Case Law Details
Rachit V Shah Vs ITO (ITAT Hyderabad)
Hyderabad ITAT dismisses Assessee’s appeal, holds that gift of house to father just prior to sale of land was a camouflage to claim Section 54F deduction as the Assessee owned two house properties; Remarks that “Though, gift deed, on a standalone basis seems to be a natural act on the part of son to gift home to his father, but when the gift deed is to be examined in the light of the prior and subsequent acts and prevailing circumstances, then it is clear that the real intention of the assessee, was to claim the deduction under section 54F” and upholds CIT(A) order disallowing deduction of Rs. 2.63 Cr; For Assessment year 2015-16, Assessee-Individual claimed deduction under Section 54F against capital gains arising on sale of land for a consideration of Rs. 4.41 Cr; Revenue observed that the Assessee gifted his self-occupied house to his father and within a gap of 7 days sold the land, thus, held that the gift was a colorable device to ensure that the Assessee had only one house property in his books to claim Section 54F benefit; CIT(A) opined that the gift was a colorable device since designed in a manner to avail the benefit of exemption under Section 54F while not parting with the property, thus upheld the denial of Section 54F deduction; ITAT peruses the sale agreement and notes that Rs.2.18 Lakh was received in cash prior to entering into the agreement, observes that there is no evidence as to when this cash amount was received by the Assessee i.e. whether it is prior to executing the gift deed or at the time of execution of the agreement of sale; Opines that the gift deed 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”, as even after executing the gift deed, the Assessee continued to live on the same property with his father; Notes that Assessee had two house properties. one self-occupied and one let-out property and the self-occupied property was gifted just prior to signing the sale agreement, after investing the proceeds from sale in buying new residential house property; Remarks that “From the conduct of the assessee and in view of the circumstances prevailing at the time of the agreement of sale, more particularly giving gift to his father just before the date of agreement, it is clear that the act of the assessee to gift the house is nothing but a concerted effort to avoid the due payment of taxes to the Government.”; Observes that the fact that the Assessee continued to stay in the same property along with his father clearly shows that the gift deed executed by the Assessee was merely a camouflage to claim the deduction under Section 54F; Refers to Sections 23 and 24 of the Indian Contract Act, 1872 whereby contracts entered into with the object to defeat provisions of law, the contract would be void and holds that per se gift deed was not executed on account of natural love and affection but was pre-arranged step for execution, served no commercial purpose and was motivated to avoid taxes; Accordingly, upholds CIT(A) order denying Section 54F deduction. [In favour of revenue] (Related Assessment year : 2015-16) – [Rachit V Shah v. ITO – Date of Judgement ; 15.03.2023 (ITAT Hyderabad)]
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by the assessee, feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 06.07.2022 for the A.Y 2015-16, on the following grounds :
“1. In computing the total income, the CIT(A) has wrongly upheld the 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.
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