Gift of immovable property

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

19 December 2018 My Grandfather wants to gift to My mother after sale of old property and give money for purchase a house. I want to know if money so received from father in law to daughter in law for purchase of house in tax exempted

Rupesh Jain

Rupesh Jain (Expert)
Follow

19 December 2018 yes, its exempt from income tax, but father in law pay tax on sale of property.

Z (Expert)
Follow

19 December 2018 If possible, your grandfather should purchase the property in his name and then after 3 years gift the same to your mother.

Alternatively, your grandfather may ,jointly, hold the new property with your mother and lateron (after 3 years) gift/relinquish his share to your mother. (I am not recomending to directly have the property in the name of the mother, though that may also be allowed, but can give rise to few un-necessary issues.)

There have been quite a few judgments wherein it was held that in order to claim the exemption u/s 54, it is not mandatory to hold the legal title. I am citing a few for your reference.

CIT V Kamal Wahal [2013] 30 taxmann.com 34 delhi

Jitendra V Faria [2017] 81 taxmann.com 16 (Mumbai - Trib.)

Shirish Vinayak Godbole Vs. ITO (ITAT Pune)

JCIT v. Smt. Armeda K. Bhaya, 95 ITD 313 (Mum.)

[Reference]CIT Vs. Podar Cements (P) Ltd. & Ors., (1997) 226 ITR 625 (SC)

Read more at: https://www.caclubindia.com/profile.asp?member_id=663014

CIT v Ravinder Kumar Arora [2012] 342 ITR 38/[2011] 203 Taxman 289/15 taxmann.com 307 (Delhi)

In CIT v. Podar Cement P. Ltd. [1997] 226 ITR 625 (SC), the Supreme Court has also accepted the theory of constructive ownership

Commissioner of Income Tax Vs.V. Natarajan : (2006) 287 ITR 271 (Madras High Court)

Director of Income-tax, International Taxation, Bangalore : (2011) 203 Taxman 208
( Karnataka High Court)

The Andhra Pradesh High Court in the case of Late Mir Gulam Ali Khan v. CIT [1987] 165 ITR 228 (AP) has held that the object of granting exemption under section 54 of the Act is that an assessee who sells a residential house for purchasing another house must be given exemption so far as capital gains are concerned. The word "assessee" must . be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word "assessee" as that would frustrate the object of granting exemption. '

[If the grandfather is an assessee from Mumbai then please don't opt this route because the Mumbai High Court, in has held that residential house should be in the name of the assessee. refer Prakash v. ITO [2008] 173 Taxman 311 (Bom.)

[There are several other judgments in the favor of the assessee.]

prateek63@yahoo.co.in

Upgrade to CAclubindia Pro. Subscribe Now!

CA. Vivek Chiraniya

CA. Vivek Chiraniya (Expert)
Follow

19 December 2018 While transferring the money or property from your grandfather to your mother, you also need to keep in mind clubbing provisions under Section 64(1)((vi) which will apply in this case.

Message likes : 1 times

Z (Expert)
Follow

19 December 2018 Vivek Chiraniya Sir, good point. I almost skipped that. When I read grandfather and mother I thought they were father and daughter.

Any income arising from the house/ gifted money shall be clubbed in the hands of the grandfather.

[If the property/money is gifted to your father then clubbing provisions shall not apply.]
[Gift would not be taxable.]

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
Follow

15 October 2021 The clubbing can be saved by first gifting the property, then selling it !!! For first instant it will be clubbed but not the new purchased house...