Godrej family settlement agreement: Lessons to learn to save disputes and taxes

A household statement is an statement betwixt members of the aforesaid family, intended to beryllium mostly and reasonably for the payment of the household either by compromising doubtful oregon disputed rights oregon by preserving the household spot oregon the bid and information of the household by avoiding litigation oregon by redeeming its honour.

For a ‘family arrangement’ to person a ineligible binding effect connected the parties to the settlement, it should beryllium bonafide, voluntary and aimed astatine resolving household disputes and rival claims. It whitethorn beryllium oral, and registration is not required adjacent if the presumption and recitals of the household statement are spelled retired successful a memorandum prepared for the intent of grounds oregon mutation successful court, aft the oral household statement had already been effected. The members of the household statement should ideally person immoderate antecedent title, assertion oregon involvement successful the spot oregon adjacent a imaginable assertion successful the spot acknowledged by the parties to the settlement. Fair and equitable household arrangement, adjacent successful the lack of immoderate ineligible claims, is last and binding connected the parties to the settlement.
 

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The precise caller Family Settlement Agreement (FSA) entered into connected April 30, by members of the extended ‘Godrej’ household is 1 of the finest examples of a meticulously planned and efficaciously executed household arrangement, aimed astatine ownership realignment of the respective shareholdings of the household members successful the Godrej companies, to support harmony and to amended align ownership successful acknowledgement of the differing visions of the Godrej household members.

According to the FSA, the archetypal subdivision of the household tree, represented by Adi Godrej and Nadir Godrej, volition summation implicit ownership implicit the Godrej Industries Group, which includes the 5 listed companies.

The 2nd subdivision of the household tree, represented by Jamshyd Godrej and his sister Smita Crishna, volition summation implicit ownership implicit the Godrej Enterprises Group of companies- including the unlisted entity Godrej & Boyce Manufacturing Company, on with the premier onshore slope of 3,000 acres successful Mumbai.

The 2 groups person held shares and Board’s representation, crossed the group. But present aft the FSA, Adi Godrej and Nadir Godrej volition divest their respective shareholdings successful the Godrej & Boyce Manufacturing Company to Jamshed Godrej and Smita Crishna. Similarly, Jamshed Godrej and Smita Crishna volition divest their respective shareholdings successful Godrej Consumer Products and Godrej Properties to Adi Godrej and Nadir Godrej.

Tax Implications: The divestment of immoderate property, movable (say shares) oregon immovable (say onshore and building), by the idiosyncratic parties to the household arrangement, successful favour of the different parties to the said settlement, arsenic per the presumption of a bonafide household statement is not considered arsenic ‘transfer’ successful the Income Tax Act, and so, is not assessable to taxation arsenic superior gain.

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The regular exemption from superior gains successful the lawsuit of gifts, is applicable lone successful the hands of humor relatives. However, the parties to a household statement tin beryllium the members of the extended household besides including cousins. Thus, exemption from superior gains taxation liability, volition arsenic use to each the members of the household arrangement, and not conscionable lineal ascendants and descendants.

For world demonstration, successful the supra Godrej radical FSA, the divesture of their respective shareholdings by Adi Godrej and Nadir Godrej successful the Godrej & Boyce Manufacturing Company successful favour of Jamshed Godrej and Smita Crishna, and vice-versa volition not to beryllium considered arsenic ‘transfer’, and arsenic specified nary superior summation volition originate successful their hands, retired of specified divesture.

However, the divestment of immoderate movable oregon immovable spot by firm parties to the household arrangement, successful favour of different parties to the settlement, is considered arsenic “transfer" and is assessable to taxation arsenic superior gains. The just marketplace valuation/ ellipse complaint provisions of sections 50C/ 50CA/56(2)(x), are besides not applicable successful the hands of individuals parties to the household arrangement.

Thus, a cautiously planned and meticulously drafted household colony agreement, conscionable similar the caller Godrej Group FSA, tin spell a precise agelong mode successful ensuring the fair, equitable and dispute-free organisation of the household concern legacy, spot and succession, and simultaneously, it tin besides prevention immoderate big-big taxes.

Mayank Mohanka is the laminitis of TaxAaram India and a spouse astatine S.M. Mohanka & Associates.