2020 (7) TMI 569 - HC - Income Tax

Capital gain on property - Transfer u/s 2(47) - acquisition of new property rights - exchange of properties between the assessee and his brother - relinquishment of respective rights in the properties to suit their convenience - whether the arrangement between the respondent assessee and his brother by way of gift settlement deed would amount to transfer within the meaning of Section 2(47)? - there were 85 properties owned by the assessee and his brother, that the assessee relinquished 50% of the share in 30 properties and that he became the absolute owner in respect of other 55 properties - whether tribunal is correct in law in holding that there is no legal difference between settlement and gift overlooking the basic nature of the settlement? - Whether the Tribunal is correct in law in giving relief to the assessee by placing reliance on the definition of 'gift' under Section 122 of the Transfer of Property Act? - HELD THAT - Tribunal concluded that the artificial definition made by Lower Authorities with reference to gift and settlement was not appropriate. The Tribunal was of the opinion that for the purpose of Section 49(1)(ii) of the Act, there was no difference between gift and settlement and that in the instant case, the settlement made with the assessee's brother could not attract capital gains on this count. There are no reasons as to how the Tribunal came to such a conclusion. We are unable to find any such reasoning in paragraph 15 of the impugned order. Therefore, the said finding is not supported by reasons and hence, not sustainable. Tribunal referred to the decision of the Coordinate Bench in the case of Mr.Abdul Hameed Khan Mohammed 2016 (1) TMI 903 - ITAT CHENNAI for the assessment year 2011-12. The Tribunal did not assign any reason as to how the said decision of the Coordinate Bench would apply to the assessee's case. Paragraph 14 of the impugned order is also devoid of reasons. Accordingly, the above tax case appeal is allowed, the impugned order is set aside and the matter is remitted back to the CIT(A) for a fresh consideration in accordance with law. Considering the fact that the year, in which, the search and seizure operations were conducted in the place of business of the assessee namely 2011, we direct the CIT(A) to give priority to this case.

Summary

Issues Involved:

1. Whether the Tribunal is correct in law in holding that there is no legal difference between settlement and gift overlooking the basic nature of the settlement?
2. Whether the Tribunal is correct in law in giving relief to the assessee by placing reliance on the definition of 'gift' under Section 122 of the Transfer of Property Act, without considering the definition of Section 2(47)(i) of the Income Tax Act, which deals with sale, exchange or relinquishment of an asset?
3. Whether the Tribunal is correct in law in giving relief to the assessee by holding that the settlement entered into by the assessee with his brother is out of his own free will and love and affection and as such falls within the meaning of gift by overlooking the very nature of the transaction namely exchange of properties?

Detailed Analysis:

Issue 1: Legal Difference Between Settlement and Gift

The Tribunal held that there is no legal difference between settlement and gift, which was contested by the Revenue. The Assessing Officer (AO) had determined that the transaction between the assessee and his brother amounted to a 'transfer' under Section 2(47) of the Income Tax Act, thereby attracting capital gains tax under Section 45 of the Act. The AO concluded that the exchange of properties between the assessee and his brother was not an act of charity or benevolence but resulted in the acquisition of new rights in 55 properties. The Tribunal's conclusion that there was no difference between gift and settlement for the purpose of Section 49(1)(ii) of the Act was found to be unsupported by detailed reasoning, leading to the judgment being set aside.

Issue 2: Reliance on Definition of 'Gift' Under Transfer of Property Act

The Tribunal's reliance on the definition of 'gift' under Section 122 of the Transfer of Property Act was also contested. The AO had emphasized that the transaction amounted to a 'transfer' as defined under Section 2(47) of the Income Tax Act, which includes sale, exchange, or relinquishment of an asset. The Tribunal did not provide adequate reasoning as to why it relied on the definition under the Transfer of Property Act instead of the specific provisions of the Income Tax Act. The judgment highlighted the necessity of applying the law to the specific facts and circumstances of the case rather than in abstract.

Issue 3: Nature of Transaction and Free Will

The Tribunal's finding that the settlement was made out of free will and love and affection, thus qualifying as a gift, was also challenged. The AO had found that the transaction, involving the exchange of properties, was not purely out of love and affection but resulted in the acquisition of new property rights. The CIT(A) and the Tribunal failed to provide sufficient reasons or discuss the AO's findings in detail. The judgment emphasized that an order without reasons is arbitrary and violates principles of natural justice. The Tribunal's decision lacked detailed reasoning and was thus not sustainable.

Conclusion and Remand

The High Court found that both the CIT(A) and the Tribunal did not consider the matter in a proper perspective and failed to provide adequate reasoning for their conclusions. The order of the CIT(A) was deemed devoid of reasons and a nullity, while the Tribunal's findings were unsupported by detailed reasoning. Consequently, the judgment set aside the Tribunal's order and remitted the matter back to the CIT(A) for fresh consideration in accordance with the law, directing the CIT(A) to prioritize and expedite the case.