SMT. SAJIDA BEGUM,BANGALORE vs. ITO, BANGALORE

The facts and circumstances under which the aforesaid issue arises for consideration are as follows. The assessee is an individual. During the previous year i.e., on 4.9.2008, the assessee sold a vacant site for a consideration of RS.65,65,000. The assessee purchased another vacant site on 9.7.2009 for a sum of Rs.42,75,000 and deposited the balance capital gain in the Capital Gains Account Scheme with Syndicate Bank, with a view to claim exemption of the entire capital gain on the sale of vacant site by investing the entire sale consideration received by acquiring another site and constructing residential house thereon.

U/s. 54F of the Act, where capital gain arises from transfer of any long term capital asset, not being a residential house and the assessee has within a period of three years, after the date of transfer, constructed a residential house and the entire net consideration on sale of original asset is invested for construction of residential house, then the capital gain shall not be charged to tax u/s. 45 of the Act. Proviso to section 54(1) of the Act provides that the assessee shall not own on the date of transfer of original asset, more than one residential house, other than the new asset.

In the course of assessment proceedings, the Assessing Officer called upon the assessee to furnish various details and particulars and the same was furnished. On verification of the documents produced the AO observed that assessee had taken two housing Loans, one from HSBC and other from ICICI Bank. Thereafter, the learned A.O. called upon the banks to furnish the information and on verification, the A.O. found that the assessee had purchased a house property at #228, Odd No.25, Kadirenahalli Village, Illiyasnagar, Uttarahalli Hobli, Bangalore South Taluk on 06/09/2003 by availing housing Loan from HSBC Bank and the assessee had purchased another house property at No.518, 8-3, Malaprabha Block, National Games Village, Koramangala, Bangalore on 03/06/2006. The A.O. referred to the provisions of section 54F of the Act and observed that under the proviso to section 54F of the Act, the exemption will not be allowed if an assessee owns more than one residential house other than the new asset on the date of transfer of the original asset. The AO held that the assessee was owner of more than one residential house on the date of transfer of the vacant site and hence, the claim of exemption u/s.54F of the Act was not allowable. In this view of the matter, the AO denied the exemption claimed u/s. 54F of the Act and assessed the long term capital gains of Rs. 53,69,952 to tax in the impugned order.

Details of particulars furnished by the assessee referred to above is a statement of affairs as on 31.3.2009 filed before the AO. As per the aforesaid statement, assets side of the statement of affairs disclosed the following three properties:-

Before the CIT(Appeals), the assessee submitted that the assessee merely derives income from salary and other sources and was filing her returns of income and apart from the same, she was not aware of the income-tax proceedings. During the course of the assessment proceedings, when the learned A.O. called upon her to produce details, she had placed the matter in the hands of her Advocate/Tax Practitioner for necessary action. It appears that the Advocate/Tax Practitioner of the assessee produced certain details, but, he did not appraise her about the conduct of the assessment proceedings and hence, the assessee could not furnish certain documents to show that the conclusions of the AO for denying the exemption claimed was not warranted. Thus, the assessee could not appraise the AO that she was not the owner of 2 residential houses as on the date of transfer of the original asset i.e., on 04/09/2008 and hence, the claim of exemption u/s. 54F of the Act was justified.

It was submitted that there is a property bearing No.222, 6th Main, Kadiranahalli Village, Bangalore that was originally acquired by the assessee on 05/09/2001. However, this property acquired by the assessee has not been noticed by the AO in the assessment order at all. Be that as it may, after the acquisition of the aforesaid property, the assessee had made an oral HIBA on 18/08/2008 by which, the aforesaid property was given as a gift to her daughter Ms. Rishma Sidra, minor born on 11/04/2001. The declaration of the oral Hiba is confirmed by the Affidavit in confirmation of Oral Hiba dated 18/08/2008 executed by the appellant before a Notary Public. In accordance with the principles of Sunni Mohammaden Law, the aforesaid Hiba executed by the assessee is valid and has divested the assessee of the title and ownership of the said property before the sale of the vacant site on 04/09/2008.

