2015 (11) TMI 1837 - AT - Income Tax

Revision u/s 263 - Capital gain assessed in the hands of the larger HUF or in the case of the assessee member of HUF - CIT directing the Assessing Officer to disallow deduction allowed under section 54F of the Act in the hands of the assessee - CIT was of the view that sale proceeds have to be assessed in the hands of legal heirs of late A.R.Pandurangan - HELD THAT - The assessee is one of the legal heirs of late A.R.Pandurangan who disclosed capital gains on his share after claiming deduction under section 54F of the Act. The Assessing Officer while completing the assessment called for details in respect of claim for deduction under section 54F and capital gains reported by the assessee HUF and accepted the exemption claimed under section 54F of the Act on the sale proceeds reported by the assessee HUF. The Hon ble Andhra Pradesh High Court in the case of Addl. CIT Vs. P.Durgamma 1986 (9) TMI 58 - ANDHRA PRADESH HIGH COURT considered the scope of section 171 of the Act deeming HUF to be undivided. In the case on hand, no evidence has been brought on record to suggest that late A.R.Pandurangan HUF has been assessed. In such circumstances, the sale proceeds of the property cannot be assessed in the hands of late A.R.Pandurangan (HUF). We also see no reason to disbelieve the memorandum of oral recording partition furnished by the assessee. Thus the contentions of the Commissioner of Income Tax that sale proceeds have to be assessed in the hands of late A.R.Pandurangan (HUF) is not sustainable in law. Thus, we set aside the order of the Commissioner of Income Tax passed under section 263 and restore that of the Assessing Officer since the assessment order cannot be said to be erroneous and prejudicial to the interests of the Revenue. - Decided in favour of assessee.

Summary

Issues:
- Assessment of capital gain in the hands of different Hindu Undivided Families (HUFs)

Analysis:
The case involved an appeal by the assessee against the order of the Commissioner of Income Tax, Chennai-I, regarding the assessment year 2008-09 under section 263 of the Act. The main issue was whether the capital gain should be assessed in the hands of the larger HUF of A.R.Pandurangan or in the case of the assessee A.P.Began HUF. The assessee, along with siblings, sold a property inherited from their late father, A.R.Pandurangan. The Assessing Officer initially accepted the capital gains returned by the assessee and allowed exemption under section 54F of the Act. However, the Commissioner of Income Tax later issued a notice under section 263, contending that the sale proceeds should be assessed in the hands of the estate of late A.R.Pandurangan due to lack of physical division of the property.

The Commissioner set aside the original assessment, directing a fresh assessment disallowing the exemption claimed under section 54F. The Tribunal remitted the matter back to the Commissioner for reconsideration as no explanation was filed by the assessee previously. The Commissioner, after considering the memorandum of oral partition submitted by the assessee, held that the income from the sale of land should be assessed only in the hands of late A.R.Pandurangan HUF, denying the assessee's claim for exemption under section 54F.

The counsel for the assessee argued that since late A.R.Pandurangan HUF was never assessed to tax, the provisions of section 171 should not apply. They relied on legal precedents to support their position that a physical division of property is not necessary for partition. The Departmental Representative supported the Commissioner's decision to deny the exemption under section 54F.

After hearing both sides and examining the orders of the lower authorities, the Tribunal referred to the scope of section 171 of the Act as discussed in the case law. The Tribunal noted that no evidence was presented to show that late A.R.Pandurangan HUF had been assessed previously. Therefore, the Tribunal concluded that the sale proceeds of the property cannot be assessed in the hands of late A.R.Pandurangan HUF. The Tribunal set aside the Commissioner's order under section 263, restoring that of the Assessing Officer, as the assessment order was not deemed erroneous and prejudicial to the interests of the Revenue.

In conclusion, the Tribunal allowed the appeal of the assessee, ruling in favor of the assessee regarding the assessment of capital gains in the hands of the respective HUFs involved in the transaction.