2023 (5) TMI 354 - AT - Income Tax

Capital gain - transfer of capital asset u/s 2(47) - incidence of transfer of immovable property - transfer/ gift deed - HELD THAT - As per recitals made in the transfer/ gift deed it is crystal clear that the said property was gifted by the assessee to his sister out of natural love and affection and it was in this back drop that the assessee claimed before the CIT(A) that the incidence of transfer of immovable property was not liable to tax in his hands. The claim of the assessee before the Ld. CIT(A) was lawful. Clause (iii) of section 47 of the Act exempts from the operation of section 45 all transfers under a gift or will or an irrevocable trust. Therefore, the transaction of gift under consideration is not to be regarded as transfer for the purposes of section 45. As held in the case of Gillanders Arbuthnot and Co 1968 (9) TMI 49 - CALCUTTA HIGH COURT that the provision of section 47 have to be strictly construed which decision has been affirmed by the Hon ble Supreme Court 1972 (9) TMI 13 - SUPREME COURT . Therefore, the impugned transaction of gift is not exigible to capital gains tax. By no stretch of imagination the impugned gift of immovable property can be brought to tax in the hands of the recipient donee Smt. Manju Garg under section 56(2)(vii)(b). Firstly, the provision of section 56(2)(vii)(b) came into existence w.e.f. 01.10.2009 and therefore will apply for transaction undertaken on or after such date as explained by the CBDT in Circular No. 5 dated 03.06.2010. Proviso under section 56(2)(vii) says that this clause shall not apply to any property received from any relative. The expression relatives under Explanation (e) to section 56(2)(vii) means brother or sister of the individual . Since the impugned transaction of gift of property is between brother and sister it falls outside the ambit of the provision of section 56(2)(vii)(b) of the Act. Therefore, the question of taxability of the impugned gift in the hands of the recipient donee Smt. Manju Garg does not arise at all. Invocation of section 50C to the case of the assessee is irrelevant as the said provision applies where there is under-statement of consideration in acquisition of property. There is nothing like that in the case of the assessee. Thus assessee s case bringing to tax capital gain in the hands of the assessee is not sustainable. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this legal judgment include the assessment of capital gains arising from the sale of an immovable property, compliance with notices under the Income Tax Act, 1961, applicability of sections 47(iii), 56(2)(vii)(b), and 50C of the Act, and the taxability of a gift transaction between siblings.

Assessment of Capital Gains:
The case revolved around the assessment of capital gains from the sale of an immovable property by the assessee for Rs. 1,72,80,000/- during the financial year 2008-09. The Assessing Officer completed the assessment ex-parte under section 144 read with section 148 of the Act, calculating the net capital gain at Rs. 1,43,10,928/-.

Compliance with Notices:
The Assessing Officer issued notices under section 133(6) and 148 of the Act to the assessee regarding the sale transaction. However, the assessee failed to comply with the notices, leading to the assessment being completed ex-parte.

Applicability of Sections 47(iii), 56(2)(vii)(b), and 50C:
The assessee contended that the transfer of the property to his sister through a gift deed was exempt from capital gains tax under section 47(iii) as it was a transfer by way of gift. The Tribunal analyzed the provisions of section 56(2)(vii)(b) and section 50C to determine their relevance to the case.

Taxability of Gift Transaction:
The Tribunal examined the gift deed and concluded that the property was indeed gifted by the assessee to his sister out of natural love and affection. It was established that the transaction was exempt from capital gains tax under section 47(iii) as it was a gift. The Tribunal further clarified that the provisions of section 56(2)(vii)(b) did not apply to the transaction between siblings, thus ruling out the taxability of the gift in the hands of the recipient.

Decision:
After careful consideration of the submissions and evidence, the Tribunal held that the capital gain assessment of Rs. 1,43,10,930/- in the hands of the assessee was not sustainable. Consequently, the impugned addition was deleted, and the appeal of the assessee was allowed.