HUF can claim exemption under section 54B of the Income Tax Act
Fact and Issue of the case
Present appeal was filed by the assessee feeling aggrieved by the order passed by the Commissioner appeal, whereby the relief sought by the assessee under section 54B was denied to the assessee. Briefly stated, the appellant (HUF) had filed its return of income declaring income at NIL with the department on 03.08.2013. During the assessment stage, while examining the assessee’s claim of capital gain, the AO had noted that the assessee has declared Nil income under the head capital gains on sale of property, whereas as per the examination of the sale deed conducted by the AO, the AO while recording his factual findings had come a finding that there was a positive capital gain instead of the NIL capital gain which was shown by the assessee as per the following details:
|Sales consideration as per Circle rates (SOC)||2,45,43,000/|
|Cost of acquisition 27245.2609×90||24,52,074/|
|Less: Indexed cost of acquisition (24,52,07 4×785/100)||1,92,48,780/|
|(on purchase of agricultural lands||36,39,000/|
|Less: Exemption u/s 54F (on purchase of land and construction against a residential house)||28,74,000/|
|Deduction u/s 54EC||21,00,000/|
|Net capital gains||Nil|
The AO while taking due cognizance of the dates on which the assessee had purchased the land in question and which had material effect on the indexed cost of acquisition and the capital gain as such, the AO worked out the assessee’s capital gain of Rs.54,92,652/- on the basis of the as per the following working:
|Sales consideration as per Circle||2,45,43,000|
|Less: Indexed cost of acquisition.||1,69,50,348|
|(1.092/10000=10920 Sq. M) (8172×10000 = 16340 Sq. M) (1) 10920x90x785/100 =77, (0) 16340x90x785/125 =92,35,368 (7714980 + 9235368 = 16950348)|
|Deduction u/s 54EC||21,00,000/|
|Net capital aains||54,92,652/|
The AO, while appreciating the pure factual aspect of the assessee’s claim, thus varied the indexed cost of acquisition, denied exemption claimed under section 54B and section 54F which resulted into computation of income chargeable under the head ‘Capital gains‘ at Rs.54,92,652/-. Besides the AO vide his order has also disallowed the assessee’s claim of deduction uls 54F of the Act amounting to Rs.17,75,000/- and also the assessee’s claim of deduction u/s 54B amounting to Rs.36,39,000/-.
As aggrieved from the AO’s order, the appellant while challenging the AO’ order has in total taken 4 ground of appeal as reproduced above. Ground No. 2 as raised by the appellant is regarding the capital gain of Rs.54,92,652/-. It is considered expedient to take up this ground of appeal first before proceeding further to adjudicate Ground No. 1 which concerns assesse’s claim of deduction u/s 54 of the Act. “
Feeling aggrieved by the order passed by the assessing officer, the assessee preferred the appeal before the CIT(A). the CIT(A) had granted the partial relief to the assessee in respect to the ground raised by the assessee pertaining to the entitlement of the assessee under section 54F.
However, the CIT(A) was not convinced with the second ground caused by the assessee pertaining to section 54B of the Act. Feeling aggrieved by the order passed by the Commissioner appeal, the assessee is in appeal before ITAT for the ground mentioned.
Observation of the court
Tribunal has considered the rival contention of the parties and perused the material available on record, including the judgments cited at bar during the course of hearing by both the parties. The revenue had relied upon the decision rendered in the case of R. Vijayakumar* 1995] 214 ITR 483 (Madras), wherein the High Court for the assessment year 1975 – 76 has held as under:
The assessee is a Hindu undivided family of which Sri Vijayakumar is the karta. It sold agricultural lands situate in Krishnarayapuram within the Coimbatore municipal limits on August 3, 1974, for Rs. 2,25,000. The sale deed was registered on August 14, 1974. The assessee also purchased agricultural lands situated in Kalikkanaickenpalayam for Rs. 2,35,000 under a sale deed dated July 10,1975. For the assessment year 1975-76, the assessee filed a return disclosing an income of Rs. 12,375. In doing so, it has no1 offered the gains arising from the sale of agricultural lands for tax.
