TaxTMI 
TaxTMI 
2023 (3) TMI 1140
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.... an individual and has filed his return of income for the A.Y 2015-16 on 13.11.2015. A revised return in response to notice issued u/s 142(1) on 10.11.2017 declaring an income of Rs.7,80,890/- under the head House Property, Business, Capital Gains and Income from Other Sources. The return of income was processed u/s 143(1) of Income Tax Act, 1961 and the case was selected for limited scrutiny under CASS. The assessee produced relevant record and information before the Assessing Authority and the Assessing Authority ultimately passed the impugned assessment order for the said Assessment Year 2015-16 u/s 143(3) dated 29.12.2017 by disallowing exemption u/s 54F of Rs.2,63,67,705/- and assessed the total income at Rs.2,71,48,595/-. 3. It is the contention of the Ld. AR before us that the Ld. assessing officer and the Ld. CIT(A) had wrongly concluded that the gift deed executed by the assessee in favour of his father was a colourable device and it was executed only with a view to evade the due taxes and that assessee had wrongly claimed the exemption under section 54F of the Income Tax Act, 1961. 4. The ld. AR had drawn our attention to the order passed by the Assessing Officer an....
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....431L, Avanthi Nagar, Basheerbagh, Hyderabad and another flat D.NO. 171, 7th floor, Block-A, Srila Heights, St. Johns Road, East Maredpally, Secunderabad) on the date of transfer of the old asset. In view of the foregoing discussion, the exemption claimed by the assessee uls.54F is denied." 5. Feeling aggrieved by the order of the AO, assessee preferred the appeal before ld.CIT(A), who had partly granted the relief to the assessee. The findings of the Ld. CIT(A) mentioned in the impugned order in paragraphs 5.7 and 5.8 of the order are to the following effect: "5.7 The fact that he appellant owned another residential property at 171, 7th floor, Block-A, Srila Heights, St.Johns Road, East Maredpally, Secunderabad (till 26-10-2014) is not disputed by the appellant. The assessee gifted this house property to his father, Sri Vijay kumar shah by way of gift settlement deed in doc.No.107 of 2014 executed on 27-10-2014. Immediately after this gift settlement i.e, within a gap of 7 days, the assessee sold one land property jointly held with his mother in Survey Nos.114 and115 situated at Gaganpahad village, Rajendernagar* Mandal, Rangareddy District on 3-11-2014 for a t....
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....cussed by the AO at para 11.1 of the Assessment order. Accordingly, I fully agree with the AO that the assessee has used a colourable device to claim exemption u/s 54F of the Act. Therefore, the ground of the appellant is dismissed. 6. Feeling aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us on the grounds mentioned hereinabove. 7. The Ld.AR had made the following submissions before us. Firstly, it was submitted that it is not impermissible under the law to gift the property on account of love and affection by the assessee to his father, therefore, the allegation of the Revenue that the gift deed is a 'colourable device' was incorrect. Secondly, assessee had gifted the property in the year 2014-15, before agreement of the sale of the property and thirdly, the father of the assessee had sold the same property in the year 2019-20 and therefore, the hunch of the Assessing Officer that the property will revert back to the assessee was unfounded, incorrect and imaginary. Lastly, assessee along with his father were paying income taxes and are high-net-worth individuals, therefore, there was no occasion to the Assessing Officer to conclude that the assess....
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....e order of the learned Assessing Officer in disallowing exemption u/s 54F of Income Tax Act, 1961 claimed by the assessee amounting to Rs. 2,63,67,705/- by stating that the assessee has used a colourable device to claim exemption u/s 54F of the Income Tax Act, 1961." It is mentioned in the order of the CIT (A) that "The real intent of the gift transaction is to ensure that the appellant has only one self-occupied property in his books and can claim exemption u/s 54 of the Act without alienating himself from the property gifted. This action of the assessee is clearly a colourable device as envisaged in the case of the Me Dowell and company Limited Vs commercial Tax officer (1985),3 SCC 230, decided by Hon'ble supreme Court of India. " With respect to the above, we would like to inform that the CIT(A) has wrongly agreed with the learned assessing officer by stating that the whole gift transaction of the assessee is a colourable device. Firstly, we would like to state that as on the date of transfer of capital asset, the assessee was holding the following properties: 1. House Property at D.No. 3-6-305/43, 431 L, Avanthi Nagar, Basheerbagh, Hyder....
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.... will only get back the gifted property is purely illogical. Now, with respect to the case of the "Me Dowell and company Limited Vs commercial Tax officer (1985), 3 SCC 230" as quoted by the learned assessing officer and agreed by CIT(A) "that tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by [19721 861. T.R. 2 (3) 25 T.C. 107 resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. " Firstly, it may be noted that even if it is assumed that the assessee has done tax planning to avail the benefit of section 54F, it is still legitimate as the assessee has fulfilled the conditions mentioned in 54F to avail exemption. So, the assessee cannot be denied the exemption of section 54F. Secondly, with respect to the point that "it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax ". It is astonishing that the assessing officer is quoting this point upon such an assessee wh....
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....d in CIT vs. George Williamson (Assam) Ltd. & ors. (2004) 178 Taxation 597 (Gau): (2004) 265 ITR 626 (Gau), that "it is open for the assessees to arrange its affairs in such a manner that it would not attract the tax-liabilities, so far, it can be managed within in the permissible limits of law. The assessees can very well manage its tax affairs so that the tax attracted in the transaction is less and would not fall outside the four corners of the law applicable at the relevant time. The tax-management is permissible, if the law authorises so." The CIT (A) and the learned assessing officer have only extracted the point of Colourable Device from the case of Mc Dowell & Co. Ltd without understanding the facts of the current case and also have not gone through the above mentioned case laws wherein the Apex Court itself has approved the decision of the Madras High Court where it held that the decision in Me Dowell case (supra) cannot be read laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be....
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....icable income tax law and its intricacies. The assessee's conduct must be seen from prevailing circumstances before or after sale of the property. The DR had submitted that the assessee gifted the property to his own father just before entering into agreement of sale. The intention and mensrea are to be inferred and understood after appreciating the sequence of events which led to gifting the property. It is quite unnatural to gift the property just before the sale and seek exemption under section 54F of the Income Tax Act 1961, alleging he does not own more than one house at the time of claiming the deduction. He had strongly relied upon the lower authorities' order to support the case of the revenue. 10. We have considered the rival contentions of the parties and perused the material available on record, including the judgments cited during the course of the hearing by both the parties. 11. In the present case, the assessee entered into an Agreement of Sale cum General Power of Attorney on 03.11.2014. By virtue of the said document, the assessee had agreed to sell the land measuring Ac. 1-39.4 guntas in survey Nos. 114 and 115 situated at Ganganpahad Village. At pag....
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....ich raises the doubt of the Bench as to the assessee's conduct. In our view, gift deed dt.27.10.2014 was merely a paper gift deed as it was not covered with the transfer of possession and it was not executed on account of love and affection but was executed only for the purpose of taking undue benefit of the provision of law. Admittedly, even after executing the gift deed, the assessee continued to live on the same property with his father. 13. The Assessing Officer in the paragraph reproduced above have concluded that the gift deed though executed on 27.10.2014, was a colourable device as it was executed by the assessee just three days prior to entering into an agreement of sale. The conduct of the assessee, to gift the property to his father, just prior to entering into an agreement of sale raises doubt about the intention of the assessee. A perusal of clause 11 of the Gift Deed, copy of which is placed at Pages 23-28 of the paper book shows that Rs.2,20,000/- towards stamp duty and registration fee had been paid by the assessee vide Demand Draft No.317588 dt.12.01.2015 of Canara Bank, M.J. Market Branch, Hyderabad after execution of Agreement of Sale dt.03.11.2014 and jus....