Raju V Shah, Mumbai vs Department Of Income Tax

सन ु वाई क तार ख / Date of Hearing : 19.3.2015 घोषणा क तार ख /Date of Pronouncement : 8.4.2015 2 I T A 3 8 8 1 & 3 8 9 1 / Mu m / 2 0 1 2

आदे श / O R D E R

PER B.R. BASKARAN (AM)

Both the appeals filed by the Revenue are directed against the separate orders dated 14.3.2012 passed by Ld CIT(A)-32, Mumbai and they relate to the assessment year 2009-10. Since the issue urged in both the appeals is identical in nature and further since they arise out of common set of facts, they were heard together and are being disposed of by this common order, for the sake of convenience.

2. We heard the parties and perused the record. The only issue urged in both the appeals is whether the Ld CIT(A) was justified in holding that the Long Term Capital Gain (LTCG) arising on sale of immovable property is not assessable in the hands of the assesses in their individual status.

3. The facts relating thereto are that the assessing officer received AIR information showing that these two assesses have jointly sold an immovable property along with others. However, it was seen that they have claimed that the property belonged to their respective HUF and accordingly declared the LTCG in the returns of income filed by the respective HUF. The AO noticed that the agreement was entered into by assesses in their individual names and they have also given the Permanent Account Numbers pertaining to their respective individual status. Accordingly, the AO held that the property should be considered as belonging to them in their respective individual status and hence the LTCG arising on sale of immovable property is assessable in their individual status and not in the status of HUF. Accordingly, the AO assessed the LTCG in the hands of both the assessees in their individual capacity. In the 3 I T A 3 8 8 1 & 3 8 9 1 / Mu m / 2 0 1 2

appellate proceedings, the ld. CIT(A) was convinced with the explanation given by the assessees that immovable property sold by them belonged to their respective HUF. Accordingly, he deleted the LTCG assessed in the hands of these assesses in their respective individual capacity. Aggrieved by the orders passed by the Ld CIT(A), the Revenue has filed these appeals before the Tribunal.

4. We notice that the ld.CIT(A) has deleted the assessment of LTCG with the following observations in the case of Shri Raju V Shah:

"3.3 I have considered the facts of the case and the arguments put forward by the Id. AR. It is seen that the property at Village Erangai, Madh Island, Mumbai admeasuring about 34,000 sq.yd. with structure thereon to M/s. Sai Shiv Films Pvt. Ltd. (sic. 'sold') on 25- 7-2008 for actual consideration of Rs.3,25,00,000/- though the stamp value adopted by registering authorities was 8,33,91,000. I have gone through the sale agreement & documents placed before me. It is seen that the property was ancestral property received by Vrajlal Tribhovandas Shah HUF on 14-7-1962 from the Court Receiver of the High Court of Bombay in pursuance of Suit No. 1175 of 1946. On going through the suit it is seen that the plaintiffs had made it clear that the property belonged to joint family of Tribhovandas Lalchand which reads as under :-

"The plaintiffs pray for a declaration that the properties belonging to the joint family of Tribhovandas Lalchand."

It is also seen that the said property which was owned by Vrajlal Tribhovandas Shah HUF and there was a partition of Vrajlal Tribhovandas Shah HUF on 16-10-1979 which is evidenced by the deed of partition dated 10-3-1981 duly registered with the Sub- Registrar of Bombay. These facts of partition of Vrajlal Tribhovandas Shah HUF are mentioned on page 2 of the sale agreement also which was before the AO also. Thus the fact of ownership of property originally by Vrajlal Tribhovandas Shah HUF till date of partition cannot be denied nor has the same been disputed by the AO, though all the facts were before him also. Thus as per the Hindu law and Indian Succession Act, the inherited property after partition of original HUF, would devolve on the smaller HUFs of the recipient coparceners only and not in individual capacity. Any HUF property that is divided on partition retains its character as a joint family property and as such, in the hands of recipient, the same 4 I T A 3 8 8 1 & 3 8 9 1 / Mu m / 2 0 1 2

will be HUF property of recipient. Since the recipient had not contributed to the acquisition of the inherited property, he cannot be the sole owner of the property for the share received by him on partition of HUF even if he wishes to be so be so, because the other family members of recipients also have right in the inherited property. Thus Consideration received for release of interest in the joint family property would also have joint family property character with the result that any income from any investment there from can only be treated as joint family property. It was so held in CIT V/s. P. N. Srinivasa Rao 232 ITR 730 (Ker.). It is noted that the assessee being son of Vrajlai Tribhovandas Shah was acoparcener in Vrajlal Tribhovandas Shah HUF and he was married also. So there existed a valid HUF of the appellant on whom the inherited property would have devolved. Thus as per the prevailing law, it is the appellant's HUF which has legal right over the property and not the appellant in individual capacity and the said property at no point of time became the individual property of appellant.

