ASHA M MARFATIA, MUMBAI V. ASST CIT RG 18(1) (OLD) NEW 21(1), MUMBAI

ITA 246/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3286 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 09-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Keywords: Gift
• Section: 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAMLAL NEGI, JUDICIAL MEMBER ITA NO. 246/MUM/2015 (ASSESSMENT YEAR 2010-11) MRS. ASHA M. MARFATIA, I-11/12, PARAGAON CONDMIUM, PANDURANG BUDHKAR MARG, WORLI, MUMBAI 400 013. PAN:AAHPM 6090M ...... APPELLANT VS. THE ACIT, RANGE- 18(1), PIRAMAL CHAMBERS, MUMBAI 400 012 .... RESPONDENT APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI A.B.KOLI DATE OF HEARING : 26/08/2016 DATE OF PRONOUNCEMENT : 09 /09/2016 ORDER PER G.S.PANNU,A.M: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTAI NING TO ASSESSMENT YEAR 2010-11 IS DIRECTED AGAINST AN ORD ER PASSED BY CIT(A)- 29 MUMBAI DATED 31/10/2014 WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3 ) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 19/03/2013. 2. IN THIS APPEAL, THE SOLITARY ISSUE IS RELATING T O THE ACTION OF THE INCOME TAX AUTHORITIES IN DENYING ASSESSEES CLAIM FOR EXEMPTION OF 2 ITA NO. 246/MUM/2015 (ASSESSMENT YEAR 2010-11) RS.2,51,15,523/- CLAIMED UNDER SECTION 54F OF THE ACT ON ACCOUNT OF LONG TERM CAPITAL GAIN EARNED FROM TRANSFER OF SHAR ES. 3. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT ASSESSE E INDIVIDUAL FILED A RETURN OF INCOME FOR ASSESSMENT YEAR 2010-11 DECLAR ING A TOTAL INCOME OF RS.27,77,410/-, WHICH INTER-ALIA, CONTAINED A CL AIM FOR EXEMPTION OF CLAIM UNDER SECTION 54F OF THE ACT AMOUNTING TO RS. 2,55,15,523/-. THE RELEVANT DETAILS WITH RESPECT TO THE CLAIM OF EXEMP TION IS THAT ASSESSEE HAD SOLD 214 AND 3236 EQUITY SHARES OF WELLWORTH TE XTILE PVT. LTD. ON VARIOUS DATES BETWEEN 13/03/2010 TO 29/3/2010 FOR A TOTAL CONSIDERATION OF RS.2,52,12,600/- AND SUCH SHARES WERE ACQUIRED BY THE ASSESSEE BY WAY OF GIFT FROM HER BROTHER MR. PIYUSH PARIKH AND HER FATHER, SHRI BHUPENDRA PARIKH ON 2/11/2009 AND 15/0 2/2010 RESPECTIVELY. THE LONG TERM CAPITAL GAIN ON THE SA LE OF SUCH SHARES WAS COMPUTED AT RS.2,15,15,523/- AND SUCH DETERMINATION IS NOT IN DISPUTE. IN THE COMPUTATION OF INCOME, ASSESSEE CLAIMED EXEM PTION OF SUCH LONG TERM CAPITAL GAIN ON THE GROUND THAT SHE HAD ACQUIR ED A RESIDENTIAL PROPERTY ON 23/05/2009 JOINTLY WITH HER HUSBAND FO R A TOTAL CONSIDERATION OF RS.2,63,82,979/-. OUT OF SUCH TOT AL CONSIDERATION, THE CONTRIBUTION OF THE ASSESSEE WAS RS.2,53,82,979/-. SINCE THE SAID PROPERTY WAS ACQUIRED WITHIN A PERIOD OF ONE YEAR B EFORE THE SALE/TRANSFER OF SHARES OF WELLWORTH TEXTILE PVT. L TD. AND THE COST OF THE NEW RESIDENTIAL HOUSE WAS MORE THAN THE TOTAL CONSI DERATION ACCRUING ON SALE OF SHARES, THUS, THE ENTIRE LONG TERM CAPI TAL GAIN WAS CLAIMED EXEMPT UNDER SECTION 54F OF THE ACT. 3.1 THE ASSESSING