2007 (2) TMI 186 - HC - Income Tax

Entitled to exemption u/s 54 - investing the net consideration in the UTI Capital Gains Scheme, 1983 - land belonging to the assessee, a Hindu undivided family (HUF) - HELD THAT - The assessee received the amounts in 1991-92. Admittedly, the amounts were deposited by the assessee, within six months from the date of its receipt, in the UTI Capital Gains Scheme, which is one of the units as specified asset mentioned in Explanation l(c)(ii) to section 54E of the Act. Therefore, we agree with the view taken by the Tribunal and decide this question in favour of the assessee and against the Revenue. Whether the Tribunal was correct in holding that 50 per cent. of the amount withdrawn from the High Court was liable to tax in the assessment year in which it was withdrawn , In the present case, the High Court had not ordered for furnishing any security for withdrawing 50 per cent. of the deposited amount. We 40 not think that receiving the amounts by virtue of an interim order, in a pending appeal, on furnishing security or without furnishing security would make any difference. Because the ultimate results would be the same. Had the Government succeeded in the appeal, the assessee had to pay back the amounts he had drawn. It is only in order to secure the refund that courts insist on furnishing the security. But furnishing of security is nowhere connected with the entitlement of the person who receives the amounts. Entitlement of amounts, in such cases, is only decided by the courts at the time the matter is finally settled. Thus, we feel that the question is covered by the Supreme Court judgment in CIT v. Hindustan Housing and Land Development Trust Ltd. 1986 (7) TMI 10 - SUPREME COURT and is answered accordingly in favour of the assessee and against the Revenue. The assessee wanted benefit u/s 54B of the Act , as according to the assessee the Hindu undivided family could also be an individual within the meaning of this section. But we agree with the judgment of the Madras High Court in CIT v. G. K. Devarajulu 1990 (12) TMI 36 - MADRAS HIGH COURT wherein it was held that in cases u/s 54B of the Act, if persons other than individuals are held to be entitled to benefit then it would lead to absurd results and then assessee or a parent of his would be even related to a partnership concern or a company or an Hindu undivided family. By saying assessee and adding to it or a parent of his makes it abundantly clear that the benefit u/s 54B of the Act would only be available to an individual and not to an Hindu undivided family. In this case, we completely agree with the views of the Madras High Court in the aforesaid judgment and answer the question in favour of the Revenue and against the assessee. Thus, questions Nos. 1 and 2 are answered in favour of the assessee and question No.3 is answered in favour of the Revenue. The reference is answered accordingly.

Summary

Issues:
1. Exemption under section 54E of the Income-tax Act for investing compensation in UTI Capital Gains Scheme.
2. Taxability of 50% of the amount withdrawn from High Court without security.
3. Eligibility of Hindu undivided family for exemption under section 54B of the Act.

Analysis:
Exemption under Section 54E:
The assessee invested additional compensation in UTI Capital Gains Scheme within six months of receipt, seeking exemption under section 54E. The Assessing Officer denied the exemption, but the Tribunal ruled in favor of the assessee. The High Court upheld the Tribunal's decision, citing the investment as an eligible specified asset under section 54E, thus granting the exemption.

Taxability of Amount Withdrawn from High Court:
Regarding the taxability of 50% of the amount withdrawn from the High Court without security, the Tribunal had treated only 50% as taxable income. However, the High Court disagreed, emphasizing that until the High Court finalized the matter, the compensation could not be assessed. Referring to a Supreme Court judgment, the High Court concluded that the ultimate entitlement of the amounts would be decided when the matter was settled, irrespective of security being furnished. Therefore, the High Court ruled in favor of the assessee, stating that the amount withdrawn should not be taxed until the final decision by the High Court.

Eligibility of Hindu Undivided Family for Exemption under Section 54B:
The assessee, a Hindu undivided family, claimed exemption under section 54B, which was rejected by the authorities. The High Court referred to a Madras High Court judgment, clarifying that section 54B benefits are only available to individuals, not Hindu undivided families. Agreeing with the Madras High Court's interpretation, the High Court ruled in favor of the Revenue, stating that the benefit under section 54B is not applicable to Hindu undivided families.

In conclusion, the High Court answered the questions raised, with questions 1 and 2 decided in favor of the assessee and question 3 in favor of the Revenue. The judgment clarified the applicability of exemptions under different sections of the Income-tax Act based on the specific circumstances and legal interpretations involved in each issue.