2021 (7) TMI 976 - AT - Income Tax

Deduction u/s 54B - Agriculture land purchased in the name Individual on behalf of HUF - Sale of agriculture land owned by HUF - Rejection of claim in respect of purchase of agricultural land against the LTCG eligible for deduction u/s.54B - Assessee is Hindu Undivided Family - HELD THAT - Entire purchase consideration for agricultural land was paid by utilizing money of HUF. We note that Purchase Deed is in the name of the Coparcener ( one of the HUF members). However, the property (land) is owned by HUF. The property (land) is shown in the Balance Sheet of HUF. The Co-parcerner of the HUF may hold property on behalf of the HUF. The HUF money was utilized to purchase the said agricultural land. HUF is doing agricultural activities - in case of a company, a property may be registered in the name of the Director, because company is an artificial person which can not talk, walk and think, however, the Directors do all the activities on behalf of the Company, therefore, just because property is registered in the name of director does not mean that director is owner in substance. In substance, the Company will be treated as owner of the property. Likewise, HUF is also an artificial person which can not talk, walk and think, however, the Coparceners (member of HUF) do all the activities on behalf of the HUF. In substance, the HUF is owner of the said agricultural land though it is registered in the name of the Coparcener, as the HUF is enjoying all the fruits of the said agricultural land. Thus, the HUF is entitled to claim exemption/deduction under section 54B - Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of the claim for the purchase of agricultural land against the Long-Term Capital Gain (LTCG) eligible for deduction under Section 54B of the Income Tax Act, 1961.
2. Ownership and registration of property in the context of Hindu Undivided Family (HUF) law and the Income Tax Act.

Detailed Analysis:

Issue 1: Rejection of Claim for Deduction under Section 54B
The primary grievance of the assessee was the rejection of their claim for deduction under Section 54B of the Income Tax Act, 1961. The assessee, a Hindu Undivided Family (HUF), declared income from long-term capital gains on the sale of property and claimed an exemption under Section 54B for the purchase of new agricultural land. The Assessing Officer (AO) disallowed the exemption on the grounds that the property was registered in the name of an individual coparcener and not the HUF, despite the funds for the purchase being provided by the HUF.

Issue 2: Ownership and Registration of Property
The AO argued that the Hindu Succession Act was not applicable because the property was registered in the name of an individual with their PAN, and thus, could only be sold by that individual. The AO concluded that the property did not belong to the HUF and disallowed the exemption under Section 54B.

Tribunal's Findings:

Analysis of Ownership and Registration
The Tribunal examined whether the property purchased with HUF funds and shown in the HUF's books, but registered in the name of a coparcener, could still qualify for the exemption under Section 54B. The Tribunal noted that the HUF had shown agricultural income in its returns, and the funds for the purchase were transferred from the HUF's bank account to the individual's account.

Legal Precedents and Interpretation
The Tribunal referred to multiple legal precedents, including the case of CIT vs. K. S. Subbiah Pillai HUF, which established that property acquired with HUF funds is considered HUF property. It also cited the Punjab & Haryana High Court's ruling in Gurnam Singh, which allowed a deduction under Section 54B even when the property was registered in the name of the assessee's son, provided the land was used for agricultural purposes by the assessee.

Application of Section 54B
Section 54B provides an exemption for capital gains arising from the transfer of agricultural land if the proceeds are used to purchase new agricultural land within two years. The Tribunal emphasized that the HUF, as an artificial person, conducts its activities through its members. Thus, the purchase of agricultural land by a coparcener on behalf of the HUF does not negate the HUF’s ownership.

Conclusion
The Tribunal concluded that the purchase of agricultural land by the coparcener using HUF funds and shown in the HUF's balance sheet qualifies for the exemption under Section 54B. It stated that the HUF is entitled to the exemption even if the property is registered in the name of an individual member, as the HUF enjoys the benefits of the property.

Judgment:
The Tribunal allowed the appeal of the assessee, overturning the decisions of the Assessing Officer and the CIT(A). It held that the HUF is entitled to claim the deduction under Section 54B of the Income Tax Act, 1961, for the purchase of agricultural land, even if the land is registered in the name of a coparcener, provided the funds used were from the HUF and the property is shown in the HUF's accounts.

The appeal was pronounced in favor of the assessee on 08/07/2021 in the Virtual Court of hearing.