2015 (4) TMI 908 - AT - Income Tax

Exemption / eduction u/s 54F - more than one residential house - assessee claimed that old proerty was gifted to minor daughter through an oral HIBA - Validity of oral gifts - Held that - An oral gift already made was reduced to writing at a later point of time on the same day i.e., on 18.8.2008. This would be clear from a reading of the affidavit filed in confirmation of oral gift, which we have already extracted in the earlier part of this order. Therefore, the gift in question satisfies all the requirements of law and has to be held as valid in law. Since the gifts are held to be valid, the assessee cannot be regarded as owner of the old property. Therefore, the assessee will be the owner of only one property. Apart from this property, the assessee claims to have purchased a plot of land over which a new residential house is sought to be constructed. Therefore, the restriction in the proviso to section 54F(1) of the Act are not attracted in the case of assessee. The CIT(A) did not take note of the error of omission of these loans in the statement of affairs; but chose to rely only on the disclosure of asset which were claimed to be wrongly made in the statement of affairs. In our view, the explanation offered by the assessee is bona fide and it has been shown by the assessee that the statement of affairs on which the Revenue placed reliance was not reliable as it contained errors. We are, therefore, of the view that the assessee satisfies all the conditions for grant of exemption u/s. 54F of the Act. We accordingly direct the AO to allow the deduction claimed by the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of deduction under Section 54F of the Income Tax Act.
2. Validity of oral gifts (Hiba) under Mohammedan Law and their acceptance by revenue authorities.
3. Ownership status of properties at the time of transfer of the original asset.
4. Reliability of the statement of affairs submitted by the assessee.

Detailed Analysis:

1. Denial of Deduction under Section 54F of the Income Tax Act:
The primary issue in this appeal is whether the revenue authorities were justified in denying the assessee's claim for a deduction under Section 54F of the Income Tax Act. The assessee sold a vacant site and invested the sale proceeds in purchasing another site and deposited the remaining amount in the Capital Gains Account Scheme, intending to claim exemption under Section 54F by constructing a residential house within three years.

2. Validity of Oral Gifts (Hiba) under Mohammedan Law:
The assessee claimed that two properties were gifted to her minor daughters through oral Hiba on 18.08.2008, before the sale of the original asset on 04.09.2008. The revenue authorities questioned the validity of these oral gifts, arguing that gifts of immovable property require a registered document. However, under Mohammedan Law, an oral gift is valid if it meets three conditions: declaration by the donor, acceptance by the donee, and delivery of possession. The Tribunal found that these conditions were satisfied, and the oral gifts were valid.

3. Ownership Status of Properties at the Time of Transfer of the Original Asset:
The Assessing Officer (AO) denied the exemption under Section 54F, stating that the assessee owned more than one residential house on the date of transfer of the original asset. The Tribunal, however, concluded that the assessee did not own the two properties (No. 222 and No. 228, Kadirenahalli Village) at the relevant time due to the valid oral gifts. Therefore, the assessee was deemed to own only one property (No. 518, Malaprabha, Koramangala) and was eligible for the exemption under Section 54F.

4. Reliability of the Statement of Affairs Submitted by the Assessee:
The statement of affairs submitted by the assessee as of 31.03.2009 included the properties that were claimed to have been gifted. The Tribunal accepted the assessee's explanation that the statement contained errors and omissions, such as not listing certain housing loans. The Tribunal found the explanation bona fide and concluded that the statement of affairs was not reliable evidence against the assessee.

Conclusion:
The Tribunal held that the oral gifts were valid under Mohammedan Law, and the assessee did not own more than one residential house on the relevant date. Consequently, the assessee was entitled to the deduction under Section 54F of the Income Tax Act. The appeal by the assessee was allowed, and the AO was directed to grant the claimed deduction.