In tribunals opinion, the Hindu undivided family, entitled to the benefit of 54B, even prior to insertion of“the assessee being an individual or his parent, or a Hindu undivided family” by the finance act 2013. In our view the assessee is a person subjected to tax under the income tax act. And the person includes even the individual as well as the Hindu undivided family. Therefore, the benefit of provisions of 54B, cannot be restricted to only individual assessee. Further we are of the opinion that the revenue is duty-bound to make out a clear case of debarring the HUF from availing the benefit of section 54F/54B, and the assessee cannot be denied the benefit merely based on the interpretation. If the revenue wanted to tax, the assessee(HUF), then the statute should have provided specifically that the assessee used in 54B, is only restricted to living individual and is not applicable to Hindu undivided family. Further the High Court had not considered that the individual assessee and HUF, can both be used as and when context so desires and it will not lead to any absurdity. In case the assessee is Hindu undivided family, the second part of section 54B i.e “of parents of his”, would not applicable. However, in the case of individual assessee, the parents of the assessee fulfill criteria, then the benefit can be given. In our considered opinion harmonious interpretation is required to invoked so that the word used in the provisions would not become redundant or otiose . In our view , in case of doubt or confusion ,the benefit of any doubt in respect to taxability or exemption should be given to the assessee rather than to revenue. On facts of the present case , we find that the assessee within two years of sale of agricultural land, had invested the amount and purchase of land in accordance with the requirement of section 54B and is entitle to the benefit of 54B of the ACT. Tribunal also came across the recent decision of the coordinate bench in the matter of Sandeep Bhargava (“HUF’) 2020] 117 taxmann.com677 (Chandigarh – Trib.)
A perusal of the wording of the section reveals that deduction u/s 54B is available to an “assessee” if the land was used for agricultural purpose by the assessee or a parent of his. Our stress is on the word “assessee” which has been substituted with words “assessee being an individual” in the amended provisions. In the amended provision w.e.f. 1-4-2013, the relevant wording is “if the capital asset being a land used for agricultural purposes by the assessee being an individual or parent of his or a HUF”. In the amended provisions, the word “assessee” has been qualified with words “being an individual” and further ‘HUF’ has been added in category of users of the land for agriculture purposes for an as to claim deduction u/s 54B of the Act. In our view, it is a highly debatable issue whether the word ‘assessee’ means an individual only or it includes an ‘HUF’ also in the pre-amendment provisions. In the amended section 54B of the Act as amended by Finance Act 2012, it has been specifically mentioned that the “assessee being an individual or his parent or a HUF”. However, no such words as “assessee being an individual” finds mention in section 54B prior to such amendment, the wording prior to amendment was, “assessee or a parent of his”. As per the provisions of the Income-tax Act, the assessee inter alia can be an individual or an ‘HUF’ also. Moreover, as per amended provisions deduction is available to the “assessee” if the land is used for agricultural purposes by the assessee himself or by his parent or an ‘HUF’. What is noted is that amendment has been carried out in respect of ‘user’ of the land not in respect of the claimant/assessee whose income is assessed. It is also a well-known fact that in the land record maintained by the Land Revenue Department, ownership of property is entered in the name of an individual and not in the name of ‘HUF’ and that the ‘HUF’ claim of ownership over such a property by virtue of the property being ancestral and put into the common hotchpotch of the family. Under the circumstances, the issue being highly debatable and requires lengthy arguments.”
In the light of the above we are of the view that the assessee HUF, is entitled to the benefit of section 54B, of the act for the assessment year under consideration, as we are of the opinion that the word assessee used in 54B, had always included HUE and further the amendment brought on by the finance act 2013, in section 54 by inserting “the assessee being an individual or his parent, or a Hindu undivided family]” was classificatory in nature and was introduced by the Ministry with a view to extend the benefit to the Hindu undivided family. The Hindu undivided family,(HUE) has been the recognized as separate tax entity, therefore, before and after amendment , if the agricultural land, which was being used by HUE for two years prior to transfer, has been transferred by the HUE and HUE purchases any other agricultural land within two years of such transfer then it shall be entitled to the benefit of 54B / 54E.
In the light of the above discussion Tribunal is of the opinion that the appeal of the assessee is required to be allowed, all the grounds raised by the assessee are allowed.
Read full order from belowHUF-can-claim-exemption-under-section-54B-of-the-Income-Tax-Act