OFFICER HOWEVER, HAS DENIED THE C LAIM OF EXEMPTION CLAIMED UNDER SECTION 54F OF THE ACT PRIM ARILY ON THE 3 ITA NO. 246/MUM/2015 (ASSESSMENT YEAR 2010-11) GROUND THAT IT WAS ONLY A DEVICE TO SAVE TAX LIABIL ITY. IN THIS CONTEXT, THE ASSESSING OFFICER NOTED THAT THE RESIDENTIAL PROPER TY WAS ACQUIRED BY THE ASSESSEE JOINTLY WITH HER HUSBAND IN MAY, 2009 FOR A CONSIDERATION OF RS.2,63,82,979/-, PRIOR TO THE RECEIPT OF SHARES FROM HER BROTHER AND FATHER. IT WAS FURTHER NOTICED THAT ASSESSEES CON TRIBUTION TOWARDS THE PURCHASE WAS RS.2,53,82,979/-, WHICH WAS PRIMARILY MADE OUT OF LOANS RAISED FROM HER MOTHER, HER BROTHER SHRI. PIYUSH PA RIKH, FATHER SHRI. BHUPENDRA PARIKH AND HER FATHERS HUF, TOTALING TO RS.2,48,50,000/-, WHILE ONLY A SMALL PORTION OF RS.5,32,979/- WAS OUT OF HER OWN FUNDS. THE ASSESSING OFFICER FURTHER NOTICED THAT THE SHAR ES OF WELLWORTH TEXTILES PVT. LTD. WERE GIFTED TO THE ASSESSEE BY HER BROTHER AND FATHER ON 02/11/2009 AND 15/02/2010, WHICH WERE ULTIMATELY SOLD BY THE ASSESSEE IN MARCH, 2010 FOR A TOTAL CONSIDERATION O F RS.2,52,12,600/-. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT THE SA LE PROCEEDS OF THE SHARES WERE USED TO REPAY THE LOANS TAKEN FROM THE FAMILY MEMBERS IN THE MONTH OF MARCH, 2010. IN THE BACKGROUND OF ABO VE FACTS, THE ASSESSING OFFICER INFERRED THAT AT THE TIME OF ACQU IRING RESIDENTIAL PROPERTY IN MAY, 2009, ASSESSEE WAS NOT IN THE OWNE RSHIP OF THE SHARES WHICH WERE INDEED OWNED BY HER BROTHER AND FATHER A ND THAT SUCH SHARES CAME TO THE ASSESSEE BY WAY OF GIFT IN NOVE MBER,2009 AND FEBRUARY, 2010. ACCORDING TO THE ASSESSING OFFICER , THE AFORESAID TRANSACTIONS WERE UNDERTAKEN WITH A VIEW TO REDUCE THE TAX LIABILITY, WHICH WOULD ARISE IN THE HANDS OF HER BROTHER AND F ATHER ON THE SALE OF SHARES WHEREAS THE ASSESSEE WAS ELIGIBLE FOR THE E XEMPTION UNDER SECTION 54F OF THE ACT WITH RESPECT TO THE RESIDENT IAL PROPERTY PURCHASED IN MAY, 2009. ACCORDING TO THE ASSESSING OFFICER, THE 4 ITA NO. 246/MUM/2015 (ASSESSMENT YEAR 2010-11) BROTHER AND FATHER OF THE ASSESSEE HAD DECIDED TO S ELL THE SHARES OF WELLWORTH TEXTILES PVT. LTD. TO AN OUTSIDE PARTY AN D, THEREFORE, SUCH SHARES WERE GIFTED TO THE ASSESSEE AND ULTIMATELY S OLD TO THE OUTSIDE PARTY AND FURTHER THE MANAGEMENT OF THE SAID COMPAN Y HAD ULTIMATELY PASSED ON TO SUCH OUTSIDER FAMILY. ULTIMATELY, THE ASSESSING OFFICER CONCLUDES IN PARA 8.10 OF HIS ORDER AS UNDER:- 8.10 THE ASSESSEE TOOK CUMBRANCE UNDER THE PROVISI ONS OF SECTION 54F REDUCED HER LIABILITY AS WELL THE LIABILITY OF HER KITH AND KIN AND ALSO WAS ABLE TO PAY AWAY THE LOANS. ACCORDINGLY, THE ASSESSING OFFICER DENIED THE CLAIM OF EXEMPTION TO THE ASSESSEE. 