Apart from the above, it was submitted that there is another property bearing No.228, 6” Main, Illiyasnagar, Kadiranahalli Village, Bangalore, which was originally acquired by the assessee on 06/09/2003. The acquisition of this property has been noticed by the AO in the impugned order. However, after the acquisition of the aforesaid property, the assessee had similarly made an oral Hiba on 18/08/2008 by which, the aforesaid property was given as a gift to her daughter Ms. Ridha Fathima, minor born on 05/07/2008. The declaration of the oral Hiba is confirmed by the Affidavit in Confirmation of Oral Hiba dated 18/08/2008 executed by the assessee before a Notary Public. In accordance with the principles of Sunni Mohammaden Law, the aforesaid Hiba executed by the assessee is valid and has divested the appellant of the title and ownership of the aforesaid property before the sale of the vacant site on 04/09/2008.

In support of the oral gift (Hiba) made by the assessee, two affidavits were filed – one in respect of the property No.222, Kadirenahalli Village, which was given as gift in favour of daughter, Ms. Rishma Sidra born on 11.4.2001; and the other in respect of oral gift (Hiba) of the property bearing No.228, Kadirenahalli Village, in favour of daughter, Ms. Ridha Fathima born on 5.7.2008. Both these affidavits were sworn to by the assessee on 18.8.2008. The contents of the affidavits are common. It is necessary to reproduce the manner and the time in which the gifts were made as stated in the affidavit. The relevant portion in this regard reads as follows:-

Since the affidavits as above was an additional evidence filed by the assessee before the CIT(Appeals) for the first time, the CIT(Appeals) called for a remand report from the AO. In the remand report, the AO submitted that the assessee appeared before the AO on 16.1.2014 and was asked as to why the evidence regarding the oral gift (Hiba) was not produced before him at the time of assessment proceedings. The remand report mentions that the assessee had explained that one Sri Md. Anwar, Advocate, was representing the assessee’s case before the AO and he was not apprised of the oral gifts (Hiba) executed on 18.8.2008. In the remand report, the AO also took a stand that the gifts of immovable property are required to be made only by a registered document. Persons, who follow the Muslim religion, can make oral gifts and such gifts are valid in law. The AO, nevertheless, took a stand that for the validity of the gift under Mohammedan law, three conditions are required to be satisfied, i.e.,(a) the declaration by the donor (offer) (b) An acceptance by the donee (acceptance) and (c) the delivery of the property (transfer). As held by many Courts, Section 129 of the Transfer of Property Act does not exempt the written gift deed executed by a Mohammedan.

Registration of a gift deed cannot cure a defect, as to condition of delivery of possession.

Mohammedan law does not dispense with the necessity for acceptance of the gift even in cases where the donees are minors. 3. The fundamental rule of Mohammedan law as to gifts is that “the donor should divest himself completely of all ownership and dominion over the subject of the gift. 4. There must be a delivery of such possession as the subject of the gift. As to delivery of possession is concerned, irrespective of actual or constructive, the ultimate test of the delivery of possession is to see whether the donor or donee reaps the benefit.

The AO accordingly took a stand that oral gift was an after-thought and should not be accepted.

The CIT(Appeals) on a consideration of the remand report, held that oral gifts of immovable property are not valid in law. He was also of the view that had the gifts been really made, then the statement of affairs including the properties gifted would not have been filed by the assessee before the AO. According to him, the above circumstances of filing the statement of affairs including the properties gifted, cannot be lost sight of. He also referred to the fact that assessee has filed wealth-tax returns including the aforesaid properties as part of her wealth.

The above observations regarding wealth tax returns is factually incorrect. As we have already seen, the CIT(Appeals) called for a remand report from the AO. In the remand report, the AO has observed as follows:-

The above observation in the remand report was misconstrued by the CIT(Appeals) as a submission by the AO that the properties that were included as part of net wealth by the assessee in her wealth-tax returns.

