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Income Tax Appellate Tribunal, Hyderabad SMC Bench, Hyderabad
Before: Smt. P. Madhavi Devi
This is assessee’s appeal for the A.Y 2010-11 against the order of the CIT (A)-6, Hyderabad, dated 14.10.2019.
Brief facts of the case are that the Assessing Officer having jurisdiction over the assessee had received information that the assessee individual has sold property vide document No.457/2009 for a consideration of Rs.32,21,000/- during the financial year relevant to A.Y 2010-11; whereas the fair market value of the property as per Stamp Valuation Authority was Rs.43,80,000/-. Since the assessee had not filed his return of income, the Assessing Officer believed that income chargeable to tax has escaped assessment. Thus, the Assessing Officer issued notice u/s 148 of the Act on 24.03.2017.
During the course of re-assessment proceedings, the assessee filed computation of capital gains projecting loss on sale of the property. The documents pertaining to the property were called for from the assessee and also from the Land Registration Authorities u/s 133(6) of the Act. The Assessing Officer observed that the document No.457/2009 was registered on 8.4.2009 with regard to the sale of property in question and that till 28.1.2009, only leasehold rights were with the assessee. He observed that the assessee had acquired lease rights over the property on 30.6.1950 by virtue of Settlement and Arrangement deed dated 30.06.1950 and consequent to the demise of his father in the year 1955, the assessee, his mother and two sisters were left behind as heirs and legal representatives. The Assessing Officer observed that the assessee’s mother and two sisters gave no objection for conversion of the lease hold rights to free hold rights over the property as also the conveyance of the property in favour of the assessee. Accordingly, the Estate Officer, Secunderabad, vide Conveyance Deed document No.452/2009, dated 28.01.2009 has converted the leasehold rights to free hold rights in favour of the assessee for a consideration of a sum of Rs.50,400/-. The Assessing Officer observed that prior to conversion of leasehold rights into freehold rights, the assessee had no right to sell the property and therefore, the assessee became the absolute owner of the property on 28.01.2009 only. Therefore, he held that capital gain arising on a/c of the sale was Short Term Capital Gain. The Assessing Officer also observed that only other expenditure incurred by the assessee in connection with the transfer of the land was the fee paid by him for conversion of leasehold rights into freehold right which is to the tune of Rs.3,07,439/- which was paid on 19.01.2009. Accordingly, he allowed the same and after applying the provisions of section 50C of the Act, he computed the short- term capital gain at Rs.40,72,561/- and brought it to tax.
Aggrieved, the assessee preferred an appeal before the CIT (A) contending that the property was a HUF property and therefore, the capital gain has arisen in the hands of the HUF and not the assessee individual. It was also contended that the capital gain which has arisen is not short term capital gain, but it is long term capital gain and further that the SRO value as on the date of agreement of sale is to be considered and not the SRO value as on the date of registration of sale deed. He also contended that the Assessing Officer should have allowed deduction of indexed cost of acquisition of the land and also cost of the building thereon while computing the capital gain. The CIT (A) granted partial relief to the assessee by holding that the gain from the sale of property is LTCG and not STCG. He also observed that the fair market value of the property as on 1.4.1981 has to be considered at Rs.100/- per sq. yard and not the indexed cost of acquisition and further that the said cost has to be allowed along with cost of improvement which was already allowed by the Assessing Officer.
5. As regards the status of the assessee in which the capital gain has to be taxed and also the SRO value as on the date of sale of the property or agreement of sale is concerned, the CIT (A) held against the assessee and the assessee is in second appeal before the Tribunal by raising the following grounds of appeal: “1. On the facts and in the circumstances of the case, the order of the learned CIT (A) is erroneous and bad in law to the extent prejudicial to the assessee.
2. On the facts and in law, the learned CIT (A) grossly erred in upholding the action of the Assessing Officer in assessing the capital gains on sale of property in individual status of the assessee, when the property was owned by the HUF having been inherited/succeeded by the assessee prior to the introduction of Hindu Succession Act, 1956.
3. On the facts and in law, the learned CIT (A) erred in holding that there was no existence of HUF at all, when the HUF had come into existence automatically by operation of law then prevailing.
