Tribunal revises holding period & tax benefits eligibility, deems settlement deed akin to gift

The Tribunal partly allowed both appeals, directing the Assessing Officer to reassess the holding period of the capital asset and the eligibility for Section 54F benefits. They emphasized that a settlement deed can be considered equivalent to a gift, rejecting the distinction made by lower authorities. The Tribunal remanded the issue for fresh consideration, instructing the AO to include the period of holding by the previous owner in determining the asset's long-term capital asset status.

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Issues Involved:
1. Treatment of the transferred asset "Trade Mark" as short-term capital gains.
2. Disallowance of the claim under Section 54F of the Income Tax Act.
3. Determination of whether a settlement deed can be considered a gift under the Income Tax Act.
4. Calculation of the holding period for the capital asset.

Detailed Analysis:

1. Treatment of the Transferred Asset "Trade Mark" as Short-Term Capital Gains:
The primary issue in both appeals was the treatment of the transferred asset, specifically the "Trade Mark," as short-term capital gains. The Assessing Officer (AO) classified the asset as short-term because the asset was held by the assessee for less than 36 months preceding the date of transfer. The AO argued that the period during which the previous owners held the asset could not be considered since the asset was acquired through a settlement deed, not a gift or will.

2. Disallowance of the Claim under Section 54F:
The AO disallowed the claims for deduction under Section 54F of Rs. 8 crores for one assessee and Rs. 36.99 crores for the other, on the grounds that the asset was short-term. Section 54F benefits apply only to long-term capital assets. The AO held that the asset did not qualify as long-term because it was not acquired through a gift or will, and thus, the period of holding by the previous owner could not be included.

3. Determination of Whether a Settlement Deed Can Be Considered a Gift:
The Ld.CIT(A) and the AO both concluded that a settlement deed could not be equated to a gift under the Income Tax Act. They noted that there are marked differences between a settlement and a gift. For instance, a gift is made without consideration, whereas a settlement can be made in consideration of marriage or for other purposes. Additionally, a gift requires acceptance, while a settlement does not. The Ld.CIT(A) emphasized that the definition of a gift from the Gift Tax Act, 1958, which is no longer in existence, could not be imported into the Income Tax Act.

4. Calculation of the Holding Period for the Capital Asset:
The Ld.CIT(A) held that since the settlement deed could not be considered a gift, the provisions of Section 49(1) of the Income Tax Act, which allow the period of holding by the previous owner to be included, did not apply. Consequently, the asset was deemed a short-term capital asset as per Section 2(42A) and the gains arising from its transfer were considered short-term capital gains under Section 2(42B).

Tribunal's Findings:
The Tribunal found merit in the argument that there is no significant difference between a gift and a settlement for the purposes of Section 49(1)(ii) of the Income Tax Act. They cited previous Tribunal decisions, including the cases of Shri S. Krishnan vs. DCIT and Mr. Abdul Hameed Khan Mohammed, where it was held that a settlement deed could be considered equivalent to a gift. The Tribunal directed that the period of holding by the previous owner should be considered in determining whether the asset is a long-term capital asset.

Remand for Fresh Consideration:
The Tribunal remitted the issue back to the AO to determine the period of holding of the capital asset by the previous owner and to decide the issue afresh. They emphasized that the artificial distinction made by the lower authorities between gift and settlement was not appropriate.

Conclusion:
Both appeals were partly allowed for statistical purposes, and the AO was directed to reassess the holding period of the capital asset and the applicability of Section 54F benefits in light of the Tribunal's findings.

Order Pronounced:
The order was pronounced in the open court on 11th May, 2016, at Chennai.

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