4. THE CIT(A) HAS ALSO AFFIRMED THE DECISION OF THE ASSESSING OFFICER BY CONCLUDING THAT IN THE PRESENT CASE ASSESSEE HAD USED A COLOURABLE DEVICE WITH ULTERIOR MOTIVE OF SAVING TAXES WHILE CLAIMING EXEMPTION UNDER SECTION 54F OF THE ACT. AGAINST SUCH A DECI SION, ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE HAS VEHEMENTLY POINTED OUT THAT THE LOWER AUTHORITIES H AVE ERRED IN DENYING THE CLAIM OF EXEMPTION UNDER SECTION 54F OF THE ACT ON ERRONEOUS ASSUMPTIONS. LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THE FACT THAT THE SHARES HAVE BEEN GIFTED TO T HE ASSESSEE STANDS CONFIRMED AND SUCH SHARES WERE ALSO TRANSFERRED IN THE NAME OF THE ASSESSEE AND ONLY THEREAFTER SALE WAS EFFECTED TO T HE OUTSIDERS. IT WAS POINTED OUT THAT THE CONSIDERATION FOR SALE OF SHAR ES HAS BEEN RECEIVED BY THE ASSESSEE AND HAS INDEED BEEN USED TO FINANCE ACQUISITION OF THE NEW RESIDENTIAL HOUSE. ACCORDING TO THE LD. REPRES ENTATIVE FOR THE 5 ITA NO. 246/MUM/2015 (ASSESSMENT YEAR 2010-11) ASSESSEE, MERELY BECAUSE AS A RESULT OF GIFT OF SHA RES TO THE ASSESSEE AND THE SUBSEQUENT SALE OF SHARES HAS RESULTED INTO SAVING OF TAXES WOULD NOT MAKE THE TRANSACTION COLOURABLE. LD. REP RESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE REFERENCE MADE BY THE CIT(A) TO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MCDOWELL & CO. LTD. V. CTO, 154 ITR 148 (SC) IS MISPLACED AND IT W AS POINTED OUT THAT SUBSEQUENT JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA V AZADI BACHAO ANDOLAN (2003) 263 IT R 706 (SC) HELD THAT THE DECISION IN THE CASE OF MCDOWELL & COMPANY(SUPR A) CANNOT BE UNDERSTOOD TO MEAN THAT EVERY ATTEMPT OF TAX PLANNI NG IS ILLEGITIMATE OR THAT EVERY TRANSACTION OR ARRANGEMENT WHICH IS OTHE RWISE PERFECTLY PERMISSIBLE IN LAW BUT HAS THE EFFECT OF REDUCING T HE TAX LIABILITY MUST BE LOOKED UPON WITH DISFAVOUR. IT WAS, THEREFORE, C ONTENDED THAT THE LOWER AUTHORITIES DENIED THE EXEMPTION UNDER SECTIO N 54F OF THE ACT ON EXTRANEOUS CONSIDERATIONS. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE DEFENDED THE ORDERS OF THE AUTHORITIES BELOW BY REI TERATING THE REASONS CONTAINED THEREIN, WHICH WE HAVE ALREADY ADVERTED T O IN THE EARLIER PARAS AND ARE NOT BEING REPEATED FOR THE SAKE OF BR EVITY. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE SUM AND SUBSTANCE OF THE CHARGE MADE AGAINST THE ASSESSEE I S THAT SHE HAS ENTERED INTO A COLLUSIVE TRANSACTION WITH HER FAMIL Y MEMBERS IN ORDER TO AVOID THE TAX BURDEN OF NOT ONLY HERSELF BUT ALSO OF HER BROTHER AND FATHER BY ADOPTING METHODS, WHICH ARE OTHERWISE PER MISSIBLE WITHIN THE FRAMEWORK OF LAW. 6 ITA NO. 246/MUM/2015 (ASSESSMENT YEAR 2010-11) 7.1 IN THE CONTEXT OF THE ABOVE, WE HAVE CAREFULLY EXAMINED THE FACTUAL MATRIX IN THE PRESENT CASE. IN SO FAR AS T HE CONDITIONS CONTAINED IN SECTION 54F OF THE ACT ARE CONCERNED, THERE IS N O DISPUTE THAT ASSESSEE HAS COMPLIED WITH THE SAME AND THE CLAIM OF EXEMPTION IS OTHERWISE IN ORDER. THE ASSESSEE POINTED OUT THAT THE SHARES WERE SOLD FOR A CONSIDERATION OF RS.2,52,12,600/-, WHICH WAS UTILIZED FOR FINANCING RESIDENTIAL PROPERTY