Gift of Property to Spouse and Section 54F

Q Whether gift of house to husband prior to date of transfer of original capital asset (other than any residential house) cannot be disregarded for purpose of reckoning assessee’s eligibility for deduction under section 54F even if assessee along with her husband continue to reside in same house after gift ?

Gift of residential house property by assessee to her spouse cannot be disregarded prior to transfer date of original asset for purpose of determining assessee’s eligibility for deduction under section 54F

Q; when wife gave a gift of house to husband, can the gift be valid ?

Section 64(1)(iv) will not operate to nullify gift and would operate only to club income from gifted house in hands of donor  i.e wife

Q :If wife gave a gift of house to husband and after gift both stays in the same house. Can the Gift be regraded as sham  ?

Gift cannot be regarded as a sham merely because assessee along with her husband and spouse continue to reside in same house even after gift  [Paras 4.3 and 4.4 of the judgement]

IN THE ITAT MUMBAI BENCH ‘B’

Smt. Maya A. Ajwani

v.

Income-tax Officer-7(2)(4), Mumbai

D. MANMOHAN, VICE-PRESIDENT
AND SANJAY ARORA, ACCOUNTANT MEMBER

IT APPEAL NO. 7091 (MUM.) OF 2012
[ASSESSMENT YEAR 2009-10]

APRIL  10, 2015

Section 54F, read with section 64, of the Income-tax Act, 1961

Subject : Exemption of, in case of investment in residential house (Gift to spouse)

Assessment year 2009-10

FACTS

■           The assessee, a co-owner along with her spouse of a Flat at Wadala Mumbai had transferred her capital asset in the form of a shop. She declared capital gain and invested part of the sale consideration in purchase of residential flat at Andheri, Mumbai and deposited balance in capital gain scheme account. She claimed exemption under section 54F.

■           The AO noticed that the assessee was owning another residential house, i.e., apart from Wadala flat at Sion, Mumbai on the date of transfer of shop on 6-10-2008, and, held that thus, she did not satisfy the condition of section 54F.

■           The assessee claimed that the Sion house was, in fact, gifted by her to her husband on 3-10-2008 vide a gift deed and, thus, she was on the relevant date (6-10-2008) owner of only one house.

■           The Assessing Officer opined that the same was only a devise to evade tax in as much as the assessee had ‘gifted’ her property to her husband three days prior to the relevant date only with the view to eschew the provision of section 54F. The same would be of no avail as section 27(i) clearly provided that the transfer of a house property to spouse, for other than adequate consideration, would stand to be ignored, and thus, the assessee would be deemed to be the owner of the residential house and, thus, continued to be considered as its ‘owner’ in the eyes of the law.

■           The Commissioner (Appeals) confirmed the disallowance of the assessee’s claim under section 54F.

HELD

■           The moot question is whether the gift by the assessee to her husband of the flat vide gift deed dated 3-10-2008, is to be recognized or not for the purpose of considering her ownership of the said house.

■           This is as even if the joint ownership of the Wadala flat is not regarded as owning one residential house, the same cannot, without doubt, be said to be, or considered as, owning nothing. But only as owning a property jointly, i.e., part ownership. What the law bars is owning more than one residential house, and which need not necessarily be a complete house, so that full (or absolute) ownership, as against joint, would only be an ownership of a part, though undivided, of a house. [Para 4.2]

■           There is no provision in law for the assessee to continue to be regarded as the owner or even a part owner of the property (the Sion residential flat) gifted by her to her husband on 3-10-2008. Even if the same is for the purpose of enabling to avail benefit under section 54F, one cannot by any score treat its as not valid in the eyes of law. The law does not oblige a person to pay maximum taxes or authorize disregarding a lawful transaction if the same has the effect of reducing his tax liability. The transfer by no means is sham or bogus, notwithstanding that assessee would continue to reside with her family, i.e., both before and after its gift to her husband. That is, true, the assessee, along with her family, including her husband, continues to reside in the gifted flat, both before and after the gift, so that the same has no purpose apart from the change of the ownership, which is to be reckoned as on the date of the transfer (of the original asset, i.e., 6-10-2008). Whether, therefore, the change of the ownership was effected a few days or, why, even a day earlier, to the relevant date, is of no moment. The gift deed, duly registered, has to be given its full legal effect which is of a change in its ownership from the assessee to her husband. Pinning on some altruistic notion, cannot entitle one to read the law except in terms of its clear and unambiguous language, so that only what stands specifically provided is to be excluded. There is no stipulation in law with regard to the ownership pattern, or its quantification, i.e., of the assesee’s other family members, including spouse, or even of the transferee/s. The same clearly provides for consideration of the ownership of residential house/s only of the assessee, and on a particular date. [Para 4.3]

■           Even otherwise, section 64(1)(iv) is broadly worded to include any income, arising directly or indirectly to the spouse of an assessee from the assets transferred thereto by him without adequate consideration, save where in connection with an agreement to live apart, which exclusion also finds place in section 27(i), in the assessee’s income. The said provision is also made subject to section 27(i), so that the two are to be read together and in harmony. However, even section 64(1)(iv) shall not apply in-as-much as the same would only imply assessing the income arising to the assessee (or her husband) from the Wadala property as her income, since gifted to the latter, while the subject matter of the dispute in the instant case is the income arising on transfer of a shop at Sion, Mumbai. [Para 4.4]

■           In view of the foregoing, there is no merit in the revenue’s case for disregarding the gift of a house property by the assessee to her spouse prior to the transfer date (of the original asset) for the purpose of reckoning eligibility to exemption under section 54F. [Para 5]