2018 (2) TMI 869 - AT - Income Tax

Entitlement for exemption u/s 54F denied - denial of claim as new property required to be acquired by the HUF but not the individual - HUF and individual are two separate entities and if individual co-parcener acquires the property the same cannot be treated as HUF property - Held that - HUF has sold the property and received 1/6th share of consideration amounting to ₹ 20,00,000/- out of which contributed ₹ 15 lakhs towards purchase of new property and the remaining amount of ₹ 25 lakhs was contributed by the co-parcener for acquiring the new property. Both the HUF and co-parcener of the property have entered into a memorandum of understanding to transfer the property in the name of HUF after complete repayment of the loan, which was granted to the individual co-parcener Mr. G. Rama Murthy Setty, S/o Nageswara Rao. The assessee also declared the rental income in its hands and the loan is being repaid by the HUF. Co-parcener is one of equal shareholder of the HUF. Under the similar facts and circumstances, the coordinate bench of ITAT, Chennai in the case of Purnachand & Family (HUF) cited (2017 (3) TMI 1175 - ITAT CHENNAI) held that the property acquired in the name of Karta is entitled for the deduction u/s 54F of the Act. - Decided in favour of assessee

Summary

Issues:
- Reopening of assessment under section 148 of the Income Tax Act, 1961
- Disallowance of deduction claimed under section 54F of the Act
- Appeal against the order of the Commissioner of Income Tax-3
- Interpretation of property ownership in the context of HUF and individual co-parcener
- Application of section 54F for deduction in case of property acquisition by co-parcener
- Comparison with similar cases for deduction eligibility

Reopening of Assessment:
The appeal was filed against the order of the Commissioner of Income Tax-3 (CIT(A)) following the reopening of the assessment under section 148 of the Income Tax Act, 1961. The assessing officer reopened the assessment after a search under section 132 revealed undisclosed sale consideration of a property by the assessee. The assessing officer brought to tax the assessee's share of capital gains, leading to the dispute.

Disallowance of Deduction under Section 54F:
The primary contention revolved around the disallowance of the deduction claimed by the assessee under section 54F of the Act. The assessing officer rejected the deduction on the grounds that the property was purchased in the name of an individual co-parcener and not in the name of the HUF. The assessing officer maintained that the property needed to be acquired by the HUF, not the individual co-parcener, leading to the disallowance of the exemption under section 54F.

Appeal and Interpretation of Property Ownership:
The assessee appealed before the CIT(A) against the assessing officer's decision, which was subsequently confirmed. The appeal before the Tribunal argued that the property was acquired by a co-parcener with funds partly sourced from the HUF and partly from borrowed funds. The contention was that the property was intended to be transferred to the HUF after repayment of the loan, as per a memorandum of understanding. The Tribunal analyzed the ownership structure and the nature of the property in the context of HUF and individual co-parcener.

Application of Section 54F and Comparison with Similar Cases:
The Tribunal considered the application of section 54F for deduction in the case of property acquisition by a co-parcener. It referenced a similar case before the ITAT, Chennai bench, where it was held that the property acquired in the name of the Karta (co-parcener) was entitled to the deduction under section 54F. The Tribunal concluded that the facts of the instant case aligned with the precedent, allowing the deduction under section 54F for the assessee. The decision was based on the principle that the property belonged to the HUF, even when registered in the name of an individual co-parcener.

In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the orders of the lower authorities and directing the assessing officer to grant the deduction under section 54F of the Act. The judgment highlighted the interpretation of property ownership within an HUF, the eligibility for deductions under section 54F, and the relevance of precedents in determining tax liabilities in such cases.