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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO & SHRI D.S. SUNDER SINGH
आदेश / O R D E R
PER D.S. SUNDER SINGH, Accountant Member:
This appeal filed by the assessee is directed against order of the
Commissioner of Income Tax-3 {CIT(A)}, Visakhapatnam vide ITA
No.71/2015-16/CIT(A)-3/VSP/2016-17 dated 12.12.2016 for the
assessment year 2012-13.
ITA No.142/Vizag/2017 Grandhi Nageswara Rao (HUF), Anakapalli 2. In this case, the assessee filed the return of income admitting
total income of ` 98,820/-. A search u/s 132 of the Income Tax Act,
1961 (hereinafter called as 'the Act') was carried out in the case of M/s.
A.S. Steel Traders on 11.10.2012 and in the course of search, the
document No.5019 of 2011 of SRO, Anakapalli was found and seized
vide Annexure- AJ/O1, which revealed that the assessee had sold the
land admeasuring 6 acres in survey No.1632/8 of Anakapalle along with
5 others in the capacity of HUF to the individuals Shri A. Jagadish and
others. The assessee along with others have received the sale
consideration of ` 1.20 crores against the market value adopted by the
SRO at ` 2.10 crores for stamp duty purpose. However, the assessee
did not disclose the sale consideration as capital gains. Hence, the
assessing officer reopened the assessment by issue of notice u/s 148 of
the Act and brought to tax the assessee’s share of capital gains. The assessee is 1/6th share holder of 6 acres of land sold to Mr. A Jagadish
and others of M/s. A.S. Steel Traders and received a sum of `
20,00,000/- as sale consideration and claimed deduction u/s 54F of the
Act. The A.O. rejected the deduction claimed by the assessee u/s 54F
of the Act, since the impugned property was purchased in the name of
Sri Ramana Murthy Setty, co-parcener of the HUF. The assessee
contended that Sri G. R. Setty, one of the co-parcener of the HUF has
ITA No.142/Vizag/2017 Grandhi Nageswara Rao (HUF), Anakapalli purchased the property for which the funds were given from the HUF
and the balance amount was taken as a loan from LIC (HFL) and the
property was transferred to HUF by a memorandum of understanding.
However, the Ld. A.O. was not impressed with the explanation of the
assessee, hence disallowed the exemption claimed by the assessee u/s
54F of the Act holding that, since the property of the HUF was
transferred, the new property required to be acquired by the HUF but
not the individual. According to the assessing officer, HUF and
individual are two separate entities and if individual co-parcener
acquires the property the same cannot be treated as HUF property,
hence, the assessee is not entitled for exemption u/s 54F of the Act.
Further, the A.O. also assessed the capital gains as per the SRO value.
Aggrieved by the order of the A.O., the assessee went on appeal
before the CIT(A) and the Ld. CIT(A) confirmed the order of the A.O.
Aggrieved by the order of the CIT(A), the assessee is in appeal
before this Tribunal. Appearing for the assessee, the Ld. A.R. argued
that the assessee HUF has sold the property and the coparcener had
acquired the residential house for which the source was funded by the
HUF partially and balance was met out of borrowed funds. One of the
co-parcener had acquired the property and got registered in the name 3
ITA No.142/Vizag/2017 Grandhi Nageswara Rao (HUF), Anakapalli of the co-parcener Mr. G.R. Murthy Setty, S/o Nageswara Rao. Since
HUF is not entitled for the loan, Mr. Rama Murthy Setty who is having
salary income has taken loan from LIC of India and accordingly the
asset was purchased in the name of Mr. R. Murthy Setty, one of the co-
parcener and the MOU has been reached on 11.3.2014 and the
property is treated as HUF property as per the MOU. The rent received
was also offerred in the hands of HUF and the loan installments were
repaid by the HUF and on complete repayment of the loan, the
property would be transferred by registered sale deed to the
hotchpotch of HUF. Since the funds were invested from HUF and the
co-parceners are having equal share in the HUF property, the Ld. A.R.
argued that HUF is entitled for deduction u/s 54F of the Act even
though the property was purchased in the name of co-parceners.
Hence, argued that the orders of the Ld. CIT(A) to be set aside and
allow the appeal of the assessee. The Ld. A.R. also relied on the
decision of Hon’ble ITAT, Chennai bench in the case of Puranchand & Family (HUF) Vs. ITO ,ITA No.2974 (Mds) of 2016 dated 31st January
2017
On the other hand, the Ld. D.R. supported the orders of the
lower authorities.