4. On the facts and in the circumstances of the case, the learned CIT (A) grossly erred in not referring the sold property to the Valuation Officer u/s 50C(2) of the I.T. Act, 1961, merely for the reason that the said right was not exercised during assessment proceedings.
5. On the facts and in the circumstances of the case, the learned CIT (A) ought to have adopted the value of the sold property as on 1.4.1981 based on the valuation of the registered valuer.
6. On the facts and in the circumstances of the case, the learned CIT (A) grossly erred in taking the value of some other property as the basis for arriving at the value of the sold property as on 1.4.1981.
7. On the facts and in the circumstances of the case, the learned CIT (A) ought to have allowed the alternate plea of the assessee to adopt the deemed value of the property as on the date of sale agreement in favour of the Vendees as against on the date of sale deed adopted by the Assessing Officer u/s 50C of the I.T. Act, 1961.
8. On the facts and in the circumstances of the case, the learned CIT (A) failed to appreciate that the assessee had received substantial advance sale consideration by way of cheques by virtue of the sale agreement entered into much prior to the date of sale deed, hence value as on the date of sale agreement is applicable for invoking the provisions of section 50C of the I.T. Act, 1961.
9. On the facts and in the circumstances of the case, the learned CIT (A) ought to have held that the first and second proviso to sub section (1) of section 50C of I.T. act, 1961 is a beneficial provision, to be interpreted liberally and could be applied retroactively to the sale transaction during the year under consideration.
10. The appellant craves leave to alter, amend or delete any of the above grounds of appeal and/or to add any fresh ground(s) of appeal or before the hearing of the appeal”.
The learned Counsel for the assessee drew my attention to the sale deed/conveyance deed dated 8.4.2009 to demonstrate that the assessee had acquired property from his father in 1955 i.e. even prior to the promulgation of the Hindu Succession Act in 1956. He submitted that since the assessee was a male Hindu and had inherited the property prior to coming into force of Hindu Succession Act 1956, automatically he became a member of HUF and accordingly the property of the assessee has become HUF property and it continued to be so till it was transferred by way of agreement of sale and thereafter execution of sale deed dated 8.4.2009. Therefore, according to him, the income should have been assessed in the hands of HUF and not in the hands of the assessee individual.
7. The learned DR, on the other hand, supported the orders of the authorities below who have discussed the issue elaborately.
Having regard to the rival contentions and the material on record, I find that the assessee’s father had received this property in 1950 by virtue of family settlement deed and after assessee’s father’s demise in 1955, the property was inherited by the assessee. The position of the existence and devolvement of ancestral properties on the HUF before and after the promulgation of Hindu Succession Act in 1956 has been considered by the Hon'ble Delhi High Court in the case of Vinod Chopra vs. Vasudev Chopra and another in CS(OS) No.2588/2011 dated 22.3.2011. The relevant paras are reproduced hereunder for ready reference:
“4. I have had an occasion to consider this aspect in the judgment delivered in the case of Sunny (Minor) & Anr. Vs. Raj Singh & Ors., 225 (2015) DLT 211. In this judgment, I have held by referring to the ratio of the judgment of the Supreme Court in the case of Yudhishter Vs. Ashok Kumar, (1987) 1 SCC 204 that inheritance of ancestral property after 1956 does not mean inheritance is of an HUF property but inheritance will be as a self acquired property in view of Section 8 of the Hindu Succession Act, 1956. The relevant paras of the judgment in the case of Sunny (Minor) & Anr. (supra) are paras 6 to 9 and 14 and which paras read as under:- “6. At the outset, it is necessary to refer to the ratio of the judgment of the Supreme Court in the case of Yudhishter Vs. Ashok Kumar, (1987) 1 SCC 204 and in para 10 of the said judgment the Supreme Court has made the necessary observations with respect to when HUF properties can be said to exist before passing of the Hindu Succession Act, 1956 or after passing of the Act in 1956. This para reads as under:- “10. This question has been considered by this Court in Commissioner of Wealth Tax, Kanpur and Ors. v. Chander Sen and Ors. MANU/SC/0265/1986MANU/SC/0265/1986 : [1986] 161 ITR 370(SC) where one of us (Sabyasachi Mukharji, J) observed that under the Hindu Law, the moment a son is born, he gets a share in father's property and become part of the coparcenary. His right accrues to him not on the death of the father or inheritance from the father but with the very fact of his birth. Normally, therefore whenever the father gets a property from whatever source, from the grandfather or from any other source, be it separated property or not, his son should have a share in that and it will become part of the joint Hindu family of his son and grandson and other members who form joint Hindu family with him. This Court observed that this position has been affected by Section 8 of the Hindu Succession Act, 1956 and, therefore, after the Act, when the son inherited the property in the situation contemplated by Section 8, he does not take it as Kar of his own undivided family but takes it in his individual capacity. At pages 577 to 578 of the report, this Court dealt with the effect of Section 6 of the Hindu Succession Act, 1956 and the commentary made by Mulla, 15th Edn. pages 924-926 as well as Mayne's on Hindu Law 12th Edition pages 918-919. Shri Banerji relied on the said observations of Mayne on 'Hindu Law', 12th Edn. at pages 918-919. This Court observed in the aforesaid decision that the views expressed by the Allahabad High Court, the Madras High Court the Madhya Pradesh High Court and the Andhra Pradesh High Court appeared to be correct and was unable to accept the views of the Gujarat High Court. To the similar effect is the observation of learned author of Mayne's Hindu Law, 12th Edn. page 919. In that view of the matter, it would be difficult to hold that property which developed on a Hindu under Section 8 of the Hindu Succession Act, 1956 would be HUF in his hand vis-a-vis his own sons. If that be the position then the property which developed upon the father of the respondent in the instant case on the demise of his grandfather could not be said to be HUF property. If that is so, then the appellate authority was right in holding that the respondent was a licensee of his father in respect of the ancestral house.” (emphasis is mine) 7(i). As per the ratio of the Supreme Court in the case of Yudhishter (supra) after passing of the Hindu Succession Act, 1956 the position which traditionally existed with respect to an automatic right of a person in properties latter‟s inherited by his paternal predecessors-in-interest from the paternal ancestors upto three degrees above, has come to an end. Under the traditional Hindu Law whenever a male ancestor inherited any property from any of his paternal ancestors upto three degrees above him, then his male legal heirs upto three degrees below him had a right in that property equal to that of the person who inherited the same. Putting it in other words when a person „A‟ inherited property from his father or grandfather or great grandfather then the property in his hand was not to be treated as a self-acquired property but was to be treated as an HUF property in which his son, grandson and great grandson had a right equal to „A‟. After passing of the Hindu Succession Act, 1956, this position has undergone a change and if a person after 1956 inherits a property from his paternal ancestors, the said property is not an HUF property in his hands and the property is to be taken as a self-acquired property of the person who inherits the same. There are two exceptions to a property inherited by such a person being and remaining self-acquired in his hands, and which will be either an HUF and its properties was existing even prior to the passing of the Hindu Succession Act, 1956 and which Hindu Undivided Family continued even after passing of the Hindu Succession Act, 1956, and in which case since HUF existed and continued before and after 1956, the property inherited by a member of an HUF even after 1956 would be HUF property in his hands to which his paternal successors-in-interest upto the three degrees would have a right. The second exception to the property in the hands of a person being not self-acquired property but an HUF property is if after 1956 a person who owns a self-acquired property throws the self-acquired property into a common hotchpotch whereby such property or properties thrown into a common hotchpotch become Joint Hindu Family properties/HUF properties. In order to claim the properties in this second exception position as being HUF/Joint Hindu Family properties/properties, a plaintiff has to establish to the satisfaction of the court that when (i.e date and year) was a particular property or properties thrown in common hotchpotch and hence HUF/Joint Hindu Family created.
(ii) This position of law alongwith facts as to how the properties are HUF properties was required to be stated as a positive statement in the plaint of the present case, but it is seen that except uttering a mantra of the properties inherited by defendant no.1 being „ancestral‟ properties and thus the existence of HUF, there is no statement or a single averment in the plaint as to when was this HUF which is stated to own the HUF properties came into existence or was created ie whether it existed even before 1956 or it was created for the first time after 1956 by throwing the property/properties into a common hotchpotch. This aspect and related aspects in detail I am discussing hereinafter.
