2015 (10) TMI 2043 - AT - Income Tax

Disallowance of exemption u/s 54 & 54F - registration of new property in the name of individual or HUF? - CIT(A) aalowed claim - Held that - The facts of this case are squarely covered by the judgement of Vipin Malik (HUF) (2009 (8) TMI 33 - DELHI HIGH COURT) wherein it has been categorically held that when the property is not purchased with the sale proceeds of HUF property in the name of HUF itself, the assessee is not entitled for benefit of exemption u/s 54F of the Act. Since in the instant case the property was also not purchased with the sale proceeds of HUF property, the assessee is not entitled for benefit u/s 54F of the Act. Since Shri Sunil Arora and Mrs. Vaishali Arora vendee of sale deed dated 03.06.2008 of the property at Sushant Lok, Phase I, have become absolute owner in their individual capacity, they are estopped by their own act and conduct from ceremonially declaring the said property as HUF property apparently for claiming tax benefit. Merely because of the fact that part of sale proceeds of HUF property have been invested in purchasing the Sushant Lok Property, the same cannot be treated as HUF property in any manner whatsoever. Because substantial part of investment on the purchase of new property, that too in the individual name of Sunil Arora and his wife Smt. Vaishali Sunil, have been made from other sources. Merely because of the fact that the property purchased is recorded as the asset in the statement of affairs of HUF and the loan from ICICI bank as a liability, the same cannot be considered as HUF property as the same was never purchased by Sunil Arora (HUF) and the statement of affairs is a document prepared by the assessee as an afterthought to claim exemption u/s 54F of the Act. In the instant case, assessee is strictly Sunil Arora HUF when the capital gain has been invested to purchase the other property in the individual names of Sunil Arora and Vaishali Sunil to the prejudice of other members of HUF, no benefit u/s 54F can be extended. he intention of legislature to legislate Section 54 and 54F is to ensure the reinvestment of funds in residential property by the assessee itself. But in the instant case, basic condition to get the benefit of Section 54 and 54F has not been complied with as the funds raised from the sale proceeds of HUF property have been invested by the members to purchase the property in their individual names, which does not fall in the category of assessee i.e. Sunil Arora (HUF) - Decided against assessee.

Issues Involved:
1. Deletion of disallowance of exemption claimed under Section 54 and 54F of the Income Tax Act, 1961.
2. Registration of new property in the name of individuals instead of HUF.

Detailed Analysis:

Issue 1: Deletion of disallowance of exemption claimed under Section 54 and 54F of the Income Tax Act, 1961

The appellant, Income Tax Officer, challenged the order of CIT(A) which allowed the exemption claimed by the assessee under Sections 54 and 54F of the Income Tax Act, 1961. The assessee, M/s Sunil Arora (HUF), had shown long-term capital gains and claimed exemptions under the aforementioned sections. However, the Assessing Officer (A.O.) disallowed these exemptions on the grounds that the new property was not registered in the name of the HUF but in the name of the individual Karta and his wife.

The Tribunal analyzed the facts and circumstances, noting that the sale consideration for the new residential property was partly paid from the sale proceeds of the original HUF property and partly from a loan financed by ICICI Bank in the names of Sunil Arora and his wife. The Tribunal referred to the judgment of the Hon'ble Delhi High Court in Vipin Malik (HUF) Vs CIT, which established that the property must be purchased in the name of the HUF to claim exemptions under Section 54F. Since the property was not purchased in the name of the HUF, the Tribunal concluded that the assessee was not entitled to the benefit of these exemptions.

Issue 2: Registration of new property in the name of individuals instead of HUF

The Tribunal emphasized that the HUF has a separate and distinct status under the Income Tax Act, 1961. It was observed that the new property was registered in the names of Sunil Arora and his wife, making them the absolute owners in their individual capacities. The Tribunal held that this registration precluded the property from being considered an HUF asset, regardless of the fact that part of the sale proceeds from the HUF property was used for its purchase.

The Tribunal also noted that merely recording the property in the statement of affairs of the HUF and listing the ICICI loan as a liability did not suffice to classify the property as an HUF asset. The Tribunal found that these actions were likely taken as an afterthought to claim tax exemptions.

The Tribunal further distinguished the case from CIT vs Dinesh Megji Toprani (HUF) and ITO Vs Ramesh Kumar (HUF), noting that in those cases, the properties were purchased directly from HUF accounts and were assessed as HUF assets, which was not the situation in the present case.

Conclusion:

The Tribunal concluded that the CIT(A) had erred in deleting the disallowance of the exemption claimed under Sections 54 and 54F. The Tribunal set aside the impugned order, emphasizing that the legislative intent of Sections 54 and 54F is to ensure the reinvestment of funds by the assessee itself, which was not complied with in this case. Consequently, the appeal filed by the revenue was allowed, and the order of the CIT(A) was set aside.

Order:

The appeal filed by the revenue was allowed, and the impugned order passed by the CIT(A) was set aside. The Tribunal pronounced the order in the open court on 14th September 2015.

← Previous Next →