Property received through family arrangement exempt from section 56(2)(x) addition under Income Tax Act

The ITAT Ahmedabad held that property received through a family arrangement does not attract addition under section 56(2)(x) of the Income Tax Act. The AO had added the stamp duty value of gifted property to the assessee's income, arguing it was not received from a relative as defined. However, the tribunal found that the gift was part of a bona fide family settlement to determine individual shares in jointly owned property, not a third-party transfer. Citing SC precedent in Kale case, the tribunal recognized that family arrangements can be oral and aim to prevent family litigation. The addition made by AO and confirmed by CIT(A) was held unsustainable. The assessee's appeal was partly allowed.

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Issues Involved:
The appeal challenges the addition made by the Assessing Officer under section 56(2)(x) of the Income Tax Act, 1961, regarding the immovable property received by the assessee under a family arrangement.

Ground No. 1 - Validity of Assessment:
The first ground of appeal questions the validity of the assessment made by the Assessing Officer beyond the scope of the issues for which notice u/s 143(2) was issued. The contention is that the notice sought details beyond the limited scrutiny purpose.

Ground No. 2 and 3 - Taxability of Family Settlement:
The second and third grounds challenge the addition made under section 56(2)(x) of the Act, arguing that family settlements should not be considered transfers attracting tax. The assessee asserts that the property received was part of a family arrangement and not a taxable gift.

Judgment Details:
The Assessing Officer added the stamp duty value of the property to the assessee's income under section 56(2)(x) of the Act, stating it was not received from a relative and the gift deed did not specify a family arrangement.

The CIT(A) upheld the addition made by the AO, leading to the appeal. The counsel for the assessee argued that family arrangements are not transfers attracting tax and cited judicial precedents to support this claim.

The Tribunal considered the nature of family arrangements, emphasizing their purpose to resolve disputes and maintain family harmony. It noted that family arrangements are not conventional transfers and should not be taxed under section 56(2)(x) of the Act.

The Tribunal reviewed affidavits supporting the family settlement claim and referenced legal precedents highlighting the validity and wider interpretation of family arrangements. It concluded that the property received under the family settlement is not taxable income.

Accordingly, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition made under section 56(2)(x) of the Act, partially allowing the appeal.

The judgment was pronounced in the Open Court on 29 May, 2024, at Ahmedabad.

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