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TMI Blog2023 (3) TMI 1140X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and particularly paragraph 11.2 and 12 of the order wherein the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 total consideration of Rs.4,41 ,98,880/-, out of which the share of the assessee is Rs 2,28,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee was involved in tax avoidance by the 'colourable device". 8. It was submitted that the tax planning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,705/- 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, Hyderabad. 2. Plot at Saheb Nagar, Kurd Village, LB Nagar, Hyderabad. It is clear that the assessee had fulfilled the condition of Section 54F of the Income Tax Act, 1961 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 who along with his father is partner in the firm Swastik Mirch Store which is constantly paying income tax of Rs. 2,00,00,000/- approximately (Rupees Two Crores approximately). Both the assessee are High Net Worth Individuals paying taxes honestly all these y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its 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 looked upon with disfavour. Even if the assessee has gifted the property to his father for tax planning what wrong has the assessee done? The assessee has completely fulfilled the requirements of section 54F to avail the exemption benefit. As per the above case laws, it is open for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 page 4 of the agreement of sale, it is mentioned as under : "2. That the Purchaser have paid a sum of Rs.4,41,98,880/- (Rupees Four Crores Forty One Lakhs Ninety Eight Thousand Eight Hundred and Eight only) in the following manner. The purchaser have already paid a sum of Rs.2,18,880-(Rupees TWO LAKHS EIGHTEEN THOUSAND EIGHT HUNDRED AND EIGHTY ONLY) b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 just prior to purchase of asset on 30.01.2015. Quiet clearly, assessee was aware of the Income Tax provisions and was also aware that the assessee would not be entitled to the benefit of section 54F of the Act, if he had more than one residential house in his name before investing. In the present case, the assessee has shown the house property income from two houses, namely, oneself occ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the artificial transfer of one house by way of gift deed just prior to the effective date. Further, under sections 23 and 24 of the Indian Contract Act, 1872, when the object is to defeat any provisions of law, and when consideration is of such nature that, if permitted, it would defeat the provisions of any law, the contract will be void. In the present case, per se gift deed was not executed on account of natural love and affection but was executed by the assessee to artificially avail the deduction u/s 54F of the Income Tax Act 1961. 15. We cannot countenance the assessee's conduct and allow the assessee to misuse and exploit the beneficial provisions of section 54F of the Act. Undoubtedly, as per the assessee, he is an individual having a high net worth and paying huge taxes. The assessee artificially created a gift deed of the property with a view to fit into the provisions of section 54F, so that he can claim the deduction against the sale of capital asset. The act of the assessee was prearranged step for execution, and it served no commercial purpose but was motivated to avoid paying taxes. 16. In view of the above, the orders passed by the assessing officer and ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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