Assessment under section 147 of property held by HUF in the hands of individual is bad in law
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Case Details: |
Alugaddala Kistaiah Vs. ITO |
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Appeal No.: |
ITA No. 1778/Hyd/2019 |
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Order Pronounced by: |
ITAT Hyderabad |
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Date of Order: |
28-05-2021 |
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Assessment Year: |
2010-11 |
Brief Facts:
- The assessee had acquired lease rights over the property on 30-06-1950 by virtue of Settlement and Arrangement deed dated 30-06-1950 and consequent to the demise of his father in the year 1955, the assessee, his mother and two sisters were left behind as heirs and legal representatives.
- The A.O. observed that the assessee’s mother and two sisters gave no objection for conversion of the leasehold rights to freehold rights over the property as also the conveyance of the property in favour of the assessee. Accordingly, the Estate Officer, Secunderabad converted the leasehold rights to freehold rights in favour of the assessee.
- The A.O. observed that prior to conversion of leasehold rights into freehold rights, the assessee had no right to sell the property and therefore, the assessee became the absolute owner of the property on 28-01-2009 (date of conversion of leasehold right to freehold rights). Therefore, he held that capital gain arising on the sale was short term capital gain.
- The assessee preferred appeal before the CIT (A) contending that the property was a HUF property and therefore, the capital gain has arisen in the hands of the HUF and not the assessee individual. It was also contended that the capital gain which has arisen is not short-term capital gain, but it is long-term capital gain. The CIT (A) granted partial relief to the assessee by holding that the gain from sale of property is LTCG and not STCG.
Submission by Assessee:
- The learned counsel for the assessee drew attention to the sale deed/ conveyance deed dated 08-04-2009 to demonstrate that the assessee had acquired property from his father in 1955 i.e. even prior to the promulgation of the Hindu Succession Act in 1956.
- Since, the assessee was a male Hindu and he had inherited the property prior to coming into force of Hindu Succession Act 1956, automatically he became a member of HUF and accordingly, the property of the assessee has become HUF property and it continued to be so till it was transferred by way of agreement of sale and thereafter execution of sale deed dated 08-04-2009.
- Therefore, the income should have been assessed in the hands of HUF and not in the hands of the assessee individual.
ITAT Observations:
The position of the existence and devolvement of ancestral properties on the HUF before and after the promulgation of Hindu Succession Act in 1956 has been considered by the Hon’ble High court in the case of Vinod Chopra vs. Vasudev Chopra and another in CS(OS) No. 2588/2011 dated 22-03-2011. The relevant paras are reproduced (summarised) hereunder:
- An HUF can also exist if paternal ancestral properties are inherited prior to 1956 and such status of parties qua the properties has continued after 1956 with respect to properties inherited prior to 1956 from paternal ancestors. Once that status and position continues even after 1956; of the HUF and of its properties existing; a coparcener etc. will have a right to seek partition of the properties.
- Even before 1956, an HUF can come into existence even without inheritance of ancestral property from paternal ancestors, as HUF could have been created prior to 1956 by throwing individual property into a common hotchpotch. If such an HUF continues even after 1956, then, in such a case a coparcener etc. of an HUF was entitled to partition of the HUF property.
ITAT Verdict:
- It can be seen that prior to the enactment of Hindu Succession Act, 1956, the ancestral property became the HUF property and after the said Act, the ancestral property becomes the self-acquired property of the person on whom it devolves.
- In the instant case, it is clear that the property was inherited by the father of the assessee in 1952 and was also conveyed to the assessee after the death of his father in 1955 i.e. before coming into force of Hindu Succession Act, 1950.
- Accordingly, the property belongs to the HUF of the assessee and not to the assessee individual. Therefore, the assessment order itself is liable to be quashed.
