiting or extinguishing any right, title or interest of the value of one hundred rupees and upwards to or in immovable property, but merely creating a right to obtain another document which will, when executed, create, declare, assign, limit or extinguish any such right, title or interest; or

(vi) any decree or order of a Court [except a decree or order expressed to be made on a compromise and comprising immovable property other than that which is the subject- matter of the suit or proceeding].

9) Section 49 of the Registration Act provides that no documents required by Section 17inter alia, to be registered shall affect any immovable property comprised therein; confer any power to adopt; or be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered. Consequently, unlike under Section 35 of the Stamp Act, an instrument/document that is compulsorily registrable, but is not so registered, is denuded of its efficacy and it is not receivable in evidence, and the law does not enable the party relying upon the instrument/document to unilaterally get the same subsequently registered.

10) It is settled position that a family settlement does not require registration- Kale v. Dy. Director AIR 1976 SC 807; Shahu Madho das v. Mukand Ram AIR 1955 SC 804. Hence no registration is required since there is no conveyance involved in this family settlement; the right/title/interest of the all the family members already existed in the property.

11) In Tek Bahadur Bhujil v. Debi Singh Bhujil AIR 1966 SC 292 it was observed that where the document was drawn up only to serve the purpose of proof or evidence of what had been decided by the parties, and not to form the basis of their rights in any form over the property, the same constitutes a mere memorandum recording something that has already taken place, and such a document would not require registration or stamping. Same view
in Roshan Singh v. Zile Singh AIR 1988 SC 881.

12) In K. Panchpagesa Ayyar & Anr. v. Kalyansundaram Ayyar & Ors. AIR 1957 Madras 472, it was observed:

If the parties elect to reduce the transaction of partition into writing with the intention that the document itself should constitute the sole repository and the only appropriate evidence of the partition and to serve, so to speak, as a document of title, the writing must be regarded as the formal and operative deed of partition and as such requiring registration under Section 17, Cl. (b), provided the property affected is of the value of over 100. It is not the less a partition deed because its terms and contents were previously discussed and decided upon and then alone put into writing. But if the document is drawn up only with the intention of reciting an already completed oral partition and is merely in the minutes or incidental recital of a fait-accompli it is not compulsorily registrable.”

12) Thus documents so drawn up may fall under two heads viz.,

(a) a document may be drawn up with the intention of reciting an already completed oral partition or

(b) with that of superseding the oral bargain and formally reducing the terms of the partition to the form of a document.

In the former case when the document itself does not effect any partition but which maintains a partition already effected, or which simply acknowledges, or makes an admission, as to a prior partition, or which merely gives a right to have a document of partition executed it is not an instrument of partition which is compulsorily registrable.

But when the document is not intended by the parties to be merely the minutes or incidental recital of a fait accompli, i.e., of a partition that had already taken place, perhaps by oral arrangement, and was complete when the document was executed but forms an integral and essential part of the partition transaction i.e., of the process of dividing the property and was intended to be the only evidence of and to be the formal instrument of partition superseding and embodying the oral bargain and was intended to serve as the sole repository of the arrangement of partition arrived at by them, and to be the only evidence, the document would undoubtedly require registration. The question to be determined in effect is, does the document constitute a bargain between the parties i.e., is it a deed of partition effected in praesenti or is it merely the record of an already completed transaction, i.e., partition or to put it shortly is it a speaking partition instrument.

13) In The Chief Controlling Revenue Authority v. Rasikchandra Tulsidas Patel (1958) 50 Bom. L.R. 1379, the Court broadly classified deeds pertaining to partitions as

• When you have a joint Hindu family, you may have a partition effected, which partition may only result in a division of interest. Members of the joint family may not specifically divide the joint family property. The result of this would be that the members of the joint family would cease to be co-parceners and would become tenants-in-common and would hold the property as tenants-in-common. At a subsequent stage by a document the tenants-in-common may specifically divide the property. In such a case, although in one sense the partition has already taken place, still the fact that the tenants-in-common are specifically dividing the property would attract the application of Section 2(15).

