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Income Tax Appellate Tribunal, BANGALORE BENCHES : “B”, BANGALORE
Before: SHRI N.V.VASUDEVAN & SHRI A.K.GARODIA
PER SHRI N.V.VASUDEVAN, VICE PRESIDENT :
This is an appeal by the Assessee against the order dated 11.10.2010 of CIT(A)-II, Bangalore, relating to AY 2006-07.
The only issue that arises for consideration in this appeal is as to whether the revenue authorities were justified in bringing to tax capital gain on sale of a property in the hands of the Assessee. If the answer to the above issue is in the affirmative, (Bang/2019 2 then the next issue to be decided would be whether the land which was subject matter of transfer could be said to be capital asset and whether the capital gain on sale of the said land is exigible to tax on capital gain. If the answer to the above issue is in the affirmative then the further issue that needs to be decided is as to whether the computation of capital gain by the revenue authorities is proper and as to whether Assessee would be entitled to the benefit of deduction u/s.54F of the Income Tax Act, 1961(Act).
The Assessee is an individual. He is a Doctor by profession. During the previous year relevant to AY 2006-07 i.e., on 10.6.2005, he together with members of his family sold property of an extent of 15 Acres situate in S.No.19,20,31 and 157, of Harananahalli Villalge, Jigani Hobli, Anekal Taluk, Bangalore District, (hereinafter referred to as “the property”) to M/s. Nirman Shelters (P) Ltd. The break-up of extent of property in each S.No. is as follows: (40 Guntas = 1 Acre)
S.No.20 – 3 Acres and 11 Guntas, S.No.19 – 4 Acres and 35 Guntas, S.No.31 – 5 Acres and 33 Guntas and S.No.157 -1 Acre and 01 Guntas (out of 3 Acres and 19 Cents)
The property originally belonged to Hindu Undivided Family (HUF) governed by the Mitakshara Law, comprising of Rama Reddy and R.Rangappa Reddy, who wer the two sons of Chikkarama Reddy and their sons. The following genealogy tree will show the members of the HUF:
Chikkarama Reddy Rama Reddy R.Rangappa Reddy
R.Ranganatha Reddy 1.R.Kothandarama Reddy 2. R.Puttappa Reddy 2.R.Prabhakara Reddy 3. R.Keshava Reddy 3.R.Rajasekara Reddy 4. R.Venugopala Reddy 4.R.Raveendra Reddy 5. R.Raveendra Reddy (Bang/2019 3 5. The family remained undivided and the properties were all HUF. Rama Reddy and his sons filed suit O.S.No.215 of 1965 on the file of the Court of the Civil Judge at Bangalore against R.Rangappa Reddy and his sons, for partition by metes and bounds of all the Plaint Schedule items in Schedule A to F and deliver half share to the Plaintiffs. Schedule-A to the Plaint contains lands in Harananahalli Village, Jigani Hobli, Anekal Taluk Item No.II and comprises of Dry land in S.No.20 – 3 Acres and 11 Guntas, S.No.19 – 5 Acres and 21 Guntas, S.No.31 – 5 Acres and 33 Guntas and and in item XI dry lands in S.No.157 -3 Acres and 19 Guntas.
6. There was a comprise memorandum entered into between the plaintiffs and the defendants dated 21.11.1966 and in terms of the aforesaid compromise a decree was passed by the Court. The property was allotted to the share of the Defendants i.e., Rangappa Reddy and his 4 sons.
On 30.12.1974, Rangappa Reddy and his 4 sons by a registered deed of partition divided the share of properties which they were allotted in the partition suit O.S.No.215/1965. This deed also specifies that Rangappa Reddy and his four sons constitute an HUF and that the properties belong to the HUF. The four sons were allotted properties mentioned in Schedule C, D, E and F of the said partition deed.
