No Section 54B deduction denial merely for registration of new agricultural land in name of co-parcener
Fact and Issue of the case
Brief facts of the issue in dispute are stated as under. Assessee before us is Hindu Undivided Family [Babubhai Arjanbhai Kanani (HUF)] and during the year under consideration, it derived income from long term capital gain on sale of property. The assessee filed its return of income on 28.02.2014 declaring total income of Rs.75,34,230/-, for assessment year (A.Y.) 2013-14 including agriculture income to the tune of Rs.2,62,350/-. The return of income of the assessee was processed under section 143(1) of the Act. Later, the assessee`s case was selected for scrutiny through CASS. The Notice under section 143(2) of the Act was issued to the asssessee on 03.09.2014 and assessing officer framed the assessment under section 143(3) of the Act on 22.01.2016. On verification of the details of sale and purchase of land, it was observed by Assessing Officer that assessee HUF has claimed exemption under section 54B of the Act to the tune of Rs.27,22,020/- in respect of purchase of land situated at Vihan, Block No.281. The Assessing Officer noted that the property has been registered in the name of coparcener namely, Vrushabh Babubhai Kanani, who is an individual. It was further noted by the Assessing Officer that the funds of HUF has been utilized, and the same was transferred from bank account of HUF to bank account of co-parcener. The assessee was therefore asked to explain as to why the exemption claimed u/s 54B of the Act at Rs.27,22,020/- should not be disallowed, as the property is not registered in the name of HUF.
In response to the above query of the assessing officer, the assessee, vide letter dated 22.01.2016 has submitted written submissions, which are reproduced below:
“With reference to your honour’s show cause during personal hearing before your honour dated 22.01.2016 regarding disallowance of exemption of Rs. 27,22,022/- due to registered purchase deed being made on name of coparcener of HUF in place of HUF. In this regard we are herewith provide our detail explanation.
1. We submit that the purchase deed has been made on name of coparcener however, the property is in actual owned by HUF and same is duly shown in balance sheet of HUF.
2. Entire purchase consideration for agriculture land was paid by way of utilizing fund of HUF.
3. As per law and custom of hindu sucession Act, any property which is purchased out of fund or earning of HUF always remain under ownership of HUF and all members of HUF has right in that property. We are herewith producing judgment in the case of CIT vs. K. S. Subbiah Pillai HUF (1984) 147 ITR 87 (mad) pronounced by Madras High Court wherein it has been held that:
“It is one of the fundamental principles of Hindu law that property acquired by the Karta or a coparcener with the aid or assistance of Joint family assets, is impressed with the character of joint family property. To constitute self-acquired property in the hands of the karta or a coparcener, it should not have been acquired with the assistance, or aid of joint family property. In the above decision, the Division Bench, after referring to the various decisions of the Supreme Court on this aspect has observed as follows”
Further we submit that HUF is governed by Hindu Sucession Act and governed by custom and tradition of Joint hindu family where in whole family live together till partition and till date of partition, any property owned or acquired out of fund of joint family whether its registered on name of HUF or any member or coparcener of HUF, it remain property of HUF and all member have right over that property on partition. We rely on judgment of Delhi High Court where in civil case of Ms. Haria Kapur vs. Sh. Rakesh Kapur & Ors. CS (OS) 1353/2009 where in following were observed by honourable court:
Further we also want to quote here section 4 Benami Transactions (Prohibition) Act; 1988 reproduced hereunder for brevity:
“prohibition of the right to recover property held benami-(1) No. suit claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a claiming to be the real owner of such property. (2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or behalf of a person claiming to be the real owner of such property.
(3) Noting in this section shall apply-
(a) where the person in whose name of the property is held is a coparcener in a Hindu undivided family and the property is held for the benefit of the coparceners in the family; or
(b) where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity, and the property is held for the benefit of another person for whom he is a trustee or whom he stands in such capacity”.
Plain regarding of above clearly shows and accept the tradition of hindu laws that joint family property can be purchase on name of any member of HUF and real owner can claim right in that property on partition without any restriction of laws.
Further we rely on judgment of Lahore High Court in case of Sanwal Das vs. Kuremal and Ors. Reported in AIR 1928 Lohare 224 where in it was held that “in the case of a Joint Hindu Family, purchase of property in the name of one or other member of the family is immaterial. If once the family is proved to be joint, it is a matter of absolute indifference whether the name of one or the other member of the family appears in a particulars document”.
Considering all above facts interpretation of legal statue, as per our bona-fide belief, we are eligible to claim Rs. 2722022/- u/s 54B and may please be allowed in our case as per law.”
However, ld.Assessing Officer rejected the contention of the assessee and noted that purchase deed is in the name of coparcener but property is owned by HUF and duly shown in balance sheet. Entire purchase consideration for agriculture land was paid by utilizing fund of HUF. Even though the fund of HUF has been utilized but the property is in the name of individuals and the fund appears to be in the form of loan to the individual in whose name the property has been purchased. The Assessing Officer also held that the Hindu Succession Act is not applicable in the present case as the property in question has been purchased in the name of individuals with their individual PAN. If the property has been purchased in the name of individual, the same can be sold only by that particular individual and not the karta or coparceners of HUF. Hence, the question of right over the property on partition does not arise. In view of the above facts, the submission of the assessee was rejected by Assessing Officer and the exemption claimed under section 54B of the Act to the tune of Rs.27,42,500/- was disallowed.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld.CIT(A) who has confirmed the action of Assessing Officer:
Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before this Tribunal.
