2021 (6) TMI 642 - HC - Income Tax

Deduction u/s 54F - Denial of claim as capital asset transferred was not a long term capital asset in view of Section 2(29A) r.w.s.2(42A) - ITAT allowed deduction - Whether Tribunal erred in treating the asset held by assessee for less than four months as long term capital asset as against stipulation in Sec.2(29A) r.w.s 2(42A) is holding for more than 36 months? - whether Expl.1(b) below sec.2(42A) is applicable and the period of holding of the asset by the previous owner also needs to be considered even though assessee did not receive the asset through gift or will as mentioned in sec.49(i)(ii) but by settlement deed? - HELD THAT - As decided in The Principal Commissioner of Income Tax, Chennai 34 Vs. Smt.Deepa Vijay 2021 (1) TMI 787 - MADRAS HIGH COURT wherein had done an elaborate factual exercise, gone through the covenants and conditions contained in the said document dated 19.12.2010 and held that the said document was only a deed of gift because it was voluntary as there was no consideration passed on and the donee accepted the gift unconditionally. The correctness of the factual finding was tested by the Tribunal, which had also gone through the issue in detail, taken note of the decision of the same Tribunal in the case of other owners namely Shri T.T.Siddharth and Smt.Maya Varadarajan 2016 (5) TMI 1549 - ITAT CHENNAI and dismissed the appeal filed by the Revenue in this regard. On going through the orders passed by both the CIT(A) as well as the Tribunal, we find that the entire issue deeply revolves around the factual matrix, which, in our considered view, has been thoroughly examined by the CIT(A) and the Tribunal and we also find that no question of law much less substantial question of law arises for consideration in this appeal. - Decided against revenue.

Summary

Issues:
Challenging common order passed in I.TA.No.2074/Mds/2015 and I.T.A.No.2075/Mds/2015 regarding Assessment Year 2012-13. Issues include eligibility for deduction under Section 54F, treatment of asset as long term capital asset, consideration of previous owner's holding period, and differentiation between settlement and gift.

Analysis:

1. Eligibility for Deduction under Section 54F:
- Assessees claimed exemption under Section 54F for amounts of ?8 crores and ?36.99 crores in the Assessment Year 2012-13.
- Assessing Officer rejected the claim citing the settlement of a Trade Mark as a capital asset without consideration, leading to a short term gain treatment.
- Commissioner of Income Tax (Appeals) affirmed the disallowance, prompting the assessees to appeal to the Income Tax Appellate Tribunal.
- Tribunal remitted the matter to the Assessing Officer to determine the holding period of the assets and decide the issue anew.
- The Revenue challenged the Tribunal's decision, questioning the eligibility for deduction under Section 54F.

2. Treatment of Asset as Long Term Capital Asset:
- Dispute arose over whether the asset held for less than four months could be considered a long term capital asset as per Section 2(29A) read with Section 2(42A) of the Income Tax Act.
- Tribunal's decision to treat the short holding period asset as a long term capital asset was contested by the Revenue, raising substantial questions of law on this issue.

3. Consideration of Previous Owner's Holding Period:
- The Tribunal considered Explanation 1(b) below Section 2(42A), emphasizing the need to include the previous owner's holding period even in cases of asset transfer through settlement deeds.
- This raised a legal question on whether the period of holding by the previous owner should impact the classification of the asset as a long term capital asset.

4. Differentiation Between Settlement and Gift:
- The Assessing Officer initially categorized the settlement of the Trade Mark as not a gift due to the absence of consideration.
- However, the Commissioner of Income Tax (Appeals) and the Tribunal viewed the settlement deed as a gift, highlighting the voluntary nature and lack of consideration.
- The Tribunal's dismissal of the Revenue's appeal was based on the detailed examination of the settlement deed, aligning it with the concept of a gift.

In conclusion, the High Court dismissed the Tax Case Appeals based on the precedent set by a previous Division Bench judgment, which extensively analyzed similar issues. The court found no substantial questions of law requiring further consideration, affirming the decisions of the Tribunal and Commissioner of Income Tax (Appeals) in favor of the assessees.