ALREADY ACQUIRED WIT HIN A PERIOD OF ONE YEAR BEFORE THE SALE OF SHARES, INASMUCH AS THE LOA NS RAISED FROM FAMILY MEMBERS WERE REPAID. THE ENTIRE CASE OF THE ASSESS ING OFFICER RESTS ON HIS OBSERVATION THAT WHEN ASSESSEE PURCHASED THE NE W RESIDENTIAL PROPERTY IN MAY, 2009, SHE WAS NOT IN THE OWNERSHIP OF THE SHARES, WHOSE SALE HAD SUBSEQUENTLY GENERATED CAPITAL GAINS ON WHICH THE EXEMPTION UNDER SECTION 54F OF THE ACT HAS BEEN CLA IMED. IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER MISDIRECT ED HIMSELF IN DOUBTING THE BONAFIDES OF THE ASSESSEES CLAIM FOR EXEMPTION BECAUSE THE AUTHENTICITY AND BONAFIDES OF THE GIFT OF SHAR ES RECEIVED BY THE ASSESSEE AND THE ACCRUAL OF CAPITAL GAINS ON THE S ALE OF SUCH SHARES HAS NOT BEEN DOUBTED BY HIM. NOTABLY, THE SHARES WHICH WERE RECEIVED AS GIFT BY THE ASSESSEE FROM HER BROTHER AND FATHER HA S NOT BEEN SOLD/TRANSFERRED WITHIN THE FAMILY BUT THE SAME HAV E BEEN SOLD TO NON- RELATED BUYERS. THEREFORE, THERE IS NOTHING TO SUG GEST ANY INFIRMITY OR DUBIOUSNESS IN THE SALE OF SUCH SHARES AND THE EARN ING OF CAPITAL GAINS THEREON. NO DOUBT THE CAPITAL GAINS HAVE ACCRUED S UBSEQUENT TO THE PURCHASE OF THE RESIDENTIAL PROPERTY BUT SECTION 5 4F OF THE ACT ITSELF PRESCRIBES A WINDOW WHEREBY EXEMPTION IS AVAILABLE EVEN WHERE THE NEW PROPERTY WAS ACQUIRED WITHIN A PERIOD OF ONE YE AR BEFORE THE 7 ITA NO. 246/MUM/2015 (ASSESSMENT YEAR 2010-11) TRANSFER OF THE ASSET, WHICH HAS GENERATED CAPITAL GAINS. THEREFORE, WITHOUT ESTABLISHING ANY SUBTERFUGE ON THE PART OF THE ASSESSEE BASED ON ANY CREDIBLE EVIDENCE OR MATERIAL, THE MERE FACT THAT THE GIFT OF SHARES TO THE ASSESSEE AND SUBSEQUENT SALE HAS RESU LTED INTO SAVING OF CAPITAL GAIN TAX WOULD NOT MAKE THE CLAIM OF EXEMPT ION UNDER SECTION 54F OF THE ACT AS A COLOURABLE DEVICE. WE ARE IN A GREEMENT WITH THE PLEA OF THE ASSESSEE THAT EVERY FORM OF TAX PLANNIN G CANNOT BE VIEWED WITH DISFAVOUR UNLESS THE GENUINENESS OF THE TRANSA CTION IS DEMOLISHED. IN THE PRESENT CASE, THE FACT THAT THE CAPITAL GAIN S HAVE ARISEN ON TRANSFER OF SHARES EFFECTED TO THIRD PARTY AND ALSO CONSIDERING THE FACT THAT THE GIFT OF SHARES TO THE ASSESSEE BY HER FATH ER AND BROTHER HAS NOT BEEN REJECTED BY THE ASSESSING OFFICER AS AN INVA LID GIFT, WE, DO NOT FIND ANY JUSTIFIABLE REASON FOR DOUBTING THE BONAFI DES OF THE EXEMPTION CLAIMED UNDER SECTION 54F OF THE ACT. 7.2 AS A RESULT OF THE AFORESAID DISCUSSION, WE HER EBY SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICE R TO ALLOW EXEMPTION UNDER SECTION 54F OF THE ACT CLAIMED BY THE ASSESSE E AT RS.2,51,15,523/-. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/09/2016 SD/- SD/- (RAMLAL NEGI) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 09/09/2016 VM , SR. PS 8 ITA NO. 246/MUM/2015 (ASSESSMENT YEAR 2010-11) COPY OF THE ORDER FORWARDED TO : 1. TH E APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI