ITAT rules gift of property to family member not taxable under Income Tax Act

The ITAT ruled in favor of the assessee, holding that the gift of 50% interest in a property to a family member did not constitute a transfer under section 2(47) of the Income Tax Act. The ITAT considered the transaction as part of a family arrangement for acquiring separate properties, not attracting tax liability. Consequently, the ITAT directed the deletion of additions towards capital gain computation, overturning the decisions of the AO and CIT(A).

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Issues:
1. Whether the gift made by the assessee towards relinquishing 50% interest in a property constitutes a transfer within the meaning of section 2(47) of the Income Tax Act.
2. Whether the family agreement between the members of the family justifies the relinquishment of the assessee's interest in the property without attracting tax liability.

Analysis:
1. The assessee had gifted her 50% interest in a property to her brother-in-law, receiving a cash gift in return. The Assessing Officer (AO) treated this transaction as a transfer under section 2(47) of the Income Tax Act, leading to the computation of long-term capital gain. The AO held that the gift transaction could not be considered a family arrangement. The CIT(A) affirmed the AO's decision, emphasizing that the transaction fell within the ambit of section 2(47). However, the ITAT disagreed, noting that the gift was part of a family arrangement for acquiring separate properties, not constituting a transfer under section 2(47). The ITAT allowed the appeal, directing the deletion of additions towards capital gain.

2. The CIT(A) relied on the AO's analysis that the properties were purchased using the assessee's own funds, suggesting they did not qualify as family assets. Citing case law, the CIT(A) concluded that the transaction attracted capital gain tax. The ITAT, however, considered the family settlement aspect, emphasizing that the transaction was part of an internal arrangement among family members. The ITAT disagreed with the CIT(A)'s reasoning, stating that the transaction did not fall under the definition of transfer as per section 2(47) and reversed the decision, instructing the AO to remove the capital gain computation.

In summary, the ITAT ruled in favor of the assessee, holding that the gift made by relinquishing 50% interest in the property to a family member did not constitute a transfer under section 2(47) of the Income Tax Act. The ITAT emphasized the family arrangement aspect and directed the deletion of additions towards capital gain computation.

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