The property which is subject matter of the present appeal was allotted to the 4 children (of which the Assessee is one) and they sold the property to M/S.Nirman Shelters Pvt.Ltd., under a registered sale deed dated 10.6.2005. The Children of the 4 sons of R.Rangappa Reddy have also joined this sale deed as Vendors. The owners of the property prior to sale of the property have sought conversion of the property for Non-Agricultural purpose i.e., Residental purposes and the necessary order dated 7.4.1995 was issued by the Assistant Commissioner, Bangalore South sub-division Bangalore. The period for which the conversion would remain valid was extended by the Deputy Commissioner, Bangalore District by an order dated 20.10.1997. The owners of the property have also obtained the BMRDA approval dated 4.4.1998 for formation of residential layout in the property. The sale of the (Bang/2019 4 property is stated to be for need of funds for their family necessities and to purchaser another suitable property and also for better up-keep and also for better future. The property was sold for a total consideration of Rs.5 Crores. Out of the sum of Rs.5 Crores the 4 sons of R.Rangappa Reddy a sum of Rs.40 lacs was paid to Radha K.Reddy the daughter of R.Rangappa Reddy and the remaining sum of Rs.4,60,00,000/- was divided between the 4 sons of R.Rangappa Reddy in the ratio of 145: 145: 145: 25.
The Assessee computed his share of Long terms capital gain on sale of the property at Rs.74,98,442/-. The said computation is given as annexure-1 to this order. Annexure-I (enclosed) 10. The AO did not accept the claim that Rs.40 lacs paid to one of the daughter of R.Rangappa Reddy should be excluded from the full value of consideration received on Transfer. The AO also did not accept the index cost of acquisition of the property computed by the Assessee at Rs.2,22,11,840 and he determined the cost of acquisition of the property at Rs.17,89,200. The AO thus computed Capital gain at Rs.4,82,10,8000 (Rs.5,00,00,000- 17,89,200) and arrived at share of Assessee’s capital gain at Rs.1,47,24,056/- as against the Assessee’s computation of Rs.74,98,442/-. The Assessee had claimed that the property was not a capital asset within the meaning of the term as defined in Sec.2(14) of the Act as it was Agricultural land which falls within the ambit of exception to the definition of capital asset u/s.2(14)(iii) of the Act. The AO held that the land in question was a capital asset and hence the gain on sale of the land was exigible to tax on capital gain. The AO allowed cost of improvement of Rs.15 lacs and ultimately worked out the capital gain at Rs.4,59,83,685 and Assessee’s share of capital gain at Rs.1,44,94,857/-.
Aggrieved by the order of the AO on the issue of Taxability and computation of capital gain, the Assessee preferred appeal before CIT(A). Before CIT(A), the Assessee claimed that the property belongs to HUF and therefore the capital gain on sale of such property, assuming that it is exigible to tax, can be assessed only in the hands of the HUF and not in the individual hands of the Assessee. The Assessee in this regard submitted that taxes have to be collected in accordance (Bang/2019 5 with law and there can be no estoppels against statute. The Assessee also submitted that notwithstanding the fact that the Assessee declared the capital gain in his individual returns it is open to him to show that the said amount cannot be taxed in the hands of the individual. The Assessee in support of his claim that admissions are not conclusive relied on several decisions in particular the decisions in CIT Vs. ARL Firm 56 ITR 67 (SC) and Pullongode Rubber Vs. State of Kerala 91 ITR 18 (SC).
