Aniruddha JainSnapshot:
The Income Tax Appellate Tribunal (ITAT), Chennai held that property received from a private limited company by one of the family member of the shareholder pursuant to a will of the shareholder is not be treated as income from other sources under Sec 56(2)(vii) in the hands of the family member.
Facts of the Case:
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Revenue filled an appeal on the ground that the Ld. CIT(A) erred in holding that the property received by the Anitha Kumaran (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.
- The assessee being resident individual purchased land along with residential house building thereon 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. Assessing Officer (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 pointed out that this clause would not apply in case the property was acquired under a will or by way of inheritance.
- 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. Assessee’s father expired on 19.04.2013 after which the family members decided to settle their family properties.
- Assesse’s father conveyed his oral will to the brother to settle the family properties. 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.
- Assesse submitted that settlement was nothing but realignment of interest among the family members and such an arrangement would not amount to ‘transfer’. Hon’ble Supreme Court in Rangasami Gounden V/s Nachiapa Gounden (AIR 1918 PC 196). 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)
- 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 Ld. CIT (A) opinined that the proviso to Section 56(2)(vii) is very clear & shall not be applicable in respect of transfer of any property received under a will or by way of inheritance. Therefore, the immovable property received by the appellant through the oral will of assessee’s father is not covered under the ambit of provisions of Section 56(2)(vii).
ITAT Finding:
- The sale deed was executed pursuant to family settlement as agreed upon by the family members vide declaration-cum-undertaking. The genuineness of this document is not in doubt.
- 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 bonafide 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 tranquillity amongst family members would be sufficient consideration for a family settlement. Such settlement could not be termed as ‘transfer’ under the Income Tax Act.
- 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.