• You may have another case where a partition may take place not only in interest but also a specific partition of property. The co-parceners may by this partition divide the property which belongs to the joint family and then you may have a subsequent document which may recite the fact not only of partition in interest but the actual partition specifically of the property of the joint family. In such a case it is difficult to understand how the document which merely admits and acknowledges a past event, which recites a partition which has already taken place, and which does not in any sense of the term bring about a partition, can be considered to be an instrument of partition under Section 2(15).

• The third case may be where the document itself may bring about both a division in interest and a partition with regard to specific property. That would be a clear case of an instrument of partition partitioning the joint family property. If these principles are understood and appreciated, then there is not much difficulty in deciding in which category the document we are considering falls.

The Court further emphasised on one of the tests which may be safely applied, that is:

• Has everything which is necessary to be done in order to bring about a partition been done before the document is executed? If everything has been done, then there is nothing which the document brings about. If something is left to be done which is done by the document, then the document may be considered as an instrument of partition.

The court held that members of a joint family who have effected a partition, though not an actual physical partition by metes and bounds, cease to be co-parceners but continue to be tenants in common. If, at a subsequent stage the tenants in common specifically divide the property, the document by which the property is partitioned would attract the application of Section 2(15) of the Stamp Act as it would be an instrument of partition.

14) Where one of the brothers relinquishes all right/title/interest in an inherited property, in favour of another brother, in consideration of certain amount, Article 52 (a) of the Stamp Act is applicable. Under this article, the stamp duty will be
₹ 200/- .

15) Article 34-Amendment from April 2015 – if residential & agricultural property is gifted to husband, wife, son, daughter, grand son, grand daughter, wife of deceased son, the duty would be ₹ 200/-.

Provided further that, if the residential and agricultural property is gifted to husband, wife, son, daughter, grandson, grand-daughter, wife of deceased son, the amount of duty chargeable shall be rupees two hundred.”


1) A reference may be made here to the decision of the Hon’ble Madras High Court in the case of KAY ARR Enterprises 299 ITR 348 (Mad.). In this case there was a rearrangement of share holding between the family to avoid disputes. The Hon’ble Madras High Court held that this was not a case of ‘transfer’. Also a reference may be made to the decision of the Hon’ble Apex Court in the case of Kale v. Dy. Director {1976} 3 SCC 119 – family arrangements are governed by a special equity peculiar to themselves and that the Courts should endeavour to enforce such arrangements if made honestly. Also see: Sachin Ambulkar (Bom. HC) – Does NOT amount to transfer and hence not exigible to capital gains – CIT v. Sachin Ambulkar ITXA/6975 of 2010 (decided on 23rd Oct. 2012); R. Nagaraja Rao 352 ITR 565 (Kar.). Ashwani Chopra 352 ITR 620 (P&H.).

2) Relative – Section 2(41) – “relative”, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual.

Explanation, clause (e) of section 56:

For the purposes of this clause, “relative” means—

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) brother or sister of either of the parents of the individual;

(v) any lineal ascendant or descendant of the individual;

(vi) any lineal ascendant or descendant of the spouse of the individual;

(vii) spouse of the persons referred to in clauses (ii) to (vi)

3) HUF is a relative – Where individual received gift from its HUF – B.Dhanalaxmi ITA/897/Hyd./2012 dated 24th February 2016. Same in Vineet Kumar Bhalodia 140 TTJ (Raj.) 58.

4) Where HUF received gift from an uncle of its Karta – Harshadbhai Dahayabhai Vaidya HUF – 155 TTJ (Ahmd.) 71.


1) For income tax purposes a private trust is treated as individual

Since the trusts represents individual(s), tax is to be levied & recovered from the representative, in the like manner & to the same extent as it would be leviable upon & recoverable from the person represented – Arundhati Balkrishna 177 ITR 275 (SC). There should be as many assessments as the no. beneficiaries – CWT v. Trustees of H.E.H. Nizam’s Family Trust 108 ITR 555 (SC).

2) As a corollary, a trust is entitled to the benefit of Sec.54- Amy Cama 237 ITR 82 (Bom.). Similarly, advance tax paid by the beneficiaries should be set off against the trustee –Trustees of Late Sir R.J. Vakil 33 ITR 517 (Bom.).

