Property received under family settlement not taxable u/s 56(2) despite registered gift deed: ITAT Delhi in ITO Vs Ratna Aggarwal

Background and core issue

In ITO Vs Ratna Aggarwal, the Delhi Bench of the ITAT examined whether an immovable property, transferred through a registered gift deed but actually forming part of a bona fide family settlement, can be taxed as income under Section 56(2)(vii)(b) of the Income Tax Act 1961.

The Revenue argued that the donor (brother-in-law of the assessee) did not fall within the defined category of “relatives” for the purposes of Section 56(2), and therefore, the difference between the stamp duty value of the property and the consideration (being nil) should be taxed as income from other sources.

The assessee, on the other hand, maintained that:

  • The property was transferred as part of a genuine family arrangement,
  • The registered gift deed was only the legal instrument effectuating that settlement,
  • The arrangement arose from antecedent family rights and the dying wish of a senior family member, and
  • Consequently, the provisions of Section 56(2)(vii)(b) were not attracted.

The ITAT ultimately upheld the order of the CIT(A) and rejected the Revenue’s appeal.

Facts of the case

Assessment and reopening

  • The assessee is an individual who originally filed a return of income declaring Rs. 3,40,540/- for AY 2018-19.
  • On the basis of information that the assessee had received an immovable property via a registered gift deed valued at Rs. 33,43,440/-, the case was reopened under Section 147.
  • According to the Assessing Officer (AO), the donor did not fall within the “specified relatives” category contemplated by Section 56(2) of the Income Tax Act 1961, and therefore, the receipt of the property was taxable.

Return in response to notice u/s 148

  • In response to notice under Section 148, the assessee filed another return and declared Rs. 303,43,440/- as income from other sources, treating the value of the property as taxable.
  • Later, during reassessment proceedings, the assessee filed a revised computation, asserting that the property had been received under a family settlement and hence was not liable to tax u/s Section 56(2).
  • The assessee specifically stated that the earlier disclosure was made under incorrect professional advice and did not reflect the true legal position.

Nature of the property and family background

The assessee contended: