1978 (2) TMI 53 - HC - Income Tax

High Court rules in favor of assessee, deems relinquishment deeds as transfer for tax exemption

The High Court ruled in favor of the assessee, affirming that the relinquishment deeds executed by his brothers constituted a transfer of their interests ... Capital Gains, Income Tax Act Issues:- Interpretation of Section 54 of the Income Tax Act, 1961 regarding exemption eligibility.- Determining if the relinquishment deeds executed by the three brothers constitute a transfer for the purpose of claiming exemption under Section 54.Analysis:The case involved a dispute over whether the assessee could claim exemption under Section 54 of the Income Tax Act, 1961 based on the relinquishment deeds executed by his three brothers. The assessee, part of a joint Hindu family, had received properties worth one lakh rupees from his brothers in consideration of his efforts in improving the family properties. The brothers relinquished their rights in a house at Madanapalle, valued at Rs. 30,000 each, to the assessee. The Income Tax Officer (ITO) denied the exemption, arguing that the relinquishment deeds were not deeds of transfer. However, the Appellate Authority Commission (AAC) and the Tribunal ruled in favor of the assessee, considering the deeds as conveyances. The central question was whether the relinquishment deeds constituted a transfer for the purpose of exemption under Section 54.The High Court analyzed the nature of the relinquishment deeds in question. It distinguished the situation from a partition scenario, emphasizing that the brothers had agreed to transfer their interests in the property to the assessee in consideration of Rs. 30,000 each. The court referred to a Supreme Court decision highlighting that a release deed could operate as a conveyance, transferring ownership to a person lacking prior title. In this case, the assessee only held a limited interest in the property, and the brothers intended to transfer their respective shares to him. The court concluded that the release deeds effectively transferred the title or interest of the brothers to the assessee, who did not have title to the majority of the property.Ultimately, the High Court ruled in favor of the assessee, affirming the decisions of the AAC and the Tribunal. The court held that the relinquishment deeds constituted a transfer of the brothers' interests to the assessee, making him eligible for exemption under Section 54 of the Income Tax Act, 1961. The judgment favored the assessee, granting him the deduction of the property value released by his brothers from the capital gain, with costs awarded against the revenue.