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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
ORDER PER G.S.PANNU,A.M:
The captioned appeal filed by the assessee pertaining to assessment year 2010-11 is directed against an order 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.
In this appeal, the solitary issue is relating to the action of the income tax authorities in denying assessee’s claim for exemption of Rs.2,51,15,523/- claimed under section 54F of the Act on account of long term capital gain earned from transfer of shares.
Briefly put, the relevant facts are that assessee individual filed a return of income for assessment year 2010-11 declaring a total income of Rs.27,77,410/-, which inter-alia, contained a claim 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 exemption is that assessee had sold 214 and 3236 equity shares of Wellworth Textile 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 15/02/2010 respectively. The long term capital gain on the sale 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 exemption of such long term capital gain on the ground that she had acquired a residential property on 23/05/2009 jointly with her husband for a total consideration of Rs.2,63,82,979/-. Out of such total consideration, the contribution of the assessee was Rs.2,53,82,979/-. Since the said property was acquired within a period of one year before the sale/transfer of shares of Wellworth Textile Pvt. Ltd. and the cost of the new residential house was more than the total consideration accruing on sale of shares, thus, the entire long term capital gain was claimed exempt under section 54F of the Act.
3.1 The Assessing Officer however, has denied the claim of exemption claimed under section 54F of the Act primarily on the ground that it was only a device to save tax liability. In this context, the Assessing Officer noted that the residential property 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 assessee’s contribution towards the purchase was Rs.2,53,82,979/-, which was primarily made out of loans raised from her mother, her brother Shri. Piyush Parikh, father Shri. Bhupendra Parikh and her father’s 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 shares 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 of Rs.2,52,12,600/-. It was also noted by the Assessing Officer that the sale 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 above facts, the Assessing Officer inferred that at the time of acquiring residential property in May, 2009, assessee was not in the ownership of the shares which were indeed owned by her brother and father and that such shares came to the assessee by way of gift in November,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 father on the sale of shares whereas the assessee was eligible for the exemption under section 54F of the Act with respect to the residential property purchased in May, 2009. According to the Assessing Officer, the brother and father of the assessee had decided to sell the shares of Wellworth Textiles Pvt. Ltd. to an outside party and, therefore, such shares were gifted to the assessee and ultimately sold to the outside party and further the management of the said company 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 provisions 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.
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 decision, assessee is in further appeal before the Tribunal.
Before us, the Ld. Representative for the assessee has vehemently pointed out that the lower authorities have 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 the assessee stands confirmed and such shares were also transferred in the name of the assessee and only thereafter sale was effected to the outsiders. It was pointed out that the consideration for sale of shares has been received by the assessee and has indeed been used to finance acquisition of the new residential house. According to the Ld. Representative for the assessee, merely because as a result of gift of shares to the assessee and the subsequent sale of shares has resulted into saving of taxes would not make the transaction colourable. Ld. Representative 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 was pointed out that subsequent judgment of the Hon'ble Supreme Court in the case of Union of India v Azadi Bachao Andolan (2003) 263 ITR 706 (SC) held that the decision in the case of Mcdowell & Company(supra) cannot be understood to mean that every attempt of tax planning is illegitimate or that every transaction or arrangement which is otherwise perfectly permissible in law but has the effect of reducing the tax liability must be looked upon with disfavour. It was, therefore, contended that the lower authorities denied the exemption under section 54F of the Act on extraneous considerations.
On the other hand, the Ld. Departmental Representative defended the orders of the authorities below by reiterating the reasons contained therein, which we have already adverted to in the earlier paras and are not being repeated for the sake of brevity.
We have carefully considered the rival submissions. The sum and substance of the charge made against the assessee is that she has entered into a collusive transaction with her family 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 permissible within the framework of law.
7.1 In the context of the above, we have carefully examined the factual matrix in the present case. In so far as the conditions contained in section 54F of the Act are concerned, there is no 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 within a period of one year before the sale of shares, inasmuch as the loans raised from family members were repaid. The entire case of the Assessing Officer rests on his observation that when assessee purchased the new 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 claimed. In our considered opinion, the Assessing Officer misdirected himself in doubting the bonafides of the assessee’s claim for exemption because the authenticity and bonafides of the gift of shares received by the assessee and the accrual of capital gains on the sale 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 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 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 Act 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 Act.
7.2 As a result of the aforesaid discussion, we hereby set-aside the order of the CIT(A) and direct the Assessing Officer to allow exemption under section 54F of the Act claimed by the assessee at Rs.2,51,15,523/-.