2016 (1) TMI 903 - AT - Income Tax

Entitlement for deduction u/s 54 - gift of the property so purchased to daughter - whether gift does not attract long term capital gain tax? - difference between gift and settlement u/sec. 47(i)(iii) - Held that - The assessee being a father has settled the property in favour of his daughter out of love and affection without any consideration as referred at para 3 of settlement deed. As far as the settlement is concerned the assessee as a donor transferred the immovable property out of love and affection without consideration to the daughter done and same is not regarded as transfer of a capital asset under a gift, or will or an irrevocable trust does not attract long term capital gain as the provision of Sec 47(iii) of the Act. Hence, the gift does not attract long term capital gain tax. Coming to the exemption provisions of Sec 54 the assessee has complied with the provisions and the conditions laid down and the long term capital gains set-off with the cost of acquisition of new asset purchased in the same year but the issue arise whether the settlement or gift of such property claimed as exemption will call for addition on transfer within three years. After considering the elaborate submissions, judicial decisions followed, the assessee after availing exemption settled the property in favour of the daughter duly following the process of law. However, we make it clear that during the restriction period, the daughter shall not transfer the property by any means. At this stage we have no information about status of the property. Hence for limited purpose to examine the present status of the property, we remit the issue to the file of the Assessing Officer, and Assessing Officer shall provide adequate opportunity of being heard before deciding the issue. - Decided partly in favour of revenue

Summary

Issues:
1. Interpretation of provisions under Section 54 of the Income Tax Act for deduction eligibility.
2. Determination of whether settlement of property in favor of daughter qualifies for exemption under Section 54.
3. Analysis of whether settlement deed constitutes transfer within three years for capital gains tax implications.
4. Examination of the definition of gift under Income Tax Act and Transfer of Property Act.
5. Assessment of the settlement deed as a gift or transfer for tax purposes.

Issue 1:
The appeal involved a challenge by the Revenue against the CIT (A)'s order regarding the assessee's entitlement to deduction under Section 54 of the Income Tax Act for the assessment year 2011-12. The Revenue contended that the assessee manipulated provisions by acquiring property in his name and settling it immediately in favor of his daughter, potentially circumventing reinvestment requirements.

Issue 2:
The appellate proceedings focused on the settlement of property in favor of the daughter by the assessee, which was claimed to be out of love and affection. The CIT (A) considered the settlement as a gift under Section 47(iii) of the Act, qualifying for exemption under Section 54. The settlement deed was crucial in determining whether the conditions under Section 54 were met, leading to the deletion of the addition by the Assessing Officer.

Issue 3:
The settlement deed raised concerns regarding whether it constituted a transfer within three years, impacting capital gains tax implications. The settlement was argued to be a voluntary transfer without consideration, falling within the definition of a gift under Section 47(iii), thus not attracting long-term capital gains tax. The Tribunal remitted the issue to the Assessing Officer for further examination of the property's status during the restriction period.

Issue 4:
The interpretation of the term "gift" under the Income Tax Act and the Transfer of Property Act was crucial in determining the tax treatment of the settlement deed. The ld. Authorised Representative argued that the settlement deed, made without monetary consideration and out of love and affection, should qualify for exemption as a gift under Section 47(iii), supported by judicial decisions and the Commissioner of Income Tax (Appeals) order.

Issue 5:
The Tribunal considered the settlement of property in favor of the daughter as a gift, not constituting a transfer of a capital asset attracting long-term capital gains tax. The Tribunal emphasized compliance with Section 54 provisions and conditions, directing further examination by the Assessing Officer to ascertain the property's status during the restriction period. The appeal of the Revenue was partly allowed, emphasizing the need for a thorough assessment of the settlement deed's implications.