2022 (5) TMI 723 - AT - Income Tax

Income from Other Sources or capital gain - addition u/s 56(2)(vii)(a) - family settlement - amount received for giving up his rights over some of the items of the suit properties - suit properties were bequeathed to the assessee s mother under the will - HELD THAT - Provisions of Sec.56(2)(vii)(a) will apply only when any sum of money is received, without consideration, the aggregate value of which exceeds fifty thousand rupees. Admittedly, the assessee received the sum of Rs.1.60 Crores for giving up his rights over some of the items of the suit properties. The fact that all the items of suit properties were bequeathed to the assessee s mother under the will of K.K.Vijayakumar cannot be the basis to hold that the assessee did not have any rights whatsoever. The assessee had a right to question the validity of the will and had in fact filed the suit for partition and separate possession of his share of the suit properties. He gave up his rights to contest the will and in return received Rs.1.60 Crores and a shop at Avenue Road. Therefore the sum in question cannot be said to have been received without consideration. The sum in question is not in the nature of revenue receipt and is capital receipt not chargeable to tax. The sum so received cannot also be brought to tax as capital gain u/s.45 of the Act. In the case of Smt.T.Gayatri 2013 (8) TMI 934 - ITAT BANGALORE the facts were, one 'B', father of assessee died intestate leaving behind four sons and six daughters including assessee. After expiry of 'B', assessee along with other sisters filed a suit for partition of self acquired property of their father. The suit was ultimately compromised between the parties duly recognized by Court. In terms of memorandum of compromise daughters agreed to receive their 1/10th share each in property coming to Rs. 87.50 lakh from their brothers. The assessee's brothers subsequently entered into a joint development agreement of property in question. In terms of said agreement, the developer directly paid amount of Rs. 87.50 lakh each to daughters of 'B' including assessee therein. The daughters of 'B' thereupon executed a release deed of disputed property in favour of their brothers. For the relevant year, the assessee filed her return wherein amount of Rs. 87.50 lakhs was not offered to tax under the head 'capital gain'. The assessee took a stand that the sum in question was a receipt consequent to a family arrangement and therefore, there was no transfer of any capital asset so as to attract provisions of section 45. The Tribunal dealt with the aforesaid issue and came to the conclusion that sum received by assessee is traceable to the realisation of rights as legal heir of intestate succession and not to any sale, relinquishment or extinguishment of right to property. The Tribunal took note of the fact that there was a suit for partition in which the assessee became entitled to 1/10th share over the property. The Tribunal also took note of the fact that there was a compromise recorded between the parties before the appellate court, whereby assessee agreed to receive Rs.87.50 lakhs towards her 1/10th share over the property in lieu of 1/10th share of property physically delivered after division by metes and bounds. In these circumstances that the Tribunal came to the conclusion that the sum received by assessee was nothing but realization of assessee's rights as legal heir. The Tribunal also took note of the subsequent release deed executed by assessee in favour of developers, who purchased the property from other co-sharers, as a document for perfecting the title of the third party to the property and not for any other purpose. The Tribunal ultimately came to the conclusion that there was no transfer within the meaning of section 2(47) of the Act and therefore capital gain was not exigible. The above decision would also support the view that the sum in question cannot be brought to tax as capital gain also. We therefore hold that sum received by the assessee in the facts and circumstances of the case cannot be brought to tax. The addition made is therefore directed to be deleted and the appeal of the assessee is allowed.

Summary

Issues:
Whether the sum received by the assessee is chargeable to tax under "Income from Other Sources" as per section 56(2)(vii)(a) of the Income Tax Act, 1961.

Analysis:
The only issue in this appeal was whether the Revenue authorities were justified in taxing a sum of Rs.1,60,00,000/- under the head "Income from Other Sources" as per section 56(2)(vii)(a) of the Income Tax Act, 1961. The assessee received this amount as part of a compromise agreement in a suit for partition and separate possession of family properties. The AO and CIT(A) held that the sum fell within the scope of Sec.56(2)(vii)(a) of the Act. The assessee argued that the amount received was not without consideration as it was in exchange for giving up his rights over certain properties. The Tribunal referred to a similar case where it was held that such receipts were not taxable as capital gains. The Tribunal concluded that the sum received by the assessee was a capital receipt and not chargeable to tax under any provision of the Act.

The facts revealed that the assessee's mother had sold the properties received under a will even before the partition suit was filed. The AO contended that since the properties belonged absolutely to the mother, the sum received by the assessee was taxable in his hands. However, the Tribunal disagreed, emphasizing that the assessee had a right to contest the will and had chosen to settle the matter by receiving the sum in question. The Tribunal cited a case where a similar receipt was held not taxable as capital gains, supporting its decision in this case.

In conclusion, the Tribunal held that the sum received by the assessee cannot be brought to tax. The addition made by the Revenue authorities was directed to be deleted, and the appeal of the assessee was allowed. The Tribunal's decision was based on the understanding that the sum received was a capital receipt and not chargeable to tax under any provision of the Income Tax Act, 1961.