2020 (12) TMI 660 - AT - Income Tax

Correct head of income - sale of plot of land - long term capital gains or income from other sources - gift given by four children to their mother - AO concluded that assessee was only a natural guardian of the immovable property and not joint owner of the property thereon, treated the amount received as income from other sources - whether assessee would be entitled for deduction u/s.54/54F and 54EC of the Act if the aforesaid receipt is assessed as long term capital gains? - HELD THAT - It is not in dispute that assessee had received ₹ 1,20,00,000/- directly from the purchaser i.e. Oricon Realty Pvt. Ltd., in view of the fact that she has signed the sale deed as consenting party. Alternative argument advanced by the ld. AR before us holds good that the said sum could at best be treated only as gift given by four children to their mother. We are in complete agreement with this. The receipt of money of ₹ 1.20 crores is a movable asset for which no registration is warranted. Even oral gift is permissible and it need not be deduced into writing especially when it is done amongst close family members as there are least chances to suspect the same. This observation made by us gets further strengthened in view of the undisputed fact that the total sale consideration paid by Oricon Realty Pvt. Ltd., for this subject mentioned property at Pisoli Village, Pune was ₹ 6 Crores only. In fact the ld. CIT(A) also in his appellate order categorically states that the total sale consideration of the property is only ₹ 6 Crores and there is absolutely no dispute over the same. Total sale consideration of the property of ₹ 6 Crores should be divided equally among the four children of the assessee i.e. Mrs. Asha Arun Gawli. It is not the case of the revenue that ₹ 1,20,00,000/- paid by Oricon Realty Pvt. Ltd., to the assessee i.e. Mrs. Asha Arun Gawli was over and above the total sale consideration of ₹ 6 Crores. Hence, it could be safely concluded that the amount received in the sum of ₹ 1,20,00,000/- by the assessee i.e. Mrs. Asha Arun Gawli would have to be treated as gift received by the assessee i.e. Mrs. Asha Arun Gawli from her four children in the interest of substantial justice and fair play. While making this decision, we are conscious of the fact that assessee had reported capital gains treating herself as one of co-owners in the subject mentioned property and had reported capital gains thereon. Since, we have held that the said receipt of ₹ 1,20,00,000/- is neither sale consideration on sale of property nor it could be taxed as income from other sources in her hands and it is only a gift received from 4 children which is exempt u/s.56(2) of the Act, the same would ultimately result in a situation where the assessed income becomes lower than the returned income. The total sale consideration of ₹ 6 Crores should be divided equally among four children @ ₹ 1,50,00,000/- each and cost of acquisition of the property also should be distributed equally among four children and indexation benefit to be given to them. The resultant long term capital gains arising in the hands of each children shall have to be recomputed accordingly after giving the benefit of exemption u/s.54 / 54F / 54EC of the Act depending upon the proof submitted therein by each of the children. The ld. AO is directed accordingly.

Issues Involved:
1. Classification of the sum received from the sale of land as long-term capital gains or income from other sources.
2. Entitlement to deductions under Sections 54, 54F, and 54EC of the Income Tax Act.
3. Determination of the correct sale consideration and its distribution among the co-owners.

Detailed Analysis:

1. Classification of the Sum Received from the Sale of Land:
- Facts and Arguments: The primary issue was whether the ?1,20,00,000 received by the assessee from the sale of a plot of land should be treated as long-term capital gains or income from other sources. The assessee declared the amount as long-term capital gains, claiming deductions under Sections 54, 54F, and 54EC. The AO contended that the assessee was not the owner of the property, as the land was purchased in the names of her four minor children, and she acted only as their natural guardian. Thus, the AO classified the amount as "income from other sources."
- Tribunal's Decision: The Tribunal held that the assessee was not the beneficial or legal owner of the land but acted as a natural guardian. Therefore, the sum of ?1,20,00,000 received by the assessee could not be treated as long-term capital gains. However, the Tribunal accepted the alternative argument that the sum could be considered a gift from her children, which is exempt under Section 56(2) of the Act. Consequently, the amount was not taxable as income from other sources.

2. Entitlement to Deductions under Sections 54, 54F, and 54EC:
- Facts and Arguments: Since the AO classified the sum as "income from other sources," the assessee was denied the benefit of deductions under Sections 54, 54F, and 54EC, which are applicable only to capital gains.
- Tribunal's Decision: The Tribunal upheld that since the amount was not treated as capital gains, the assessee was not entitled to these deductions. However, given the reclassification of the amount as a gift, the issue of deductions became moot.

3. Determination of the Correct Sale Consideration:
- Facts and Arguments: The AO treated the total sale consideration of ?6 crores as being divided among four co-owners (the assessee's children) instead of five (including the assessee). This resulted in each child's share being ?1,50,00,000 instead of ?1,20,00,000. The AO also adjusted the cost of acquisition based on a 1/5th share instead of a 1/4th share.
- Tribunal's Decision: The Tribunal confirmed that the property was legally owned by the four children and not the assessee. Thus, the total sale consideration should be divided among the four children, resulting in each child's share being ?1,50,00,000. The Tribunal corrected the cost of acquisition to be divided among four co-owners, not five, and directed the AO to recompute the capital gains accordingly. This included giving the benefit of indexation and applicable deductions under Sections 54, 54F, and 54EC to the children.

Conclusion:
The appeals were partly allowed. The Tribunal held that the sum of ?1,20,00,000 received by the assessee was a gift from her children and exempt under Section 56(2) of the Act. The sale consideration of ?6 crores was to be divided among the four children, and the cost of acquisition was to be adjusted accordingly. The Tribunal directed the AO to recompute the capital gains for each child, considering the appropriate deductions under Sections 54, 54F, and 54EC.

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