ARUN KUMAR JAIN vs. U O I and ORS

-1- IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH, JAIPUR ------------------------------------------------------ (1) D.B. Income Tax Appeal No.41/2001 Arun Kumar Jain Vs. Union of India & Anr. (2) D.B. Income Tax Appeal No.42/2001 Arun Kumar Jain Vs. Union of India & Anr. Date of order : 19.10.2016 HON'BLE MR.K.S. JHAVERI,J. HON'BLE MR.MAHENDRA MAHESHWARI,J. Mr. A Kasliwal, for the appellant. Mr. RB Mathur, for respondent. JUDGMENT --------- 1. By way of these appeals, the assessee has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeals preferred by the Department and has held that the property which was held by the assessee in individual capacity by the HUF was not a residential property and he was not entitled for benefit under Section 53 or 54, therefore, the assessee has preferred these appeals. 2. This Court while admitting the matters on 24.9.2001, though did not frame any substantial question of law but we have heard Mr. Kasliwal and considered the substantial questions of law which are framed by Mr. Kasliwal in the memo of appeal which reads as under:-

“(a) Whether the I.T.A.T. Was justified, in the facts as well as in law, and inspite of having taken the view that the return of income filed by the appellant was duly processed under Section 143(1), in upholding the validity of initiation of re-assessment proceedings under Section 147/148 of the Income Tax Act, 1961?

(b) Whether the I.T.A.T. Was justified in holding that the amount received by the appellant as sale

-2- consideration for a portion of residential plot of land received by and under a Family Settlement was liable to be subjected to tax in appellant's individual capacity?

(c )Whether the I.T.A.T. Was right in law in holding that the portion of land sold by the appellant is a commercial plot of land?

(d) Whether the I.T.A.T. was justified in taking a view that in the facts and circumstances of the case the rebates under Section 53 and/or 54 could not be allowed to the appellant?

(e) Whether the I.T.A.T. was justified in arriving at a conclusion that the sums of Rs. 6700/- received by the appellant from each of his brothers as part of the family settlement was a revenue receipt exigible to tax? (f) Whether the impugned order of I.T.A.T. Suffers from perversity? (g) Whether the I.T.A.T. was right in law in by passing family settlement arrived at by the Appellant and his brothers to come to a conclusion that the appellant received his share of property comprised in plot no. SB-155 by virtue of operation of Hindu Succession Act, 1956.” 3. Mr Kasliwal has taken us to the provisions of Section 49 of the Income Tax Act and contended that the assessee has been rightly granted benefit on the ground that the property was transferred in his name recently otherwise in view of Section 49 sub-clause (3) which reads as under: “Notwithstanding anything contained in sub- section (1), where the capital gain arising from the transfer of a capital asset referred to in clause (iv) or, as the case may be, clause (v) of section 47 is deemed to be income chargeable under the head" Capital gains" by virtue of the provisions contained in section 47A, the cost of acquisition of such asset to the transferee company shall be the cost for which such asset was acquired by it.” 4. It is further contended that portion which was given to him was a part of residential area and merely because adjoining shop is there, it cannot be said be a commercial area. The third contention is that Rs. 67000/- which has been received against the family settlement

-3- from each of the brothers can be called capital gain. 5. In another matter also preferred by HUF while admitting the matter on 30.10.2002, following questions were framed: 1. Whether the I.T.A.T. was justified, in the law in the peculiar factual matrix emerging in the matter, in having taken the view that the assessee had acquired the property in consideration in his individual capacity and not in his capacity as Karta of his HUF? 2. Whether the I.T.A.T. was justified in law and in the facts and circumstances of the case, in having upheld the view taken by the respondent authorities that the portion of land sold forming part of a residential plot in a residential colony and allotted as such by the local authority, was commercial in nature? 3. Whether the I.T.A.T. was justified in law in having taken the view that the exemptions available U/ss. 53 and/or 54 of the I.T. Act, 1961 could not be allowed to the humble appellant? 4. Whether the I.T.A.T. was right in law in holding that the amounts of Rs. 67,000/- received by the humble appellant from each of his two brothers as part of the oral family settlement recorded in the Memorandum on the 7th August, 1991 was at all eligible to tax in one assessment year or another? 5. Whether the order of the I.T.A.T. dated 15.12.2000 suffers from perversity and is as such liable to be quashed and set-aside? 6. Whether the order of the I.T.A.T. was justified in law in having sustained the additions made on a protective basis to the returned income in the case of Arun Kumar Jain HUF?” 6. Counsel for the respondent Mr Mathur has taken us to Section 54 of the Income Tax Act and contended that it was an open plot in that view of the matter, the tribunal in para 22 held as under :- “we find that the assessee has shown the total sale proceeds of the property at Rs. 6,05,000/ including Rs. 67000 Each received from his tow younger brothers, namely, Shri Narendra Kumar Jain and Shri Gajendra Kumar Jain on 18.8.92 and 1.6.92 respectively by account payee cheques and the confirmation of which is

-4- placed on record at paper book pages 54 and 55. Since the above proceeds of Rs.67,000 each do not fall in the accounting year relevant to assessment year 1992-93, therefore, the AO is directed to verify the dates of the amount and if it is found that the payments are subsequent to the assessment year 1992-93, the same should be excluded from the income from capital gains. We also find that in the Memorandum of Family Settlement Deed dated 7th August, 1991 the assessee has shown this plot of land and vacant plot and in the Sale Deed dated 21st December, 1991 the assessee has sold this plot of land as a vacant plot giving number SB- 155A. No evidence was brought on record to show that the plot was ever used by the assessee for the beneficial interest of the existing residential house.” 7. Therefore it was never a property of HUF and it was a property which was divided amongst the brothers. 8. We have heard the counsel for the appellant and counsel for the respondents. 9. Taking into consideration the family partition deed and the evidence on record, the first question which is put for our consideration is whether the property was of HUF or not. We are in complete agreement with the view taken by the Tribunal that this was not a HUF property, and therefore, the appeal preferred against the assessee on the individual plot is required to be decided against the assessee. 10. In our view, Section 54 is very clear. It was an open plot not a residential area, therefore, even if we accept the contention that it is an inherited property nonetheless, it was not a residential property (it was an open plot), therefore, assessee is not entitled for benefit of Sections 53 and 54, therefore Sections 53 and 54 cannot be invoked but nevertheless, in view of Section 49, he will be entitled for the benefit even if it is considered non-residential area for a long term capital gain, in view of the fact that he has inherited the

-5- property from his father. 11. Regarding the third issue of 67,000/-, in our view, the benefit is already granted but this will be treated as long term capital gain in the hands of assessee, therefore that issue we are deciding in favour of assessee. 12. Thus, the appeals are partly allowed only to the extent of Rs. 67,000/- received from two brothers are long term capital gain, other questions are decided in favour of Department against the assessee. 13. A copy of this judgment be placed in the connected matter. (Mahendra Maheshwari),J. (K.S. Jhaveri),J. BM Gandhi/ 92,93 BM Gandhi/ 92,93