2019 (2) TMI 347 - AT - Income Tax

Assessment of capital gain - taxable in the hands of assessee or in the hands of HUF - purchase of family property - whether the property belongs to Hindu Undivided Family even though the document was registered in the names of minor children of Karta - Held that - On the date of purchase, the assessee and his brother were admittedly minors and they had no independent source of income. The income generated out of family business was invested in the property in question. The assessee being one of the coparceners, the property was purchased by his father in the name of the assessee and his brother. It is also not in dispute that the property in question was mortgaged for borrowing loan for the family business. Therefore, this Tribunal is of the considered opinion that the property in question belongs to Hindu Undivided Family Under the Income-tax Act, Hindu Undivided Family is a separate and independent assessable unit. Since the property belongs to Hindu Undivided Family and the Hindu Undivided Family is an independent and separate assessable unit under the Incometax Act, this Tribunal is of the considered opinion that the gain arising out of sale of property has to be assessed only in the hands of Hindu Undivided Family and definitely not in the hands of individual coparcener. The assessee and his brother are individual coparceners. Therefore, there cannot be any capital gain assessment in respect of the property belonging to the Hindu Undivided Family in the hands of the assessee - Decided in favour of assessee.

Summary

Issues:
Assessment of capital gain on the property sold by the assessee.

Analysis:
The appeal was against the order of the Commissioner of Income Tax (Appeals) regarding the assessment of capital gain for the year 2010-11. The property in question was purchased by the father of the assessee in the name of the assessee and his brother when they were minors and had no independent income. The property was initially part of a family business and was later mortgaged for a loan. The business faced financial difficulties, leading to the property being sold to settle debts. The Assessing Officer found the property was sold for a certain amount, triggering a capital gain tax assessment on the assessee. The representative argued that the property belonged to the Hindu Undivided Family and the capital gain should be assessed at that level or in the father's name, not the individual assessee.

The Departmental Representative contended that the entire sale amount paid towards the business loan did not exempt the assessee from capital gain tax liability. The CIT(Appeals) upheld the capital gain tax decision of the Assessing Officer, emphasizing the tax liability on the gain from the property sale. The Tribunal analyzed the property's ownership, noting it was purchased by the father for the family and mortgaged for business purposes. As Hindu Undivided Family is a separate assessable unit under the Income-tax Act, the gain from the property sale should be assessed at the Hindu Undivided Family level, not the individual coparceners. Therefore, the Tribunal set aside the decisions of the lower authorities and deleted the capital gain tax assessment on the assessee.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing that the capital gain tax should be assessed at the level of the Hindu Undivided Family to which the property belonged, rather than on the individual coparceners. The judgment highlighted the distinction between ownership under common law and tax law, ultimately ruling in favor of the assessee and overturning the previous tax assessments.