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Issues: Liability of the assessee for gift-tax
Analysis: The judgment pertains to the liability of the assessee for gift-tax concerning a Hindu Undivided Family (HUF) that underwent partition. The key issue revolves around the treatment of the immovable property held by the HUF post-partition and the subsequent release deed executed by one of the coparceners. The initial dispute arose from a partition within the HUF, where movable properties were divided, but the immovable property remained undivided due to physical constraints. The Income Tax Officer (ITO) recognized only the partition of movable properties, deeming the HUF to continue existing for the immovable property. Subsequently, one coparcener released his share through a deed, leading to a gift-tax assessment by the Appellate Assistant Commissioner (AAC). The crux of the matter lies in the interpretation of the order passed under section 171 of the Income Tax Act, which recognized only the partial partition. The assessee argued that the release deed should be construed as a release of a coparcener's interest, not a transfer attracting gift-tax. Conversely, the revenue contended that the order under section 171 was specific to income tax proceedings and did not affect the gift-tax implications. Upon careful consideration, the tribunal ruled in favor of the assessee. It emphasized that the legal fiction created by section 171 of the Income Tax Act must extend to gift-tax assessments to maintain consistency between the two enactments. Referring to the Supreme Court's precedent, the tribunal highlighted the need to give full effect to the legal fiction in income tax assessments. It reasoned that the conflict between the two enactments necessitated a harmonious interpretation, aligning the treatment of assets for both income tax and gift tax purposes. Ultimately, the tribunal held that the release of rights by the coparcener should be viewed as a release of undivided coparcenary interest, not a transfer subject to gift-tax. By considering the asset as belonging to the HUF, despite individual claims, the tribunal concluded that the transaction did not attract gift-tax liability. Consequently, the appeal of the assessee was accepted, and the gift-tax assessment was annulled.
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