Tuesday, August 12, 2014

No transfer under sec. 2(47) if share in inherited property was transferred pursuant to Court decree

Amount received by assessee pursuant to a Court decree in lieu of her share in self acquired property of father who died intestate, could not be said to result in 'transfer' attracting provisions of section 2(47).


a)The Father (‘B’) of assessee (daughter) died intestate leaving behind four sons and six daughters including the assessee. After expiry of 'B', assessee along with other sisters filed a suit for partition of self acquired property of their father.

b)The Court duly recognized the suit compromised between the parties. In terms of memorandum of compromise, the daughters agreed to receive their 1/10th share in property, i.e., a sum of Rs. 87.50 lakhs each from their brothers.

c)The assessee's brothers subsequently entered into a joint development agreement of property. In terms of said agreement, the developer directly paid amount of Rs. 87.50 lakh each to daughters including assessee herein. The daughters thereupon executed a release deed of disputed property in favour of their brothers.

d)The assessee had not offered to tax the impugned sum on the ground that there was no transfer of any capital asset. The AO made additions on the ground that the said transaction was to be deemed as transfer under section 2(47). The CIT (A) confirmed the order of AO. The aggrieved assessee filed instant appeal.

The Tribunal held in favour of assessee as under:

1)In the instant case, on death of 'B', their children became entitled to 1/10th share each over the property by way of intestate succession. Since a physical division of each of the 1/10th share was not possible, sons took the property and daughters took money equivalent to their share over the property.

2)The sum received by the assessee was thus traceable to the realization of her rights as legal heir on intestate succession and not to any sale, relinquishment or extinguishment of right to property. It was, thus, clear that the release deed was executed by daughters (in favour of their brothers) only to confer better title over the property. That document did not create, extinguish or modify the rights over the property either of the sons or the daughters.

3)The sum of Rs.87.50 lakhs was paid only through Court and not at the time of registration of the deed of release. The document of release was between the daughters and sons. The developer was not a party to the document. The developer was also not a party to the suit for partition.

4)Therefore, the conclusions of the revenue authorities that there was a conveyance of the share of the daughters in favour of the developer was contrary to the written and registered document and could not be sustained. Thus, revenue authorities were not justified in taxing the impugned amount as capital gains in the hands of the assessee. – SMT. T. GAYATHRI V. ITO [2014] 47 taxmann.com 190 (Bangalore - Trib.)