2019 (1) TMI 647 - AT - Income Tax

Property transaction treated as donation, not taxable. Tribunal rejects circle rate valuation.

The Tribunal upheld the transaction of property purchase as a donation due to lack of actual payment, rejecting the circle rate valuation and tax ... Exemption u/s 11 - Treating of the transaction of purchases of land as voluntary contribution in the form of donation - Held that:- It is undisputed that the seller initially wanted to gift the said plot of land to the assessee trust. Since permission of gift was not received from the concerned government authorities, the sale deed was executed. The sale consideration is purportedly paid by post-dated cheques which were never presented for encashment. Thereafter, the seller did not claim the outstanding amount of sale consideration. In the balance sheet of the assessee in the relevant year, the amount is not shown as payable to the seller of the land. These facts clearly establish that the transaction of transfer of plot of land is in substance the gift which has been given the form of sale. We uphold the finding of learned CIT(A) that it is in effect the donation of the plot by the alleged seller to the assessee trust. Accordingly, ground No.1 of the assessee’s appeal is rejected. Adoption of the value as per circle rate at ₹ 1,11,12,000/- - Held that:- It is an admitted position that the assessee society is registered trust under Section 12AA of the Income Tax Act, 1961. By adopting the circle rate of property, the Assessing Officer applied Section 56 of the Income Tax Act, 1961 to the assessee trust which is not at all applicable to the trust in the particular scenario when the section 56 (2)(vii) is applicable to individuals and HUF only. Besides section 56 (2)(x) will also be not applicable as the same is w.e.f. 01.04.2017 and the Assessment year before us is A.Y. 2015-16. In fact, Section 56(2)(x) of the Act is not applicable to the educational institutions. Therefore, the Assessing Officer wrongly invoked Section 56 of the Act and wrongly adopted circle rate of property in the present case. Thus, Ground No. 2 of the appeal is allowed. Donation as received in kind i.e. in property - income u/s 2(24)(iia) for the purpose of Section 11 - Held that:- AO has applied the circle rate to the land which is also not as per law and we have allowed Ground No. 2 of the assessee’s appeal. In fact, the revenue’s case was that the assessee received land without any consideration which amounts to donation/gift. AR relied upon the decision of Shri Sachyaya Mataji Trust Osian, Jodhpur [2014 (5) TMI 1178 - ITAT JODHPUR] which is an apt decision in present assessee society’s case. In the present case also, it is an admitted fact that the assessee received the donation in kind i.e. land and the same could not be applied, accumulated or invested, therefore it cannot be treated as income. The donation received in kind did not come under the definition of income u/s 2(24) of the Act, therefore, it could not be the income of the trust u/s 12(1) of the Act and the acceptance of donation in kind does not come under the purview of income u/s 2(24)(iia) for the purpose of Section 11 of the Act Issues Involved:1. Treatment of the transaction of purchase of property as voluntary contribution of donation.2. Adoption of the circle rate of the property for valuation.3. Application of funds equivalent to the value of the property for tax purposes.Issue-wise Detailed Analysis:1. Treatment of the Transaction of Purchase of Property as Voluntary Contribution of Donation:The assessee contested the assessment order treating the purchase of property for Rs. 48,12,000 as a voluntary donation. The Assessing Officer (AO) observed that the sale consideration was not paid as the cheques issued were never presented for encashment. The seller did not enforce the payment, and the liability was reduced to nil in the assessee's ledger. The AO concluded that the transaction was essentially a donation disguised as a sale due to the lack of actual payment. The CIT(A) upheld this view, stating that the sale deed was registered without the intention of an actual sale, and the surrounding circumstances indicated it was a donation. The Tribunal agreed, noting that the seller initially intended to gift the land but executed a sale deed due to lack of permission for the gift. The cheques were never encashed, and the seller made no claim for the amount, indicating the transaction was a donation. Thus, the Tribunal upheld the CIT(A)'s finding that the transaction was effectively a donation.2. Adoption of the Circle Rate of the Property for Valuation:The AO adopted the circle rate of Rs. 1,11,12,000 as the value of the property and treated it as a voluntary donation. The assessee argued that the AO wrongly applied Section 56 of the Income Tax Act, which was not applicable to trusts in the assessment year 2015-16. The Tribunal agreed, noting that Section 56(2)(vii) applied only to individuals and HUFs, and Section 56(2)(x), which includes all persons, was effective from 01.04.2017 and not applicable to educational institutions. The Tribunal found that the AO wrongly invoked Section 56 and adopted the circle rate without proper justification. Therefore, the Tribunal allowed the assessee's appeal on this ground.3. Application of Funds Equivalent to the Value of the Property for Tax Purposes:The assessee argued that even if the property was considered a donation, its value should be treated as applied funds for the society's purposes, thus not subject to tax. The Tribunal referred to the decision in the case of Shri Sachyaya Mataji Trust Osian, Jodhpur, where it was held that donations in kind (property) could not be applied, accumulated, or invested and thus could not be treated as income. The Tribunal found that the donation in kind did not fall under the definition of income under Section 2(24) of the Act and could not be considered income for the trust under Section 12(1). Therefore, the Tribunal allowed the assessee's appeal on this ground, rejecting the CIT(A)'s findings.Conclusion:The Tribunal partly allowed the assessee's appeal, upholding the treatment of the transaction as a donation but rejecting the adoption of the circle rate for valuation and the application of funds for tax purposes. The order was pronounced on 10th January 2019.