ITA No.142/Vizag/2017 Grandhi Nageswara Rao (HUF), Anakapalli 6. We have heard both the parties, perused the materials available
on record and gone through the orders of the authorities below. The
HUF has sold the property and received 1/6th share of consideration
amounting to ` 20,00,000/- out of which contributed ` 15 lakhs
towards purchase of new property and the remaining amount of ` 25
lakhs was contributed by the co-parcener for acquiring the new
property. Both the HUF and co-parcener of the property have entered
into a memorandum of understanding to transfer the property in the
name of HUF after complete repayment of the loan, which was granted
to the individual co-parcener Mr. G. Rama Murthy Setty, S/o Nageswara
Rao. The assessee also declared the rental income in its hands and the
loan is being repaid by the HUF. Co-parcener is one of equal
shareholder of the HUF. Under the similar facts and circumstances, the
coordinate bench of ITAT, Chennai in the case of Purnachand & Family
(HUF) cited (supra) held that the property acquired in the name of
Karta is entitled for the deduction u/s 54F of the Act. For ready
reference, we extract para Nos.6 to 10 of the order cited (supra).
“6. We have considered the rival submissions on either side and perused the material available on record. The assessee sold a capital asset namely diamond and claims exemption on the capital gain under section 54F of the Act. The assessing officer rejected the claim of the assessee on three grounds :--
(1) First, the capital asset was purchased in the individual name of coparcener of HUF.
ITA No.142/Vizag/2017 Grandhi Nageswara Rao (HUF), Anakapalli (2) Borrowed funds were used for purchase of the new asset and not the sale proceeds of the diamond.
(3) There was no construction on the new asset.
As regards the investment made in the individual capacity, even though HUF is an independent assessable unit under Income Tax Act, under the common law, HUF cannot be considered to be a legal entity. The HUF has to be represented through any one of the coparceners. Therefore, when the assessee HUF invested the funds in the name of any one of the coparcener, it has to be construed that the investment was made in the name of HUF. When the nucleus of the HUF fund was used for purchase of a property in the name of any one of the coparcener, the property belongs to the HUF, even though the property was registered in the individual name of one of the coparcener. The property belongs to all the coparceners in equal shares as members of HUF. Therefore, the assessing officer is not justified in rejecting the claim of the assessee especially, when the investment was made in the name of Karta of HUF.
Now coming to second reason for disallowance of claim of the assessee, the assessing officer found that only the borrowed funds are used for purchase of new asset. As rightly submitted by the learned representative for the assessee, provisions of section 54F of the Act, requires the assessee to purchase a property one year before the date of the sale or two years after the date of the sale of asset. If the assessee could not invest within the time frame provided in the Act, the same has to be deposited in any one of the capital gain account within the due date provided for filing the return of income under section 139(1) of the Act. No one could expect the assessee to utilize the sale proceeds of the capital asset or the capital gain arising from such sale before the date of the sale of the capital asset. The assessee cannot have any sale proceeds before the date of the sale. Therefore, this Tribunal is of the considered opinion, when the assessee borrowed the funds and utilized in purchasing the capital asset and thereafter uses the sale proceeds or capital gain for repaying the loan borrowed, that would amount to sufficient compliance of the requirement of section 54F of the Act. Therefore, merely because the borrowed funds were used when the property was purchased before the date of the sale of asset, this Tribunal is of the considered opinion, this cannot be a reason for disallowing the claim of the assessee.
In view of the above, we are unable to uphold the orders of both the lower authorities. Accordingly, the orders of both the lower authorities are set aside and the addition is deleted. The assessing officer is directed to allow the claim of exemption under section 54F of the Act, to the extent of the amount invested on or before the date of filing of return of income as provided under section 139(1) of the Act.”
ITA No.142/Vizag/2017 Grandhi Nageswara Rao (HUF), Anakapalli 7. In the instant case, since the property was acquired by one of the
co-parceners, the facts are identical to the case law relied upon by the
Ld. A.R. Respectfully following the view taken by the coordinate bench
of ITAT, Chennai, we hold that the assessee is entitled for deduction
u/s 54F of the Act, accordingly, we set aside the order of the lower
authorities and direct the A.O. to allow the deduction u/s 54F of the
Act.
In the result, the appeal filed by the assessee is allowed.
The above order was pronounced in the open court on 9th Feb’18.
Sd/- Sd/- (वी. दुगा�राव) ( ड.एस. सु�दर "संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER
#वशाखापटणम /Visakhapatnam: 'दनांक /Dated : 09.02.2018 VG/SPS आदेश क� ��त)ल#प अ*े#षत/Copy of the order forwarded to:- 1. अपीलाथ� / The Appellant – Sri Grandhi Nageswara Rao, S/o (Late) Sri Ramamurthy Setty, D.No.11- 4-27, Chinnaveedhi, Anakapalle-531 001. 2. ��याथ� / The Respondent – The ACIT, Central Circle-2, Visakhapatnam 3. आयकर आयु+त / The Principal CIT(Central), Visakhapatnam 4. आयकर आयु+त (अपील) / The CIT (A)-3, Visakhapatnam 5. #वभागीय ��त�न.ध, आय कर अपील�य अ.धकरण, #वशाखापटणम / DR, ITAT, Visakhapatnam 6. गाड� फ़ाईल / Guard file आदेशानुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM 7