1982 (7) TMI 203 - AT - Income Tax

Appellate Tribunal rules HUF property release deed not liable for gift tax

V. Jayaraman. Versus Gift-Tax Officer.

The Appellate Tribunal ITAT MADRAS-C ruled in favor of the assessee in a case concerning the liability for gift-tax on a coparcener's release deed in an ... Gift Tax, House Property, Income Tax Proceedings Issues:1. Liability of the assessee for gift-tax based on a release deed of a coparcener's interest in a property.Analysis:The judgment by the Appellate Tribunal ITAT MADRAS-C addresses the issue of the liability of the assessee for gift-tax concerning a release deed of a coparcener's interest in a property. The case involved a Hindu Undivided Family (HUF) that underwent a partition, resulting in the division of movable properties but not the immovable property. The Income Tax Officer (ITO) recognized only the partition of movable properties, deeming the HUF to continue its existence in respect of the immovable property. Subsequently, one coparcener released his share through a deed, which was treated as a gift and assessed for gift-tax. The contention of the assessee was that the release deed should be considered as a release of a coparcener's interest, not a transfer subject to gift-tax, based on the order under section 171 of the Income-tax Act 1961. Conversely, the revenue argued that the order under section 171 did not affect the applicability of gift-tax provisions to the transaction.The Tribunal analyzed the situation and concluded in favor of the assessee. It noted that the partition of the property was not fully recognized by the ITO under section 171, leading to the HUF being deemed to continue for tax purposes. The question arose whether the release deed constituted a transfer of an individual right or a coparcenary right in the property held by the HUF. The Tribunal emphasized that the legal fiction created by section 171 should be considered for both income tax and gift-tax assessments. Referring to a Supreme Court decision, it highlighted the need to give full effect to the fiction in income tax assessments. The Tribunal pointed out the conflict between the treatment of the transaction under income tax and gift-tax laws due to the non-recognition of partition under section 171. It concluded that the fiction created by section 171 must be applied to the gift-tax assessment, leading to the annulment of the gift-tax assessment in this case.In summary, the judgment clarifies the impact of the order under section 171 on the liability for gift-tax concerning a coparcener's release deed in a property held by an HUF. It underscores the necessity to harmonize the legal fiction created by section 171 across different tax laws and emphasizes the significance of recognizing the continued existence of the HUF for tax purposes.