Sale deed between wife-husband held as colourful device to avoid tax liabilities-ITAT

Sale deed between wife-husband held as colourful device to avoid tax liabilities. Exemption u/s 54F denied on the basis of relinquishment deed by husband-ITAT

ABCAUS Case Law Citation:
ABCAUS 1088 (2016) (12) ITAT

Important Case Laws cited:
CIT vs Macdowell Ltd. (SC)
CIT vs. T.N. Aravinda Reddy (SC)
Mrs. Rahana Siraj Vs. CIT

The Grievance:
The present appeal consists of cross appeals filed by the assessee as well as the revenue, directed against the order of CIT(A) allowing part deduction u/s 54F of the Income Tax Act, 1961 which was disallowed by the Assessing Officer (AO)

Brief Facts of the Case:
The assessee was an individual and had along with other co-owners sold the immovable property for a sale consideration of Rs.5,35,00,000/-. The share of appellant assessee was Rs. 1,60,50,000/-. After deduction, the selling expenses and indexing the cost of acquisition, the long term capital gain of Rs.1,56,85,225/- was arrived at by the appellant. In respect of this capital gain, the appellant had claimed exemption under section 54F to the extent of Rs.1,56,33,870/- and offered balance of long term capital gain of Rs.51,355/- to tax. The appellant had claimed exemption under section 54F in respect of properties supposed to have been acquired for purchase of a flat (new house). The assessee had claimed the benefit u/s 54F on the ground that the husband of the assessee had executed a deed of relinquishment in favour of the assessee with reference to the “new house”.

However the claim was rejected by the AO on the ground that the assessee, on the date of transfer of the original asset was in possession of more than one residential property other than the new house which is not permissible under the provisions of section 54F.

Regarding the claim u/s 54F, the AO observed that assessee was already the 50% owner of the new house which was claimed as eligible assets u/s 54F. According to the AO, this asset was already vested in the assessee since the sale deed for the new was executed approx eight months prior to the sale of the capital asset. Further the AO observed that the assessee herself owned 50% of the “new house” whereas only 50% was vested in her husband.

The AO concluded that the said deed of relinquishment was only a colourable device to avoid the tax and the purported investment was only an afterthought. Therefore the AO was of the view that even if the assessee’s contention could be accepted, the assessee’s husband could have relinquished only 50% of his share and not 100%. Holding this, the AO rejected the claim for exemption u/s 54F.

On appeal, CIT(A) held that the assessee was entitled to deduction under section 54F to the extent of 50% of cost of acquisition of the new property.

Being aggrieved by the relief granted by CIT(A), the revenue filed appeal before the Tribunal.

Contentions of the Revenue:
It was contended that the new house was acquired after expiry of two years from the date of sale of original receipt. However, the relief under section 54F was not admissible and for the reason that the assessee is already owning 50% in the new asset.

Contentions of the Assessee:
It was submitted that that the release of the share of interest in the property i.e., new house by the husband in favour of the assessee for a consideration constitutes a purchase within the ambit and scope of provisions of section 54F.

It was submitted that any expenditure incurred to make the house habitable constitutes the cost of the new asset which is eligible for relief under section 54F.

It was further submitted tthat the assessee was not owning more than two houses on the relevant date as the assessee was owning only one house on the date of acquisition of new asset.

Observations made by the ITAT:
The ITAT observed that the AO had categorically held that it was a transaction of colourful device adopted with a view to avoid tax liabilities and the transaction between a wife and husband was only a paper transaction. The Tribunal noted that the AO had come to this conclusion because the assessee had failed to prove that the assessee had paid the consideration to her husband towards relinquishment of interest in the property i.e., new house and the deed of relinquishment was not registered.

The Tribunal opined that the allegations were material factor to be examined for grant of exemption under section 54F which put the onus on the assessee to prove beyond doubt the transaction entered by the assessee and her husband as genuine.

The Tribunal observed that the very fact that the transaction was between the wife and husband had raised the doubts about the genuineness of the transactions as perhaps intended to avoid the tax liability in the hands of the assessee. Furthermore, the release deed executed by her husband was not registered. Thus the onus lied on the assessee to prove that the transaction was a genuine transaction by furnishing the details of actual date of payment of consideration to her husband towards relinquishing his share of right in the property.

Also, the ITAT observed that even after the relinquishment deed, the assessee along with her husband entered jointly into a lease agreement with a developer company went to prove that the release deed was not actually intended to be acted upon.

In view of the above facts, the Tribunal opined that the appellant was not entitled to any deduction under section 54F as she had failed to prove beyond doubt that the assessee acquired the new house by the sale proceeds of the original assets sold.

Held:
The appeal filed by the revenue was allowed and the appeal filed by the assessee was dismissed.