Smt. Sajida Begum , Bangalore vs Assessee

Smt. Sajida Begum, Vs. The Income Tax Officer, # 518, Malaprabha Block, Ward 15(2), National Games Village, Bangalore. Koramangala, Bangalore - 560 047. PAN : ADNPB 1313R APPELLANT RESPONDENT

Appellant by : Shri V. Srinivasan, C.A. Revenue by : Dr. P.K. Srihari, Addl. CIT(DR)

Date of hearing : 02.02.2015 Date of Pronouncement : 13.02.2015

ORDER

Per N.V. Vasudevan, Judicial Member

This appeal by the assessee is against the order dated 18.2.14 of

the CIT(Appeals), LTU, Bengaluru relating to assessment year 2009-10.

2. The only issue that arises for consideration in this appeal is as to

whether the revenue authorities were justified in denying the claim of

deduction u/s. 54F of the Act.

ITA No.440/Bang/2014 Page 2 of 13

3. 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.

4. 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.

5. 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 ITA No.440/Bang/2014 Page 3 of 13

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.

6. 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:-

(1) No.222, No.25, Kaderanahalli Village, Uttarahalli Hobli, Bangalore.

(2) No.518, 5th Floor, Malaprabha, Bangalore NGHP, Koramangala.

ITA No.440/Bang/2014 Page 4 of 13 (3) No.228, Kaderanahalli Village, Uttarahalli Hobli, Bangalore.

7. 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.

8. 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 ITA No.440/Bang/2014 Page 5 of 13

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.

9. 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.

10. In support of the oral gift (Hiba) made by the assessee, two

affidavits were filed - one in respect of the property No.222, Kadirenahalli ITA No.440/Bang/2014 Page 6 of 13

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:-

"2. That out of' natural love and affection, I have earlier today, in the presence of the witnesses; mentioned hereunder made a HIBA of' the Schedule property to my daughter Ms.Rishma Sidra, minor born on 11.04.2001 (hereinafter referred to as "the said Donee") and on behalf of' my minor daughter, my husband and myself as the natural guardians of the minor child, have accepted the HIBA.

3. That the said Donee is also signing this declaration in token thereof for having accepted the HIBA in the presence of the witnesses below.

4. That I have simultaneously delivered vacant possession of the schedule property to the said Donee earlier today."

11. 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 ITA No.440/Bang/2014 Page 7 of 13

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.

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

2. 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.

ITA No.440/Bang/2014 Page 8 of 13

12. The AO accordingly took a stand that oral gift was an after-thought

and should not be accepted.

13. 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.

14. 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:-

".7. It is also pertinent to mention here that as per Section 4(1) of the Wealth Tax Act - in computing the net wealth of an individual, there shall be included as belonging to that individual, the value of assets, which on the valuation date, are held by the minor child not being a minor child suffering from any disability of the nature specified in section 80U of the I. T. Act or a married daughter of such individual. In this case, the assessee has not filed wealth tax return nor included the assets held by the minor child in the assessee's name."

15. 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. ITA No.440/Bang/2014 Page 9 of 13

16. Aggrieved by the order of CIT(Appeals), the assessee has preferred

the present appeal before the Tribunal.

17. 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.

18. 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:-

"123. Transfer how effected. - For the purpose of making a gift of immovable property, the transfer must be effected by a registered instrument signed by or on behalf of the donor, and attested by at least two witnesses.

For the purpose of making a gift of movable property, the transfer may be effected either by a registered instrument signed as aforesaid or by delivery.

Such delivery may be made in the same way as goods sold may be delivered."

ITA No.440/Bang/2014 Page 10 of 13 19. 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:-

"129. Saving of donations mortis causa and Muhammadan law.

- Nothing in this Chapter relates to gifts of movable property made in contemplation of death, or shall be deemed to affect any rule of Muhammandan law."

20. 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.

21. 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 ITA No.440/Bang/2014 Page 11 of 13

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.

22. 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 ITA No.440/Bang/2014 Page 12 of 13

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.

23. In the result, the appeal by assessee is allowed.

Pronounced in the open court on this 13th day of February, 2015.

Sd/- Sd/- ( ABRAHAM P. GEORGE ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member

Bangalore, Dated, the 13th February, 2015. /D S/ ITA No.440/Bang/2014 Page 13 of 13

Copy to:

1. Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Assistant Registrar / Senior Private Secretary ITAT, Bangalore.