Background
The assessee was subjected to reassessment proceedings on the premise that she had received an immovable property by way of a gift deed from her brother-in-law. Since a brother-in-law does not fall within the definition of “specified relatives” under Section 56(2), the Assessing Officer held that the assessee was liable to tax on the value of the property as deemed income under Section 56(2)(vii)(b).
The assessee contended that the gift deed was not an independent transaction but was merely the formal execution of a pre-existing family settlement among members of the family who constituted a Hindu Undivided Family (HUF). The property had been received pursuant to antecedent rights and interests in the subject property, and the gift deed was only a formality to perfect title consequent to the settlement.
Revenue's Argument
The Revenue argued that:
- ▸The assessee received immovable property by way of a gift deed from her brother-in-law.
- ▸A brother-in-law is not a "specified relative" under the Explanation to Section 56(2).
- ▸Since the property was received without consideration from a non-relative, it was taxable as deemed income under Section 56(2)(vii)(b).
Findings of the ITAT
Family Settlement is Not a “Transfer” Under Section 2(47)
The Tribunal concurred with the CIT(A)'s view that the transaction of gift only culminated the family settlement and did not constitute a “transfer” within the meaning of Section 2(47) of the Income Tax Act. Since the transaction was not a transfer, Section 56(2)(vii)(b) — which applies to property received “without consideration” — was not attracted.
“The provisions of Section 56(2) also do not apply as the gift deed was merely execution of a formal document amongst the family members constituting HUF.”
HUF Members — Exempt Under Section 56(2)
The Tribunal observed that Section 56(2) itself provides that if property is received without consideration from a member of an HUF, the same shall not be considered deemed income. In the present case, the family settlement was between members of the family who constituted an HUF — by reason of the manner of acquisition of the property and their respective antecedent rights and interests in the subject property.
Gift Deed Was Only a Formality
The Tribunal emphasised that the execution of the gift deed was only a formality to transfer a valid title consequent to the family settlement — it was not an independent act of gifting. The real transaction was the family settlement, which preceded and gave rise to the gift deed.
“Execution of gift was only a formality to transfer a valid title consequent to family settlement.”
AO Did Not Dispute the Family Settlement
The Tribunal noted that the AO had not disputed the factual aspects of the family settlement. Since the facts were not challenged, they had to be admitted as settled. The Revenue could not accept the factual position and simultaneously seek to tax the transaction as if it were an independent gift.
Key Legal Principles
Family settlement is not a transfer under Section 2(47)
A transaction that culminates a family settlement does not constitute a "transfer" for income tax purposes. Section 56(2)(vii)(b) is therefore not attracted.
Gift deed as formality does not change the nature of the transaction
Where a gift deed is executed merely to perfect title pursuant to a pre-existing family settlement, the substance of the transaction is the settlement — not the gift. Form cannot override substance.
Property received from HUF member is exempt
Section 56(2) expressly excludes from deemed income any property received without consideration from a member of an HUF. This exemption applies where the parties constitute an HUF by reason of their antecedent rights in the property.
Undisputed facts must be accepted
Where the AO does not dispute the factual aspects of a family settlement, those facts are to be treated as settled. The Revenue cannot selectively accept facts while ignoring their legal consequences.
Outcome
The Delhi ITAT dismissed the Revenue's appeal and upheld the CIT(A)'s order in favour of the assessee. The Tribunal confirmed that the immovable property received under the family settlement was not taxable as deemed income under Section 56(2)(vii)(b).
ITO v. Ratna Aggarwal [TS-131-ITAT-2026(DEL)] — AY 2018-19 — 04.02.2026 — In favour of assessee
Practical Takeaway
- ▸Where property is received pursuant to a family settlement, document the settlement thoroughly — including the antecedent rights, the nature of the HUF, and the circumstances leading to the settlement.
- ▸A gift deed executed to perfect title under a family settlement is not an independent gift. Ensure the family settlement agreement predates or accompanies the gift deed.
- ▸If reassessment is initiated under Section 56(2)(vii)(b) on the basis of a gift deed, examine whether the underlying transaction is a family settlement — the tax treatment may be entirely different.
- ▸The fact that the donor is not a "specified relative" under Section 56(2) is not determinative if the transaction is part of a family settlement among HUF members.
- ▸Ensure the AO is presented with complete facts of the family settlement at the assessment stage itself — undisputed facts carry significant weight at the appellate stage.