2023 (5) TMI 354 - AT - Income Tax

Tribunal rules in favor of assessee, capital gain assessment not sustainable. Gift to sister exempt from tax.

Sanjay Bansal Versus ITO, Ward-3 (4) Noida.

The Tribunal ruled in favor of the assessee, holding that the capital gain assessment of Rs. 1,43,10,930/- was not sustainable. The addition made by the ... Capital gain - transfer of capital asset u/s 2(47) - incidence of transfer of immovable property - transfer/ gift deed - HELD THAT:- As per recitals made in the transfer/ gift deed it is crystal clear that the said property was gifted by the assessee to his sister out of natural love and affection and it was in this back drop that the assessee claimed before the CIT(A) that the incidence of transfer of immovable property was not liable to tax in his hands. The claim of the assessee before the Ld. CIT(A) was lawful. Clause (iii) of section 47 of the Act exempts from the operation of section 45 all transfers under a gift or will or an irrevocable trust. Therefore, the transaction of gift under consideration is not to be regarded as transfer for the purposes of section 45. As held in the case of Gillanders Arbuthnot and Co [1968 (9) TMI 49 - CALCUTTA HIGH COURT] that the provision of section 47 have to be strictly construed which decision has been affirmed by the Hon’ble Supreme Court [1972 (9) TMI 13 - SUPREME COURT]. Therefore, the impugned transaction of gift is not exigible to capital gains tax. By no stretch of imagination the impugned gift of immovable property can be brought to tax in the hands of the recipient donee Smt. Manju Garg under section 56(2)(vii)(b). Firstly, the provision of section 56(2)(vii)(b) came into existence w.e.f. 01.10.2009 and therefore will apply for transaction undertaken on or after such date as explained by the CBDT in Circular No. 5 dated 03.06.2010. Proviso under section 56(2)(vii) says that this clause shall not apply to any property received from any relative. The expression ‘relatives’ under Explanation (e) to section 56(2)(vii) means ‘brother or sister of the individual’. Since the impugned transaction of gift of property is between brother and sister it falls outside the ambit of the provision of section 56(2)(vii)(b) of the Act. Therefore, the question of taxability of the impugned gift in the hands of the recipient donee Smt. Manju Garg does not arise at all. Invocation of section 50C to the case of the assessee is irrelevant as the said provision applies where there is under-statement of consideration in acquisition of property. There is nothing like that in the case of the assessee. Thus assessee’s case bringing to tax capital gain in the hands of the assessee is not sustainable. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the transfer of immovable property on 19.11.2008 by the assessee to his sister was a gift (without monetary consideration) and therefore not a 'transfer' chargeable to capital gains under section 45 read with the exemption in section 47(iii) of the Income Tax Act. 2. Whether the alleged gift to the sister would attract taxation in the hands of the donee under section 56(2)(vii)(b) of the Act for the assessment year 2009-10. 3. Whether section 50C (treatment of consideration for transfer of land/building) was properly invoked to determine taxable capital gains in the assessee's case where no under-statement of consideration was pleaded. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether the transfer was a gift and not a taxable 'transfer' under section 45/47(iii) Legal framework: Section 45 charges capital gains on transfer of a capital asset; clause (iii) of section 47 excludes transfers made by way of gift (or under will/irrevocable trust) from being regarded as a transfer for section 45 purposes. Precedent treatment: The Tribunal refers to the principle that section 47 must be strictly construed, citing authoritative judicial treatment that the exemption is to be applied where the legislative language is satisfied (as noted in Calcutta High Court and Supreme Court decisions cited in the judgment). Interpretation and reasoning: The registered deed dated 19.11.2008 expressly recites that the transferor was the allottee/lessee in possession, that the parties are brother and sister, that the transfer is in consideration of natural love and affection, that Noida Authority's permission to transfer/gift was obtained, that all rights were transferred without monetary consideration and that the donee accepted the gift. On this documentary record the Tribunal finds it 'crystal clear' that the instrument effected a gift and not a sale. Ratio vs. Obiter: Ratio - Application of section 47(iii) to exempt a documented inter-family gift from being a 'transfer' for capital gains. The reference to strict construction of section 47 and supportive precedent is used as binding ratio for the outcome. Observations on documentary sufficiency are operative reasoning. Conclusion: The instrument constitutes a gift; therefore the transaction is not a transfer taxable as capital gains in the hands of the transferor under section 45, and the addition of capital gain in the transferor's assessment is unsustainable. Issue 2 - Whether the gift is taxable in the hands of the donee under section 56(2)(vii)(b) Legal framework: Section 56(2)(vii)(b) taxes receipt of property without consideration where the aggregate value exceeds the specified threshold, subject to provisos and definitions (including Explanation defining 'relative'). Applicability depends on the date of the provision and whether the recipient qualifies as a 'relative'. Precedent/treatment: The Tribunal relies on the temporal application of the statutory amendment and on the exclusion of transfers between relatives by the proviso and Explanation (e) to section 56(2)(vii). Interpretation and reasoning: The provision in contention was introduced with effect from 01.10.2009 and therefore applies to transactions on or after that date; the impugned gift occurred on 19.11.2008 (relevant to AY 2009-10) and so the provision is not applicable to the transaction. Independently, the proviso exempts gifts from relatives; Explanation (e) expressly includes 'brother or sister of the individual' as relatives, and the deed shows the transfer was between brother and sister. Ratio vs. Obiter: Ratio - Twofold legal conclusion: (1) retrospective/non-applicability - section 56(2)(vii)(b) does not apply to the 2008 gift because it came into force w.e.f. 01.10.2009; (2) even on merits the proviso/Explanation would exclude taxation because the donee is a sister (a 'relative'). These form the operative ratio supporting non-taxability in the hands of the donee. Conclusion: The gift cannot be taxed in the hands of the donee under section 56(2)(vii)(b) for AY 2009-10: the provision post-dates the transaction and, in any event, the transaction falls within the 'relative' proviso. Issue 3 - Whether section 50C could be invoked to compute capital gains in the present case Legal framework: Section 50C applies for determination of full value of consideration for transfer of land/building where the declared consideration is less than the value assessed by the stamp valuation authority; it is directed to under-statement of consideration in acquisition. Interpretation and reasoning: The Tribunal observes that there was no allegation of under-statement of consideration by the assessee; the deed records no monetary consideration and was a gift. The statutory purpose of section 50C (to counter undervaluation in transactions with consideration) therefore does not arise in a documented no-consideration gift. The Tribunal treats the invocation of section 50C as irrelevant on the facts. Ratio vs. Obiter: Ratio - Section 50C is inapplicable where there is no contractually declared consideration to be compared with stamp valuation (i.e., in documented gifts without monetary consideration and absent any allegation of understated consideration). The finding is applied to dispose of the AO's reliance on section 50C. Conclusion: Section 50C is not relevant to the facts and cannot sustain the addition of capital gains in the assessee's hands. Cross-references and final legal consequence All three issues are interlinked: documentary finding of a gift (Issue 1) removes liability under section 45/47(iii); that finding, together with the temporal and relational exclusions (Issue 2), forecloses taxability in the donee under section 56(2)(vii)(b); and section 50C (Issue 3) has no application where there is no monetary consideration or allegation of undervaluation. On these combined legal grounds the assessment addition of capital gains is held unsustainable and deleted.