3) The underlying principle is that the object of the scheme of taxing a representative assessee is that the state should be able to secure a proportion of profits & this purpose is served by taxing them wherever they are found. – Executors of the Estate of K. Dubash 19 ITR 182 (SC).

4) Even though, by virtue of s. 166, the Revenue has an option in the case of a discretionary trust either to make an assessment upon the trustees or to make an assessment upon the beneficiaries, both the trustee and the beneficiary cannot be simultaneously taxed in respect of the same income. {See: Jyotendrasinghji v. S.I. Tripathi 201 ITR 611 (SC)}.

5) The Hon’ble Supreme Court has held that Section 166 is clarificatory. It does not empower any assessment or recovery by itself. It only makes it clear that Sections 160 – 165 do not bar the direct assessment of the person on whose behalf or for whose benefit the income is receivable or the recovery from such person of the tax payable thereon, provided that is permissible under any other provisions of the Act. Even so, since the word used in Section 166 is ‘receivable’, it cannot apply to a discretionary trust, for it cannot be said that the income thereon is receivable for one or more beneficiaries, it being left to the discretion of the trustees whether or not the income should be distributed to one or more of the beneficiaries or not at all”. Kamalini Khatau 201 ITR 101 (SC); D.P. Agarwal v. DCIT ITA/4591-4592/Mum./2016 dt. 5th Oct., 2017.

6) Income distributed by a trust settled by employer, to the beneficiaries/employees, does not attract sec. 56(2)(vi) i.e. receipt without consideration – Mrs. Sharon Nayak v. DCIT ITA/1594/Bang./2014. Dt. 27th May 2016. Reference made to CIT v. Managing Trustee, Nagore Dargha 57 ITR 321(SC) wherein it was held that the trust and beneficiaries were not two different entities.

7) CBDT has issued a Circular No.157, dated 26th December, 1974 very dearly states that even though the assessing officer has a discretion under Section 166, the same can be invoked only at the time of raising an initial assessment either by the Trust or the beneficiary and whichever may be beneficial to the Revenue. Having once exercised the option it will not be open to the ITO to assess the same income for the same period in the hands of other persons namely the beneficiary or the trustee.

8) Taxabiility of trust income at maximum marginal rate ITAT Mumbai held in the case of Mahindra & Mahindra Employees Stock Option Trust vs. ADCIT {2015} 128 DTR (Mum.) 49. Relying on the judgment of Bombay Bench of ITAT in the case of Jamsetji Tata Trust v. JDIT (Exemption) 148 ITD 388 it was held that the long term capital gains on shares is chargeable to tax at maximum marginal rate which cannot exceed the rate provided u/s. 112.

[Source : Paper printed in the souvenir of 2 Day National Tax Conference held on 5th & 6th May, 2018 at Indore]

The history of the world is that of six men of faith, six men of deep pure character. We need to have three things: the heart to feel, the brain to conceive, the hand  to work.

Swami Vivekananda

Vide Finance Act, 2017, sub-section (5) has been inserted in section 23 of the Income-tax Act, which reads as under:

“(5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.”

Section 22 of the Income-tax Act provides for chargeability of income from house property. It provides that annual value of the property owned by an assessee, other than the property occupied for the purpose of any business or profession carried on by the assessee, is chargeable to income-tax under the head “Income from House Property”.

Section 23 of the Income-tax Act provides the determination of annual value of the property which is chargeable as income from house property. Sub-section (1) of section 23 reads as under:

“23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be:

(a) the sum for which the property might reasonably be expected to let from year-to-year; or

(b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or

(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable”

As a general rule clause (a) of sub-section (1) provides that annual value of the property shall be the same for which the property might reasonably be occupied to let from year-to-year. Clauses (b) and (c) provide for modification in the amount of annual value determined in terms of clause (a). Clause (b) provides that where the actual rent received or receivable is higher, same will be determined to be annual value. Clause (c) provides for where property remains vacant and for that reason the amount of rent received is less than the sum referred in clause (a), such lower amount will be determined to be annual value. There are also certain provisions contained in proviso and explanation to sub-section (1) and also in sub-section (2), (3) and (4) which provide for certain exemption, etc. in determination of annual value in terms of sub-section (1). Same, however, are not relevant for the issue under consideration and, therefore, are not being discussed herein.

