ITAT Rules Rs 33 Lakh Family Property Transfer Not Taxable

A woman declaring annual income of about Rs 3.4 lakh will not be taxed on a Rs 33 lakh property that came to her through a registered gift deed, after the Delhi bench of the Income Tax Appellate Tribunal (ITAT) ruled that the transfer formed part of a genuine family settlement rather than taxable income, according to a recent report by "The Economic Times." The order effectively overturns an addition made by the tax department during assessment proceedings.

The matter began in fairly routine fashion. During scrutiny, the assessing officer noticed that the taxpayer’s earnings were modest, yet she had acquired ownership of a property valued at several times her annual income. That raised a red flag. The department treated the transfer as income from other sources, reasoning that the donor did not qualify as a “specified relative” under the Income-tax Act. On that interpretation, the entire Rs 33 lakh was added to her income.

The taxpayer did not dispute receiving the property. What she challenged was the characterisation of the transaction. According to her submissions, the transfer was not a simple gift in the ordinary sense but rather flowed from a prior family understanding regarding property rights. The gift deed, she argued, merely recorded an arrangement that already existed within the family.

That difference, whether the document created a benefit or simply formalised one, became the core issue before the tribunal.

Reading The Transaction In Context

The ITAT looked at the surrounding circumstances instead of stopping at the wording of the deed. Family settlements, the bench observed, are not unusual in India, especially where immovable property is concerned.

Many such arrangements are made simply to prevent disputes later or to put on record understandings that families have followed for years.

Here, the tribunal agreed the transfer was part of a family settlement. It held that the property’s value could not be treated as taxable income in the hands of the recipient and deleted the addition made by the tax authorities.

The ruling underscores a familiar tension in tax administration. Assessment officers tend to apply statutory definitions strictly. Appellate forums, on the other hand, often examine the substance of a transaction and its intent.

Why It Matters

The order does not introduce any new principle into tax law. What it does is reaffirm that context matters, particularly in family property arrangements. A registered gift deed doesn’t automatically mean tax will apply. Much depends on why the transfer happened and the context behind it.

For taxpayers, the lesson is practical rather than technical. Property transfers within families should be supported by clear documentation and a consistent explanation of the arrangement. High-value assets paired with relatively low reported income will almost always invite questions. Whether those questions result in tax depends on how convincingly the facts are presented.

In this instance, the tribunal was satisfied that the transaction reflected a legitimate family settlement. That conclusion ultimately made the difference.