2018 (5) TMI 1087 - AT - Income Tax

Long term capital gain determination - relinquishment of right in property to be treated as transfer within the meaning of section 2(47) - gift made in the family as a family arrangement - Held that - The assessee has gifted her 50% share in the property in favour of her brother in law in pursuance of family arrangement between the family members for acquiring separate property for each family member. The said transactions cannot be considered as transfer within the definition of section 2(47) of the Income Tax Act 1961. Although the assessee has received cash gift of 68, 50, 000/- from the person who received gift from the assessee such an arrangement is as per the family settlement between the members. Therefore the AO was erred in bringing the above two gift transactions within the purview of definition of transfer as defined under section 2(47) of the Income Tax Act 1961. CIT(A) without appreciating the facts simply confirmed additions made by the AO. Direct the AO to delete additions made towards computation of long term capital gain for relinquishment of 50% share in property by way of gift. - Decided in favour of assessee.

Summary

Issues:
1. Whether the gift made by the assessee towards relinquishing 50% interest in a property constitutes a transfer within the meaning of section 2(47) of the Income Tax Act.
2. Whether the family agreement between the members of the family justifies the relinquishment of the assessee's interest in the property without attracting tax liability.

Analysis:
1. The assessee had gifted her 50% interest in a property to her brother-in-law, receiving a cash gift in return. The Assessing Officer (AO) treated this transaction as a transfer under section 2(47) of the Income Tax Act, leading to the computation of long-term capital gain. The AO held that the gift transaction could not be considered a family arrangement. The CIT(A) affirmed the AO's decision, emphasizing that the transaction fell within the ambit of section 2(47). However, the ITAT disagreed, noting that the gift was part of a family arrangement for acquiring separate properties, not constituting a transfer under section 2(47). The ITAT allowed the appeal, directing the deletion of additions towards capital gain.

2. The CIT(A) relied on the AO's analysis that the properties were purchased using the assessee's own funds, suggesting they did not qualify as family assets. Citing case law, the CIT(A) concluded that the transaction attracted capital gain tax. The ITAT, however, considered the family settlement aspect, emphasizing that the transaction was part of an internal arrangement among family members. The ITAT disagreed with the CIT(A)'s reasoning, stating that the transaction did not fall under the definition of transfer as per section 2(47) and reversed the decision, instructing the AO to remove the capital gain computation.

In summary, the ITAT ruled in favor of the assessee, holding that the gift made by relinquishing 50% interest in the property to a family member did not constitute a transfer under section 2(47) of the Income Tax Act. The ITAT emphasized the family arrangement aspect and directed the deletion of additions towards capital gain computation.