As stated hereinabove vide Finance Act, 2017, sub-section (5) has been inserted in section 23 to provide that for a period of one year from end of the financial year in which completion certificate has been obtained, the annual value of the property, which is held as stock-in-trade shall be determined to be nil. Provisions of sub-section (5) as inserted in the section, envisage that annual value in respect of property held by a builder as stock-in-trade, is subject to taxability on notional basis in terms of sub-section (1) of section 23 of Income-tax Act. Till the stage of completion of a property, income is not chargeable to tax for the reason that the property can neither be occupied nor can be let out and, therefore, even on notional basis income from there is not chargeable under the head “Income from House Property”. As and when the property is ready for occupation and completion certificate has been obtained, income becomes chargeable to tax in terms of section 23 of Income-tax Act. In case of builders, however, the property is constructed / developed by them for the purpose of sale. The property is held as stock in trade. The property is sold by the builders either before completion of property or after completion of property as and when the buyers are available for the property. Income from the business of building construction is chargeable under the head “Profit from Business or Profession”. Since the builder does not have an intention to let out the property and its purpose of holding the property is to sell the same, it has never been considered, even by the department that income from the property held by a builder as stock-in-trade is chargeable to tax on notional basis in terms of section 23 of Income-tax Act. In case the property held by a builder, may be in the nature of stock in trade, has actually been let out, the issue has been for consideration whether such actual income derived by a builder on letting out the property is chargeable to tax under the head “Income from house property”, or under the head “Profits of business or Profession”. The courts from time-to-time have taken a view in one way or other. This, however, has not been an issue generally that income is chargeable on notional basis. The issue regarding chargeability of income on notional basis had come up for consideration before High Court of Delhi in the case of Commissioner of Income-tax v. Ansal Housing Finance and Leasing Co. Ltd. and Ors (2013) 354 ITR 180. The facts in the aforesaid case have been that the assessee company was engaged in the business of development of Mini Township, construction of house property, commercial and shop complexes, etc. The Assessing Officer while passing the order of assessment for the relevant year assessed the annual letting value of the flats which the assessee had constructed, but were lying unsold under the head “Income from House Property”. The assessee had contended that such flats were its stock-in-trade and, therefore, the annual letting value of the flats could not be brought to tax under the head “income from house property”. CIT(A) deleted the addition. Tribunal also confirmed the order of CIT(A) in appeal filed by the Revenue. In appeal filed by the department before the Hon’ble Delhi High Court, the Hon’ble Court uphold the taxability of income on notional basis after discussing the case law in regard to taxability of income from house property whether chargeable under the head “Income from House Property” or as “Business Income”. During the course of arguments the contentions were raised before the Hon’ble Court that since flats were held as part of inventory and same were not meant for let out, no income was chargeable on notional basis. It was also contended that the property should be deemed to have been occupied for the purpose of business and, therefore, same is not chargeable under the head “Income from House Property”. It was also contended that under the Act income cannot be held to be chargeable on notional basis since income tax is leviable on actual income and the method of determination of annual value is only to arrive at a figure on which the income is chargeable. The Hon’ble Court, however, did not agree with the contentions and held that income in this case, like several other cases is chargeable on presumptive basis and annual letting value is taxable regardless of whether actual income is received or not. The Hon’ble Court also did not accept the alternate argument that properties were occupied for the purpose of business. Against the aforesaid decision of Hon’ble Delhi High Court, SLP was file before the Hon’ble Supreme Court. Hon’ble Supreme Court has granted leave and presently the appeal (CA No.727/2013) is pending for adjudication.

In view of aforesaid decision of Delhi High Court holding that income is chargeable in terms of section 23 of the Income-tax Act on notional basis in case of property held by a builder as stock-in-trade, the Government has taken a view that the income is chargeable in such cases in terms of sub-section (c) of section 23 of the Income-tax Act. Since as per the general rule income will be chargeable on notional basis from the date on which completion certificate has been obtained by the builder, with a view to provide relief to the builder for a period of one year, sub-section (5) has been inserted, which provides that for a period of one year from end of the financial year in which completion certificate has been obtained annual value on notional basis in terms of sub-section (1) shall be taken to be nil.

Now the question for consideration is that whether in view of aforesaid decision of Hon’ble Delhi High Court and the implied assumption by the Government that income is chargeable on notional basis in case of builders, the builders have to declare income on notional basis in terms of sub-section (1) of section 23 of the Income-tax Act in respect of all the properties which are held by them as stock-in-trade and meant for sale but have not been actually sold after the expiry of period of one year from the year in which completion certificate is obtained. There are certain issues for consideration in this regard, which are as under:

1. Always in the past, prior to the decision of Hon’ble Delhi High Court in the aforesaid case of Ansal Housing (supra), it was the understanding of the assessees as well as of the Department that income on notional basis is not chargeable in the case of builders in respect of property held by them as stock-in-trade. In the facts of Ansal Housing also, addition made by the Assessing Officer was deleted by CIT(A) and ITAT in view of aforesaid understanding of legal position. Though the Hon’ble Delhi High Court has taken a view that income is chargeable on notional basis matter is still pending for decision before the Hon’ble Supreme Court. Therefore, at present, it cannot be said with certainty that income in case of builders in respect of such properties is chargeable on notional basis in terms of sub-section (1) of section 23 of Income-tax Act and all the builders should include the income on this basis in their returns of income.

2. Though, the Hon’ble Delhi High Court has not accepted the contentions of the assessee in the case of Ansal Housing that income is not chargeable in case of a builder since the property is not meant for letting out and same is held for sale, clause (a) of sub-section (1) of section 23 of Income-tax Act envisages that the property should be in a position to let out and, therefore, it has been provided that annual value is to be taken equivalent to the sum for which the property might reasonably be expected to be let out. The use of the words “expected to be let out” would mean that the property should be meant for let out or it can be let out. In case of a builder, the property is not meant for let out and since his intention is to sell the property he cannot let out the property otherwise it will be difficult for him to sell the property for which he had constructed the same. Therefore, it cannot be said that such case is covered in clause (a) of sub-section (1) of section 23 of the Act. In case clause (a) is not applicable, income will not be chargeable to tax on notional basis.

3. As per clause (c) of sub-section (1) of section 23 of Income-tax Act in a case where property is let out or meant for let out but same remains vacant, the rental value on notional basis is not to be considered as income for the period during which the property had remained vacant. In view of above clause it can be contended that if it is said that property can be let out by the builder since the property remains vacant, no income should be chargeable to tax for the reason that property has remained vacant and, therefore, no income will be chargeable in terms of clause (c) of sub-section (1) of section 23 of the Act.

4. Again it is stated that though the Hon’ble Delhi High Court has not accepted the contentions of the assessee in the case of Ansal Housing and has held that income of builders can be taken on notional basis, it is stated that as per the scheme of Income-tax Act, what is chargeable to tax is the income. Notional basis has been provided for in the Act only with a view to determine actual income on a presumptive basis. In case the property held by a builder as stock-in-trade, there is no question of rental income since the property is meant for sale and profit earned by the builder on sale of the property is chargeable under the head “Profit for Business”. Further, even in the cases where the property has actually been let out by the builder, the only issue has been for consideration before the courts whether actual income earned by the builder is chargeable under the head “Income from House Property” or under the head “Profits or Gains from business or Profession”. It has never been an issue that income is chargeable in case of builder in respect of such properties on notional basis in terms of section 23(1) of the Income-tax Act.

5. Lastly, the issue is also for consideration whether a builder should include the income on notional basis in the return of income to be filed for Assessment Year 2018-19 since the provisions of sub-section (5) have been inserted vide Finance Act, 2017 w.e.f. 1-4-2018. In this regard, it is stated that sub-section (5) only provides for exemption from chargeability of the income in respect of property for a period of one year from end of financial year in which completion certificate has been obtained. Since there is no amendment in sub-section (1) of section 23 of the Act, the legal position continues to be same as has been prior to A.Y. 2018-19. Therefore, it cannot be said that in view of the amendment a builder has become liable to disclose income on notional basis in the return of income to be filed for A.Y. 2018-19. In case the income is taxable on notional basis it has been taxable in all the years even prior to A.Y. 2018-19. Since Department has not taken such view in most of the cases while completing the assessment for earlier years and there is no specific amendment in sub-section (1) of section 23 of Income-tax Act, income is not chargeable on notional basis, even in respect of A.Y. 2018-19. Hence, income is not required to be included in the return on notional basis by a builder in respect of such properties and same contentions as were available for non-taxability of income on notional basis will continue to be available even in respect of A.Y. 2018-19 onwards.

In view of above legal position, with due respect to decision of Hon’ble Delhi High Court in the case of Ansal Housing, it appears that income in case of builders is not chargeable to tax on notional basis in respect of properties held as stock-in-trade which is meant for sale and has not actually been let out by the builders. This position, however, is subject to decision of Hon’ble Supreme Court in the case of Ansal Housing, which is pending in appeal. In case Hon’ble Supreme Court also upheld the decision of Hon’ble Delhi High Court, it will amount to enunciation of legal position which has all along been existing and in that case all such assessees will be liable to tax on notional basis in respect of properties held by them even as stock-in- trade in all assessment years even prior to A.Y. 2018-19.

V. P. Gupta



Dear Brothers & Sisters,

The technology is governing our life so much that it is virtually becoming impossible to live without adopting technology and becoming familiar with the latest gazettes.

It is also changing very fast and has brought revolution in the medical and legal feilds; the latest is available at our finger tips. It is many time difficult for the senior members to adopt the new technology as they are not used to it and also do not like to venture outside their comfort zone. This is true for all as is exhibited by the GST introduction.

The tax departments are aggressively heading for newer technology, we are now seeing e-assessment-appeals, e-tribunal hearings and probably in near future e-apex court benches to facilitate the far flung places to get justice at affordable cost.

I will expect that concerned departments must take proper care to have efficient software, trained personals to handle the work and glitches free portal. It is seen that in case of e-assessment the memory space provided for uploading the documents is very little and it is going to cause problem for assessees and professionals to effectively put-up their case supported by proper evidence. I am afraid that lacuna will result into unwanted additions and frivolous litigations that will defeat the object of CBDT.

Here it is important for us to organise workshops at zonal level to train our members for making compliances, this will help in adaptation of technology and facilitate smooth working.

The Apex Court off late has expressed its opinion in the case of Pradyuman Bisht v. U.O.I that CCTV cameras are norm of the day will help in promoting good governance and transperancy in court working .

The honourable Chief Justice of India Justice Deepak Mishra, Justice A. M. Khanwilkar and Justice D. Y. Chandrachud Bench has principally agreed for live streaming of court working and expressed that it is permissible and also feasible. However I believe that it requires debate on the issue opinion of concerned persons that is – advocates, litigants and other stake holders should be called and considered by the Apex Court.

There is proposal to install CCTV Cameras in Income Tax Tribunal and other Tribunals also. In my opinion it can be done on trial basis in selected benches and if found conducive can be introduced in all benches. It will have its own advantages in the form of patient and detailed hearings will help new-comers to learn the art of advocacy. Litigants will be in a position to judge the competence of their advocates. It will also help in avoiding the saying that “I may not know the law but I know the judge “.

I am afraid it may result into more time consuming hearings and will create pressure in the back of the mind of advocate and judges alike. In any case we will have to get used to changes and introduction of technology in every field of life. It is going to bring sea changes in the working of all concerned.

Let us hope for the best.

Ganesh N. Purohit
National President



 Looking Back….. Looking Ahead….. 

“GST – One Year”…….

