ACIT Vs Anitha Kumaran (ITAT Chennai)
ITAT Chennai held that provisions of section 56(2)(vii) of the Income Tax Act doesn’t apply when the property received under a will or by way of inheritance
Facts-
The assessee purchased land measuring 64,687 sq. ft. along with residential house building thereon having a plinth area of 950 sq. ft. and common passage measuring 2026 sq. ft. and 4748 sq. ft. for a consideration of Rs.10 Lakhs vide registered sale deed executed by M/s. Gay Travels Pvt Ltd (GTPL). However, the stamp duty value as determined by registration authority was Rs.445 Lacs. Accordingly, Ld. AO held that the provisions of Sec.56(2)(vii) would apply which provide that in case any immoveable property is received by an individual or HUF for a consideration which is less than the stamp duty value, the differential would be treated as ‘income from other sources.’
The assessee assailed the applicability of s.56(2)(vii) and submitted that this provision would not apply in case the property was received under a will or by of inheritance.
CIT(A) allowed the appeal preferred by the assessee. Being aggrieved, revenue has preferred the present appeal.
Conclusion-
This Tribunal in the case of SKM Shree Shivkumar vs. ACIT in ITA No.2278/Mds/2012 & 1965/Mds/2011 dated 17-07-2014, has held that when there is any distribution of assets pursuant to family arrangement or HUF partial / total partition, such transactions will not amount to ‘transfer’ of asset attracting tax liability in the hands of the recipient under the provisions of the Act.
Held that the property was received by the assessee under a will / by way of inheritance and therefore, the provisions of s.56(2)(vii) would not apply to the case of the assessee. Hence, the impugned order could not be faulted with. The regular grounds of appeal as well as additional ground of appeal as filed by the revenue stand dismissed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
Manoj Kumar Aggarwal (Accountant Member)
1. Aforesaid appeal by Revenue for Assessment Year (AY) 2015-16 arises out of the order of learned Commissioner of Income Tax (Appeals)-15, Chennai [CIT(A)] dated 30-01-2019 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 25-12-2017. The grounds taken by the Revenue are as under:
1. The order of the Ld. CIT(A) is contrary to the law and facts of the case.
2. The Ld. CIT(A) erred in holding that the property received by the assessee vide Sale deed dated 23-01-2015 between the assessee and M/s Gay Travels Private Limited qualified as property received under a will or by way of inheritance when in fact the company is a distinct person under the Act.
3. The Ld. CIT(A) erred in not appreciating the fact that once the sale of the property is authorized in the resolution passed by the Company/ board, the transaction between the company and the assessee as two distinct persons would have to be considered de hors the reason for which the board decided to sell the property.
4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored.
2. The Revenue has filed additional grounds of appeal, which reads as under:
1. The market value of the impugned property is Rs.6,10,51,500/- as per the Special Deputy Collection (Stamps), Madurai vide D. Dis. No. 266/115/KDNL dated 09-03-2017 and the same must be considered for the purpose of section 56(2)(vii) of the Act.
Since the ground does not require appreciation of new facts, the same is admitted.
3. The Ld. Sr. DR, drawing attention to the grounds of appeal, submitted that a corporate entity was the owner of the asset which was transferred to the assessee and therefore, the provisions of Sec.56(2)(vii) has rightly been applied in the case of the assessee. The Ld. DR pleaded for restoration of assessment framed by the Ld. AO, which has been controverted by Ld. AR. Reliance has been placed by Ld. Sr. DR on various decisions, the copies of which have been placed on record. The Ld. AR submitted that provisions of Sec. 56(2)(vii) of the Act would not apply to the facts and circumstances of the case. Reliance has been placed on the decision of this Tribunal in SKM Shree Shivkumar vs. ACIT in ITA No.2278/Mds/2012 & 1965/Mds/2011 dated 17-07-2014, a copy of which has been placed on record. Having heard rival submissions and after perusal of case records, our adjudication would be as under.
Assessment Proceedings
4.1 The assessee being resident individual admitted income of Rs.763.95 Lacs which was subjected to scrutiny u/s. 143(3) of the Act. It transpired that the assessee purchased land measuring 64,687 sq. ft. along with residential house building thereon having a plinth area of 950 sq. ft. and common passage measuring 2026 sq. ft. and 4748 sq. ft. situated at Old Survey No.64-part at Convent Road, Kodaikanal Town and Taluk, Dindigul district for a consideration of Rs.10 Lacs vide registered sale deed dated 23-01-2015 executed by M/s. Gay Travels Pvt. Ltd. (GTPL). However, the stamp duty value as determined by registration authority was Rs.445 Lacs. Accordingly, Ld. AO held that the provisions of Sec.56(2)(vii) would apply which provide that in case any immoveable property is received by an individual or HUF for a consideration which is less than the stamp duty value, the differential would be treated as ‘income from other sources’.
