GIFT OF IMMOVABLE PROPERTY TO SISTER IS NOT TAXABLE

[Mr. M. GOVINDARAJAN]

In SANJAY BANSAL VERSUS ITO, WARD-3 (4) NOIDA - 2023 (5) TMI 354 - ITAT DELHI, the Revenue found out that the assessee sold an immovable property to the tune of Rs.1.72 crores on 19.11.2008.  The Assessing Officer sought information from the assessee under Section 133(6) of the Act by means of notice.  The assessee did not furnish the required information as in the notice.  The Assessing Officer did not know the PAN number of the assessee.  In the absence of PAN card it could not be ascertained whether the assessee filed income tax return for the assessment year 2009 - 10 and declared capital gain from the transaction. 

The Assessing Officer issued a show cause notice to the assessee under Section 148 of the Act on 28.03.2016 after getting the approval from Principal Commissioner of Income Tax, Noida.  The notice was served on the assessee but no compliance was made by the assessee.  The Revenue issued notices subsequently which also remained uncomplied with.  Therefore the Assessing Officer formed the opinion that the assessee had nothing to explain regarding to the capital gain arising from the sale of property.  The Assessing Officer calculated the net capital gain at Rs.1.43 crores after adopting cost of index 582 during the financial year 2008 - 09.  The Assessing Officer completed the ex-parte order under Section 144 read with Section 148 of the Act on 04.11.2016.

The assessee filed an appeal before the Commissioner of Income Tax (Appeals) against the order of Assessing Officer.  The appellant submitted before the Commissioner of Income Tax (Appeal) a letter stating that the impugned immovable property was not sold by the appellant but the same was gifted to his sister.  He also enclosed the copy of the gift deed.  The Commissioner of Income Tax (Appeals) asked the appellant to clarify if the donor was an assessee and what was the source of investment in the hands of his sister.  For this the appellant submitted that the property was transferred to him by his father.  After his death on 13.10.1999 the said property was transferred to him.  The said property was transferred to his sister by means of gift deed.  His family members did not raise objection on such transfer to his sister.

The appellant submitted a copy of the letter dated 26.12.2000 from the Noida Authority before the Commissioner of Income Tax (Appeals) which shows that lease subsistence in the name of his father was transferred in favor of the appellant.  The copy of the indemnity bond issued by the appellant in favor of Noida Authority attested by an Advocate on 15.05.2000 for mutation of the subject immovable property in favor of the appellant.  The two sisters of the appellant and his mother filed affidavits before the Commissioner of Income Tax (Appeals) stating that they have no objection over mutation of the subject property existing in the name of his deceased father.  The appellant, therefore, submitted that he was not liable to pay any tax on the instance of alleged gift by him to one his full blood sisters.

The Commissioner of Income Tax did not accept the explanation offered before him that the immovable property was gifted by the assessee to his sister.  The Commissioner of Income Tax (Appeals) held that the done Smt. Manju Garg is liable to tax on the income of Rs.1.72 crores and directed the Assessing Officer to do so.  The Commissioner of Income Tax (Appeals) confirmed the assessment order.

Being aggrieved against the order of Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals) the assessee filed an appeal before the Income Tax Appellate Tribunal (‘ITAT’ for short).  The appellant submitted the following before the High Court-

• The appellant gifted the imputed property to his real sister Smt. Manju Garg in consideration of natural love and affection vide registered gift deed dated 19.11.2008.
• The provisions of section 56(2)(vii)(b) are not application to the case of the appellant.  The said section was substituted by the Finance Act, 2010 with retrospective effect from 01.10.2009 and it applies to the assessment year 2010 - 11 whereas the impugned transaction is relevant to the assessment year 2009 - 10.
• There is no allegation of understatement of consideration in acquisition of property.
• The value of the impugned property was fixed @ Rs.1.72 crores by Dy. Registrar, Noida for stamp duty purpose. 
• The appellant did not received any consideration.
• Any transfer of capital assets under a gift is not transferable as per section 47(iii) of the Act.  Therefore the provisions of capital gain tax are not applicable to the present case.

On the other hand the Revenue submitted that there is no recital in the transfer gift deed that the said immovable property was gifted by the assessee as observed the Commissioner of Income Tax (Appeals).

The ITAT considered the submissions by the parties to the appeal and perused the material on record.  The ITAT observed that the transfer/ gift deed revealed that the transfer/ gift deed was made and executed on 19.11.2008 between Shri Sanjay Bansal and Smt. Manju Garg. It is mentioned in the recital that the transferor/ donor is the allottee, lessee and in possession of the said property duly allotted by the Noida Authority; that the lease deed in respect of the property has been executed by the Noida Authority in favor of the transferor as lessee for the term of 90 years and the same is registered; that the transferor/ donor is the brother of the transferee/ donee and that they are closely related and have got love and affection to each other; that in consideration of love and affection, the transferor/ donor has agreed to gift lease hold rights/ ownership rights in respect of the said property in favor of transferee/ donee; that the transferor/ donor has obtained the permission of Noida authority vide their letter No. Noida/AGM/(IND)/2007/9120 dated 19.12.2007 to transfer/ gift the said property in favor of the transferee/donee; that the transferor donor has transferred and assigned all his rights, titles and interest in the said property TO HOLD the same to the transferee/ donee by virtue of this transfer/ gift deed; that this deed is without monitory consideration and the transferee/ donee has accepted the gift.

From the above the ITAT held that 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.  Therefore the impugned transaction is not to be regarded as transfer for the purposes of section 45.  The said transaction is not liable for capital gains tax. 

The ITAT further held that 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). 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.  Further the  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.

The ITAT held that on the facts and in the circumstances of the assessee's case bringing to tax capital gain of Rs. 1,43,10,930/- in the hands of the assessee is not sustainable. We, therefore delete the impugned addition. The assessee succeeds in his appeal.