Taxpublishers.in - Monday Corner Answer to the Quiz for the week (11 Nov 2024)

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Quiz for the week (11 Nov 2024): Robert Edgar a resident individual (age 48) earned income from business of Rs.23 lakhs (computed) for the financial year 2023-24. During the year he gifted a vacant land to his friend Chris. The land was acquired for Rs. 5 lakhs in financial year 2023-24. The stamp duty value of the land on the date of gift was Rs.20 lakhs. He filed his ITR by treating gift of vacant land as taxable and paid tax. In January, 2024 he came to know that the gift of land has no income component and hence no income-tax implication in his hand. Can he seek refund of tax paid voluntarily by him on the non-existent capital gain? If so, how? Best Answer : In this case, the assessee has gifted a vacant land to his friend. The gift of land will not attract income-tax in the hands of donor. It is altogether a different matter that the donee (recipient) has to admit the same as income under section 56(2)(x) when such gift is not from a relative. It is given in the query that the vacant land was gifted to a friend. Thus, the recipient friend Chris must admit the same under the head 'Other sources'. It seems that the donor has admitted the capital gain by adopting stamp duty value on the date of gift as apparent sale consideration and reduced the cost of acquisition which is eligible for indexation benefit. In this case, the assessee has also paid tax on capital gain which was non-existent. There was no income in the nature of capital gain for which the tax was paid. Therefore, the tax payment per se is incorrect. Now when a voluntary tax payment has been made, the taxpayer cannot turnaround and seek refund of tax since the payment was made by him voluntarily. However, Circular No.14 dated 11.04.1955 says that the Officers of the Department must not take advantage of the ignorance of an assessee as to his rights. Although, the responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers should (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs. In this background, the assessee cannot file a revised return to seek refund of excess tax erroneously paid by him. Similarly, he cannot file updated return since it is a case of refund of tax, which is barred as regards filing of updated return. The only recourse which the assessee may take could be found in section 119(2)(b) where the Board if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order authorise any income-tax authority [other than JCIT (Appeals) and CIT (Appeals)] to admit an application or claim for any exemption, deduction, refund or any other relief under the Act after the expiry of the period specified by or under the Act for making such application or claim and deal with the same on merits in accordance with law. Therefore, the only option available to the taxpayer is to opt for section 119(2)(b) which could be entertained by the Board in such exceptional cases. One may refer Circular No.7 of 2023 dated 31.05.2023 regarding condonation of delay in filing refund claim and claim of carry forward of losses.

Quiz for the week (11 Nov 2024):

Robert Edgar a resident individual (age 48) earned income from business of Rs.23 lakhs (computed) for the financial year 2023-24. During the year he gifted a vacant land to his friend Chris. The land was acquired for Rs. 5 lakhs in financial year 2023-24. The stamp duty value of the land on the date of gift was Rs.20 lakhs. He filed his ITR by treating gift of vacant land as taxable and paid tax. In January, 2024 he came to know that the gift of land has no income component and hence no income-tax implication in his hand. Can he seek refund of tax paid voluntarily by him on the non-existent capital gain? If so, how?

Best Answer :

In this case, the assessee has gifted a vacant land to his friend. The gift of land will not attract income-tax in the hands of donor. It is altogether a different matter that the donee (recipient) has to admit the same as income under section 56(2)(x) when such gift is not from a relative. It is given in the query that the vacant land was gifted to a friend. Thus, the recipient friend Chris must admit the same under the head 'Other sources'.

It seems that the donor has admitted the capital gain by adopting stamp duty value on the date of gift as apparent sale consideration and reduced the cost of acquisition which is eligible for indexation benefit. In this case, the assessee has also paid tax on capital gain which was non-existent. There was no income in the nature of capital gain for which the tax was paid. Therefore, the tax payment per se is incorrect.

Now when a voluntary tax payment has been made, the taxpayer cannot turnaround and seek refund of tax since the payment was made by him voluntarily. However, Circular No.14 dated 11.04.1955 says that the Officers of the Department must not take advantage of the ignorance of an assessee as to his rights. Although, the responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers should (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.

In this background, the assessee cannot file a revised return to seek refund of excess tax erroneously paid by him. Similarly, he cannot file updated return since it is a case of refund of tax, which is barred as regards filing of updated return.

The only recourse which the assessee may take could be found in section 119(2)(b) where the Board if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order authorise any income-tax authority [other than JCIT (Appeals) and CIT (Appeals)] to admit an application or claim for any exemption, deduction, refund or any other relief under the Act after the expiry of the period specified by or under the Act for making such application or claim and deal with the same on merits in accordance with law.

Therefore, the only option available to the taxpayer is to opt for section 119(2)(b) which could be entertained by the Board in such exceptional cases. One may refer Circular No.7 of 2023 dated 31.05.2023 regarding condonation of delay in filing refund claim and claim of carry forward of losses.