Income Tax Appellate Tribunal - Pune
Nivruti V.Gavali, Pune vs Assessee
Author: G.S.Pannu
Bench: G.S.Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
AND SHRI G.S. PANNU, ACCOUNTANT MEMBER
S.No. WTA No. Asstt. Year
1. 15/PN/10 2002-03
2. 16/PN/10 2003-04
3. 17/PN/10 2004-05
4. 18/PN/10 2005-06
Nivruti V Gavali, .. Appellant
S.No 2/2, A 701, SLK Heights,
Pune-Solapur Road, Bhairobanala,
Wanwadi, Pune 411 037
Vs.
Wealth-tax Officer, .. Respondent
Ward 1(3), Pune
Appellant by : S/Shri K Srinivasan & T.S. Shelke
Department by : Shri S K Ambastha
ORDER
PER G.S.PANNU, A.M:
The captioned four appeals relate to same assessee and involve a common issue and, therefore, they were heard together and a consolidated order is being passed for the sake of convenience and brevity.
2. The Assessing Officer made identical additions for the six assessment years 2000-01 to 2005-06, which were challenged in appeal before the Commissioner of Wealth-tax (Appeals). The Commissioner of Wealth-tax (Appeals) has granted relief for assessment years 2000-01 and 2001-02 and for those years, the assessee is not in appeal before us, and hence 2 the captioned appeals are confined to the four assessment years 2002-03 to 2005-06.
3. The facts and circumstances in all the years are identical and a reference is made to the factual position in assessment year 2002-03 to appreciate the controversy. The relevant facts, in brief, as emerging from the order of the Assessing Officer, are that in response to a notice under section 17 of the Wealth-tax Act, 1957 (in short "the Act") issued on 29.3.2007, assessee filed a return of wealth on 27.4.2007 declaring wealth of Rs 90,200/-. It was noticed that Shri Nivrutti Vitthal Gavali, the assessee before us, had entered into a Development agreement in respect of land at S.No 22/2/C, Wanworie with one M/s S L K Properties on 6.3.2006. Out of total consideration of Rs 1,67,70,600/-, the share of the assessee was Rs 37,92,650/-.On the basis of the consideration received and by adopting the cost inflation index, according to the Assessing Officer, the market value of the land as on 31.3.2002 came to Rs 32,50,800/-. As per the Assessing Officer, he had reasons to believe that wealth of Rs 32,50,800/- had escaped assessment within the meaning of section 17 of the Act and, therefore, he invoked provisions of section 17 of the Act.
4. During the course of assessment proceedings, the assessee inter-alia contended that the return of wealth filed by him was in his individual capacity in response to the notice issued only and that he was not the absolute owner of the subject land, which was inherited. He was owner of 1/8th share alongwith three other family members(namely, his wife, son and daughter), and thus he was not required to disclose the value of the said laid in the return so filed. The Assessing Officer did not accept the arguments of the assessee. The Assessing Officer observed that the capital gain arising from the execution of Development agreement has been shown by the assessee himself in the return of income for the assessment year 2006-07 in his individual capacity and that the assessee could not substantiate as to why the value of said land should not be included in 3 the wealth of the assessee. According to the Assessing Officer, the impugned land was an 'urban land' within the meaning of Section 2(ea) of the Act as on the last day of the year. For these reasons, the Assessing Officer adopted the value of the land in question in the hands of the assessee at Rs 32,50,800/- and assessed the same to Wealth-tax accordingly. Against such assessment, the assessee preferred appeal before the Commissioner of Wealth-tax (Appeals).
5. The Commissioner of Wealth-tax (Appeals) after considering the detailed submissions of the assessee deleted the addition made in the assessment order in respect of the impugned property for the assessment years 2000-01 & 2001-
02. As far as the assessment years under consideration are concerned, the Commissioner of Wealth-tax (Appeals) held that after enactment of the Hindu Succession Act, 1956 it would be difficult to hold that the property which devolved on a Hindu under section 8 of the Hindu Succession Act would be HUF property in his hands vis-à-vis his own son. According to the Commissioner of Wealth-tax (Appeals), the property in such cases would be inherited by the heir as individual property and in the case of the assessee, the father of the assessee inherited the property from his father and the assessee's father Shri Vitthal Manaji Gawali died intestate leaving behind eight legal heirs and, therefore, under the Hindu Succession Act, 1956 the property devolving on the assessee to the extent of 1/8th share is his individual property. The Commissioner of Wealth- tax (Appeals) accordingly held that the claim of the assessee that the property belonged to the HUF was contrary to the provisions of Hindu Succession Act, 1956 and also against the principle enunciated on succession to a property by the Hon'ble Supreme Court in the case of CWT v Chander Sen 161 ITR 370 (SC). The Commissioner of Wealth-tax (Appeals) also observed that another important aspect of the matter in the case of the assessee was that the capital gains on transfer of the property by way of Development agreement was offered as income in the individual income-tax return of the assessee and other legal heirs of late Vithal Manaji Gawali for the assessment year 2006-07. Thus, 4 according to the Commissioner of Wealth-tax (Appeals), the assessee has been changing his stand to suit to his requirement and advantage in different proceedings, which was not permissible. The Commissioner of Wealth-tax (Appeals) further held that the property received by the assessee on the demise of his father belonged to the assessee individual to the extent of 1/8th share and it cannot be further sub-divided among the family members of the assessee. The Commissioner of Wealth-tax (Appeals) also rejected the assessee's contention pertaining to the valuation of the property as on the date of valuation. For the detailed discussion given in his order, the Commissioner of Wealth-tax (Appeals) ultimately upheld the addition made on account of value of the subject-property in the hands of the assessee-individual for the assessment years 2002-03 to 2005-
06. Against the aforesaid, the assessee is in further appeal before us.
6. Before us, the learned Counsel for the assessee has vehemently assailed the orders of the authorities below by pointing out that the value of the property which belonged to the HUF of the assessee has been wrongly assessed in the hands of the assessee individually. The learned Counsel submitted that there was an apparent contradiction in the stand of the Commissioner of Wealth-tax (Appeals) inasmuch as he has accepted the plea of the assessee that the property inherited by the assessee was held by his father late Manaji Vittal Gawali as an HUF property till the date of his death on 3.3.2002 and, on that basis, the impugned assessments in respect of such property for the assessment years 2000-01 and 2001-02 have been set aside. It is submitted that once the nature of the property is accepted as an HUF property in the hands of assessee's father, the legal position would be that a portion of the same would come to the assessee as an HUF property and not entirely as an individual property, even if the provisions of Hindu Succession Act, 1956 are to apply to the devolution of the property in question. It was therefore contended that the Commissioner of Wealth-tax (Appeals) erred in concluding that for the assessment years 2002-03 to 2005-06, the assessee was liable to be assessed in his individual status to the 5 extent of 1/8th share in the impugned property. The assessee has furnished a voluminous Paper Book which, inter alia, contains the copies of Rectification Record book maintained by the Maharashtra Land Revenue Department for the impugned property and also the family tree beginning with Mr Manaji Gopal Gawali, the grand-father of the assessee who purchased such property on 11.10.1937, etc. in order to evidence the nature and status of the property devolving in the hands of the assessee. Apart therefrom, the copies of submissions addressed to the lower authorities as well as copy of sale deed of the property dated 6.3.2006, etc. have also been placed on record. In the course of his submissions, the learned Counsel has relied upon the following judgments:
(i) CIT v. H.H. Rajendrasinghji, Maharaja of Rajpipla 213 ITR 225 (Bom);
(ii) CIT v Balubhai Nanubhai (HUF) 220 ITR 334 (Guj);
(iii) CIT v. S. R Kirloskar (Ind) 239 ITR 382 (Bom); and,
(iv) CWT v. Chander Sen 161 ITR 370(SC)
7. On the other hand, the learned Departmental Representative has supported the order of the Commissioner of Wealth-tax (Appeals) for the four assessment years in question by referring to the discussion made by the Commissioner of Wealth-tax (Appeals) in para 5.1 to 5.2 of the order. It was submitted that upon the death of the assessee's father Manaji Vithal Gawali, the devolution of the property would be governed by the Hindu Succession Act 1956.
