2011 (3) TMI 474 - AT - Income Tax

Amount received in excess of Rs. 25000 / Rs. 50000 - Deemed gift u/s 56(2)(v) - Income from other sources - sum received by the assessee was in consideration of the assessee withdrawing the caveat - Held that - the sum in question was received by the assessee in consideration of giving up his rights to contest the will of late Mrs. Mani Cawasa Bamji. As rightly contended on behalf of the assessee the consideration referred to in the provisions of section 56(2)(v) of the Act have to be understood as per the definition of consideration as given in the Indian Contract Act, 1872 in section 2(d). - receipts by the assessee cannot be treated as income under section 56(2)(v) of the Act. - The additions made by the AO are directed to be deleted.

Summary

Issues Involved:

1. Addition of Rs. 3,73,95,334/- under section 56(2)(v) of the Income Tax Act.
2. Consideration of the amount received by the appellant as inheritance.
3. Voluntary offer to surrender the amount for taxation.
4. Collection of Rs. 1,60,46,840/- by the Deputy Director of Income Tax.
5. Direction to consider the addition of Rs. 1.047 crores for the assessment year 2004-05.
6. Legal heir status of the appellant.

Detailed Analysis:

1. Addition of Rs. 3,73,95,334/- under section 56(2)(v) of the Income Tax Act:
The main issue was whether the provisions of Sec. 56(2)(v) were applicable to the receipt of Rs. 3,73,95,334/- by the appellant. Section 56(2)(v) states that any sum of money exceeding Rs. 25,000 received without consideration by an individual or a Hindu undivided family from any person is taxable unless it falls under specified exceptions. The appellant argued that the sum was received as consideration for withdrawing a caveat in the probate proceedings of the will of Mrs. Mani Cawas Bamji. The Tribunal held that the appellant received the sum in consideration of withdrawing his caveat, which qualifies as consideration under section 2(d) of the Indian Contract Act, 1872. Therefore, the receipt was not "without any consideration" and the provisions of section 56(2)(v) were not applicable.

2. Consideration of the amount received by the appellant as inheritance:
The appellant contended that the amount received should be regarded as inheritance. The Tribunal noted that the appellant was a legal heir of the deceased by virtue of being the son of a pre-deceased sister. The sum was received as part of a judicial settlement and not as a casual receipt. The Tribunal concluded that the amount was received in consideration of the appellant giving up his rights to contest the will, which does not fall under the definition of inheritance under section 56(2)(v).

3. Voluntary offer to surrender the amount for taxation:
The CIT(A) held that the appellant willingly offered to surrender the amount for taxation. However, the appellant argued that the amount was recovered under duress by the Deputy Director of Income Tax without any formal notice and outside the jurisdiction of the Income Tax Act. The Tribunal did not elaborate on this issue as it was not central to the main contention regarding the applicability of section 56(2)(v).

4. Collection of Rs. 1,60,46,840/- by the Deputy Director of Income Tax:
The appellant claimed that the amount was collected under duress by the Deputy Director of Income Tax without formal notice and jurisdiction. The Tribunal did not specifically address this issue in detail, focusing instead on the main issue of whether the provisions of section 56(2)(v) applied to the receipt.

5. Direction to consider the addition of Rs. 1.047 crores for the assessment year 2004-05:
The CIT(A) directed the assessing officer to consider the addition of Rs. 1.047 crores for the assessment year 2004-05. The Tribunal did not provide a detailed analysis on this issue, as it was not the primary focus of the appeal.

6. Legal heir status of the appellant:
The CIT(A) held that the appellant was not the legal heir of the testatrix Mrs. Mani Cawas Bamji. However, the Tribunal found that the appellant was indeed a legal heir as he was the son of a pre-deceased sister of the deceased. This status entitled him to a share in the estate of the deceased, which justified the receipt of the sum in consideration of withdrawing his caveat.

Conclusion:
The Tribunal concluded that the sum received by the appellant was in consideration of withdrawing his caveat and not without consideration. Therefore, the provisions of section 56(2)(v) were not applicable, and the additions made by the AO were directed to be deleted. The appeal of the assessee was allowed.