The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) has recently held that provisions of deemed gift under section 56(2)(vii)(b) of Income Tax Act 1961 could not be applied retrospectively.
Assesee Arvinder kaur gets a plot from one Charan Singh. Assesee claimed before the assessing officer that it was a gift made to her by her maternal uncle who had executed a gift deed on 15.04.2009. The Assessing Officer has rejected the claim of gift in the light of provisions of Section 56(2)(vii)(b) of the Income Tax Act, 1961.
The AO had considered this transfer to be a deemed gift/ income in the hands of assessee valuing it for Rs. 1,23,88,000/- on the basis that at the time of execution of transfer deed the stamp duty value paid was Rs. 1,27,88,000/- and reducing Rs. 4,00,000/- the sale consideration.
AO also concluded that the assessee had failed to explain the source of payment of Rs. 4, 00,000/- and it was added the income as investment out of undisclosed source.
Thereafter passed an assessment order. Against the order assessee filed an appeal before the First Appellate Authority.
First Appellate Authority in its impugned order has observed that the amendment brought by Finance Act, 2010 has been correctly invoked by the Ld. AO considering the transfer to be deemed gift,
Manoj Gupta and Kundan D counsel for assessee submits that , Section 56(2) of the Income Tax Act 1961, has no applicability in the case as the gift has been made prior to 1st October, 2009 by way of a valid gift deed.
Moreover Section 56(2)(vii)(b) of Income Tax Act 1961 which was effective from 01.10.2009 only, while documents of transfer in the form of gift deed was executed on 25.03.2009 followed by registered Will dated 13.05.2009, registered agreement to sell (without possession) and a registered GPA on 13.05.2009. Thus, all these documents were prior to 01.10.2009.
Vijay Kumar Kataria, counsel for the revenue, confirmed the decision of the lower authorities.
After considering these points the division bench of the ITAT comprising G.S.Pannu, President and Anubhav Sharma, Judicial Member allowed the appeal filed by the assessee and observed that
“In the context of “deemed gift” on the basis of inadequate consideration, the series of documents executed between the assessee and her maternal uncle indicate that the transaction was Gift only and had completed before 01.10.2009. So the provisions of Section 56(2)(vii)(b) of the Income Tax Act 1961 which were introduced in the Act by Finance Act, 2010, with retrospective effect from 01.10.2009 are wrongly applied”.
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