Income Tax Appellate Tribunal - Madras
Late T. Govindaswamy By Lrs vs Income Tax Officer on 17 March, 1998
ORDER
P.K. Bansal, A.M.
1. These appeals have been instituted by the assessee against the orders of the CIT (A) relating to the asst. yrs. 1974-75 to 1976-77. Since one of the grounds of appeal is common for all the three years, for the sake of convenience we dispose of all these appeals by this common order.
2. The main common ground of appeal relates to the property No. 4, C. P. Ramaswamy Road, Madras and the income therefrom, i.e., whether it belonged to the assessee in his individual capacity or belonged to the HUF, of which the appellant was the Karta, along with of his wife Smt. G. Subbulakshmi in an equal ratio. For the asst. yr. 1976-77 the CIT (A) held that half of the property belonged to the wife of the assessee and against which the Department has not come in appeal. Therefore, the only dispute remains related to the claim of the assessee in respect of the half share in the property belonging to the HUF.
3. For the asst. yrs. 1974-75 and 1975-76 we direct the AO to treat the half share in the property and the income from the aforesaid property as belonging to the wife, as has been held by the CIT (A) for the asst. yr. 1976-77, which order is not in dispute before us. The only dispute now remains before us in respect of the said property is that the claim of the assessee, i.e., whether the half share in the property belonged to the HUF and if so, then the investment in the said property and the income relating to the said property be assessable in the hands of the HUF and not in the hands of the assessee as individual.
4. This is a very peculiar case and the chronological history of the case with the facts in brief is narrated below. The assessee bought a plot on which the property stands, on 31st Dec., 1971 for Rs. 42,962 in the name of his wife and later on construction was started and has been completed in the middle of 1974. The cost of construction was meted out by the assessee out of borrowings. The ITO, rejecting the claim made before him, assessed the said property and the income therefrom as belonging to the assessee. The assessee appealed to the CIT (A), who did not agree with the contention of the assessee and confirmed the order of the AO declaring the half share in the property to be belonging to the assessee in the individual capacity.
5. The assessee's authorised representative filed before us a paper- book consisting of 236 pages. It was claimed by an affidavit of the wife of the assessee, which is at pp. 31 to 35 of the paper-book that she was married to the assessee on 3rd Sept., 1961, and was blessed with a son Master T. Chandrasekaran on 7th Aug., 1966. Photocopy of the birth certificate of the son was placed at p. 38 of the paper book. On 14th June, 1967 a sum of Rs. 10,000 in cash was thrown to the common hotchpot of the HUF through a declaration, a photocopy of which is placed at pp. 36 and 37 of the paper-book. On 31st July, 1971, they effected a partition in the ancestral properties of the father of the assessee through a registered partition deed, a copy of which, was placed at pp. 39 to 59. The assessee-HUF has lent the sum of Rs. 10,000 to M. Murugesa Naicker at the rate of 18 per cent interest. The affidavit of Murugesa Naicker is placed at pp. 61 to 63 of the paper- book, affirming the loan from the assessee-HUF. This sum and the interest accrued thereon accumulated to Rs. 20,000 and out of this money the assessee had undertaken the construction work and the income derived from which was shown by the assessee-HUF by filing IT returns for the asst. yrs. 1972-73 to 1974-75 under the Amnesty Scheme on 11th June, 1975. The notices were issued in the name of the HUF by the ITO which are placed at pp. 64 to 68 of the paper-book. On the basis of the said evidence the assessee claimed that this property belonged to the HUF, but the AO did not agree with the assessee and held that the property belonged to the assessee and his claim that it belonged to the wife and HUF is only a story put up by the assessee to escape proper taxation. He rejected the claim of the assessee on the basis of the following : (a) The HUF claimed that no property has ancestral nucleus, (b) The original declaration was not filed, (c) The transfer of funds to the alleged HUF was not by means of registered document, (d) The details of the contract work executed by the HUF were not furnished and (e) No books of accounts have been maintained for the HUF business. The assessee went before the CIT (A) and relied on the aforesaid evidence which are mentioned hereinabove. The CIT (A) on the basis of the declaration of the assessee made on 14th June, 1964, rejected the claim of the assessee stating that "I find an undated statement of T. Govindaswamy wherein he mentions that he has thrown into the common hotchpot a sum of Rs. 10,000 on 15th June, 1964". He held as under :
"Thus, the abovereferred statement is full of inconsistencies. I am of the opinion that it does not have any evidentiary value. Thus the basic fact remains that the plot on which the property was constructed was purchased in 1971 in the name of the assessee as individual and his wife. The borrowings are also made by the appellant in his individual capacity and by his wife for the purpose of construction of this property. Lastly, the appellant himself has offered the income from this property in his individual return for the asst. yrs. 1976- 77, 1977-78 and 1978-79. It was only subsequently that the contention was changed. In these circumstances and the abovementioned facts I am of the opinion that T. Govindaswamy, the appellant is the other owner of this property and not the HUF of the appellant."
