The Mumbai bench of the Income Tax Appellate Tribunal recently opined that the officers cannot disapprove every form of tax planning unless the genuineness of the transaction is not proved. The Tribunal was considering an appeal filed by the assessee against the order of assessment as per which the exemption claim made by her under section 54F of the Income Tax Act, 1961 was disallowed for the reason that the new property was acquired within a period of one year before the transfer of the asset. The Tribunal opined that such transfers are squarely covered under section 54F of the Income Tax Act, 1961.
The factual settings of the case are that, the assessee, an individual, claimed exemption under section 54F of the Income Tax Act while filing returns for the relevant assessment year. The assessee claimed that, the amount received in respect of sale of shares has been invested in purchasing a new house property, and therefore, she is eligible for exemption under section 54F of the Income Tax Act, 1961. However, the Assessing Officer has disallowed the same on the following grounds. Firstly, the assessee was not in the ownership of the shares sold at the time of purchasing the property.The said shares were gifted to the assessee by her father and brother. It was found that the assessee purchased the residential property jointly with her husband even prior to the above gift. Secondly, a larger portion of the contribution made by the assessee to purchase the said property was made out of loans raised from her family members. According to the officer, it was only a device to save tax liability. Further, the sale proceeds of the shares were used to repay the loans taken from the family members.
The assessee failed to secure relief from the Commissioner of Income Tax (Appeals) and therefore, preferred a second appeal before the Income Tax Appellate Tribunal.
The tribunal, while accepting the contentions of the assessee has observed that the Assessing Officer misdirected himself in doubting the bonafides of the assessee’s claim for exemption. The Tribunal pointed out that “Notably, the shares which were received as gift by the assessee from her brother and father has not been sold/transferred within the family but the same have been sold to non related buyers. Therefore, there is nothing to suggest any infirmity or dubiousness in the sale of such shares and the earning of capital gains thereon. No doubt the capital gains have accrued subsequent to the purchase of the residential property but section 54F of the Income Tax Act, 1961 Act itself prescribes a window whereby exemption is available even where the new property was acquired within a period of one year before the 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 resulted into saving of capital gain tax would not make the claim of exemption under section 54F of the Income Tax Act, 1961 as a colourable device. We are in agreement with the plea of the assessee that every form of tax planning cannot be viewed with disfavour unless the genuineness of the transaction is demolished. In the present case, the fact that the capital gains 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 father and brother has not been rejected by the Assessing Officer as an invalid gift, we, do not find any justifiable reason for doubting the bonafides of the exemption claimed under section 54F of the Income Tax Act.”
Read the full text of the order below.