• Normally, the completion of first year is celebrated with all the pomp and funfairs. Keeping that in mind, the Government of India and other States did arrange programmes highlighting the brighter side of the new tax reform by introduction of Goods and Services Tax, w.e.f. 1st July, 2017. If the result of the year is to be described in the shortest possible term, one can say that, though belonging to different ruling parties, the Finance Ministers, the authorities and concerned bureaucrats, have united themselves for one common cause i.e., to get the maximum revenues from the citizens of the country.

• Nearer to our Federation, the implementation of ‘one nation, one tax’ has at least brought all the members of the Federation practising Indirect Taxes, on one common platform wherein complexity and intricacies of the new law can be gone into threadbare without being influenced by the statistical data published in the media. This gain is a permanent one as far as this Federation is concerned because under VAT Regime, the provisions were not pari materia amongst all the States and therefore while relying on the case law, we had to first consider the relevant provisions and the controversy before the court, that would not be now necessary because one uniform law is enforced in the entire nation without any exception including the Union Territories. Such a situation is a welcome one by all professionals with one voice.

• Looking back to the scenario witnessed in the months of May and June, 2017, everybody was uncertain about the manner in which three laws namely CGST, IGST and State GST would simultaneously have application on transactions both of Intra State as well as inter-State nature. Such a situation coupled with the unsatisfactory working of the network (GSTN) led to multiple glitches. Many of the dealers could not migrate themselves from excise or VAT arena, some others after successful migration could not file GSTR-3B in time with the result, the due dates thereof as well as for GSTR-1, 2 and 3 had to be repeatedly extended or postponed. Some of the matters also reached the High Courts, wherein the irregular working of GSTN was highlighted. Such a scenario was noticed by the GST Council as well that resulted in considering, the complete takeover of GSTN itself by the Govt. Our experience of working by Govt., institutions is not that happy and therefore it would be very much advisable that the present set up of GSTN being handled by independent private hands should continue. The GSTN Company is doing its best to serve the large number of taxpayers. In that regard our observations would be that the taxpayers should not wait for the last date of submission but should arrange their affairs in such a manner that they would be in a position to submit the returns with the help of GSTN without much difficulty. It is reported that 72% to 80% of the problems with GSTN have been sorted out. The number of compliances for submission of GSTR-3B was initially about 70% which by now must have risen to a higher rate.

• It is heartening to note that implementation of GST has led to substantial increase in the number of taxpayers by at least 50% of the number as on 30th June, 2017.

• Referring to the quantum of payments of GST, the recent survey mentioned that only about 0.6% of the firms account for 38% of the total turnover, 87% export and 63% of the GST liability are in the hard-core formal sector. Another 12% of the firms account for 41% of the turnover, 13% export and 37% tax liability. The survey also mentioned that bulk of the transactions were business-to-business (B2B), exports as stated
above also covered 30% to 34%, while business-to-consumer (B2C) transactions were only 17%.

• The survey also referred to certain States like Maharashtra, Gujarat, Uttar Pradesh and Tamil Nadu having highest number of GST registrations while Uttar Pradesh and West Bengal recorded larger number of increase in new registrations. The apprehension carried by major producing States that their Revenue would be adversely affected have proved to be incorrect. Readers are well aware the GST is a destination and consumption based tax. The above scenario is true for urban areas but the real test of the network is in rural areas. It is facing the problems of reconciling the figures qua supplier and recipient of goods / services.

• In order to improve the compliances, the authorities have also taken up certain measures especially against the suppliers who still believe in continuing their transactions without bill. Such an attitude is required to be discouraged by one and all because each citizen has a vital positive role to play in the success of the GST Regime.

• The search and survey carried out by State authorities have yielded quite a large number of tax evaders. In such a list, Uttar Pradesh tops the same with 8,413 which is followed by Andhra Pradesh at 5,974 and Kerala 1,538. List of the States also have shown that their officers are conscious of their duties. It is surprising to note that so far no action seems to have been taken by various other States including State of Maharashtra, Tamil Nadu and West Bengal. None can think even for a moment, that there are no black sheep in those States and all suppliers have overnight become disciples of Harishchandra.