4.2 The assessee pointed out that this clause would not apply in case the property was acquired under a will or by way of inheritance. It transpired that the property was held in the name of GTPL. The assessee’s father Dr. B. Sivanthi Adityan expired on 19.04.2013 after which the family members decided to settle their family properties. The Ld. AO held that a corporate entity could not part with the property under a will or an individual could not acquire the property by way of inheritance. GTPL was an artificial juridical person and therefore, the assessee’ submissions were rejected. Finally, the differential of the two i.e., Rs.435 Lacs was added to the income of the assessee.
Appellate Proceedings
5. Assessee’s Arguments
5.1 During appellate proceedings, the assessee submitted that GTPL was a family-owned entity and 95% of its shareholding was held by assessee’s father whereas remaining 5% was held by assessee’s brother Shri S. Balasubramaniun. M/s GTPL was stated to be promoted by the founder (assessee’s father). As Karta of his family, Dr. B. Sivanthi Adityan invested in various properties and business ventures. The investments include investment in closely held companies including GTPL and the said investments were done in his name and in the names of the family members since the entire investments were from joint family funds. The same was clear from the terms of the Deed of Declaration-cum-undertaking as executed by assessee’s brother Shri S. Balasubramaniun on 09-12-2013 upon demise of Dr. B. Sivanthi Adityan on 19-04-2013.
5.2 It was further submitted that Dr. B. Sivanthi Adityan conveyed his oral will to the brother to settle the family properties. Dr. B. Sivanthi Adityan expired on 19-04-2013. As per his last wish, it was decided by the legal heirs to partition and settle the properties held by late Dr. B. Sivanthi Adityan. Accordingly, deed of declaration-cum-undertaking was executed wherein it was agreed that the properties in companies will be transferred in the name of the legal heirs through separate deeds. Accordingly, sale deed was executed in the name of assessee since the property was held in the name of GTPL since the settlement of the property by the company was not permitted by the statutes.
5.2 Reliance was placed on the decision of Hon’ble Supreme Court in the case Tek Bahadur Bhujil V/s Devasingh Bhujil AIR 1966 SC 292 wherein it was held that family arrangement could be arrived at orally and its terms may be recorded in writing subsequently as memorandum of what has been agreed upon between the parties at an early date and such a document do not require registration.
5.3 It was further submitted that a family settlement was nothing but an arrangement or an understanding between the members which resolves the family disputes and the rival claims of the members of the family are settled provided the settlement was bona-fide and fair in the allotment of properties amongst the members of the family. Settlement of bona-fide disputes, the purpose of which is to bring about harmony or maintaining peace or tranquility amongst family members would be sufficient consideration for a family settlement. The same emanate from the decision of Hon’ble Supreme Court in the case of Ram Charan Das V/s Girja Nandini Devi AIR 1965 SC 323 wherein it was held that bona-fide family settlement amongst family members to put an end to disputes between themselves would not amount to ‘transfer’ and it is also not the creation of an interest. In a family settlement, each party would take a share in the property by virtue of independent title which is admitted to the extent by the other party. All the members of the family have a sole right for equitable division of properties. If any dispute arises, it may involve family arrangement which is nothing but a device by which disputes or foreseeable disputes between the family members as to their respective property rights are settled. The settlement only defines pre-existing joint-interest as separate interest and hence, there would be no conveyance. The decision of Hon’ble Madras Court in CIT V/s Shanthi Chandran 241 ITR 371 was also referred wherein it was held that where an asset is acquired on a family arrangement then it is at par with an asset acquired on partition or any other succession. Reliance was placed on the other decision of Hon’ble Supreme Court in Rangasami Gounden V/s Nachiapa Gounden (AIR 1918 PC 196) to support the submissions that family settlement was nothing but realignment of interest among the family members and such an arrangement would not amount to ‘transfer’. Another decision as referred by the assessee was the decision of Hon’ble High Court of Madras in CIT V/s AL Ramanathan (245 ITR 494) wherein similar position was laid down. Similar was stated to the ratio of decision of Hon’ble Delhi High Court in the case of CWT V/s Santosh Singh (252 ITR 707).
5.4 In the said background, it was further submitted that the corporate entity has separate independent existence having perpetual succession and common seal. However, the courts have permitted lifting of corporate veil to prevent injustice as held by Hon’ble Calcutta High Court in Shaw Wallace & Co. Ltd. V/s CIT (119 ITR 399).
5.5 The assessee submitted that the consideration of Rs.10 Lacs as shown was to meet expenses on transfer (stamp duty etc.) and not on account of sale of property. The said property was received by the assessee as the full and final settlement of her share in family properties. The transfer was executed after obtaining necessary consent from directors as well as shareholders.
5.6 In the above background, the assessee assailed the applicability of s.56(2)(vii) and submitted that this provision would not apply in case the property was received under a will or by of inheritance.
5.7 The entire position as well as arguments was finally summed up as under: –
