2017 (10) TMI 933 - AT - Income Tax

Non - payment of tax by the HUF - Co-parceners claim to the share of HUF properties/assets/income - Held that - None of the HUFs, having only agricultural income was filing any return of income under the Income Tax Act and was never assessed to tax, being not liable to tax. Thus the question of any ITO passing any order u/s.171 of the Act does not arise, nor is applicable to Agricultural families, having no income under the Income Tax Act. Non filing of returns under the Income Tax Act by the HUF was bonafide belief that agricultural income was not liable to tax under the Income Tax Act. What has been ignored/omitted is the fact that interest on enhanced compensation was taxable and the HUF should have filed its return of income for AY 2012-13, showing income from interest on enhanced compensation. The belief is bonafide and cannot in any manner be attributed to any malafide, merely because the individuals having their independent income from self acquired properties or other activities, had not included the income of the HUF in their return of income, which per se is contrary to law. No individual/Karta is authorized to appropriate and show the income of the HUF in his hands, debarring the other co-parceners of their right claim to the share of HUF properties/assets/income. Effort was thus made by the assessee to tax the HUF u/s.144A, but was declined by the Id. JCT. Luckily the IDS came into operation and taking advantage of the same, the two HUFs filed a declaration before the Commissioner of Income Tax, Noida declaring the interest on enhanced compensation and paid the tax as per pages 11-23 of the paper book. Obviously this evidence being subsequent could not be filed either before the AO or the Id. CITA, although the fact of offer made before the JCIT u/s.144A has duly been discussed by both. Thus the factual reason to disallow the claim of the HUF is that no such return was filed and no such tax had been paid by the HUF. The issue gets settled by the payment of taxes by the HUF through the declaration made before the Pr. CIT under IDS, which has been accepted, as all taxes have been paid. Therefore, in such circumstances, and facts of the case, since the HUF has already paid tax due alongwith interest, etc and correct share had been declared at ₹ 27,79,279/- as against lesser amount of ₹ 22,50,413/- taken by both the authorities below, the Assessing Officer is directed to delete the addition so made. Thus, the grounds of appeal raised by the assessee are allowed.

Summary

Issues Involved:
1. Jurisdiction and legality of the Assessing Officer's order.
2. Classification of the assessee as an individual versus a Hindu Undivided Family (HUF).
3. Ancestral nature of the agricultural land and its treatment under the UP Zamindari Abolition and Land Reforms Act, 1950.
4. Impact of the Hindu Succession Act, 1956 on the structure of a Joint Hindu Mitakshara family.
5. Taxability of agricultural income and the filing of returns by the HUF.
6. Formation of smaller HUFs after the death of a family member.
7. Requirement of an order of partition by the Assessing Officer under Section 171 of the Income Tax Act.
8. Taxation of interest on delayed payment of compensation.
9. Taxation of capital gains from the sale of ancestral property.

Detailed Analysis:

1. Jurisdiction and Legality of the Assessing Officer's Order:
The assessee argued that the order by the Assessing Officer was "bad in law and without jurisdiction." The Tribunal did not explicitly address this issue, focusing instead on the substantive tax issues raised.

2. Classification of the Assessee:
The assessee contended that the Commissioner of Income Tax (Appeals) erred in treating him as an individual for the income of the joint Hindu family, of which he is the Karta. The Tribunal upheld the view that the income should be taxed in the hands of the individual and not the HUF, based on the evidence and legal provisions discussed.

3. Ancestral Nature of Agricultural Land:
The assessee claimed that the agricultural land was ancestral coparcenary property passed on through generations, and the Commissioner incorrectly relied on Section 18 of the UP Zamindari Abolition and Land Reforms Act, 1950, ignoring Section 37. The Tribunal noted that the JCIT, Range-2, Noida, had rejected this contention, stating that the bhumidari rights created under Section 18 were new rights and not ancestral.

4. Impact of the Hindu Succession Act, 1956:
The assessee argued that the Hindu Succession Act, 1956, had not abolished the structure of a Joint Hindu Mitakshara family but had instead enlarged it. The Tribunal did not specifically address this argument, focusing instead on the taxability of the income in question.

5. Taxability of Agricultural Income:
The assessee argued that the HUF had no other income and thus did not file returns, as agricultural income is not taxable under Section 10(37) of the Income Tax Act, 1961. The Tribunal noted that the main issue was the non-payment of tax by the HUF, which was later resolved under the Income Declaration Scheme (IDS).

6. Formation of Smaller HUFs:
The assessee contended that three smaller HUFs came into existence after the death of Rameshwar Dayal Tyagi, and the interest on delayed payment of compensation was distributed among them. The Tribunal acknowledged this but focused on the fact that the HUF had not filed returns, which was a key factor in the taxability of the income.

7. Requirement of an Order of Partition:
The assessee argued that an order of partition under Section 171 of the Income Tax Act could only be passed if the HUF was assessed to income tax. The Tribunal noted that this was not applicable as the HUF had not been filing returns due to the belief that agricultural income was not taxable.

8. Taxation of Interest on Delayed Payment of Compensation:
The Tribunal found that the interest on delayed payment of compensation was taxable under Section 56(2)(viii) of the Income Tax Act and should be included in the income of the individual assessee. The Tribunal directed the Assessing Officer to delete the addition made, as the HUF had paid the due taxes under the IDS.

9. Taxation of Capital Gains:
The assessee argued that the capital gains from the sale of ancestral property should not be taxed in his individual capacity. The Tribunal did not specifically address this issue but directed the deletion of the addition made to the assessee's income, considering the taxes paid under the IDS.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of the additions made to his income. The judgment emphasized the resolution of tax issues through the IDS and the importance of filing returns to substantiate the existence of an HUF under the Income Tax Act. The order was pronounced on 18.10.2017.