Observation of the court
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld.CIT(A) and other materials brought on record. We find that a key issue arises for our apt adjudication in the instant lis, is that whether property which was purchased out of the funds of the HUF and has been shown in the books of accounts of HUF and HUF is doing agricultural activities, and just merely because the property was registered in the name of co-parcerner of the HUF, makes the HUF ineligible to claim deduction under section 54B of the Act?
The tribunal has note that Assessing Officer was of the view that individual is a different taxable entity as compared to HUF entity and therefore denied the deduction under section 54B of the Act. We note that in the instant case the purchase of property was out of the funds of the HUF and has been shown in the books of accounts of HUF. The HUF had shown agricultural income in the year when property was purchased and in the subsequent years. The agricultural income was not shown in the hands of individual, however, it is shown in the hands of HUF. The co-parcerner of the HUF may hold property on behalf of the HUF. We note that assessee purchased agricultural land out of the sale proceeds of the agricultural land sold and after that the assessee has claimed exemption under section 54B of the Income Tax Act to the tune of Rs.27,22,020/- in respect of purchase of land situated at Vidhan, Block No.281. We further note that funds had been utilised which pertains to HUF and the same was transferred from bank account of HUF to bank account of Individual. We note that as per Hindu Succession Act, property purchased out of HUF funds or earning of HUF always remained under ownership of HUF and all members of HUF has right in that property. Thus, in the instant assessee`s case, the fruit of the property is enjoyed by the HUF.
The Tribunal also noted that section 54B of the Act provides exemption in respect of capital gain on transfer of land used for agricultural purposes. Sub-section 1 of section 54B states that subject to the provisions of sub-section (2), where the capital gain arises, from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee being an individual or his parent, or a Hindu undivided family, for agricultural purposes [(hereinafter referred to as the original asset)], and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45 of the Act. Therefore, it is abundantly clear that Hindu undivided family (HUF) may also sale agricultural land and purchase another agricultural land and claim exemption under section 54B of the Act. Thus, HUF is also an assessee under the Income Tax Act. However, HUF is an artificial person, like limited company. All the activities of a limited company are performed by its directors, likewise, all the activities of HUF are performed by its member of HUF. Therefore, the purchase of agricultural land or sale of agricultural land are to be done by members of HUF , on behalf of HUF. In the instant case the entire purchase consideration for agricultural land was paid by utilizing fund of HUF, therefore, agricultural land so purchased belongs to HUF. Just because the agricultural land was registered in the name of individual member of HUF, does not mean that it is not a property of HUF and the HUF can not claim exemption under section 54B of the Act. We note that Hon`ble High Court of Punjab and Haryana in the case of Gurnam Singh  170 Taxman 160 (Punjab & Haryana), held that the purchased land was being used by the assessee only for agricultural purpose and merely because in the sale deed his only son was also shown as co-owner, it did not make any difference because the purchased land was still being used by the assessee for agricultural purposes. It was not the case of the revenue that the said land was being used exclusively by his son.
On the similar facts, Hon`ble High Court of Rajasthan in the case of Laxmi Narayan,  89 com 334 (Rajasthan) held that where assessee had purchased new agricultural land out of sale consideration of his agricultural land, assessee could not be denied deduction under section 54B merely because registered document of new land was executed in name of his wife.
Now coming to the assessee`s case under consideration, in the light of the above noted judicial precedents, we note that entire purchase consideration for agricultural land was paid by utilizing money of HUF. We note that Purchase Deed is in the name of the Coparcener ( one of the HUF members). However, the property (land) is owned by HUF. The property (land) is shown in the Balance Sheet of HUF. The Co-parcerner of the HUF may hold property on behalf of the HUF. The HUF money was utilized to purchase the said agricultural land. The HUF is doing agricultural activities. For example, in case of a company, a property may be registered in the name of the Director, because company is an artificial person which can not talk, walk and think, however, the Directors do all the activities on behalf of the Company, therefore, just because property is registered in the name of director does not mean that director is owner in substance. In substance, the Company will be treated as owner of the property. Likewise, HUF is also an artificial person which can not talk, walk and think, however, the Coparceners (member of HUF) do all the activities on behalf of the HUF. In substance, the HUF is owner of the said agricultural land though it is registered in the name of the Coparcener, as the HUF is enjoying all the fruits of the said agricultural land. Thus, the HUF is entitled to claim exemption/deduction under section 54B of the Act. Therefore, based on these factual position narrated above, we are not inclined to accept the contention of the ld CIT(A) and assessing officer in any manner and therefore the addition so made is deleted. Hence this ground of the assessee is allowed.
The Court ruled allowed in favour of the assessee and disposed off the petition