8(i). A reference to the plaint shows that firstly it is stated that Sh. Tek Chand who is the father of the defendant no.1 (and grandfather of Sh. Harvinder Sejwal and defendants no.2 to 4) inherited various ancestral properties which became the basis of the Joint Hindu Family properties of the parties as stated in para 15 of the plaint. In law there is a difference between the ancestral property/properties and the Hindu Undivided Family property/properties for the pre 1956 and post 1956 position as stated above because inheritance of ancestral properties prior to 1956 made such properties HUF properties in the hands of the person who inherits them, but if ancestral properties are inherited by a person after 1956, such inheritance in the latter case is as self-acquired properties unless of course it is shown in the latter case that HUF existed prior to 1956 and continued thereafter. It is nowhere pleaded in the plaint that when did Sh. Tek Chand father of Sh. Gugan Singh expire because it is only if Sh. Tek Chand father of Sh. Gugan Singh/defendant no.1 had expired before 1956 only then the property which was inherited by Sh. Gugan Singh from his father Sh. Tek Chand would bear the character of HUF property in the hands of Sh. Gugan Singh so that his paternal successors-in- interest became co-parceners in an HUF. Even in the evidence led on behalf of the plaintiffs, and which is a single affidavit by way of evidence filed by the mother of the plaintiffs Smt. Poonam as PW1, no date is given of the death of Sh. Tek Chand the great grandfather of the plaintiffs. In the plaint even the date of the death of the grandfather of the plaintiffs Sh. Gugan Singh is missing. As already stated above, the dates/years of the death of Sh. Tek Chand and Sh. Gugan Singh were very material and crucial to determine the automatic creation of HUF because it is only if Sh. Tek Chand died before 1956 and Sh. Gugan Singh inherited the properties from Sh. Tek Chand before 1956 that the properties in the hands of Sh. Gugan Singh would have the stamp of HUF properties. Therefore, in the absence of any pleading or evidence as to the date of the death of Sh. Tek Chand and consequently inheriting of the properties of Sh. Tek Chand by Sh. Gugan Singh, it cannot be held that Sh. Gugan Singh inherited the properties of Sh. Tek Chand prior to 1956.
(ii) In fact, on a query put to the counsels for the parties, counsels for parties state before this Court that Sh. Gugan Singh expired in the year 2008 whereas Sh. Tek Chand died in 1982. Therefore, if Sh. Tek Chand died in 1982, inheriting of properties by Sh. Gugan Singh from Sh. Tek Chand would be self- acquired in the hands of Sh. Gugan Singh in view of the ratio of the Supreme Court in the case of Yudhister (supra) inasmuch as there is no case of the plaintiffs of HUF existing before 1956 or having been created after 1956 by throwing of property/properties into common hotchpotch either by Sh. Tek Chand or by Sh. Gugan Singh/defendant no.1. There is not even a whisper in the pleadings of the plaintiffs, as also in the affidavit by way of evidence filed in support of their case of PW1 Smt. Poonam, as to the specific date/period/month/year of creation of an HUF by Sh. Tek Chand or Sh. Gugan Singh after 1956 throwing properties into common hotchpotch.
(iii) The position of HUF otherwise existing could only be if it was proved on record that in the lifetime of Sh. Tek Chand a Hindu Undivided Family before 1956 existed and this HUF owned properties include the property bearing no.93, Village Adhichini, Hauz Khas. However, a reference to the affidavit by way of evidence filed by PW1 does not show any averments made as to any HUF existing of Sh. Tek Chand, whether the same be pre 1956 or after 1956. Only a self-serving statement has been made of properties of Sh. Gugan Singh being „ancestral‟ in his hands, having been inherited by him from Sh. Tek Chand, and which statement, as stated above, does not in law mean that the ancestral property is an HUF property.
