DHANRAJ KOCHAR HUF,CHENNAI vs. DCIT, CENTRAL CIRCLE II(2), CHENNAI

This appeal filed by the assessee is directed against the order dated 16.05.2024 passed by the ld. Commissioner of Income Tax (Appeals) Chennai-16, Chennai, for the assessment year 2006-07.

We find that this appeal was filed with a delay of one day. The assessee filed a petition for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said petition, we find the reasons stated by the assessee are bonafide, which really prevented the assessee in filing the appeal in time. Thus, the delay of one day is condoned.

The assessee raised 4 grounds of appeal amongst which the only issue emanates for our consideration as to whether the ld. CIT(A) is justified in confirming the order of the Assessing Officer on account of disallowance made under section 54 of the Income Tax Act, 1961 [“Act” in short].

Brief facts leading to the issue are that according to the Assessing Officer, the assessee is a member of HUF and purchased property worth of ₹.24,00,000/- from Shri M.A. Gafoor and others. The assessee claimed deduction under section 54 of the Act in respect of purchase value of the property against his share of sale consideration at ₹.62,50,000/-. The assessee claimed exemption under section 54 of the Act at ₹.42,12,173/- after deducting indexed cost. The Assessing Officer denied the deduction by observing that the assessee is not entitled to claim deduction for having more than one residential property. The ld. CIT(A) confirmed the said disallowance by observing that son of the assessee is a Co-Parcener.

Before us, the ld. AR Shri D. Anand, Advocate submits that the assessee being HUF entered into registered general power of attorney [GPA] from 3 persons in respect of scheduled property therein and placed on record the registered GPA dated 11.08.2005. The ld. AR drew our attention to para 15 of the said GPA and submits that the assessee, received no sale consideration as against the property subjected therein. He argued that the findings of the ld. CIT(A) is not justified in holding non applicability of provision under section 54 of the Act by observing that the son of the assessee is a Co-Parcener of the HUF. The ld. AR drew our attention to the decision of the Hon’ble Supreme Court in the case of Suraj Lamp & Industries Pvt. Ltgd. V. State of Haryana & Anr in SLP (C) No. 13917 of 2009 dated 11.10.2011 and submits that the GPA transaction does not convey any title nor create any interest in an immovable property. He argued that the Hon’ble Supreme Court held recognizing or accepting GPA transaction as concluded transfer is not good in law. Further, he argued that immovable property can be legally and lawfully transferred/ conveyed only by registered deed of conveyance. He argued vehemently that entering POA for sale of immovable property does not convey any title and it is not a transfer. Further, he drew our attention to the decision of the Hon’ble Supreme Court in the case of Shakeel Ahmed v. Syed Akhlaq Hussain in Civil Appeal No. 1598 of 2023 dated 01.11.2023 and argued that even registered POA could not be said the assessee would have acquired title over the property and made reference to section 17 and 49 of the Registration Act and section 54 of the Transfer of Property Act. He submits that the Hon’ble Supreme Court made reference to the decision in the case of Suraj Lamp and Industries Pvt. Ltd. (supra).

The ld. DR Ms. R. Anita, Addl. CIT submits that the assessee is not entitled to claim deduction under section 54 of the Act as having more than one residential house. She placed on record the balance sheet of the HUF, wherein, she pointed out the receipt of lease rent amount on three properties. She argued that the addresses are different in the present case and supported the order of the ld. CIT(A) in denying the deduction under section 54 of the Act.

In reply, the ld. AR referred to para 3.8.(c) of the impugned order and submits that the assessee is the owner of another commercial property and the same does not defeat the purpose and intent of section 54 of the Act. He argued that the assessee is eligible for exemption under section 54 of the Act as the assessee has sold one residential property and invested the same in purchase of another residential property satisfying essential pre-requisite of section 54 of the Act.

The ld. AR further drew our attention to the decision of the Hon’ble High Court of Madras in the case of M/s. Tilokchand & Sons v. ITO in TCA No. 771 of 2009 dated 14.03.2019 and submits that the Hon’ble High Court of Madras agreeing with the decision of Hon’ble High Court of Karnataka which held that the difference of location of the newly purchased residential house(s) will not alter the position for interpretation of the word ‘a residential house’ to the effect that it may include more than one or plural residential houses. He further submits that the location of newly purchased house(s) by the HUF out of sale consideration received on the sale of capital asset or a residential house in the given circumstances of availability of such residential house as per the requirement of the HUF will not alter the position and interpretation of provisions under section 54 of the Act.

Heard both the parties and perused the material available on record. We note that the facts remain admitted that the assessee had two properties one is residential property at Poe’s Garden and the other is commercial property at Egmore. The assessee claimed exemption under section 54 of the Act only on sale of the property at Poe’s Garden and acquiring another property at Demellows Road, Chennai. The contention of the assessee is that the property acquired is only one, but, however transferred by two sale deeds, which is clear from the details in tabular form in page 7 & 8 of the impugned order. On perusal of the same, it clearly shows that there are two sale deeds vide document No. 788/2007 and 789/2007 and the construction cost paid is only one totalling to ₹.42,12,173/- constituting purchase value, stamp duty and construction cost. The Assessing Officer in the reassessment proceedings considered these two transactions as separate and denied the exemption under section 54 of the Act. The ld. CIT(A) while considering the GPA & the sale deed and held the assessee is not entitled to claim deduction under section 54 of the Act as GPA is son of the assessee, i.e., Co-Parcener of the HUF.

On perusal of the ld. CIT(A)’s discussion in para 4.1 of the impugned order, which shows that the son of the assessee by name Mr. Inderchand Kochar got POA from 3 persons, Mr. M.A. Gafoor, Mr. M.G. Salim and Mr. M.G. Aleem. In turn, he sold the property as POA representing the said 3 persons to the assessee HUF. The contention of the ld. CIT(A) is that the GPA is the Co-Parcener of HUF assessee and therefore, not entitled to claim deduction under section 54 of the Act. The Hon’ble Supreme Court in the case of Suraj Lamp & Industries Pvt. Ltd. (supra) clearly held that the transaction of GPA does not convey any title nor create any interest in an immovable property and that the transfer under GPA as concluded transfer is not good in law. By taking same principle to the present case in hand, as discussed above, the son of the assessee as Co-Parcener got GPA to deal with the property as per the terms and conditions therein with 3 persons and clause 15 of the said GPA clearly shows that no consideration or possession of the property given to the said Co- Parcener, who is son of the assessee HUF. Therefore, when there is no payment of consideration nor possession was given, it is not a transfer under law. Therefore, the finding of the ld. CIT(A) in confirming the view of the Assessing Officer as concluded transfer is not justified. Further, the ld. CIT(A) reproduced the relevant contents of the registered sale deed to show that the Co-Parcener being a son of assessee HUF, sold to himself being part of assessee HUF and held that the assessee is not entitled to benefit under section 54 of the Act.

Therefore, we are of the opinion that the findings of the ld. CIT(A) is not justified to hold that the assessee HUF is not entitled to the benefit of deduction under section 54 of the Act as it was a transaction of selling of property between assessee HUF to assessee HUF and thus, following the decision of Hon’ble Supreme Court in the case of Suraj Lamp & Industries Pvt. Ltd. (supra), we hold that the assessee is entitled to allowance of deduction under section 54 of the Act and the addition as confirmed by the ld. CIT(A) is deleted. Thus, the grounds raised by the assessee are allowed.

In the result, the appeal filed by the assessee is allowed. Order pronounced on 29th November, 2024 at Chennai.