Income Tax Appellate Tribunal - Bangalore
S.K. Pushpa, Davangere vs Assessee
Page 1 of 15 1 ITA No.1438/Bang/2008
IN THE INOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH 'A'
BEFORE SMT. P MADHAVI DEVI, J.M. AND
SHRI A MOHAN ALANKAMONY, A.M.
ITA No.1438/Bang/2008
(Asst. year 2004-05)
Smt. S K Pushpa,
D.No.38, Smanuru Village,
Davangere. -Appellant
Vs
The Income Tax Officer,
Ward-2, Davangere. - Respondent
Appellant by : Shri S Venkatesan, C.A.
Respondent by : Shri Prabhakar Reddy, Addl. CIT
ORDER
PER P MADHAVI DEVI :
This appeal is filed by the assessee against the order of the CIT(A), Hubli dated 1/8/2008 for the asst. year 2004-05.
2. In this appeal, the assessee is aggrieved by the order of the CIT(A) in confirming the order of the AO that the assessee is liable to pay capital gains tax in her individual capacity. In addition to this, the assessee has also challenged the order of the CIT(A) in holding that the notice u/s 148 of the Act issued on the assessee is valid in law.
Page 2 of 15 2 ITA No.1438/Bang/2008
3. Brief facts of the case are that the assessee is an individual and is a housewife with no other source of income. During the relevant asst. year, the assessing authority received information from the National Highway Authority of India (NHAI) that the assessee has received compensation of Rs.21,96,274/- on 7.6.2003 and 2.7.2003 on account of acquisition of lands at Survey Nos.169/2A, 5C and 5D admeasuring 15246 sq ft at Shamanur village, Davangere Municipality. Consequent to the said information, the AO issued a notice u/s 142(1) on 15.2.2005 calling for the return of income for asst. year 2004-05. In response to the said notice, the assessee filed a return on 31.3.2005, declaring a total income of Rs.45,000/- in her individual status. The assessee did not declare capital gains arising from the acquisition of lands by NHAI in the return filed by her on 31.3.2005. The AO observed from the copy of partition deed and assessee's letter dated 17.8.2005 that the lands were acquired by late Channappa, i.e., the father-in-law of the assessee and father of Shri S K Lingaraj and he died intestate on 14.7.1971. By following the decision of the Hon'ble Supreme Court in the case of CIT v Chander Sen 161 ITR 370, wherein it was held that the HUF or self acquired property of father, who died intestate devolves to the son and it takes the character of individual property and not HUF property, the AO held that the above lands at Shamanur has devolved to Shri S K Lingaraj in his individual status and hence, the same is not HUF property. He observed that Mr. S K Lingaraj also died intestate and hence, the property has devolved on Smt. S K Pushpa in her individual Page 3 of 15 3 ITA No.1438/Bang/2008 status only and not in HUF status. He further observed that Smt. S K Pushpa has received the entire consideration and even as per the family partition deed, the amount of Rs.20 lakhs deposited with G S Manjunath has been allotted to her only and the source for the above deposit is sale consideration received from NHAI. He also observed that as per the Khatha extract, all the lands after alienation are standing in the name of Smt. S K Pushpa and hence, she is the owner of all the above properties, as legal heir of Shri S K Lingaraj.
Thereafter, he considered that the landed properties are situated within the municipal limits of Davangere and hence, they are capital assets as defined in section 2(14) of the I T Act and consequently, profits derived from the acquisition of the above lands are liable for capital gains in the hands of Smt. S K Pushpa in her individual status. Since the above lands were acquired before 1/4/1981, he estimated the fair market value as on 1/4/1981 at Rs.1/- per sq ft and computed the capital gains at Rs.21,25,685/-. He therefore issued a notice u/s 148 of the I T Act wherein the assessee was asked to show cause as to why the said income should not be charged to tax.
4. The assessee objected to the same stating that the property belongs to the erstwhile joint family of Shri S K Lingaraj and hence, has to be taxed accordingly. The AO was however not convinced and relying on the decision of the Hon'ble Supreme Court Page 4 of 15 4 ITA No.1438/Bang/2008 in the case of Chander Sen cited supra, he held that Smt. Pushpa is the owner of the lands. Further he observed that there was oral partition of land on 31.3.2004 which is reduced to writing on 31.3.2005 as per which, the same consideration received from NHAI was allotted to Smt. Pushpa and as the erstwhile partition was before the end of the financial year 2003-04, he held that it is allotted to Smt, Pushpa and she is liable to pay capital gains tax.
5. The other objection of the assessee is that the entire consideration cannot be taxed in her hands alone and that her daughter and sons are also the joint owners and it should be taxed in the hands of AOP. The AO rejected this objection also by holding that as per the oral partition, the assessee is the owner of land and is entitled to receive further compensation and also interest and thus liable to tax in her individual capacity only.
6. The AO thus rejected the objection by a speaking order dated 30/10/2006 and proceeded to assess the income of the assessee and arrived at the total income tax payable including surcharge, interest u/s 234A and 234B of the Act at Rs.7,09,160.
7. Aggrieved, the assessee preferred an appeal before the CIT(A).
8. Before the CIT(A), the assessee had challenged the validity of the issue of notice u/s 148 of the Act and also on bringing the entire capital gains to tax in the hands of the assessee Page 5 of 15 5 ITA No.1438/Bang/2008 while in fact, the assessee was only the de-facto Manager of the joint family upon the death of her husband and the property of the husband belonged to the erstwhile joint family of the assessee's husband.
9. The CIT(A) called for a remand report from the AO on the written submissions filed by the assessee and the ITO, Ward- 2, Davangere submitted a report, which was also supplied to the assessee. In the remand report, the AO almost defended the assessment order and no new facts were stated. While the assessee objected to the remand report stating that when her husband died intestate, the property devolved as a joint property amongst all the legal heirs and since the assessee's children were minors at the time of his death, the assessee acted as a care taker and once the children become majors, the HUF will come into existence once again.
10. Without prejudice to the above contention, the learned counsel for the assessee before the CIT(A) also tried to distinguish the facts of her case with that of the facts in the case of Chandrasen (cited supra) and submitted that capital gains tax cannot be levied only in respect of Smt. Pushpa since she is 1/4th shareholder of the property and her daughter and two sons are also liable for 1/4th share each.
11. The CIT(A) however, considered the decision of the Hon'ble Supreme Court in the case of Chandrasen cited supra and Page 6 of 15 6 ITA No.1438/Bang/2008 various other decisions considered by the Hon'ble Supreme Court and held that the property of the deceased Shri S K Lingaraj is held by his widow Smt. S K Pushpa and her minor children and management of property is taken care of by separate set of laws but for the purpose of capital gains, succession of property is necessary to be considered. He therefore directed the AO to assess 1/4th share of the assessee and also assess another 3 shares in the hands of her 3 children for whom Smt. S K Pushpa is a guardian till the age of majority. He also directed the AO to verify once again who are all the class-I legal heirs as per Chapter II, Schedule-1 of Hindu Succession Act as amended in the year 2005 and decide the share of the appellant and thereafter, compute the capital gain. Thus, he partly allowed the appeal.
12. Aggrieved, the assessee is in second appeal before us.
13. As regards the legal ground, the learned counsel for the assessee submitted that once the AO has issued a notice u/s 142(1) of the I T Act and the assessee has filed her return of income, the AO should have completed the proceedings u/s 143(3) and cannot reopen the assessment u/s 147 of the I T Act and therefore, the initiation of proceedings u/s 147 rws 148 is not valid.
14. On this legal point, the learned DR submitted that the notice u/s 142(1) of the Act directing the assessee to file the return of income for the asst. year 2004-05 was issued on 15.2.2005 and the return of income was filed on 31.3.2005. He Page 7 of 15 7 ITA No.1438/Bang/2008 submitted that under the Act the notice u/s 143(2) can be issued within 12 months from the end of the month in which the return of income was filed and therefore, the time limit to issue notice u/s 143(2) was till 31.3.2006. He submitted that as the time for issuance of notice u/s 143(2) has expired, the AO had no option but to issue notice u/s 148 on 13.4.2006 and therefore, the proceedings u/s 148 rws 147 were validly initiated.
15. Having heard both the parties and having considered the rival contentions, we find that the only question before us on this legal issue is whether the AO had the necessary time for completing the proceedings u/s 143(3) and also whether he can initiate proceedings u/s 148 after the expiry of the time limit prescribed for completing the assessment u/s 143(3) of the Act. As seen from sub-section (2) of section 143 of the I T Act and the proviso to clause (ii) thereafter, no notice under clause (ii) shall be served on the assessee after the expiry of 12 months from the end of the financial year in which the return is furnished. As the learned DR has clearly established that the notice u/s 148 was issued after the end of 12 months from the end of the financial year in which return of income was filed, we are satisfied that the proceedings u/s 143 were not pending before the issuance of such notice.
16. Taking note of the provisions of sub-section (1) of section 148 and clause (b) of the first proviso thereunder, it can be Page 8 of 15 8 ITA No.1438/Bang/2008 seen that a notice u/s 148 can be issued after the expiry of 12 months specified in the proviso to sub-section (2) of section 143, but before the expiry of time limit for making the assessment, re- assessment or re-computation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice. Sub-section (2) of section 153 provides that no order of assessment, re-assessment or re- computation shall be made u/s 147 after the expiry of one year from the end of the financial year in which the notice u/s 148 was served. In the light of the above, we hold that the notice u/s 148 was validly issued by the AO. Accordingly, ground nos.2 and 8 are rejected.
17. As regards the other grounds of appeal i.e. 3 to 7 are concerned, the learned counsel for the assessee reiterated the submissions made before the authorities below while the learned DR supported the orders of the authorities below.
18. It is the case of the assessee that the property of Shri S K Lingaraj devolved on the surviving family members of Shri Lingaraj i.e. his widow and three children and therefore, the consideration received from NHAI is to be taxed in the hands of the HUF or in the hands of AOP as joint owners of the property, while it is the case of the revenue that Smt. Pushpa is the sole owner of the property and therefore, she is liable for the capital gain tax. Even otherwise, even if it is considered to be the joint Page 9 of 15 9 ITA No.1438/Bang/2008 family property, the learned DR placed reliance upon the direction of the CIT(A) that the entire tax has to be assessed in the hands of the assessee as the defacto manager of the minor children. In support of their contentions, both the assessee as well as the learned DR have filed voluminous papers and also the proceedings before the acquisition authorities i.e. NHAI to demonstrate their points of view.
19. Having considered all the material on record, we find that in the proceedings of the Administrative Officer of the Taluk Office, Devangere, the lands are shown in the name of S K Ananth and S K Pradeep and the khatha stood in the name of S K Hiriyamma i.e. grandmother. Since the grandmother of Shri S K Ananth and Shri S K Pradeep is deceased, it was requested to pass an order stating Smt. S K Pushpa, wife of Shri S K Lingaraj, who is also the mother of S K Ananth and S K Pradeep to be the guardian. The Admin. Officer has passed an order stating that as per the report of the Village Accountant, Smt. Hiriyamma was guardian for minors S K Ananth and S K Pradeep and on her death, the name of Smt. S K Pushpa is entered as guardian for minors in the khatha and pahani being the revenue records as the minor by guardian for the lands mentioned in the margin.
20. Thus, it can be seen that initially after the death of Mr. Channappa, his wife Smt. Hiriyamma was held to be the owner of the property and on her death, the property devolved on the Page 10 of 15 10 ITA No.1438/Bang/2008 minor sons of Shri S K Lingaraj and Smt. Pushpa is held to be the guardian of the minors. As seen from the copy of letter of advice dated 23.4.2002 issued by the Competent Authority, Land Acquisition, Davangere, the Khathedar or occupants are mentioned as S K Ananth and S K Pradeep, minors by guardian mother, S K Pushpa jointly. However, from the Award Notice dated 11/3/2003, which is addressed to Smt. S K Pushpa, there was a request to submit the relevant documents in the office of the Competent Authority and collect the compensation amount. Similarly, from the letter dated 7.4.2005 issued by the Office of Competent Authority, Land Acquisition, the Additional Compensation Award Notice is given to Smt. S K Pushpa alone stating that she is entitled to collect the additional compensation along with interest.
21. It is in the light of these two subsequent letters wherein Smt. Pushpa is addressed in her individual capacity that the revenue has come to the conclusion that there was oral partition between the family members of Mr. S K Lingaraj even prior to the acquisition of land and it was decided therein that the land belongs to Smt. S K Pushpa and accordingly, the compensation received from NHAI was allotted to Smt. S K Pushpa and she alone was eligible for the additional compensation also.
22. The AO has relied upon the decision of the Hon'ble Supreme Court in the case of Chandrasen to come to the conclusion that Shri S K Lingaraj acquired the property in his individual status Page 11 of 15 11 ITA No.1438/Bang/2008 on the death of his father intestate and upon his demise, his wife Smt. Pushpa also has acquired the property in her individual capacity. Let us see if the facts of the case before us are similar to the facts of the case before the Hon'ble Apex Court. The facts in the case of Shri Chandrasen are as follows:-
One Rangi Lal and his son, Chander Sen, constituted an HUF. This family had some immovable property and a business carried on in the name of Khushi Ram Rangi Lal. In October, 1961 there was a partial partition in the family by which the business was divided between the father and the son, and, thereafter, it was carried on by a partnership consisting of the two. The firm was assessed to income tax as a registered firm and the two partners were separately assessed in respect of their share of income. The house property of the family continued to remain joint. On 17th July, 1965, Rangilal died leaving behind his son, Chander Sen, and his grandsons, i.e. the sons of Chander Sen. His wife and mother predeceased him and he had no other issue except Chander Sen. On his death, there was a credit balance of Rs.1,85,043/- in his account in the books of the firm. For the asst. year 1966-67, Chander Sen, who constituted a joint family with his own sons, filed a return of his net wealth. The return included the property of the family which on the death of Rangilal passed on to Chander Sen by survivorship and also the assets of the business which devolved upon Chander Sen on the death of his father. The sum of Rs.1,85,043/- standing to the credit of Rangi Lal was not included in Page 12 of 15 12 ITA No.1438/Bang/2008 the net wealth of the family of Chander Sen on the ground that this amount devolved on Chander Sen in his individual capacity and was not the property of the assessee-family. The WTO did not accept this contention and held that the sum of Rs.1,85,043/- also belonged to the assessee family. On appeal, the AAC accepted the assessee's claim in full and held that the capital in the name of Rangilal devolved on Chander Sen in his individual capacity and as such was not to be included in the wealth of the assessee-family.
23. As regards the interest paid on this capital, he directed that the same should be allowed as deduction. The assessee preferred appeal before the Tribunal who dismissed the same and the revenue further went in appeal before the Hon'ble High Court.
24. The Hon'ble High Court was of the view that under the Hindu Law when a son inherited separate and self acquired property of his father, it assumed the character of joint Hindu family property in his hands qua the members of the family, but taking into consideration the modified section 8 of the Hindu Succession Act, 1956, it was held that Chander Sen was the only heir and therefore, the property was to pass to him only.
25. Against this finding of the High Court, the revenue preferred an appeal before the Hon'ble Supreme Court and the Hon'ble Supreme Court, taking into consideration various decisions of various High Courts, has come to the conclusion that the sums Page 13 of 15 13 ITA No.1438/Bang/2008 standing to the credit of Rangi Lal belongs to Chander Sen in his individual capacity and not the joint Hindu family and the interest of Rs.23,330 was an allowable deduction in respect of the income of the family from the business.
26. When the facts of the case before us are compared to the facts of the case before the Hon'ble Supreme Court, we find that the facts are entirely different. In the case of Chander Sen, there was a partition between the father and the son during the life time of the father himself and therefore, the separate property of the father when it devolved upon the son; it was held to be his individual property. But in the case before us, there was no such partition between Mr. Channappa and Shri S K Lingaraj. Mr. Channappa died intestate and therefore, the property devolved upon his class-I legal heirs and after the death of Shri S K Lingaraj, the property devolved upon all his class I legal heirs jointly. It is only upon the partition of the joint Hindu family property that each individual gets his/her property in their individual status. Coming to the facts of the case before us, the property was sought to be acquired by NHAI in 2002 on which date, the property was held jointly. Even as per the notices issued by the Govt., the minors and the assessee were shown as the owners of the land. Thus, as on the date of acquisition of land i.e. on 23.4.2002, the lands were held jointly by all the legal heirs of Shri S K Lingaraj i.e. the assessee and her three children. But the entire amount of compensation has been paid to Smt. S K Pushpa. Page 14 of 15 14 ITA No.1438/Bang/2008 As observed by us, in the above paragraph, the ownership of the land on the date of award or on the date of payment of compensation for the acquisition of land is important to decide the issue as to in whose hands the income is to be assessed, whether it is the HUF or the individual assessee. Admittedly and not disputed by the revenue also, on the date of acquisition of land, the oral partition has not been entered into, leave alone being given effect to. Except stating that there was partition even before acquisition of land, the revenue has not been able to prove the date on which the property devolved on Smt. S K Pushpa. The revenue is only relying on the decision of the Apex Court in the case of Chander Sen (cited supra) and the circumstantial evidence in support of its contention. When the property is in the hands of all the legal heirs jointly as HUF, then it is only the HUF, which is liable to tax and not the assessee in her individual capacity. If the property had in fact devolved on the assessee in her individual capacity, then it would not form part of HUF property and there was no need of taking it into consideration in the partition deed. Since it was part of the common kitty of the HUF, it formed part of the partition deed and ultimately allotted to Smt. S K Pushpa. Since she has been allotted this money and also the additional compensation and interest, she might have been excluded from allotment of some other property of HUF. Thus, it cannot be said that she is the only beneficiary of the compensation received from NHAI. Accordingly, we set aside the orders of the CIT(A) and the AO.
Page 15 of 15 15 ITA No.1438/Bang/2008
27. As regards ground no.10, levy of interest u/s 234A and 234B of the Act is consequential in nature and hence, no adjudication is called for.
28. In the result, the appeal filed by the assessee is partly allowed.
Sd/- Sd/-
(A MOHAN ALANKAMONY) (P MADHAVI DEVI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
The order pronounced on Wednesday, the 23rd day of March, 2011 at Bangalore.
Copy to : 1) The Assessee (2) The Revenue (3) The CIT(A) concerned. (4) The CIT concerned. (5) The DR (6) Guard File.
MSP/18.3 By Order
Asst. Registrar, ITAT, Bangalore.