2019 (7) TMI 89 - HC - Income Tax

Court affirms Tribunal decision on invalid gift of shares under Income Tax Act

Shri. V. Dwarakanathan Versus The Assistant Commissioner of Income Tax, Central Circle 2 (1), Chennai

The High Court dismissed the appeal, affirming the Tribunal's decision that Section 49 of the Income Tax Act, 1961 did not apply as the gift of shares was ... Computation of capital gain - genuineness of gift - cost of acquisition of the previous owners u/s 49 - HELD THAT:- Tribunal concluded that the provisions of Section 49 did not apply to the facts of the case, since the said provisions envisages only where the capital asset becomes the property of the assessee, then the cost of acquisition of the asset will have to be reckoned on the basis of cost of acquisition to the previous owner and otherwise, no. Tribunal faulted the assessee in not furnishing any evidence either before the AO, or before the CIT(A), or before the Tribunal that he held the gift by way of registered document and that the donor, his daughter, Mrs. Meera Arun had sufficient source for cash during the assessment year 2009-10 to invest such huge cash in 3,00,000 equity shares and therefore, on facts, the Tribunal approved the finding of the AO that the transaction was entirely bogus. The assessee has not been able to dislodge any of the factual findings which have been re-appreciated by the AO. Furthermore, as observed by us earlier, the assessee did not cooperate in the assessment proceedings for the reasons best known. - No substantial question of law. Issues Involved:1. Applicability of Section 49 of the Income Tax Act, 1961 in the case of gifted shares.2. Validity of the gift transaction and its impact on the assessment of capital gains.Detailed Analysis:1. Applicability of Section 49 of the Income Tax Act, 1961:The primary issue was whether Section 49 of the Income Tax Act, 1961, which pertains to the cost of acquisition of assets in the case of gifts, applies to the appellant while computing capital gains. The Tribunal held that Section 49 did not apply because the assessee had not become the owner of the shares through a valid gift. The Tribunal noted that the assessee did not provide any registered document to substantiate the gift of shares from his daughter, Mrs. Meera Arun. Consequently, the Tribunal concluded that the provision of Section 49, which allows the cost of acquisition to be determined based on the previous owner's cost, was not applicable.2. Validity of the Gift Transaction:The secondary issue was whether the gift transaction was valid and whether the capital gains could be assessed in the hands of the appellant. The Tribunal found that the transaction was bogus. They observed that the assessee did not disclose the receipt of the gift in the original return of income and later claimed a loss on the sale of shares in the return filed in response to the notice under Section 148 of the Act. The Tribunal noted that the shares were transferred in quick succession without proper documentation or approval from the Board of Directors of the respective companies. The Tribunal also highlighted that the assessee's daughter, Mrs. Meera Arun, did not have sufficient cash to invest in such a large number of shares. Based on these findings, the Tribunal upheld the Assessing Officer's decision that the transaction was not genuine and thus, the capital gains could not be assessed in the hands of the appellant.Additional Observations:The Tribunal observed that the assessee did not cooperate during the assessment proceedings, failing to respond to multiple notices and requests for documentation. The Assessing Officer completed the assessment ex-parte under Section 144 of the Act due to the lack of cooperation. The CIT(A) had initially allowed the appeal by the assessee, citing Section 49, but the Tribunal reversed this decision, emphasizing the lack of evidence and the bogus nature of the transaction.Conclusion:The High Court dismissed the appeal, agreeing with the Tribunal's findings. The court noted that the assessee failed to dislodge the factual findings and did not cooperate during the assessment proceedings. Consequently, the court concluded that no substantial question of law arose for consideration, and thus, the appeal was dismissed with no costs.