ITAT quashed assessment order passed on Individual for Property of HUF
Fact and Issue of the case
Brief facts of the case are that the Assessing Officer having jurisdiction over the assessee had received information that the assessee individual has sold property vide document No.457/2009 for a consideration of Rs.32,21,000/- during the financial year relevant to A.Y 2010-11; whereas the fair market value of the property as per Stamp Valuation Authority was Rs.43,80,000/-. Since the assessee had not filed his return of income, the Assessing Officer believed that income chargeable to tax has escaped assessment. Thus, the Assessing Officer issued notice u/s 148 of the Act on 24.03.2017.
During the course of re-assessment proceedings, the assessee filed computation of capital gains projecting loss on sale of the property. The documents pertaining to the property were called for from the assessee and also from the Land Registration Authorities u/s 133(6) of the Act. The Assessing Officer observed that the document No.457/2009 was registered on 8.4.2009 with regard to the sale of property in question and that till 28.1.2009, only leasehold rights were with the assessee. He observed that the assessee had acquired lease rights over the property on 30.6.1950 by virtue of Settlement and Arrangement deed dated 30.06.1950 and consequent to the demise of his father in the year 1955, the assessee, his mother and two sisters were left behind as heirs and legal representatives. The Assessing Officer observed that the assessee’s mother and two sisters gave no objection for conversion of the lease hold rights to free hold rights over the property as also the conveyance of the property in favour of the assessee. Accordingly, the Estate Officer, Secunderabad, vide Conveyance Deed document No.452/2009, dated 28.01.2009 has converted the leasehold rights to free hold rights in favour of the assessee for a consideration of a sum of Rs.50,400/-. The Assessing Officer observed that prior to conversion of leasehold rights into freehold rights, the assessee had no right to sell the property and therefore, the assessee became the absolute owner of the property on 28.01.2009 only. Therefore, he held that capital gain arising on a/c of the sale was Short Term Capital Gain. The Assessing Officer also observed that only other expenditure incurred by the assessee in connection with the transfer of the land was the fee paid by him for conversion of leasehold rights into freehold right which is to the tune of Rs.3,07,439/- which was paid on 19.01.2009. Accordingly, he allowed the same and after applying the provisions of section 50C of the Act, he computed the short term capital gain at Rs.40,72,561/- and brought it to tax.
Aggrieved, the assessee preferred an appeal before the CIT (A) contending that the property was a HUF property and therefore, the capital gain has arisen in the hands of the HUF and not the assessee individual. It was also contended that the capital gain which has arisen is not short term capital gain, but it is long term capital gain and further that the SRO value as on the date of agreement of sale is to be considered and not the SRO value as on the date of registration of sale deed. He also contended that the Assessing Officer should have allowed deduction of indexed cost of acquisition of the land and also cost of the building thereon while computing the capital gain. The CIT (A) granted partial relief to the assessee by holding that the gain from the sale of property is LTCG and not STCG. He also observed that the fair market value of the property as on 1.4.1981 has to be considered at Rs.100/- per sq. yard and not the indexed cost of acquisition and further that the said cost has to be allowed along with cost of improvement which was already allowed by the Assessing Officer.
Observation of the Tribunal
Having regard to the rival contentions and the material on record, I find that the assessee’s father had received this property in 1950 by virtue of family settlement deed and after assessee’s father’s demise in 1955, the property was inherited by the assessee. The position of the existence and devolvement of ancestral properties on the HUF before and after the promulgation of Hindu Succession Act in 1956 has been considered by the Hon’ble Delhi High Court in the case of Vinod Chopra vs. Vasudev Chopra and another in CS(OS) No.2588/2011 dated 22.3.2011.
Thus, it can be seen that prior to the enactment of Hindu Succession Act, in 1956, the ancestral property became the HUF property and after the said Act, the ancestral property becomes the self-acquired property of the person on whom it devolves. In the case before me clearly, the property was inherited by the father of the assessee in 1952 and was also conveyed to the assessee after the death of his father in 1955, i.e. before coming into force of Hindu Succession Act, 1950. Accordingly, the property belongs to the HUF of the assessee and not to the assessee individual. Therefore, the assessment order itself is liable to be quashed. Accordingly, grounds of appeal Nos. 2 and 3 are allowed and the assessment order is set aside. Since the assessment order itself is set aside, the adjudication of other grounds of appeal becomes an academic exercise. Therefore, I do not see any reason to adjudicate the same at this stage and the other grounds of appeal 4 to 9 are not adjudicated.
In the result, assessee’s appeal is treated as partly allowed.
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