Gifted share sale and residential property interest qualified for tax relief; unexplained income treatment and section 54F relief were addressed.

Genuine sale of gifted shares supported by recorded consideration and commercial material could not be taxed as unexplained income merely because the Revenue disputed valuation; the capital gain was accepted as genuine and section 68 addition was not sustained. Investment of sale proceeds in acquiring a 60% interest in a residential flat qualified for section 54F relief, even without a registered sale deed, because the transfer and payment were otherwise proved and the provision was applied beneficially. The stamp duty claim was not finally decided and was remanded for verification of its exact link to the share transfer.

---

---

Issues: (i) Whether the long-term capital gain arising from sale of gifted shares could be treated as unexplained income under section 68 of the Income-tax Act, 1961. (ii) Whether exemption under section 54F of the Income-tax Act, 1961 was allowable on acquisition of 60% share in a residential property owned by the assessee's husband. (iii) Whether the claim of stamp duty of Rs. 75,000 incurred in connection with transfer of shares was allowable.

Issue (i): Whether the long-term capital gain arising from sale of gifted shares could be treated as unexplained income under section 68 of the Income-tax Act, 1961.

Analysis: The shares were gifted by the assessee's son, transferred to the assessee, and thereafter sold to another promoter for consideration that was duly received and recorded. The cost of acquisition and holding period were correctly traced to the previous owner in accordance with the deeming provisions governing gifted assets. The company's balance sheet, net worth and shareholding pattern supported the commercial reality of the transaction, and the alleged price rise was wrongly compared with the donor's original acquisition price rather than the value on the date of gift. On the facts, the transaction was not shown to be fictitious or a circuitous device, and there was no basis to tax the declared capital gain as unexplained credit.

Conclusion: The addition under section 68 was not sustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether exemption under section 54F of the Income-tax Act, 1961 was allowable on acquisition of 60% share in a residential property owned by the assessee's husband.

Analysis: The assessee invested the sale consideration in acquiring 60% rights in an existing residential flat through a deed of transfer, and the consideration payment was evidenced through bank records. The transferor husband also reflected the transaction in his return. The absence of a registered sale deed did not defeat the claim, because the arrangement was treated as an agreement conferring rights in the residential property, and the provision was construed beneficially. The ruling relied on the principle that acquisition of a residential house interest, even without a registered conveyance, can satisfy the statutory requirement where the investment is otherwise proved.

Conclusion: The exemption under section 54F was allowable and the issue was decided in favour of the assessee.

Issue (iii): Whether the claim of stamp duty of Rs. 75,000 incurred in connection with transfer of shares was allowable.

Analysis: The record did not clearly establish whether the stamp duty related to the gift transaction or the subsequent sale transaction. Since the factual basis and the exact allowability of the expenditure were not fully examined by the lower authorities, the matter required verification before the assessing authority.

Conclusion: The issue was remanded to the assessing authority for verification and fresh consideration.

Final Conclusion: The declared capital gain was accepted as genuine, the exemption under section 54F was upheld, and only the stamp duty claim was sent back for verification, resulting in partial relief to the assessee.

Ratio Decidendi: A genuine transfer of gifted shares, supported by documented consideration and commercial material, cannot be recharacterized as unexplained income merely because the revenue disputes valuation, and investment of sale proceeds in an existing residential property interest can qualify for section 54F relief even without a registered conveyance if the right in the property is otherwise established.

---