Two property deals in Visakhapatnam and Chandigarh can now be cited as instances that clarify the Income Tax position on matters involving family members. In the first case, the Visakhapatnam bench of the Income Tax Appellate Tribunal (ITAT) ruled that a mere arrangement between husband and wife without real money exchange to secure the right of property, cannot be doubted as “unexplained investment” under the Income Tax law. In the second matter, the Chandigarh ITAT has clarified that money pooled by family members to purchase property will not attract tax.

Transaction between husband and wife

Vizag-based assessee Adilakshmi Srungavarapu bought a property from her husband to secure right of property. No money was paid by the wife to the husband. She sold some gold jewellery for Rs 3.25 lakh and used savings of Rs 3 lakh to pay the loan borrowed by the husband.

After getting the IT notice, the wife filed the return. The AO issued a notice to her to file the evidence. Since there was no response, the AO completed the assessment and added unexplained investment of Rs 6 lakh to the total income returned by the assessee. The first level of appeal did not give any relief to the assessee, so the matter reached the ITAT.

Decoding the ruling, Paras Nath, Partner (Tax & Regulatory Services) with T R Chadha & Co LLP, said the AO added Rs 6 lakh as unexplained investment under Section 69 of the IT Act, whereas it is applicable only for unrecorded investments.

After hearing the matter, the bench observed that the consideration mentioned in the agreement was only for the purpose of Stamp Duty determination and hence cannot be considered as received by the assessee’s husband , nor should it be considered as paid by the assessee. “in view of the disclosure made while filing the ITR in response to a notice under Section 148, the Tribunal held that Section 69 is applicable only in cases where investments are not recorded in the books of account,” Nath said.

Indruj Singh Rai, Partner with Khaitan & Co, said the bench has upheld the principle of substance over form, albeit in a case where the form recorded by the taxpayer was contrary. While a sale deed was executed for transfer of immovable property, the ITAT noted that the transfer was between relatives, for which no consideration was exchanged and the consideration mentioned in the sale deed was only meant for stamp duty purposes. Given the facts, the ITAT held that there should not be any tax addition.

“While the ITAT acknowledged the relationship between the parties in the instant case, the ruling is based on peculiar facts and should not be considered as position of law. Where a transaction without consideration is contemplated between relatives, a gift deed which corroborates the intent of the parties should be executed,” Rai said.

Pooling of money by family members

In the matter before the Chandigarh Bench, the assessee Gurmeet Khurana booked a property and paid Rs 6 lakh. Since the AO did not get a satisfactory reply on the source, addition of the amount was made. As the assessee did not get any relief from the first appellate authority, she moved ITAT.

After going through all the facts and arguments, the bench acknowledged that the entire family had pooled in their funds and had withdrawn the money from their bank accounts for making the booking and accordingly ordered deletion.

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