2023 (2) TMI 914 - AT - Income Tax

Deeming gift of immovable property - applicability of section 56(2)(vii) - gift of immovable property to appellant (done) prior to 1.10.2009 - unregistered gift but duly notarized - HELD THAT - AO has erred in observing that the transaction is one of the nature where assessee has received immovable property for a consideration, which is less than the stamp duty value and thus considered it to be deemed gift/ income in the hands of assessee. In the context of deemed gift on the basis of inadequate consideration, the series of documents executed between the assessee and her maternal uncle indicate that the transaction was Gift only and had completed before 01.10.2009. So the provisions of Section 56(2)(vii)(b) which were introduced in the Act by Finance Act, 2010, with retrospective effect from 01.10.2009 are wrongly applied. Transfer Deed of lease hold rights executed and registered on 23.10.2010 was merely documents whose execution became necessary for creating a legal title. Assessee cannot be put to disadvantage on basis of this documents dated 23/10/2010, so as to say that there was transfer of interest on this date only. All the previous documents once duly protected by Suraj Lamp and Industries Pvt. Ltd. Case 2011 (10) TMI 8 - SUPREME COURT deserved to be taken into consideration, which Ld. Tax Authorities below failed to do. Addition u/s 69 - Tax Authorities below have fallen in error to not take into consideration the series of documents. Since the transaction is proved to be a gift, there is no question of any consideration being passed. The reference to consideration in agreement seems to be out of wrong advise parties may have received as they were advised to execute all sorts of documents with only intention to protect any contingency. However, the primary document of transfer of interest being the gift deed only.

Summary

Issues:
1. Applicability of Section 56(2)(vii)(b) of the Income Tax Act, 1961 to a gift deed executed before 1st October, 2009.
2. Determination of deemed gift/income in the hands of the assessee.
3. Consideration of supporting documents like gift deed, Will, agreement to sell, and GPA in the transaction.
4. Addition of Rs. 1 lakh under section 69 of the Act.

Analysis:

Issue 1: Applicability of Section 56(2)(vii)(b) of the Income Tax Act
The dispute arose from the transfer of a plot to the assessee by her maternal uncle, claimed as a gift. The Assessing Officer (AO) rejected the gift claim under Section 56(2)(vii)(b) introduced by the Finance Act, 2010, with retrospective effect from 01.10.2009. However, the documents, including a gift deed, Will, agreement to sell, and GPA, were executed prior to this date. The Tribunal observed that the transaction was a gift completed before 01.10.2009, and the subsequent transfer deed was merely for legal title purposes. The AO's consideration of the transfer deed as determinative was deemed incorrect, as the primary document was the gift deed executed earlier.

Issue 2: Determination of Deemed Gift/Income
The AO considered the transaction as a deemed gift/income due to inadequate consideration, but the series of documents indicated a voluntary transfer without consideration. The Tribunal held that the transaction was a gift, protected by the Suraj Lamp and Industries Pvt. Ltd. case, and completed before the applicability of Section 56(2)(vii)(b). Therefore, the AO's application of the said provision was erroneous, and the assessee was not disadvantaged based on the later transfer deed dated 23.10.2010.

Issue 3: Consideration of Supporting Documents
The Tribunal noted that the gift deed executed on 15.04.2009 was the primary document of the voluntary transfer, supported by subsequent precautionary documents like the Will, agreement to sell, and GPA. The Tribunal emphasized that these documents were part of one transaction and protected under the law. The AO's failure to consider these documents led to an incorrect assessment of the transaction as a deemed gift/income.

Issue 4: Addition under Section 69 of the Act
The Tribunal found that since the transaction was proven to be a gift, there was no consideration passed, and the reference to consideration in the agreement was due to incorrect advice. The primary document of transfer was the gift deed, and the addition of Rs. 1 lakh under section 69 was unwarranted.

In conclusion, the Tribunal allowed the appeal, sustaining the grounds raised by the assessee and highlighting the importance of considering all relevant documents in determining the nature of a transaction involving the transfer of immovable property.