2023 (5) TMI 354 - AT - Income Tax

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

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 ... Transfer under a gift - capital gains exemption under section 47(iii) - taxability of gifts under section 56(2)(vii)(b) - retrospective/non-retrospective application of statutory amendment - non-applicability of section 50C to gift transactions - evidentiary weight of a registered gift deedTransfer under a gift - capital gains exemption under section 47(iii) - evidentiary weight of a registered gift deed - Whether the impugned transfer of the immovable property effected by a registered deed dated 19.11.2008 was a gift and therefore not a transfer exigible to capital gains in the hands of the assessee. - HELD THAT: - The registered transfer/gift deed recites that the transferor was the allottee/lessee in possession, that the transferor and transferee are brother and sister, that the transfer was made out of natural love and affection, that Noida Authority's permission for transfer/gift had been obtained, and that the deed was without monetary consideration and accepted by the donee. On these recitals the Tribunal held that the transaction was a gift. Clause (iii) of section 47 exempts transfers under a gift from the operation of section 45; authorities were cited for strict construction of section 47. Applying these principles, the Tribunal held that the gift transaction is not a transfer for purposes of capital gains and therefore the addition made by the assessing officer cannot be sustained. [Paras 6, 7, 8]The transfer was a gift and is not exigible to capital gains in the hands of the assessee; the addition is deleted.Taxability of gifts under section 56(2)(vii)(b) - retrospective/non-retrospective application of statutory amendment - Whether the gift to the sister could be taxed in the hands of the donee under section 56(2)(vii)(b) for the year relevant to the transaction. - HELD THAT: - The Tribunal observed that section 56(2)(vii)(b) was substituted w.e.f. 01.10.2009 and, as explained by CBDT guidance, applies to transactions on or after that date; the impugned transfer occurred on 19.11.2008. Further, the proviso to section 56(2)(vii) excludes gifts received from a relative, and Explanation (e) expressly includes a sister within 'relative'. The Tribunal therefore held that the provision was neither applicable by reason of temporal inapplicability nor applicable on merits because the gift was from a relative. [Paras 5, 7]Section 56(2)(vii)(b) does not apply to the impugned gift to the sister; the donee is not taxable thereunder for the transaction dated 19.11.2008.Non-applicability of section 50C to gift transactions - Whether section 50C could be invoked to determine income on the basis of stamp duty valuation in the assessee's case. - HELD THAT: - Section 50C applies where there is an under-statement of consideration in a transfer of a capital asset. The Tribunal noted there was no allegation of understatement of consideration in this case and that the transaction was a gift without monetary consideration. Accordingly, invocation of section 50C was held to be irrelevant to the facts. [Paras 5, 7]Section 50C is not applicable to the impugned gift transaction and cannot sustain the addition.Final Conclusion: The Tribunal held that the registered deed effected a gift on 19.11.2008 between brother and sister and, being a gift, is not a transfer chargeable to capital gains in the hands of the assessee; section 56(2)(vii)(b) did not apply to the donee for that transaction date and section 50C was inapplicable. The addition was deleted and the appeal was allowed. 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.