2021 (5) TMI 350 - AT - Income Tax

Clubbing of income - addition of portion of sales consideration related to wife and mother of assessee u/s 64(1) - Sale of property - whether sale consideration is to be divided only between two persons? - AO observed that the sale consideration was distributed among 4 persons , whereas the cost of purchase was borne by two persons only - CIT(A) confirmed the addition on a different ground by stating that the addition should have been made under Section 64(1) of the Act by applying clubbing provisions - HELD THAT - There is no dispute that all the four persons had come forward to sign the agreement of sale dated 20.1.2015 pursuant to which , capital gains became assessable. There is no dispute that the flats were ultimately sold together with the rights in leasehold property , rights in membership etc which were owned by all the four persons and which remained with the individuals and were never transferred to the firm. Logically the sale consideration is to be distributed between four persons. In view of that, a portion of sale consideration is required to be assigned to the rights of membership etc which were not given to the firm. Therefore, there is no transfer from husband to wife of any right or any value. In view of that no value can be assigned under Section 64(1) of the Act by applying clubbing provisions thereon. Moreover, we find that the ld CITA grossly erred in applying the clubbing provisions u/s 64(1) of the Act even for mother. Admittedly, as per law, the same could be applied only for spouse and for son s wife. Hence the addition sustained by the ld CIT(A) deserves to be deleted on this count itself. We find from the income tax returns of Smt. Krishna Ved and Smt Krupa Ved for the Asst Year 2015-16, which are forming part of the paper books filed before us, they had duly disclosed the capital gains attributable to their share without claiming any deduction towards cost of acquisition. We find from the computation of income for the Asst Year 2015-16 of both the ladies, that they were conscious of their income tax obligations and had duly disclosed the share of their sale consideration as long term capital gains (without any cost) and had duly claimed deduction u/s 54EC of the Act by making reinvestment in eligible bonds. We find that the ld AR submitted that the returns filed by two ladies have been accepted by the department. Hence there is no need to bring to tax the very same sale consideration in the hands of assessee herein, inclusion of which , would only result in double taxation. Hence we hold that the entire addition made in the hands of the assessee is hereby directed to be deleted and grounds 1 2 raised by the assessee are allowed.

Issues:
1. Justification of confirming the addition made on account of sale consideration of property.
2. Application of clubbing provisions under Section 64(1) of the Income Tax Act.
3. Chargeability of interest under Section 234C of the Act.

Issue 1: Addition on Sale Consideration of Property
The appeal in ITA No.1103/Mum/2019 for A.Y.2015-16 questioned the confirmation of the addition made on the sale consideration of property amounting to ?44,63,434. The assessee, an individual and Director of a company, had filed returns showing various sources of income. The dispute arose from the sale of premises and rights in a society to a buyer. The Assessing Officer (AO) observed that the sale consideration was divided among four persons, while the cost of purchase was borne by only two individuals. Consequently, the AO reworked the capital gains chargeable, leading to the disputed amount of ?44,63,434. However, the Tribunal found that the sale consideration should logically be distributed among all four individuals involved, as they collectively owned the rights in the property. It was noted that the two ladies involved had disclosed their capital gains in their tax returns for the same year, without claiming any deduction for the cost of acquisition. Therefore, the Tribunal directed the deletion of the entire addition, as inclusion in the assessee's hands would result in double taxation.

Issue 2: Application of Clubbing Provisions
The CIT(A) had confirmed the addition under Section 64(1) of the Act by applying clubbing provisions. However, the Tribunal disagreed with this approach. It was established that the rights over the property belonged to all four members of the family, and the sale consideration should be divided accordingly. The Tribunal highlighted that the clubbing provisions could not be applied to the mother, as they are generally applicable to spouses and son's wives. Additionally, it was emphasized that the two ladies had already disclosed their capital gains in their tax returns, making any further inclusion in the assessee's hands unnecessary. Therefore, the Tribunal ruled that the addition sustained by the CIT(A) should be deleted.

Issue 3: Chargeability of Interest
Grounds 3 & 4 raised by the assessee pertained to the chargeability of interest under Section 234C of the Act. The Tribunal noted that interest under this section is consequential and is always calculated on the returned income, not the assessed income. As the appeal was allowed in favor of the assessee regarding the primary issues, the chargeability of interest under Section 234C was also addressed in a manner consistent with the overall decision.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the deletion of the addition made on the sale consideration of the property and addressing the issue of clubbing provisions under Section 64(1) of the Act. The chargeability of interest under Section 234C was also discussed in light of the overall decision.

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