The CIT(A) however did not agree with the submissions so made before him and he held that the capital gain has to be brought to tax only in the hands of the individual. The following were the relevant observations of the CIT(A):
“4.2 The facts of the case as well as the appellant’s submissions have been considered by me carefully. A perusal of the relevant documents reveals that the property in question was owned by Shri Rayappa Reddy, father of the appellant. There was a partition in the year 1975-76 and the deed of partition was registered in the office of the Sub Registrar vide registration No.3081/1975-76 and pursuant to the same certain properties were allocated to the four children of the said Shri Rayappa Reddy . As per the said partition, the schedule property mentioned in the deed has been divided among the appellant and his three brothers mentioned therein. The aforesaid partition has been duly ted upon and the khatas in respect of their respective shares have been duly transferred as per mutation bearing No.MR/7/75-76 and the same is narrated in para-2 on pageNo.3 of sale deed dated 10/6/2005. The partition of the aforesaid property has already taken place and their shares are definite and ascertainable. Under the circumstances, they are free to sell their respective shares of the said properties. 4.3 In the remand report, the AO has reported that the appellant has sold property in earlier year also and has admitted capital gains in his individual capacity. In the year under consideration, the appellant followed the same method and admitted income. After the appellant admits the income, he has made verification year after year consistently and there is no material by any other member of the HUF to dispute the same. It is also reported that the return of income and the return of wealth have never been filed in the status of HUF and they are not inclined to file return of income in HUF capacity as they feel there is no necessity to do so. 4.4. It is admitted that the sale consideration of the property was apportioned among the co-owners and the respective share of sale consideration was offered voluntarily as long term capital (Bang/2019 6 gains in their respective hands. The taxability of the said consideration in the individual capacity has been raised at the time of assessment proceedings as well as at the appeal proceedings. It has also to be mentioned that the return of income for the assessment year under consideration was field on 12/6/2006, offering the capital gains in individual status voluntarily under sub-section(5) of section 139 according to which if any person, having furnished a return under sub- section(1) or in pursuance of a notice issued under sub-section (1) of section 142 discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. The records suggest that the appellant has not furnished the return in the status of HUF within a year from expiry of the relevant assessment year in order to justify his claim. Since the appellant has failed to avail himself of the statutory remedy, his claim is not maintainable and therefore, this ground of appeal is dismissed”.
13. The CIT(A) also held that the land in question was not Agricultural land and the gain on sale was exigible to capital gain tax and also confirmed the manner of computation of capital gain as done by the AO. The CIT(A) also denied the benefit of Deduction u/s.54F of the Act claimed by the Assessee for the first time before him.
Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. The relevant grounds of appeal in the relevant grounds in this regard read thus:
“1. The order of the authorities blow in so far as it is against the appellant is opposed to law, weight of evidence, probabilities facts and circumstances of the appellant’s case.
2. The appellant denies himself liable to be assessed to capital gains tax of Rs.1,44,94,857/- in the individual hands when the property admittedly belongs to the Hindu joint family of the appellant under the facts and circumstances of the case.
3. The authorities below were not justified in not holding that the land in question is capital asset within the meaning of sec.2(14) of the Act. The authorities below ought to have hold that the sale of the said agricultural land does not come within the purview of capital gains on the facts and circumstances of the case.
(Bang/2019 7 4. The authorities blow were not justified ignoring the claim of the cost claimed by the appellant on the facts and circumstances o the case.
The authorities below were not justified in determining a sum of Rs.24,000/- per acre as cost as on 01/04/1981 on the facts and circumstances of the case.
The authorities below were not justified in denying a um of Rs.10,00,000/- being expenses incurred on protection and maintenance of land and developing and marketing expenses to property on the facts and circumstances of the case.
7. The authorities below were not justified in denying sum of Rs.3,50,000/- as service charges and other expenses as cost on the facts and circumstances of the case.
8. The authorities below were not justified in not giving deduction u/s 54F of the IT ct, being reinvestment on another property on the facts and circumstances of the case.
The learned counsel for the Assessee drew our attention to the various documents of partition and sale and submitted that the property was clearly ancestral property and not individual property of the Assessee and only HUF is the right person in whose hands the capital gain can be assessed. It was submitted by him that the following type of assets are generally accepted as Assets of HUF:
1. Ancestral Property; 2. Property allotted on Partition; 3. Property acquired with the aid of Joint Family property; 4. Separate of Property of Coparceners which is blended with the Property of HUF.
