2024 (4) TMI 585 - AT - Income Tax

Addition u/s 56(2)(vii)(b) - transfer under gift deed - execution of the gift deed in pursuant to the family settlement / arrangement - HELD THAT - As it is settled proposition of law that to understand the terms of a document one has to look to the substance rather than the form of it if mere formal description is not conclusive, unless the context shows the intention of the parties. In the case in hand as evident from the relevant record the gift deed in question was executed in the process of family settlement arrangement and distribution of the assets between the parties and therefore, the nature of transactions has to be determined on the basis of the substance and the real and intent of the parties behind the transactions. As evident from the seized material itself that the land in question was very much part of the assets to be distributed and consequently part of the family settlement/arrangements. The execution of the gift deed in question is only to give effect to the settlement and distribution of the assets between the parties. Hence, it is only a document of transfer of title in the scheme of distribution of assets under the Settlement between the parties and not in the nature of gift. Therefore, the transfer of the land in question through gift deed ought to have been considered in the light of surrounding facts and circumstances of settlement of division of properties between two related families and not in isolation. As the land in question was very much part and parcel of the settlement between the parties therefore, was also subject matter of distribution of assets between the parties then it would not fall in the ambit of section 56(2)(vii)(b) of the Act as it is not a transfer without consideration rather it is a transactions of exchange of the assets under the family settlement arrangement and distribution of the assets between the parties. Accordingly, transactions of transfer of the land in question by execution of the gift deed dated 04.02.2017 is only in pursuant to the family settlement/arrangement and in exchange of distribution of assets between the parties and consequently the said transactions would not fall in the ambit of section 56(2)(vii)(b) - Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Legality of the assessment order and additions made by the Assessing Officer (AO).
2. Applicability of u/s 56(2)(vii)(b) of the Income Tax Act concerning the gift deed and its classification as undisclosed income.

Summary:

Issue 1: Legality of the Assessment Order and Additions

The assessee challenged the assessment order dated 17.03.2023 by the Commissioner of Income Tax (Appeal), Bhopal, for the Assessment Year 2017-18, arguing that the order was unlawful and illegal. The assessee contended that the assessment was made without any incriminating material and opposed the findings of the lower authorities.

Issue 2: Applicability of u/s 56(2)(vii)(b) of the Act

The assessee, a member of the Asnani Group, was subjected to a search and seizure operation u/s 132 of the Act, leading to the discovery of various documents, including a gift deed dated 04.02.2017. The AO proposed an addition of Rs. 3,67,00,000/- u/s 56(2)(vii)(b) of the Act, treating the gift as undisclosed income from other sources.

Before the Tribunal, the assessee argued that the gift deed was part of a family settlement arrangement, not a conventional gift. The family settlement dated 14.02.2015 and subsequent Memorandum of Understanding (MOU) dated 27.09.2017 were cited to demonstrate that the transfer of land was an exchange within the family arrangement. The assessee emphasized that the AO erred by considering the gift deed in isolation and not in the context of the entire family settlement.

The Tribunal noted that the seized documents, including the family settlement and MOU, indicated that the land transfer was part of a broader family arrangement. The Tribunal held that the AO should have considered the substance over the form, recognizing the transfer as an exchange under the family settlement rather than an isolated gift. Consequently, the Tribunal concluded that the transaction did not fall under the ambit of u/s 56(2)(vii)(b) of the Act, and the addition made by the AO was deleted.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the transfer of land through the gift deed was part of a family settlement and not taxable under u/s 56(2)(vii)(b) of the Act. The assessment order and the addition of Rs. 3,67,00,000/- were quashed.