9. Onus of important issues such as issue nos.1 and 2 cannot be discharged by oral self-serving averments in deposition, once the case of the plaintiffs is denied by the defendants, and who have also filed affidavit of DW1 Sh.Ram Kumar/defendant no.2 in the amended memo of parties for denying the case of the plaintiffs. An HUF, as already stated above, could only have been created by showing creation of HUF after 1956 by throwing property/properties in common hotchpotch or existing prior to 1956, and once there is no pleading or evidence on these aspects, it cannot be held that any HUF existed or was created either by Sh. Tek Chand or Sh. Gugan Singh. In my opinion, therefore, plaintiffs have miserably failed to discharge the onus of proof which was upon them that there existed an HUF and its properties, and the plaintiffs much less have proved on record that all/any properties as mentioned in para 15 of the plaint are/were HUF properties.
Plaintiffs thus have failed to prove that there existed an HUF before 1956 on account of Sh. Tek Chand having inherited properties before 1956 and that the plaintiffs have further failed to prove that HUF was created after 1956 on account of throwing of property/properties into common hotchpotch either by Sh. Tek Chand or by Sh. Gugan Singh/defendant no.1. Accordingly, it is held that there is no HUF and there are no properties of HUF in which late Sh. Harvinder Sejwal had a share. The entire discussion given above for existence/creation of HUF and plaintiffs failing to discharge the onus of proof upon them will similarly apply qua the alleged family settlement pleaded by the plaintiffs because once again no credible evidence has been led except self-
serving statements and which cannot be taken as discharge of the onus. In his cross-examination on 01.04.2013, the defendant no.3 as DW1 has denied the suggestion that there was any family settlement. It is therefore held that plaintiffs have failed to prove issue nos.1 and 2."
5. Clearly therefore, mere averment of property being ancestral property will not give plaintiff-a grandson a right to the property once the father defendant no.1/Sh. Vasudev Chopra is alive and who admittedly inherited the property on the death of late Sh. Tara Chand Chopra as a sole legal heir of late Sh. Tara Chand Chopra and thus as a self-acquired property of Sh. Vasudev Chopra.
6. The judgment in the case of Sunny (Minor) & Ors has been referred and followed by me in the later case of Sh. Surender Kumar Vs. Sh. Dhani Ram and Others, 227 (2016) DLT 217. The relevant paras of this judgment are paras 4, 5, 7 and 9 and which read as under:-
"4. Plaintiff claims that as a son of defendant no.1 and as a grandson of late Sh. Jage Ram, plaintiff is entitled to his share as a coparcener in the aforesaid suit properties on the ground that the properties when they were inherited by late Sh. Jage Ram were joint family properties, and therefore, status as such of these properties as HUF properties have continued thereby entitling the plaintiff his rights in the same as a coparcener.
The Supreme Court around 30 years back in the judgment in the case of Commissioner of Wealth Tax, Kanpur and Others Vs. Chander Sen and Others, (1986) 3 SCC 567, held that after passing of the Hindu Succession Act, 1956 the traditional view that on inheritance of an immovable property from paternal ancestors up to three degrees, automatically an HUF came into existence, no longer remained the legal position in view of Section 8 of the Hindu Succession Act, 1956. This judgment of the Supreme Court in the case of Chander Sen (supra) was thereafter followed by the Supreme Court in the case of Yudhishter Vs. Ashok Kumar, (1987) 1 SCC 204 wherein the Supreme Court reiterated the legal position that after coming into force of Section 8 of the Hindu Succession Act, 1956, inheritance of ancestral property after 1956 does not create an HUF property and inheritance of ancestral property after 1956 therefore does not result in creation of an HUF property.