He submitted that U/s 4 of the Act, Income-tax is payable by ‘every person’. ‘Person’ includes a ‘Hindu Undivided Family’ as defined in sec. 2(31). The definition of ‘Hindu Undivided Family’ is not found in the Income-tax Act. Therefore the expression ‘Hindu Undivided Family’ must be construed in the sense in which it is understood under the ‘Hindu Law’. He relied on the decision of the Hon’ble Supreme Court in the case of Surjit Lal Chhabda vs. CIT 101 ITR 776(SC). He submitted that according to Hindu Law, ‘Hindu Undivided Family’ is a family which consists of all persons lineally descended from a common ancestor and includes (Bang/2019 8 their wives and unmarried daughters. A ‘Hindu Undivided Family’ is neither the creation of law nor of a contract but arises from status. HUF may be composed of – Large Families; or – Small Families; or – Nuclear Joint Families The learned counsel for the Assessee pointed out that the property was originally ancestral property belonging to the bigger HUF of Rama Reddy and R.Rangappa Reddy and in the partition that took place pursuant to a decree of Court, the property became property of the smaller HUF consisting of R.Rangappa Reddy and his 4 children. On 30.12.1974, on partition of the smaller HUF of R.Rangappa Reddy and his 4 children the property became the property of the further smaller HUF comprising of the Assessee and his son Shri K.R.Shivasharan and daughter K.R.Divya. He submitted that at no time did the character of the property as ancestral changed and it continued to retain the character of ancestral property. The share of the Assessee and his children in the property that they got under the partition that took place on 30.12.1974, did not shed its character as joint family property. The above being the position in law, the fact that the Assessee filed a return in his individual capacity ignoring the fact that the property belonged to a still smaller HUF comprising of himself and his two children cannot be the basis to assess the capital gain in the hands of the Assessee. He pointed out that there cannot be an estoppel against statute and that the right income has to be assessed in the right hands by the revenue. He relied on the decision of Hon’ble Patna High Court in the case of CIT Vs. Radhe Shyam Agarwal 230 ITR 21 (Patna) wherein it was held wherein it was held that assets received on partial partition continued to be HUF property. He drew our attention to the following passage at page 32 of the reports:
The law so far as relevant for the purpose of these case may be summarized thus. On a partition of a bigger HUF, the property coming into the hands of the assessee become his separate property vis-a-vis other coparceners although it continues to be joint vis-a-vis his wife and children and he continues to constitute a HUF with them, i.e., his wife and children, and in the absence of the children, with the wife alone. But where on partition separate share are allotted not only to the children but also to the wife, the existence of the HUF comes to an end. And the property in the hands of the Assessee becomes separate property and the income therefrom (Bang/2019 9 is liable to be taxed in the status of individual until another son is born or adopted in future.
He pointed out that when the above position in law was pointed out, the learned CIT(A) without deciding the correctness of the claim made by the Assessee in law, proceeded not to decide the issue by merely holding that the claim of the Assessee cannot be examined because the Assessee has not revised return of income filed in the individual capacity and further the HUF did not file return of income in the status of HUF within the time required in law. He also brought to our notice that 2 of the co-owners of the property offered capital gain in the status of HUF and was accepted by the Revenue. According to him therefore without deciding the question as to whether the property belongs to HUF or individual, it is not possible to decide the other questions whether the property is capital asset or the question of correctness of computation of capital gain and the question whether deduction u/s.54F of the Act should be allowed as claimed by the Assessee.
16. The learned DR relied on the observations and findings of the CIT(A).
We find force in the submission made on behalf of the Assessee and are of the view that it was incumbent upon the CIT(A) to have decided the issue in accordance with law rather than on technicalities. It is fundamental that the right income has to be assessed in the right hands and the question whether the property is HUF property or that of the Assessee in his individual capacity should be assessed. Since the said issue which is fundamental and vital has not been decided by the CIT(A) and since the view of the Revenue on this aspect in the form of order of AO/CIT(A) is not available for consideration by the Tribunal, We are of the view that the order of the CIT(A) should be set aside and the entire issues that arise for consideration before the Tribunal should be directed to be decided afresh by the AO. In this regard we find the issue whether the property belongs to HUF or individual was raised by the Assessee for the first time only before CIT(A). We therefore set aside the order of the CIT(A) and remand the issue of taxation of capital gain to the AO for consideration de novo after affording opportunity of being heard to the Assessee. We make it clear that all issues set out in the earlier part of this order is left open for adjudication de novo by the AO. (Bang/2019 10 18. In the result, the appeal is treated as allowed for statistical purpose.