Prior to the Hindu Succession Act 1956, the character of the property in the hands of the Hindu acquired by him by way of inheritance would always be that of joint family irrespective of his father holding it as a joint family property or his individual property. However, section 8 of the Hindu Succession Act 1956 has made a departure to this and as per the Hon'ble Supreme Court in the case of Chander Sen (supra) the property in such cases would be inherited by the heir as individual property. In the case of the assessee his father inherited the property from his father and since assessee's father died intestate leaving behind eight 6 legal heirs; therefore, as per the Hindu Succession Act, 1956 the property devolved on the assessee to the extent of 1/8th share in his individual capacity. In this manner, it is sought to be made out that the Commissioner of Wealth-tax (Appeals) made no mistake in holding that impugned assessments have been rightly made in the hands of the assessee in his individual capacity.
8. We have carefully considered the rival submissions. In order to appreciate the controversy in the captioned appeals, a brief recapitulation of the pertinent facts is necessary, which can be understood as follows. The appellant before us is an individual. It transpires from the assessment order that in the course of a search operation conducted under section 132(1) of the Act in the case of one Ladkat group, it was found that assessee along with other members of his family had entered into a development agreement with M/s S K L Properties on 6.3.2006 in respect of a plot of land at S. No 22/2C, Wanworie, Pune for a total consideration of Rs 1,67,70,600/- out of which the share of the assessee was considered by the Assessing Officer at Rs 37,92,650/-. The Assessing Officer was of the view that the subject property fell within the purview of the Act as it was in the nature of 'urban land' as per Explanation (b) to section 2(ea) of the Act. Since the value of such property as on the valuation date for the assessment years 2000-01 to 2005-06 exceeded the minimum amount not chargeable to wealth-tax and since no Wealth-tax returns were filed by the assessee for all such years, the Assessing Officer issued notices under section 17 of the Act in response to which assessee filed returns of wealth for the afore-stated assessment years on 27.4.2007 disclosing taxable wealth which, inter alia, included only jewellery and other personal assets and did not include the value of the subject property. In the ensuing assessment proceedings, the assessee resisted the inclusion of the value of the subject property in the taxable wealth on various grounds which, inter alia, included a plea that the same was not assessable in his individual capacity. The Assessing Officer , however, held that the share of the assessee in the subject property was to the extent of 1/8th and, 7 therefore, he included the proportionate value in the hands of the assessee in his individual capacity.
9. At this stage, it would be pertinent to note that the preliminary issue arising in this matter is to examine as to whether the subject property is an HUF property of the assessee or the same is liable to be considered as his individual property. The answer to the aforesaid question, in our view, is to be rendered in the context of the nature of the property devolving on the assessee. The stated property was purchased by one Manaji Gopal Gawali on 11.10.1937, who had two sons, Dondiba Manaji Gawali and Vitthal Manaji Gawali. Manaji Gopal Gawali died in 1948 leaving behind two legal heirs namely, Dondiba Manaji Gawali and Vithal Manaji Gawali. Shri Vithal Manaji Gawali inherited and held one half share in the property thereafter till his death on 3.3.2002. The said Shri Vithal Manaji Gawali on his death left behind eight legal heirs, namely, widow wife, four sons (including the assessee before us) and three daughters. Quite clearly since the deceased Vithal Manaji Gawali inherited the subject property as a heir to his father who died prior to the coming into force of the Hindu Succession Act of 1956, the subject property will have to be considered as an HUF property in his hands, the property devolving to him on the death of his father on 22.12.1948, before the coming into force of the Hindu Succession Act, 1956. During the lifetime of Shri Vittal Manaji Gawali, the subject property was to be construed as an HUF property of Vithal Manaji Gawali (HUF). Precisely, this has been expressly inferred by the Commissioner of Wealth-tax (Appeals) in para 5 of the impugned order. The Commissioner of Wealth-tax (Appeals) has noted the claim of the assessee that the property was inherited and held by late Manaji Vithal Gawali (HUF), and therefore, the same was liable to be assessable in such hands for the assessment years 2000-01 and 2001-02 as the said Manaji Vithal Gawali died on 2.2.2002, and was not assessable in the hands of the assessee in his individual capacity. Therefore, the additions on this score have 8 been deleted by the Commissioner of Wealth-tax (Appeals) for the assessment years 2000-01 and 2001-02.