6. The authorised representative and the Departmental Representative were heard and we have perused the material on record. The AO nowhere denied the existence of the HUF of the assessee. The IAC while giving direction under s. 144B vide his letter dt. 19th Sept., 1983 which is placed at p. 218 of the paper-book has clarified this fact as under :
"I would mention here that the ITO has not denied the existence of the HUF and he has only held that the alleged financing of the construction by the HUF is not proved by evidence and the transfer to HUF is not legally valid."
From the above observation of the IAC the existence of the HUF is not disputed and cannot be disputed. Not only this, when we look at pp. 36 and 37 of the paper-book, in which the photocopy of the declaration is enclosed, we find that the said declaration contains the date : "Dated at Madras this 14th day of June, 1967". We find that the learned CIT (A) was wrong in observing that the said statement was undated and cannot have any evidentiary value. Under the Hindu law a family can become the owner of the separate property of coparcener either by purchase or by formal gift and the same result would flow where the coparcener concerned throws his separate property into the joint family hotchpot as the same goes. The assessee has made a declaration which has been subsequently confirmed by the affidavit of the wife of the assessee and which has evidentiary value in the eyes of law. The affidavit cannot be rejected with the cross-examining the person who has submitted it. The AO has nowhere cross-examined either the assessee or the wife of the assessee whose declaration and affidavit were filed on record.
7. The AO was wrong in law in stating that ancestral nucleus is essential for an HUF. It is a settled law that existence of joint family property is not an essential condition for impressing one's personal property with the character of joint family property. It is a well known Hindu law that a coparcenary can exist even though it may not own any coparcenary property-Damodar Krishnaji Nirgude vs. CIT (1962) 46 ITR 1252 (Bom), CIT vs. P. N. Talukdar (1982) 135 ITR 628 (Cal), CIT vs. S. Sivaprakasa Mudaliar (1983) 144 ITR 285 (Mad), CIT vs. Pushpa Devi (1971) 82 ITR 7 (Del), Addl. CIT vs. Inder Singh Uppal (1975) 98 ITR 368 (P&H), T. Ramdas N. Pai vs. CIT (1978) 115 ITR 815 (Kar) and Pushpa Devi vs. CIT (1977) 109 ITR 730 (SC). The Full Bench of the Madras High Court in the case of CIT vs. M. Balasubramanian (1990) 182 ITR 117 (Mad), which is the jurisdictional High Court, has approved the property belonging to the HUF by way of gift. The case in Surjit Lal Chhabda vs. CIT (1975) 101 ITR 776 (SC) is clearly distinguishable on facts. That was a case where the assessee had a wife and an unmarried daughter and he made a declaration that he had thrown the immovable property, which was his self-acquisition, into the joint family hotchpot in order to impress that property with the character of joint family property and he further declared that he would be holding the property as the Karta of the joint family consisting of himself, his wife and his unmarried daughter. Dealing with the facts of that case and expressing the view that until the birth of a son the personal law of the assessee governed, it was held that the income was chargeable to income-tax in the hands of the assessee in his individual income and not that of the family. To the facts of the present case, the assessee had a wife and minor son at the time when he made the declaration that he had thrown the cash which was his self-acquisition into the joint family hotchpot in order to impress that property with the character of HUF property.
8. The declaration made by the assessee is a valid declaration in the eyes of law. Even if the declaration is not there the circumstantial evidence on the basis of the conduct and intention of the assessee itself prove that in substance the HUF has come into existence at the date when the assessee has put the cash into the common hotchpot. The declaration has been duly authenticated by the wife of the assessee, which has not been disputed by the AO. Even the AO has not brought in any evidence to the contrary to the declaration made by the assessee. Law does not require that the declaration should be on stamp paper and we do not agree with the AO and the CIT (A) that this declaration does not have any evidentiary value. The assessee held the property in his individual name and law does not require that there should be a mention in the sale deed that the property belonged to the HUF. In income-tax source from which the investment has been made is a conclusive proof or evidence whether the property belonged to the individual or the HUF. The affidavit of M. Murugesa Naicker at p. 63 of the paper-book specifically mentions that the loan has been given by the family of Mr. T. Govindaswamy and the same was returned in 1971 by him. If the assessee is holding the property as Karta, the property will belong to the HUF. Here we are concerned with the real ownership. If the funds of the HUF had been invested the property will belong to the HUF de facto. The CIT (A) has not correctly appreciated that there should be a registered instrument in the case of a transfer of a property from individual to the HUF. The assessee has never stated that he has transferred the property to the HUF. It is a case where he has bought the property in his name out of funds of HUF and was holding it as the Karta of the HUF. The assessee has also filed the income-tax return showing the income of the HUF. The subsequent conduct of the assessee cannot change the locus standi of the property. On the basis of the facts and the documents and the confirmation filed we are of the considered opinion that in pith and substance the property belonged to the HUF and investment in the said property and income from the property could not be assessed in the hands of the assessee as individual.
9. For the asst. yr. 1974-75 the other grounds of appeal are as under :
"3. The learned CIT (A) erred in fixing Rs. 2,75,000 as the cost of construction of the premises at 4, C. P. Ramaswamy Road, Madras-18.
6. The said CIT (A) should have held that the said HUF owed a moiety of the said property and the said Smt. G. Subbulakshmi, the other moiety and, therefore, the construction, cost income, etc. belong to each of them as equal co-owners."
On the basis of our finding that the investment in the property belongs to the HUF, these grounds have become non exitia ipso facto. These grounds are dismissed as such. The AO is directed to delete the investment made in the property 4-C. P. Ramaswamy Road, Madras out of the income of the assessee.
10. All the other grounds are general in nature and are ancillary to the main ground, which has been decided by us in the above paragraphs.
11. For the asst. yr. 1976-77 ground Nos. 2 to 4 relate to the income of the property at 4-C. P. Ramaswamy Road, Madras, which has already been decided by us in the foregoing paragraphs of this order.
12. Ground No. 5 has not been pressed by the assessee. Hence we dismiss them as not pressed.
13. Ground No. 6 reads as under :
"6. Investment in Greams Road property was liable to be assessed in the hands of an AOP of which the appellant was a member along with his three other relatives. The existence of the AOP has been blessed by the CIT (A) who decided the appeals before him filed by Mr. M. Murugesa Naicker, the other member of the Association. Even in the case of this appellant, the learned CIT (A)-I, Madras, in passing the impugned order has blessed the existence of the said AOP. That being so, the learned CIT (A) here erred in including a sum of Rs. 2,64,480 in the individual hands of the appellant for this year."
The learned counsel for the assessee submitted that the investment in Greams Road property has been assessed in the hands of Murugesa Naicker and others in the status of AOP. In addition to this the AO also assessed the share in the hands of the assessee. The learned counsel submitted that in further appeal by Murugesa Naicker and others, AOP, the Madras Bench 'A' of the Tribunal in ITA Nos. 1644 to 1646/Mad/1988 for the asst. yrs. 1976-77 to 1978-79 by order dt. 24th Sept., 1992, has confirmed the action of the AO holding that the above-named four persons have purchased the land jointly got the building plans approved jointly, effected joint constructions and then executed sale deeds jointly in favour of various persons. The Tribunal further stated that throughout the transactions the effort was joint and the resultant effect was production of income and that these facts clearly satisfied the conditions required to treat a group of persons as an AOP, as per the Supreme Court decision in the case of CIT vs. Indira Balakrishnan (1959) 39 ITR 546 (SC). The assessee's counsel therefore, contended that one-fourth investment made by the assessee and assessed under the head "Other sources" in the hands of the assessee is to be deleted and in the light of the aforesaid order of the Tribunal the same is only to be assessed in the hands of the AOP. The learned Departmental Representative, on the other hand, supported the orders passed by the authorities below.
14. After having considered the submissions made by both the parties and perusing the records we hold that in the light of the Tribunal's order in the case of M. Murugesa Naicker & Ors. referred to above, one-fourth of the investments made by the assessee and assessed in his individual capacity should be assessed only in the hands of the AOP. The addition of Rs. 2,64,480 in the hands of the assessee towards unexplained investment for the assessment year under appeal is, therefore, deleted.
15. The seventh ground relates to the addition of Rs. 69,190 being unexplained investment in the acquisition of the other assets enumerated as items 2 to 8 in the draft assessment order of the AO. The AO has worked out the outgoings at Rs. 3,13,236 while the resources available after deducting the household expenses worked out to Rs. 2,09,333. The difference was added by the AO, which was reduced by the IAC to Rs. 69,190. No evidence was placed before the CIT (A). He, therefore, confirmed the order of the AO.
