1985 (9) TMI 102 - AT - Income Tax

Summary

Issues Involved:
1. Inclusion of capital gains of Rs. 34,425 in the total income of the assessee.
2. Applicability of Section 54 of the Income-tax Act, 1961.
3. Applicability of Section 47(ii) of the Income-tax Act, 1961.
4. Validity of the partition deeds dated 27-3-1973 and 7-7-1978.

Detailed Analysis:

1. Inclusion of Capital Gains of Rs. 34,425 in the Total Income of the Assessee:
The primary issue in this appeal is whether the capital gains of Rs. 34,425 should be included in the total income of the assessee. The assessee, an HUF, originally filed a return showing a one-fourth share of the self-occupied property income from 1-4-1978 to 30-6-1978 and claimed a benefit under section 54 of the Income-tax Act, 1961. However, a revised return was later filed, showing capital gains of Rs. 34,425 from the transfer of the Panchavati property. The ITO included this amount in the total income of the assessee, which was upheld by the AAC.

2. Applicability of Section 54 of the Income-tax Act, 1961:
The assessee claimed that the benefit of section 54 should be available, arguing that the capital gains should be exempt from tax as the proceeds were used to construct a property for self-residence. However, this claim was not the focal point of the Tribunal's decision, which primarily revolved around the applicability of section 47(ii).

3. Applicability of Section 47(ii) of the Income-tax Act, 1961:
The assessee contended that no capital gains arose from the transaction as it was covered under section 47(ii), which exempts certain transfers from the purview of section 45. The Tribunal, however, found that the provisions of section 47(ii) were not applicable. The Tribunal noted that the partition deed dated 27-3-1973 had already effected a partition of the Panchavati property, and the subsequent deed dated 7-7-1978 was essentially a transaction where two of the sons relinquished their shares for a consideration. Therefore, the Tribunal held that the transaction amounted to a transfer, making section 45 applicable.

4. Validity of the Partition Deeds Dated 27-3-1973 and 7-7-1978:
The Tribunal analyzed the deeds executed on 27-3-1973 and 7-7-1978. The deed dated 27-3-1973 was considered a valid partition deed, where each of the four sons of the late Shri Chinubhai had a one-fourth share in the Panchavati property. This partition was recognized in the subsequent assessment years, with each son showing one-fourth share of the property income in their HUF returns. The deed dated 7-7-1978 was viewed as a transaction where two sons (Shri Jitendra and Shri Surendra) took over the shares of the other two sons (Shri Bharatbhai and Shri Dilipbhai) for a consideration of Rs. 1,50,000. The Tribunal concluded that this transaction amounted to a transfer, making the provisions of section 45 applicable.

Conclusion:
The Tribunal dismissed the appeal, upholding the inclusion of capital gains of Rs. 34,425 in the total income of the assessee. The Tribunal found that the provisions of section 47(ii) were not applicable, as the transaction involved a transfer of shares for consideration. The partition deed dated 27-3-1973 was considered a valid partition, and the subsequent deed dated 7-7-1978 was viewed as a transfer transaction, thereby attracting the provisions of section 45.