The Hindu Business Line : Is there a farce in the rulebook?

THE never-say-die, daring tax planner is at it again. He is all set to structure the sale of the Shishir Bajaj clan's stake in Bajaj Auto Ltd to its sibling Rahul Bajaj's clan in such a way that it does not attract even the soft 10 per cent capital gains tax.

There have been judicial pronouncements to the effect that when the squabbling siblings enter into a family arrangement or settlement with a view to securing filial harmony that is good enough consideration repelling gift tax as presence of consideration is contrary to, and strikes at the very root of, the gift tax scheme of things (incidentally the Gift Tax Act has since been abolished).

The ratio of these judgments can by no stretch of imagination be extended to income-tax law, not the least because of the subsequent abrogation of the gift tax law.

For gift tax purposes, absence of consideration is a sine qua non, which is amply met in a family settlement transaction with securing of filial harmony being a good enough non-monetary consideration.

The income-tax law sets store by altogether different considerations for imposing capital gains tax.

Consideration or lack of it is no issue at all in its scheme of things. Rather the two important ingredients required to be present are: the subject matter of the transaction should be a capital asset and there should be a transfer of it.

In the event, it is a trifle curious how the intrepid tax planners are pitching their faith on the family settlement angle to wriggle their clients out of the clutches of capital gains tax.

Even assuming Rahul and Shishir are meeting half way in a spirit of compromise, thus cloaking their transaction with family settlement, no exemption can be granted simply because that is not at all the issue under the scheme of capital gains tax. Shishir transfers shares to Rahul for a monetary consideration, period. This is enough to attract capital gains tax.

At any rate, no leg-up should be given to the obnoxious family settlement theory, which, if given a free run, could have many adherents with an eye on tax evasion.

It is a strange argument to offer that I will not pay tax because with it I buy family peace! Already the capital gains tax regime is riddled with a slew of exemptions and shelters that benefits the stinking rich who have the ability to pay tax and who ought to be taxed.

Ask the Kelkar Committee. It will bear yours sincerely out. Not content with these escape routes, they are asking for more.

Cannot the rich and famous of the world pay a 10 per cent tax, especially out of bounty which capital gains practically is?

If it is too burdensome for them, cannot they (b)lock the resultant long-term capital gains in one of the capital gains bonds for three years so as to legitimately avoid tax?

Instead, what they are looking for is a subterfuge whose sustainability is suspect.

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