Aggrieved by the order of CIT(Appeals), the assessee has preferred the present appeal before the Tribunal.

We have heard the submissions of the ld. Counsel for the assessee, who reiterated the submissions as were made before the CIT(A). The ld. DR, on the other hand, relied on the order of CIT(A) and further submitted that if the oral gift is true, then there should have been a mutation of the public documents relating to the property, which, admittedly, had not taken place. According to the ld. DR, the other circumstances regarding genuineness of the gift also need to be looked into.

We have given a careful consideration to the rival submissions. The first issue that needs to be answered is as to whether the gift in question is not valid for the reason that it is not effect by a registered document. In this regard, the provisions of section 123 of the Transfer of Property Act, 1882, are relevant and the same is reproduced hereunder:-

The assessee herein is a Muslim by religion. Under the Mohammedan Law, essentials of a gift are declaration of gift by the donor and acceptance of the gift by the donee and delivery of possession. This rule of Mohammedan Law is unaffected by the provision of section 123 of the Transfer of Property Act, 1882. This is made very clear by the provisions of section 129 of the Transfer of Property Act, 1882, which reads as follows:-

In view of the above legal position, we are of the view that the oral gift claimed by the assessee cannot be disregarded by the revenue authorities. The stand taken by the revenue is that the document of gift of immovable property requires registration in view of the provisions of section 123 of the Transfer of Property Act r.w. section 17 of the Registration act, 1908.

As we have already seen, this is not the correct position in law. As far as gift in question is concerned, the requirements of a valid gift as per Mohammedan Law are duly satisfied inasmuch as there has been a declaration of gift by the donor and acceptance of gift by the donee and delivery of possession. The delivery in this case would only be constructive. It is also seen that the gift in question was an oral gift made on 18.8.2008. The gift was not made in writing. An oral gift already made was reduced to writing at a later point of time on the same day i.e., on 18.8.2008. This would be clear from a reading of the affidavit filed in confirmation of oral gift, which we have already extracted in the earlier part of this order. Therefore, the gift in question satisfies all the requirements of law and has to be held as valid in law. Since the gifts are held to be valid, the assessee cannot be regarded as owner of the property No.222 and 228 of Kadirenahalli Village. Therefore, the assessee will be the owner of only one property viz., No.518, 5th Floor, Malaprabha, Koramangala, Bangalore. Apart from this property, the assessee claims to have purchased a plot of land over which a new residential house is sought to be constructed. Therefore, the restriction in the proviso to section 54F(1) of the Act are not attracted in the case of assessee.

The only other argument that needs to be examined is as to why the assessee filed statement of affairs for the year ending 31.3.2009 showing three properties as owned by her (including the two properties gifted to two daughters). On this aspect, the assessee had explained before the CIT(Appeals) that the C.A. who was representing the assessee before the AO neither enquired nor was apprised about the oral gift. Further, in the course of assessment proceedings, the AO confronted the assessee only with regard to the property at No.229, Kadirenahalli Village and nothing was asked about the property No.222, Kadirenhalli Village. The assessee pointed out that before the CIT(A), the assessee also brought the facts with regard to the property No.222, Kadirenahalli Village voluntarily. The ld. Counsel for the assessee also pointed out that the statement of affairs as on 31.3.2009 filed by the assessee on which the AO placed reliance did not contain one housing loan availed by the assessee. These facts were pointed out by the assessee before the CIT(A). The loan in question was one availed from HSBC Bank and ICICI Bank respectively. The CIT(A) did not take note of the error of omission of these loans in the statement of affairs; but chose to rely only on the disclosure of asset which were claimed to be wrongly made in the statement of affairs. In our view, the explanation offered by the assessee is bona fide and it has been shown by the assessee that the statement of affairs on which the Revenue placed reliance was not reliable as it contained errors. We are, therefore, of the view that the assessee satisfies all the conditions for grant of exemption u/s. 54F of the Act. We accordingly direct the AO to allow the deduction claimed by the assessee.