16. The learned CIT (A) disposed of this ground in the following manner in para 9.2 in this order.
"At the time of hearing, it was further argued that the AO while working out the various outgoings had adopted the figure of personal drawings at Rs. 30,000 which is rather high. The appellant submits that the drawings for the asst. yr. 1974-75 was taken at Rs. 9,000. After looking into the records of the earlier years and also taking into the records of the earlier years and also taking into consideration the fact that the appellant has paid Rs. 7,785 as life insurance premium, I estimate the drawings at Rs. 20,000 as reasonable. While working out the above figure of outgoings, the AO is also to take into consideration the fact that expenditure in construction of the compound-wall has been taken by me at Rs. 10,000 as submitted by the appellant". Thus, the CIT (A) has allowed a relief of Rs. 5,000 to the assessee in respect of such undisclosed income. The assessee in the grounds of appeal has taken the stand that the CIT (A) has upheld the inclusion of Rs. 69,190 wrongly instead of the sum of Rs. 64,190.
17. While going through the assessment order we find that a sum of Rs. 3,13,236 was worked out as investment by the AO consisting of the following items :
Rs.
Constructed jointly with Murugesa Naicker, M. Thirunavukkarasu, M. Anandan, building in plot No. 2 (ground floor and first floor, 13A, 13B, 13E (ground floor only) and 13G (ground floor & first floor) incurring a total expenditure of Rs. 4,93,646. The one-fourth share invested by the assessee in this construction expenditure is.. 1,23,411 Constructed jointly with his wife, a building in Plot No. 13D in 5-Greams Road incurring a total expenditure of Rs. 2,21,107. The half-share in this construction expenditure is... 1,10,553 Constructed a compound-wall in No. 1B, Murrays Gate Road According to the assessee he has incurred an expenditure of Rs. 10,000 for this construction. I have, however, allowed an expenditure of Rs. 5,000 only in computing the income of the assessee under the head 'Business'. The expenditure incurred by the assessee on this construction is therefore taken as ...... 5,000 Purchased Govt. of India bonds under the Voluntary Disclosure Scheme 1,250 Advanced loan of Rs. 50,000 to Smt. G. Subbalakshmi, wife of the assessee 50,000 Invested Rs. 7,265 in his bank account (Balance as on 31-3-76 Rs. 7,546 (Balance as on 31-3-75 Rs. 281
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Difference Rs. 7,265 7,265
Cash and materials as per statement of affairs
as on 31st March, 1976 the cash in hand and
the value of the materials at site is Rs. 24,194.
The corresponding figure as on 31st March, 1975
is Rs. 8,437. There is thus an increase of Rs.
15,757 in the previous year 15,757
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313,236
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From the above details we find that a sum of Rs. 1,23,411 and a sum of Rs. 1,10,553, totalling to Rs. 2,33,964 relate to the undisclosed investment incurred by the assessee jointly. The learned counsel for the assessee, therefore, contended that these investments as found by the AO are not made by the assessee alone, but were made by the four persons jointly and hence the assessment of these should be made in the hands of the assessee-AOP and not in the individual status of the assessee. He, therefore, pleaded for the deletion of the addition in question. He also produced before us a copy of the order dt. 9th Feb., 1996 of the Tribunal (A-Bench, Madras) in ITA No. 3253(Mad) /1988 for the asst. yr. 1976-77 in the case of M. Murugesa Naicker vs. ITO (supra) the assessee wherein was also one of the members of the AOP, in which case the addition so made had been deleted by the Tribunal. The Departmental Representative, on the other hand, relied on the orders of the authorities below.
18. After hearing the parties and perusing the records we find force in the assessee's contention, since these properties have already been held to be assessed in the hands of the AOP in the case of M. Murugesa Naicker & Ors. vs. ITO by the Madras Bench of this Tribunal in ITA Nos. 1644 to 1646/Mad/1988 for the asst. yr. 1976-77, these investments should also be assessed in the hands of the AOP and not in the hands of the assessee individually. If the investments relating to the AOP are excluded from the assessment of the assessee, we find that the sources of other investments are fully explained. Therefore, the addition of Rs. 64,190 sustained by the CIT (A) under the head 'Income from other sources' is deleted. We also agree with the contention of the assessee's counsel that the case of the assessee is covered by the decision of the Tribunal in ITA No. 3253/Mad/1988, cited supra and therefore inclined to delete the addition of Rs. 64,190.
19. In the result the appeals are disposed of as indicated above.