2023 (12) TMI 708 - AT - Income Tax

LTCG - Exemption u/s 54 and 54EC - determination of 'holding period' in the hands of the appellant - asset sold by the appellant can be treated as 'short-term' or 'long-term' capital asset - assessee has stated that the property as acquired through gift deed was inherited property and she has received from his father in law - claim denied as property in question is not a long term capital asset within the meaning of IT Act, 1961 and was not covered under the provision of clause (b) of Explanation 1 to section 2(42A) r.w.s. 49(1) - CIT(A) allowed exemption - HELD THAT - Appellant acquired the property by way of gift. A gift is defined under the Transfer of Property Act, 1882 as the transfer of certain existing moveable or immovable property, made voluntary and without consideration, by one person, called the donor, to another, called the donee and accepted by or on behalf of the done. By implication, it follows that a gift deed is a document that evidences such a transfer and takes effect during the lifetime of the donor. The conclusion arrived at by the A.O that the gift was given by Sh. Kultar Singh without any consideration through his attorney i.e. Sh. Kawaljit Singh, is not inconsonance with facts of the case and is erroneous. Invocation of explanation (e) to Section 56(2)(vii) to the facts of case is also not the correct interpretation of law and has no bearing on the facts of the case. AO has not brought on record any document or evidence that would suggest that the General Power of Attorney was void or voidable. The legal validity of the said document, which was duly registered has remained outside the pale of doubt. Thus, by virtue of the GPA, absolute power of ownership has been vested in the donor. The power to gift is a consequential outcome of the said power. Gift deed was duly executed following legal procedures, including payment of applicable stamp duties. The said document remains a valid legal instrument, in the context of lack of any adverse inference brought on record by the Assessing Officer. Thus from the available documents, it is also, without any doubt that the donor and done are related, the appellant being the daughter-in-law of the donor. Therefore, in the absence of such adverse findings as enumerated in (a) to (c) of para 5.5 of will not be just and proper to arrive at conclusions, as has been done by the Assessing Officer. Assessing Officer's reference to explanation (e) to section 56(2)(vii) also appears to be based on erroneous reading of the provision. Extrapolating principles applicable under a particular head (Income from Other Sources) to another head (Capital Gains) does not have legal legs to stand on. Therefore, it can be concluded that the property was received by the appellant as a 'gift'. The provision of subsection (1) of Section 49 of the Act is squarely applicable. Consequentially, the period of holding of the previous owner, as specified in clause (42A) of Section (2) of the Act will also apply. Accordingly, the exemption u/s 54 and 54EC of the Act cannot be denied to the appellant. We find that the Ld. CIT(A) has elaborately considered the legal position as well as factual aspects. DR also could not point out any infirmity in the same. Decided against revenue.

Summary

Issues involved:
The judgment involves issues related to the exemption under sections 54 and 54EC of the Income Tax Act, 1961 for a property transaction not meeting the long-term capital asset criteria and the indexed cost of acquisition.

Exemption under sections 54 and 54EC:
The appellant claimed exemption under sections 54 and 54EC for a property transaction. The Assessing Officer (AO) contended that the property was not a long-term capital asset and denied the exemption. The AO held that the appellant had not paid any amount for property acquisition except stamp duty and transfer charges, treating the property as a short-term capital asset. Consequently, the AO disallowed the indexation benefit and the exemption under sections 54 and 54EC. The AO treated the capital gain as short-term and added the balance amount to the appellant's income.

Legal Position and Factual Analysis:
The Legal position was analyzed concerning the provisions of section 49 and clause (42A) of section 2 of the Act. The property in dispute was acquired by the appellant through a gift deed from the father-in-law. The gift deed was duly registered, and stamp duty was paid. The appellant acquired the property by way of a gift, which is defined under the Transfer of Property Act, 1882. The AO's conclusion that the gift was without consideration and invoking explanation (e) to Section 56(2)(vii) was deemed erroneous. The AO failed to provide evidence suggesting the General Power of Attorney was void or voidable, or that the gift deed was not executed following legal procedures. The relationship between the donor and the donee was established, and the AO's interpretation was found to be incorrect.

Conclusion and Upholding of CIT(A) Order:
The CIT(A) upheld the appellant's claim for exemption under sections 54 and 54EC, emphasizing the legal validity of the gift deed and the relationship between the donor and the donee. The Tribunal heard both parties and found no infirmity in the CIT(A)'s order, upholding it as well-reasoned. Consequently, the appeal of the Revenue was dismissed.

Separate Judgment by Judges:
No separate judgment was delivered by the judges in this case.