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2021 (9) TMI 395 - AT - Income TaxLong Term Capital Gains on sale of property - to be taxed in hands of assesses OR HUF - Assessment after partition of a Hindu undivided family - HELD THAT - As stated by the ld. A.R, and rightly so, the provisions of sub-section (1) and sub-section (9) of Sec. 171 of the Act would stand invoked only in a case of a HUF hitherto assessed as undivided. On being queried as to whether or not the HUF in question, viz. Sajal Kar, HUF was assessed under the Act, the ld. D.R answered in the negative. In the backdrop of the aforesaid factual matrix, we concur with the claim of the ld. A.R that as the HUF in question, viz. Sajal Kar, HUF was not hitherto assessed under the Act, therefore, the provisions of Sec. 171 of the Act would not stand triggered. As the assessee‟s HUF, viz. Sajal Kar, HUF had not been hitherto assessed under the Act, therefore, it could not have been brought within the realm of the provisions of Sec. 171 of the Act - See KANTILAL AMBALAL (HUF) 1991 (6) TMI 58 - GUJARAT HIGH COURT - thus we vacate the order of the CIT(A) to the extent he had concluded that the transaction of transfer of the property in question was liable to be assessed in the hands of the Sajal Kar, HUF and not in the hands of the assessee before us. Deduction u/s 54 - Partial deduction - effect of Joint ownership - CIT(A) restricted the assessee‟s claim for deduction to 50% of the investment made by him towards purchase of the new property - claim of the ld. A.R that as the source of the investment in the new property was made to the last of paisa by the assessee, therefore, the CIT(A) had wrongly restricted the assessee‟s claim for deduction u/s 54 to 50% of the investment that was made by him towards purchase of the new residential house - HELD THAT - No infirmity arises from the order of the CIT(A) who taking cognizance of the aforesaid fact of joint ownership of the new residential property had restricted the assessee‟s claim for deduction u/s 54 of the Act to 50% of the total investment therein made. On a perusal of Sec. 54 of the Act, we find that the same specifically contemplates the purchase/construction of the new residential house within a stipulated time period by the assessee - we concur with the view taken by the CIT(A) that though the investment in the new residential property was made by the assessee, however, as the same was jointly purchased in the name of the assessee and his wife, therefore, the assessee‟s claim for deduction u/s 54 was liable to be restricted to the extent of his ownership in the property in question i.e 50% of the investment therein involved. Our aforesaid conviction is supported by the judgment of the Hon‟ble High Court of Bombay in the case of Prakash Vs. Income Tax Officer Ors. 2008 (9) TMI 234 - BOMB.AY HIGH COURT . Capital gain computation - Denial of additional cost with respect to the aforesaid property - solitary basis to support the claim that the assessee had incurred an amount towards providing of various amenities as regards the property in question is a letter dated 5th December, 1985 - HELD THAT - We are unable to comprehend as to how a letter dated 5th, December, 1985 would have an embossing dated 29th JUNE, 1982 . Apart from that, we find that Page 25 (backside of the letter) dated 5th December, 1985 clearly states that the same had been confirmed by the assessee, viz. Shri Sajal Kar at Bombay on 5th Day of June, 1985 . On a careful perusal of the aforesaid letter, we find that the date 5th Day of June, 1988 appears not only in the typed version but also is found to have been hand written. Although, the document is illegible, however, the same is claimed to have been notarised on 5th June, 1988. In the backdrop of the aforesaid serious doubts which are apparently glaring on the very face of the aforesaid document, we are of the considered view that the same would require verification on the part of the A.O. Accordingly, we herein direct the assessing officer to call for the original document and make necessary verifications. Quantifying the assessee's claim for deduction u/s 54 - declining claim for considering the brokerage expenses as a part of the cost of acquisition‟ of the new residential property that was purchased by him - HELD THAT - Assessee of having incurred the aforementioned expenses in respect of purchase of the new residential property stands proved to the hilt, therefore, there was no justification on the part of the CIT(A) to have not considered the same as a part of the cost of acquisition‟ of the new residential property that was purchased by the assessee while quantifying his claim for deduction u/s 54 of the Act. Accordingly, not finding favor with the view taken by the CIT(A), we herein set-aside the same and direct the A.O to consider the brokerage expenses while computing the assessee‟s claim for deduction u/s 54. As the assessee‟s claim for deduction u/s 54 of the Act is to be restricted to the extent of 50% of the total investment, therefore, as a consequence thereto the entitlement of the assessee towards claim for deduction of the aforesaid amount of brokerage expense would also stand restricted to the said extent i.e 50%. Disallowing the cost as incurred by the assessee towards purchase of property, viz. VAT, Service tax and Extra work done - HELD THAT - Aforesaid claim of the assessee cannot be safely gathered on a perusal of the aforementioned documents. Although, we are