ITAT: Property Transferred To Mother is A Sale And Not Gift, Taxable as Capital

The Rajkot Bench of the Income Tax Appellate Tribunal (ITAT) in the case Shri Jay Atulbhai Mody Versus ITO observed and has held that the property transferred by the assessee to his mother for consideration of Rs. 5 lakh is liable and the same is required to be brought under the ambit of capital gain.

The two-member bench comprising of Judicial Member, Suchitra Kamble and the Accountant Member, Waseem Ahmed in the case observed and has directed the AO for referring the matter to the Department Valuation Officer for determining the value of the property in accordance with the provisions as stated under Section 50C of the Income Tax Act, 1961.

In the present case, a return of income for the income has been filed by the assessee or appellant, which being under consideration. Thus, the information was received by the AO that an immovable property via a sale deed with a document value of Rs. 5 lakhs and the Jantrai value of Rs. 7,31,600 has only been sold by the assessee. Therefore, the assessment was reopened by the AO by issuing a notice under Section 148 of the Income Tax Act, 1961 but the assessee has not filed any return of income in response to the notice issued by the court under Section 148 of the Income Tax Act. The court issued a notice under Section 142(1) and a final show-cause notice was issued but not complied with by the assessee. Therefore, the assessment was being finalised by the AO by making an addition of Rs. 7,31,600, which is the Jantari value of the immovable property which is being transferred by the assessee.

However, an appeal was filed by the assessee with the CIT(A), wherein it questioned the legality of the reasons recorded for initiating the proceedings under Section 148 or Section 147. It has been contended by the assessee that the AO relied only on the information received from third parties without having any other material on record. Hence, it is borrowed satisfaction.

Before the court, it has been submitted by the assessee that the business operated under the name and style of M/s Jay Corporation until FY 2002–2003 and was regularly filing returns of income. Due to the crisis of marriage, he is being supported by his family and has suffered huge losses in business, as a result of which he became deeply in debt. In 1996, his sister originally purchased the land for the construction of a family house, he inherited it after his sister died unexpectedly. Thus, in order to protect the property from the creditor of the assessee, a proposal has been made by his father for transferring the impugned property in the name of his mother i.e., the mother of assessee’s and the property was being transferred to his mother through a sale deed instead of a gift deed. It has been claimed by the assessee that there was no actual transfer of property falling under the ambit of Section 45 of the Income Tax Act.

The assessee’s appeal was dismissed by the CIT(A), wherein the court noted that the land was transferred via a registered sale deed and that the payments were mostly made by check.

Accordingly, it has been held by the tribunal that the property was transferred by the assessee to his mother by way of a sale deed, in which the consideration for the transfer of the property in dispute was duly recorded as it was also considered by the court that nothing was mentioned in the sale deed which justifies the position of the assessee, i.e., the transfer was in the nature of a gift or the same being without consideration.