Capital Gains - Transfer of property versus Gift - A case of ignorance of assessee. In such cases people handling matters must be more careful and helpful to clients

[CA DEV KUMAR KOTHARI]

Case under study and discussion:

Smt. Balwant Kaur Mangat Versus ITO, Ward-1 (2) , Ghaziabad 2017 (8) TMI 1129 - ITAT DELHI

Cases referred to in above:

1. Rashtriya Ispat Nigam Ltd. Versus Dewan Chand Ram Saran - 2012 (4) TMI 457 - Supreme Court of India
2. GKN Driveshafts (India) Ltd. Versus Income-Tax Officer And Others - 2002 (11) TMI 7 - SUPREME Court
3. Additional Commissioner Of Income-Tax, Delhi-I Versus Mrs. Avtar Mohan Singh - 1981 (10) TMI 30 - DELHI High Court

Ignorance of assessee:

It appears that the lady assessee had hardly any knowledge and awareness about complex tax provisions. In fact she seems not even aware about general law about transfer of immovable property by way of sale or gift. She was also not aware that in case property is sold for lower price, then difference between market value and consideration agreed is a gift for which she cannot make a claim for recovery after execution of document. It seems that she was ill advised to transfer her property by executing a document of sale at a token value, which was also not received from transferee who is her daughter.

It appears that in fact she had gifted property to her daughter but on wrong advise she had shown it as a sale transaction showing token amount of ₹ 2,50,000/- which was also not received by her from her daughter.

Concerned persons and Authorized Representatives:

Advisors and consultants must take care in case of all clients to show facts correctly and should help client. In case of clients like lady assessee in this case, the advisors and consultants must be more careful. Because the client is totally dependent on them, and a mistake committed by advisor can very adversely affect the client.

More care on part of concerned persons was desirable:

It seems a case of gross negligence on part of concerned persons in handling matter in totality and in particular on the following issues:

a) The document was not properly drafted. The sale deed was wrongly made instead of gift deed. There could be a partial gift also by mentioning in the deed that the assessee had agreed to sell property at lower price and difference between market price and price charged, is a gift to daughter and she will have no claim for the same.

b) In the deed, consideration has been shown to have been received. Whereas consideration was never received as contended by assessee.

c) A rectification deed could be executed to make the intention and true nature of transaction clear but it was not made.

d) No return of income was filed.

e) On receipt of notice u/s 148 reasons for formation of believe by AO of escapement of income were not sought, and accordingly the proceeding was not challenged properly.

f) Even before CIT(A) the true nature of transaction and fact that even if it is sold for a lower price, there is gift for balance consideration was not supported by proper documents. A deed of gift for entiremarket value or for excess of market value over consideration could have been made and filed.

g) That when a property is sold for lesser consideration than market value, there is a case of gift from the seller to buyer. Particularly when the consideration shown is token amount and that has also not be paid, at any time, by the seller who is daughter of seller.

h) Ignorance of assessee and negligence of concerned persons was not pressed for consideration.

i) Surrounding circumstances and human probability were not pressed properly.

j) Even at stage of assessment, appeal before CIT(A) and Tribunal document for gift of difference in market value and actual consideration was not filed.

 k) Therefore, it seems that there was carelessness on part of deed writer and later on by other persons who handled the tax matter. Considering that the client is an ignorant lady, it becomes necessary that information about real transaction be gathered be making proper questioning from client.

l) The concerned persons- the deed writer, people who dealt with tax matters should have acted in a bit more careful manner.

Suggested clause of gift in sale deed:

When a sale is made at a negotiated price which is lower than market value or value adopted for purposes of stamp duty a clause about gift from vendor to buyer can be inserted on following lines.

Vendor declare that he is related to buyer  as  …(e.g. as mother of buyer, as sister of buyer, as neighbour of buyer, as a friend, as a colleague, as a classmate, …… etc. as the case may be).

 Vendor declare that he has negotiated with the buyer consideration at Rs.     and he will have no claim whatsoever over and above such negotiated consideration, irrespective of fair market value or such value which may be determined by any authority.

Vendor also declare that the excess of fair market value over negotiated and agreed consideration is a gift from the vendor to the buyer.

The buyer has accepted and agreed such gift and he is under no obligation to pay any money or other consideration over and above negotiated consideration.

The Buyer has accepted the gift which he confirms by signing the deed.

The Tribunal should have considered aspect of gift:

In case of transactions between close relatives like mother and daughter, as was the case before the Tribunal, selling a property at lower price definitely involves an element of gift from mother to daughter. In such cases the excess of market value over consideration paid by buyer, is because of element of gift. There is concept of partial gift wherein lower consideration is charged. When Gift Tax Act was in force such difference could be charged as value of gift if it was a taxable gift.

In S. 56 such difference can be assessed as income in hands of buyer because such gifts are now deemed to be income. In general parlance people consider the inclusion of such difference as taxation of gifts. In section 56 such deemed gift is also exempt if the gift is received from a relative, as defined.

Considering the fact that consideration stated in the deed was a token amount, and the transaction was between mother and daughter, an element of gift was inherent. However, as the document executed and produced before authorities was a sale deed, and any other document or other evidence was not filed or produced the Tribunal had to consider only the document which was designed as a document for sale. Therefore Tribunal could not consider aspect of gift.

It is felt that if  the sale deed was cancelled and a gift deed was executed or a rectification deed was executed or a separate deed of gift for difference between valuation made by stamp authority and consideration stated in the sale deed was made, perhaps the addition could have been deleted by Tribunal.