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Issues: Whether the assessee's transfer of the newly acquired property to his daughter by a settlement deed out of natural love and affection amounted to a gift falling within section 47(iii) of the Income-tax Act, 1961 so as not to be treated as a transfer for capital gains purposes, and whether the claim under section 54 remained available.
Analysis: The settlement deed recited that the property was transferred to the daughter without monetary consideration and out of natural love and affection. A voluntary transfer without consideration answers the legal concept of gift under the Transfer of Property Act, 1882, and such a transfer is excluded from the meaning of transfer under section 47(iii) of the Income-tax Act, 1961. At the same time, the allowance under section 54 had to be examined with reference to the status of the property during the restriction period, because the department disputed the effect of the subsequent settlement and the material on the present status of the property was incomplete.
Conclusion: The settlement deed was treated as a gift falling within section 47(iii), but the matter was remitted to the Assessing Officer for limited verification of the present status of the property and fresh decision after opportunity of hearing.
Ratio Decidendi: A voluntary transfer of immovable property made without consideration out of natural love and affection constitutes a gift for the purposes of section 47(iii) of the Income-tax Act, 1961 and is not treated as a transfer attracting capital gains in the manner alleged.
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