BHUMIKA MAHESH PARWANI,AHMEDABAD vs. INCOME-TAX OFFICER, AHMEDABAD

This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) – National Faceless Appeal Centre(NFAC) [hereinafter referred as “CIT(A)”], dated 01.08.2023, for the Assessment Year 2020-21, wherein the CIT(A) confirmed the addition made by the Assessing Officer (hereinafter referred as “AO”) as per the order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as "the Act".

Assessee has filed an appeal with following grounds of appeal:

The assessee filed her return of income on 12.2.2021 declaring total income of Rs.23,80,612. The case was selected for the scrutiny under CASS on the issue of investment in immovable property. As stated by the assessee, she received an immovable property under a family arrangement. The Assessing Officer, during the assessment proceedings under section 143(3) of the Act, added the stamp duty value of the said property to the assessee’s income under section 56(2)(x) of the Act stating that the property is not received from the relative as defined and that the gift deed does not specify that it is a family arrangement.

The assessee contended that the family arrangement is not a "transfer" within the meaning of section 56(2)(x) of the Act and should not be subject to tax.

Ground No.1 is challenging the validity of the assessment made by AO on the issues other than the issues for which notice u/s 143(2) was issued under CASS for limited scrutiny. The counsel for the assessee stated that the notice u/s 143(2) was issued to verify the investment in immovable property but the notice u/s 1422(1) sought details of purchase of immovable property.

Considering the facts put forward by Ld. DR we dismiss the first ground of the assessee.

The Counsel for the assessee stated that the immovable property under question is gifted in accordance with the arrangement amongst families of Bhoraj Parwani, Shyamlal Parwani and Bhagwandas Parwani. The property, the part of which was gifted by Anita Bhojraj Parwani to the Bhumika Mahesh Parwani vs. ITO Asst. Year : 2020-21

To support the plea of family settlement the counsel for the assessee stated that some lands held by the family were agricultural lands and since all parties to settlement are not holding a status of agriculturist, non- agricultural land was used for family settlement and bring equality. He further stated that post settlement by way of gifts, the share of families is kept equal.

To support the claim of family settlement the assessee submitted an application of additional evidence by way of affidavits of parties to family settlement.

Ld. DR, on the other hand, supported the orders of the AO and CIT(A) and argued that the provisions of section 56(2)(x) are clear and unambiguous, and any receipt of property without adequate consideration should be taxed as income. She also objected to admission of additional evidence. In the interest of justice such additional evidence is admitted.

Upon careful consideration, we find that family arrangements are made to resolve potential disputes and maintain family harmony. Such arrangements are often made out of love and affection among family members and are not in the nature of transfers for consideration. Various courts have held that family arrangements are not 'transfers' in the conventional sense and should not be subjected to tax under section 56(2)(x) of the Act.

It is also noted that the gift is received not only by the assessee, but some part of the same land is also gifted to two more relatives through the same gift deed.

Family arrangement merely represents the modus operandi for working out the rights in the common property of various members of the family. Gift deed is a legal document that transfers the ownership of the immovable property. Therefore, in our opinion, it can be used to settle the family disputes.

In present case, the transfer by way of gift is a part of family settlement through which individual shares were determined out of the property which they were already owning. It is not a case that the property was received from a third party where the assessee was having no interest at all.

Hon’ble Supreme Court in Kale & others Vs. Deputy Director of Consolidation, 1976 AIR 807 has explained the concept of family arrangements and their legal validity. The court held that a family arrangement can be even oral, and registration is necessary only if the terms are reduced into writing. The object of a family arrangement is to protect the family from long drawn litigation or perpetual strife which mars the unity and the solidarity of the family. The court also held that the family arrangement must be bona fide so as to resolve family disputes.

In case of Krishna Bihari Lal V. Gulabchand, 1971 AIR 1041, SCR 27 (Supreme Court of India), it was held that the word ‘family’ has a wider meaning. It cannot be confined to a group of persons who by law has the right of succession. In a matter of family arrangement, the word ‘family’ is to be seen in a much wider sense.

In the case at hand, the CIT(A) failed to appreciate the nature and purpose of the family arrangement and the judicial precedents supporting the assessee's claim. He has relied on the order passed by the AO and Bhumika Mahesh Parwani vs. ITO Asst. Year : 2020-21

In light of the above, we hold that the addition made by the AO and confirmed by the CIT(A) under section 56(2)(x) of the Act is not sustainable. The immovable property received by the assessee under the family arrangement is not liable to be taxed as income under section 56(2)(x) of the Act.

Accordingly, we set aside the order of the CIT(A) and direct the AO to delete the addition made under section 56(2)(x) of the Act.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the Open Court on 29 May, 2024 at Ahmedabad.