• The 25th Meeting of the council held at Delhi on 18th January, 2018 scaled down GST rates on 29 items and 54 categories of services; the council also considered steps required for simplifications of the returns to be filed both by the suppliers and recipients of goods and services. With the reduction in the rates, the anti-profiting provisions were also activated alongwith the creation of Consumers Welfare Fund. It is reported that one big company has offered 119 crores in compliance with the anti-profiting notice because it was unable to pass on benefits on some of the stocks in pipeline, after the reduction of the rate from 15th November, 2017. As the time passed by it was realised by many States that their revenue related to compensation payable by the Centre out of cess collections, and the unutilised Integrated GST have been affected adversely. Whether such an impression is correct or not can be ascertained after all the aspects are taken into consideration but if true, the council will have to take the corrective steps.

• As for example, Delhi alone pointed out the blocking of 1.35 lakh crore in IGST account which according to the State was lying idle like escrow account with an advocate. Some of the States affected by non-utilisation of IGST Funds also demanded the abolition of IGST in entirety. Such a proposal in our view is not in the interest of the nation because the levy of IGST is mainly on goods imported as well as, the transactions of inter-State nature whereunder the consuming State is the beneficiary as against the dispatching States under
VAT Regime.

• The above scenario led to tightening of administration and implementation of the E-Way Bill by amending Rule 138 drastically. Though it was proposed to be brought into force from 1-2-2018, the same could not be done because of failure of GSTN on the very next day ultimately, the same could be enforced from 1st April, 2018 after substituting Rule 138 by Notification No.12 of 2018 dated 7th March, 2018. Different dates were announced by the States for the intra-State movements. The sole purpose of introducing the e-Way bill system to be generated in advance i.e. before the commencement of movement of goods from one State to another, was to check tax evasion and improve tax compliance coupled with speedy movement of the trucks across the border of one State traveling to another. For a layman, e-Way bill is like a token that can be generated online to regulate the movement of goods. Once the e-Way bill is generated, there would be no need to refill the same information in the tax returns that may follow the commencement of the movement because the details in E-waybill have been linked with GSTR-1. It has also been specifically decided that during the entire journey of the goods, the verification would be only once and not multiple even when the movement involved more than one State. Such a decision is welcome to usher in the ease of business.

• While I was dictating the present editorial, news was received about certain proposals to amend the GST Laws that were stated to have been placed on site of the GST Council, for response from stakeholders. We would therefore refer to a few of the important ones hereunder:


“Section 9(4) of the CGST Act, provides for the payment by the recipient of the service / goods from an unregistered person on reverse charge basis. The provision has not been enforced so far however, the proposed amendment that such a reverse charge mechanism should be applicable only to specified registered persons is not a correct proposal because apart from such a provision being discriminatory under Article 14, the object sought to be achieved in the form of revenue, will get frustrated. On the contrary, the provision in my view would encourage, the unregistered persons to get themselves registered which ultimately would be beneficial to the economy at large.

Revised Returns

• The provisions proposed for allowing the taxpayers to amend/rectify the returns filed by them was very much needed because there may be several reasons for the bona fide mistakes crept in while uploading the returns online which have to be corrected no sooner the taxpayers realise or is made aware about it.

Statutory Audit

• The proposal relating to the statutory audit under the provisions of the law, to be not applicable to Government and local authorities is also welcome. Similar provisions were also made in some of the VAT laws.

Import – High Seas

• The proposal in regard to supplies from customs bonded warehouse to be liable only after the clearance of the goods for home consumption on payment of duty, if any, is also a welcome one. I would, in that regard, suggest that the non-levy of tax on import of goods placed under customs bounded warehouse, should also cover, the supplies in territorial waters because under the provisions of Constitution the border of a State culminate with the lands end or shore while the territorial waters belong to the Union. Such a proposition will increase the business transactions as well as encourage the supplies to the ships going to foreign ports anchored at the berth of the Port for loading or unloading or for collecting the stores required by the ship during its onward journey. It will also encourage the dry dock activities in the nation.

• With the stabilisation of the e-Waybill system and a few changes suggested, I am sure, the second year will result in a better balance sheet than the first one.

P. C. Joshi
Member, Editorial Board