principally in agreement with the ld. A.R, and are of the considered view, that if the aforementioned amounts had been borne by the assessee qua the purchase of the new residential house, then, the same ought to have been considered as a part of the investment made by the assessee. Accordingly, in all fairness, we deem it fit to restore the issue to the file of the A.O who shall after making necessary verifications readjudicate the aforesaid claim of the assessee. Disallowing claim towards cost of improvement‟ of the property that was incurred by him in the financial year 2003-04 for rendering it habitable - HELD THAT - No justification as to why the assessee‟s claim for expenditure qua such items which form part of the property itself was not to be considered as an expenditure incurred by the assessee towards improvement of the property in question. At the same time, we are unable to accept the claim of the assessee that expenditure incurred by him towards double bed repair, shoe cabinet, box grills, sofa repairs, upholstery repair, split air conditioner, dining chairs, wall painting etc. were also to be allowed as a part of the expenditure incurred for improvement of the property. As the very nature of the aforesaid expenses so reveals, the same are clearly in the nature of items which can by no means be held as a part of the property but are in the nature of independent items which had been put to use by the assessee for a better enjoyment of the property under consideration. Insofar the aforesaid expenses are concerned, we concur with the view taken by the CIT(A) that the assessee could not have claimed the same as part of the expenditure incurred by him towards improvement of the property in question - modify the order passed by the CIT(A) and direct the A.O to give consequential effect to the same.
Issues Involved:
1. Taxation of Long Term Capital Gains (LTCG) on sale of property. 2. Restriction of deduction claim under Section 54 of the Income Tax Act. 3. Rejection of additional cost of purchase of property. 4. Disallowance of brokerage paid on purchase of new property. 5. Disallowance of costs incurred for purchase of new property. 6. Disallowance of indexed cost of improvement. Issue-wise Detailed Analysis: 1. Taxation of Long Term Capital Gains (LTCG) on Sale of Property: The assessee contended that the LTCG from the sale of a property should be taxed in his individual capacity and not in the hands of the HUF. The property was originally purchased by the HUF but was released to the assessee in 2002 following a partial partition. The CIT(A) had concluded that the property remained with the HUF as per Section 171 of the Income Tax Act, which does not recognize partial partitions after 31.12.1978. However, the Tribunal found that since the HUF was never assessed under the Act, Section 171 did not apply. Consequently, the LTCG should be taxed in the hands of the assessee individually. 2. Restriction of Deduction Claim under Section 54: The assessee claimed a deduction under Section 54 for the entire investment made in a new property. However, the CIT(A) restricted the deduction to 50% because the property was jointly purchased with the assessee's wife. The Tribunal upheld this decision, stating that the deduction under Section 54 is applicable only to the extent of the assessee’s ownership in the new property, which was 50%. 3. Rejection of Additional Cost of Purchase of Property: The assessee claimed an additional cost of ?1,50,000 incurred in 1985 for amenities, which was rejected by the CIT(A). The Tribunal noted discrepancies in the supporting document, such as conflicting dates, and directed the A.O to verify the authenticity of the document. If verified, the assessee would be entitled to the indexed cost of improvement. 4. Disallowance of Brokerage Paid on Purchase of New Property: The assessee claimed brokerage expenses of ?1,91,012 for the purchase of the new property, which was disallowed by the CIT(A) due to lack of evidence. The Tribunal, upon verification of the bank statement and brokerage bill, found the claim to be legitimate. The brokerage expense should be included in the cost of acquisition, but the deduction under Section 54 would still be limited to 50% of the total investment. 5. Disallowance of Costs Incurred for Purchase of New Property: The assessee claimed costs of ?10,20,575, including VAT, service tax, and expenses for extra work done to make the property habitable. The Tribunal held that post-purchase expenses do not qualify for deduction under Section 54, but directed the A.O to verify and consider the service tax and VAT as part of the investment if substantiated. 6. Disallowance of Indexed Cost of Improvement: The assessee claimed expenses of ?11,87,418 incurred in 2003-04 for property improvement. The CIT(A) disallowed this, considering them as routine repairs. The Tribunal differentiated between structural improvements and routine repairs, directing the A.O to allow expenses that form part of the property itself while excluding independent items like furniture and fittings. Conclusion: The Tribunal partly allowed the appeal, directing the A.O to reassess certain claims and confirming the restriction of the deduction under Section 54 to 50% of the investment in the new property. The decision emphasized the importance of substantiating claims with proper documentation and adhering to the legal provisions under the Income Tax Act.
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