The appellant never paid any consideration for acquiring the property and hence for this reason also the inherited property could not have become his sole property. This is further supported by the fact that Property tax bill issued by BMC for all years till FY 2007-08 still mentions the name of the owner of property situated on the said land as 'Vrajlal Tribhovandas Shah & his Branch". Thus it is clear that it is the appellant's HUF who had dominion over the property in which he had the right to enjoy and to do with it as he pleases. The above factual positions have not at all been disputed by the AO. Once the appellant was not owner, there can be no charge of capital gains on the appellant. The AO has simply made addition in hands of appellant in individual capacity just because the word HUF was not mentioned in the sale agreement. The AO in my opinion has not looked into substance of the agreement and also to other relevant factors which indicated the ownership of property in hands of HUF only. Since the appellant was Karta of the appellant's HUF, it was only him who was required as per the law to sign any document on behalf of HUF and mere absence of word HUF in the agreement or mentioning of his individual PAN would not change the taxability from HUF to individual, if the transfer as per intent and substance was being made by HUF.

The nature of a receipt or a transaction would not be determined only by the nomenclature given but by substance of the covenants and actual the circumstances of the transactions as held in National cement mine Industries 42 ITR 5 I T A 3 8 8 1 & 3 8 9 1 / Mu m / 2 0 1 2

69,77(SC), Padamjee R Kadambande 195 ITR 877(SC), 191 ITR 173(Pat). The explanation of Ld AR that it was only a venial typographical error that the word HUF remained to be mentioned in the agreement seems to be bonafide. There cannot be any attempt for avoidance of tax by disclosing the LTCG in hands of HUF and not in individual capacity, as the tax rates and other deductions available for HUF as well as individual are same. The AO has also accepted the fact that profit on sale of the property have been shown in the return of income of appellant's HUF. The appellants HUF had already filed its return disclosing the LTCG for 1/4th share for AY 2009-10 HUF on same day when the individual return was filed which suggested that all along the said property was treated as HUF property only and there was no element of any afterthought by disclosing the LTCG in hands of HUF nor any additional benefit could have accrued to appellant by disclosing LTCG in hands of HUF and not in individual capacity. Even otherwise also ancestral or self- acquired property can be impressed with the character of joint family property by throwing into the common hotch-pot as held in Damodar Krishnaji Nirgude 46 ITR 1252 (Born). Thus by showing the property in balance sheet of HUF in earlier years, it was clear that the said property was thrown into common hotch-pot of HUF and hence the same belonged to HUF only. Thus merely because in the deed of conveyance the mention of Karta of HUF was not made and individual PAN of Karta(appellant) was mentioned, the ownership of the property which really belonged to the HUF will not change to be individual property due to such technical errors. The AO has taxed the capital gains in hands of individual but he has not mentioned as to what happens to the LTCG already offered by HUF. In view of these facts of the case the LTCG on sale of property can not be brought to tax in hands of appellant in individual capacity as the same is assessable in hands of HUF only as per the provisions of the Act. Accordingly, I direct the AO to delete the effective addition of Rs 1,85,71,300 made in the hands of the appellant."

5. Identical orders have been passed by Ld CIT(A) in the hands of Shri

Dilip Virajlal Shah. A perusal of the order of ld.CIT(A) would show that the

First Appellate Authority have clearly brought out the fact as to how the

assesses herein had inherited the property. It is seen that HUF of the 6 I T A 3 8 8 1 & 3 8 9 1 / Mu m / 2 0 1 2

assessee's father has obtained the property under a Court order and it has

belonged to the assessee's Father's HUF. Thereafter, there was a partition

between the members of HUF and thus the assesses herein had received

their respective share in the impugned property. The Ld CIT(A) has given

a finding that the assessees herein were married at that point of time.

Accordingly, the Ld CIT(A) has come to the conclusion that their respective

share in the property actually belonged to the HUF status of the assessees.

Accordingly, the Ld CIT(A) held that the assesses have entered into sale

agreement in their respective names on behalf of their respective HUF.

Under these set of facts, the Ld CIT(A) held that giving wrong Permanent

Account Number (i.e., Permanent Account Number of Individual status)

would not make the assessees as owner of property in their individual

status. On the basis of the discussions made by us above, we are of the

view that the ld.CIT(A) was justified in holding that the impugned property

belonged to the HUF status of the assesses and accordingly, we are of the

view that he was justified in directing the AO to delete the assessment of

LTCG in the individual status of the assessees.

6. In the result, both the appeals filed by the revenue are dismissed.

Order pronounced in the open court on 8th April, 2015 th घोषणा खल ु े यायालय म दनांकः 8 April, 2015 को क गई ।

Sd sd

(अ मत शु ला / AMIT SHUKLA) (बी.आर.बा करन / B.R. BASKARAN) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER 7 I T A 3 8 8 1 & 3 8 9 1 / Mu m / 2 0 1 2

मुंबई Mumbai: 8th April,2015.

व. न.स./ SRL , Sr. PS

आदे श क त ल प अ े षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. आयकर आयु त(अपील) / The CIT(A)- concerned

4. आयकर आयु त / CIT concerned

5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई / DR, ITAT, Mumbai concerned

6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER, True copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai