2014 (10) TMI 1073 - AT - Income Tax

LTCG - Deduction u/s 54-F - exemption on capital gains on sale of flat on acquisition of two houses - HELD THAT - Assessee fairly conceded that this issue is covered in favor of the Revenue by the decision of the Punjab and Haryana High Court in the case of Pawan Arya vs. CIT 2010 (12) TMI 44 - PUNJAB AND HARYANA HIGH COURT stating as regards claim for exemption against acquisition of two houses u/s 54 of the Act, the same is not admissible in plain language of statute. As in CIT vs. D. Ananda Basappa 2008 (10) TMI 99 - KARNATAKA HIGH COURT referred to in the impugned order, exemption against purchase of two flats was allowed having regard to the finding that both the flats could be treated to be one house as both had been combined to make one residential unit. The said judgment, thus, proceeds on a different fact situation. Status of assessee as 'HUF' instead of 'Individual' - ownership in land in question - During the assessment proceedings itself, assessee came to know about the correct legal position that the subject property belongs to the individual and not to HUF and made detailed submissions supported by evidences to establish that the impugned land was the property of the individual and not the property of HUF and capital gain tax liability can not be raised in its hands. Following pleadings and evidences would establish that the land in question was the property of individual and not the property of HUF and thus, any capital gain arising on the transfer of such land would not be the income of the HUF. As decided in Khimji Teju Kaya reported 1977 (11) TMI 26 - BOMBAY HIGH COURT held that self acquired property of the father bequeated to Son by Will would constitute individual property and even if income from such property was shown in the return as HUF income, the income from that property is to be assessed in individual capacity. We also find that Ld. Counsel of the assessee at the time of hearing has also filed the copy of income tax return of Sh. Sunny Choudhary, who is brother of the assessee and other co sharers which shows that the same was filed in the capacity of individual . Thus we find that both the assessees come under the individual capacity instead of HUF category.

Summary

Issues Involved:

1. Status of the assessee as 'HUF' instead of 'Individual'.
2. Disallowance of deduction under Section 54B of the Income Tax Act.
3. Non-allowance of full deduction under Section 54F for both residential houses.
4. Charging of interest under Sections 234A and 234B.
5. Violation of principles of natural justice.

Detailed Analysis:

1. Status of the Assessee as 'HUF' Instead of 'Individual':

The core issue was whether the assessment should be in the status of 'HUF' or 'Individual'. The assessee contended that the land in question was owned by the individual and not the HUF. The assessee argued that the land was acquired through a court decree and should be treated as individual property under the Hindu Succession Act. Despite filing the return as HUF, the assessee later realized the correct legal position and made detailed submissions with evidence during assessment proceedings to establish that the land belonged to the individual. The Tribunal agreed with the assessee, citing the Bombay High Court decision in CIT vs. Khimji Teju Kaya, which held that self-acquired property bequeathed to a son by Will constitutes individual property. The Tribunal concluded that the capital gain should be assessed in the individual capacity, not HUF, and thus canceled the orders of the authorities below on this issue.

2. Disallowance of Deduction Under Section 54B:

The assessee claimed a deduction of Rs. 1,81,15,551/- under Section 54B, which was disallowed by the AO and upheld by the CIT(A). The Tribunal's analysis focused on whether the land was owned by the HUF or the individual, ultimately determining that the land was individual property. Consequently, the disallowance under Section 54B by treating the assessee as HUF was incorrect, supporting the assessee's claim for deduction under individual status.

3. Non-Allowance of Full Deduction Under Section 54F:

The assessee claimed deductions under Section 54F for two residential houses. The AO allowed the deduction for only one house, which was upheld by the CIT(A). The Tribunal referred to the Punjab and Haryana High Court decision in Pawan Arya vs. CIT, which clarified that exemption under Section 54F is not admissible for two independent residential houses. The Tribunal ruled against the assessee, stating that the plain language of the statute allows exemption for only one residential house.

4. Charging of Interest Under Sections 234A and 234B:

The assessee contested the charging of interest under Sections 234A and 234B. The Tribunal did not provide a detailed analysis on this issue, implying that the charging of interest was upheld as per the provisions of the Income Tax Act.

5. Violation of Principles of Natural Justice:

The assessee argued that the assessment order was framed in violation of the principles of natural justice, citing incorrect facts and inadequate opportunity of hearing. The Tribunal's decision to cancel the orders of the authorities below on the status issue implicitly addressed this concern, as the correct status determination (individual vs. HUF) was pivotal to the entire assessment process.

Conclusion:

The Tribunal allowed the appeals in part, primarily on the ground that the assessee should be assessed as an individual rather than HUF. This decision impacted the disallowance of deductions under Sections 54B and 54F, with the Tribunal upholding the disallowance under Section 54F for two houses but allowing the deduction under Section 54B in the individual capacity. The charging of interest under Sections 234A and 234B was not explicitly overturned. The Tribunal's decision emphasized the importance of correct status determination in tax assessments and the principle that there can be no estoppel against the law.