2019 (12) TMI 1177 - AT - Income Tax

Capital gain on property inherited - Exemptions u/s 54F and 54B - inheritance of property of an individual who dies intestate after the introduction of Hindu Succession Act 1956 - AO considering the property as HUF property of the respective assessee - HELD THAT - We find that undoubtedly the land in question was inherited by the assessee and his family members on the death of their predecessor. In the case of Yudhishter Vs. Ashok Kumar 1986 (12) TMI 380 - SUPREME COURT has clearly held that after Hindu Succession Act 1956 when the son inherited the property in the situation contemplated by section 8 he does not take it as Kartha of his own undivided family but takes it in his individual capacity. In the case of Uttam Vs. Saughag singh Ors 2016 (3) TMI 1369 - SUPREME COURT the Hon ble Supreme Court has held that the share of the Hindu male coparcener is governed by the proviso to section 6 of Hindu Succession Act and a partition is effected by operation of law immediately before his death and in this partition all the coparceners and the Hindu Male s widow get a share in the joint family property. On the application of section 8 of the Act it was held that such property would devolve only by intestacy and not survivorship. It was also held that after the joint family property has been distributed in accordance with section 8 on the principles of intestacy the joint family property ceases to be joint family property in the hands of the various persons who have succeeded to it as they hold the property as tenants in common and not as joint tenants. Thus the above decisions of the Hon ble Supreme Court on the inheritance of property of an individual who dies intestate after the introduction of Hindu Succession Act 1956 hold that on the death of the Hindu Male the property devolves on the heirs in their individual capacity and ceases to be the HUF property. Respectfully following said decision we hold that the property inherited by the respective assessees is their individual property and therefore the capital gains if any is exigible to tax in their individual hands alone. Whether the said property is a capital asset u/s 2(14) - It is not required to be adjudicated at this stage as it has already been decided by the coordinate bench of this Tribunal in the assessee s case in the earlier round of litigation that it is a capital asset u/s 2(14) of the IT Act. Thus the grounds of appeal on this issue in the case of all the assessee s are rejected. Claim of deduction u/s 54B - We find that the AO and CIT(A) have not really examined the allowability of such claim by holding the assessee to be an HUF and held that deduction u/s 54B is allowable only in the case of individuals. Further with regard to the claim of deduction u/s 54F also the AO has not gone into the details of the investment made in the residential property and whether the conditions of section 54F are fulfilled by the respective assessees. Therefore we are of the view that the grounds of appeal on the issue of deduction under sections 54F and 54B needs reconsideration afresh by the AO. Therefore they are set aside to the file of the AO and the grounds are treated as allowed for statistical purposes. Expenditures claimed as incurred towards sale of their land the assessees have not been able to provide any evidence in support of such claim and therefore disallowance of such claim is confirmed in each of the cases. All the appeals of the assessees are treated as partly allowed and only as regards the claim u/s 54F 54B they are are set aside to the file of the AO.

Issues Involved:
1. Determination of whether the land sold is a capital asset under section 2(14) of the Income Tax Act.
2. Assessment of capital gains in the hands of the Hindu Undivided Family (HUF) versus individual capacity.
3. Allowability of deductions under sections 54F and 54B of the Income Tax Act.
4. Validity of the notice issued under section 148 to a non-existing HUF.
5. Disallowance of expenditures claimed towards the sale of land.

Detailed Analysis:

1. Determination of Capital Asset under Section 2(14):
The primary issue was whether the land sold by the assessee qualifies as a capital asset under section 2(14) of the Income Tax Act. The Appellate Tribunal (ITAT) had previously ruled that the land in question is a capital asset within the meaning of section 2(14) of the Act. Consequently, this issue was not required to be adjudicated again as it had already been decided in favor of the revenue.

2. Assessment of Capital Gains in the Hands of HUF versus Individual Capacity:
The Assessing Officer (AO) treated the land as HUF property and assessed the capital gains in the hands of the HUF. However, the assessee contended that the property was inherited and, following the Hindu Succession Act, 1956, it should be considered individual property. The Tribunal referred to various case laws, including CWT Vs. Mukundgiriji and Yudhishter Vs. Ashok Kumar, which held that after the Hindu Succession Act, 1956, inherited property is held by individuals in their capacity and not as HUF property. The Tribunal concluded that the property inherited by the respective assessees is their individual property and capital gains should be taxed in their individual hands.

3. Allowability of Deductions under Sections 54F and 54B:
The AO had disallowed the deductions under sections 54F and 54B on the grounds that the property was HUF property and section 54B applies only to individuals. The Tribunal found that the AO and CIT(A) had not examined the allowability of these claims properly. The Tribunal set aside these issues to the file of the AO for reconsideration, directing a fresh examination of whether the conditions for deductions under sections 54F and 54B were fulfilled by the respective assessees.

4. Validity of Notice Issued under Section 148 to a Non-Existing HUF:
The assessee argued that the notice issued under section 148 was invalid as it was issued to a non-existing HUF. However, the Tribunal did not provide a specific ruling on this issue in the judgment summary provided.

5. Disallowance of Expenditures Claimed Towards Sale of Land:
The AO had disallowed the expenditures claimed by the assessees towards the sale of their land due to lack of evidence. The Tribunal confirmed the disallowance of such claims as the assessees failed to provide sufficient evidence to support their expenditure claims.

Conclusion:
The appeals were partly allowed. The Tribunal held that the property inherited by the assessees is their individual property, and capital gains should be taxed in their individual hands. The issues related to deductions under sections 54F and 54B were set aside to the AO for fresh examination. The disallowance of expenditures claimed towards the sale of land was confirmed due to lack of evidence. The Tribunal did not specifically rule on the validity of the notice issued under section 148 to a non-existing HUF.

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