7. On the legal position which emerges pre 1956 i.e before passing of the Hindu Succession Act, 1956 and post 1956 i.e after passing of the Hindu Succession Act, 1956, the same has been considered by me recently in the judgment in the case of Sunny (Minor) & Anr. vs. Sh. Raj Singh & Ors., CS(OS) No.431/2006 decided on 17.11.2015. In this judgment, I have referred to and relied upon the ratio of the judgment of the Supreme Court in the case of Yudhishter (supra) and have essentially arrived at the following conclusions:- (i) If a person dies after passing of the Hindu Succession Act, 1956 and there is no HUF existing at the time of the death of such a person, inheritance of an immovable property of such a person by his successors-in-interest is no doubt inheritance of an „ancestral‟ property but the inheritance is as a self- acquired property in the hands of the successor and not as an HUF property although the successor(s) indeed inherits „ancestral‟ property i.e a property belonging to his paternal ancestor. (ii) The only way in which a Hindu Undivided Family/joint Hindu family can come into existence after 1956 (and when a joint Hindu family did not exist prior to 1956) is if an individual‟s property is thrown into a common hotchpotch. Also, once a property is thrown into a common hotchpotch, it is necessary that the exact details of the specific date/month/year etc of creation of an HUF for the first time by throwing a property into a common hotchpotch have to be clearly pleaded and mentioned and which requirement is a legal requirement because of Order VI Rule 4 CPC which provides that all necessary factual details of the cause of action must be clearly stated. Thus, if an HUF property exists because of its such creation by throwing of self- acquired property by a person in the common hotchpotch, consequently there is entitlement in coparceners etc to a share in such HUF property. (iii) An HUF can also exist if paternal ancestral properties are inherited prior to 1956, and such status of parties qua the properties has continued after 1956 with respect to properties inherited prior to 1956 from paternal ancestors. Once that status and position continues even after 1956; of the HUF and of its properties existing; a coparcener etc will have a right to seek partition of the properties. (iv) Even before 1956, an HUF can come into existence even without inheritance of ancestral property from paternal ancestors, as HUF could have been created prior to 1956 by throwing of individual property into a common hotchpotch. If such an HUF continues even after 1956, then in such a case a coparcener etc of an HUF was entitled to partition of the HUF property.
9. I would like to further note that it is not enough to aver a mantra, so to say, in the plaint simply that a joint Hindu family or HUF exists. Detailed facts as required by Order VI Rule 4 CPC as to when and how the HUF properties have become HUF properties must be clearly and categorically averred. Such averments have to be made by factual references qua each property claimed to be an HUF property as to how the same is an HUF property, and, in law generally bringing in any and every property as HUF property is incorrect as there is known tendency of litigants to include unnecessarily many properties as HUF properties, and which is done for less than honest motives. Whereas prior to passing of the Hindu Succession Act, 1956 there was a presumption as to the existence of an HUF and its properties, but after passing of the Hindu Succession Act, 1956 in view of the ratios of the judgments of the Supreme Court in the cases of Chander Sen (supra) and Yudhishter (supra) there is no such presumption that inheritance of ancestral property creates an HUF, and therefore, in such a post 1956 scenario a mere ipse dixit statement in the plaint that an HUF and its properties exist is not a sufficient compliance of the legal requirement of creation or existence of HUF properties inasmuch as it is necessary for existence of an HUF and its properties that it must be specifically stated that as to whether the HUF came into existence before 1956 or after 1956 and if so how and in what manner giving all requisite factual details. It is only in such circumstances where specific facts are mentioned to clearly plead a cause of action of existence of an HUF and its properties, can a suit then be filed and maintained by a person claiming to be a coparcener for partition of the HUF properties."
In view of the ratios of the judgments in the cases of Sunny (Minor) & Anr. (supra) and Sh. Surender Kumar (supra), plaintiff on the admitted facts as stated in the plaint has no cause of action or right to claim relief for a share in the suit property which is inherited by his father Sh.Vasudev Chopra from plaintiff‟s paternal grandfather Sh. Tara Chand Chopra as a self acquired property of Sh. Vasudev Chopra”.
Thus, it can be seen that prior to the enactment of Hindu Succession Act, in 1956, the ancestral property became the HUF property and after the said Act, the ancestral property becomes the self-acquired property of the person on whom it devolves. In the case before me clearly, the property was inherited by the father of the assessee in 1952 and was also conveyed to the assessee after the death of his father in 1955, i.e. before coming into force of Hindu Succession Act, 1950. Accordingly, the property belongs to the HUF of the assessee and not to the assessee individual. Therefore, the assessment order itself is liable to be quashed. Accordingly, grounds of appeal Nos. 2 and 3 are allowed and the assessment order is set aside. Since the assessment order itself is set aside, the adjudication of other grounds of appeal becomes an academic exercise. Therefore, I do not see any reason to adjudicate the same at this stage and the other grounds of appeal 4 to 9 are not adjudicated.
In the result, assessee’s appeal is treated as partly allowed.
Order pronounced in the Open Court on 28th May, 2021.