10. The moot question to determine is the nature of the subject property devolving to the heirs on the death of Shri Vithal Manaji Gawali. As per the Revenue, and which has also been held by the Commissioner of Wealth-tax (Appeals), because of the introduction of Hindu Succession Act, 1956 after the death of Vithal Manaji Gawali in 2002, the property would be inherited by the heirs, which includes the assessee, as an individual property. The claim made out by the Revenue is that Shri Vithal Manaji Gawali left behind eight heirs namely his wife, -Ansuya Gawali; sons, - Gopal, Tukaram, Sopan, Nivruti; and, daughters,- Dropadi, Chandrabhaga and Indrayani and therefore in terms thereof, the property devolved on the assessee to the extent of 1/8th share in his individual capacity.
11. The deceased Vithal Manaji Gawali died on 3.3.2002, ostensibly after coming into force of the Hindu Succession Act of 1956. Therefore, the devolution of the subject property would be governed by section 6 of the Hindu Succession Act, 1956. As per the family tree placed in the Paper Book it is clear that Shri Vithal Manaji Gawali, on his death left behind, apart from the appellant son before us, three other sons, three daughters and a widow. No assertion has been made before us that the deceased Vithal Manaji Gawali left behind any will and therefore, on the death of the deceased Vithal Manaji Gawali, his interest, inter alia, in the subject property would devolve by intestate succession under the Hindu Succession Act, 1956. At this stage, it would be pertinent to refer to the judgment of the jurisdictional High Court in the case of H.H Rajendrasinghji, Maharaja of Rajpipla (supra) wherein answer to the aforesaid controversy has been succinctly provided. The Hon'ble High Court after referring to the judgment of the Hon'ble Supreme Court in the case of Chander Sen (supra) and also a subsequent judgment of the Hon'ble Supreme Court in the case of CIT v P.L 9 Karuppan Chettiar 197 ITR 646 (SC), has propounded a ratio whereby it can be inferred in the instant case that a portion of the share in the property inherited by the appellant assessee under sec. 8 of the Hindu Succession Act 1956 on the death of Shri Vithal Manaji Gawali cannot be considered as an HUF property in his hands.
12. In the case before the Hon'ble High Court, one Shri Raghubirsinghji had inherited a property on the death of his father Maharaja Rajendrasinghji of Rajpipla who had died on 02.02.1963, after coming into force of Hindu Succession Act, 1956. In this background, the following discussion by the Hon'ble Bombay High Court is worthy of notice:
nd "15. The deceased Rajendrasinghji died on 2 Fe. 1963. Since this is after the coming into force of the Hindu Succession Act of 1956, devolution of Rajpipla Palace is governed by s. 6 of the Hindu Succession Act, 1956. From the facts on record, it is clear that Rajendrasinghji, on his death, left behind, apart from his son Raghubirsinghji, also his widow and two daughters. Under s. 6 of the Hindu succession Act ordinarily, when a male Hindu dies after the commencement of the Hindu succession Act, 1956, having at the time of his death an interest in a Mitaksahara coparcenary property, his interest in the property would devolve by survivorship upon the surviving members of the coparcenery.
But this is not so when he leaves behind female relatives specified in Class I of the Schedule to the Hindu Succession Act. Widow and daughters are such female relatives. In that case, the interest of the deceased in Mitakshara coparcenary property shall devolve by testamentary or intestate succession as the case may be under the Hindu Succession Act and not by survivorship. Therefore, in the present case on the death of the deceased Rajendrasinghji, his interest, inter alia, in the Rajpipla Palace would devolve by intestate succession under the Hindu Succession Act, 1956, as the deceased Rajendrasinghji did not leave behind any will.
16. In this connection, a reference may be made to a decision of the Supreme Court in the case of CWT v. Chander Sen (1986) 58 CTR (SC) 119 : (1986) 161 ITR 370 (SC). The Court in that case was concerned with the nature of the property for the purposes of wealth-tax. The Supreme Court observed that it would be difficult to hold today that property which devolved on a Hindu male under section 8 of the Hindu Succession Act would be a HUF property in his hands vis-à-vis his own son; that would amount to creating two classes among the heirs mentioned in Class I, the male heirs in whose hands it will be joint Hindu family property vis-à-vis their sons and the female heirs with respect to whom no such concept could be applied or contemplated. The Supreme Court, therefore, held that the property which devolved on the son under section 8 of the Hindu Succession Act would be his absolute property and would not be joint Hindu family property vis-à-vis his own son.
17. This judgment of the Supreme Court has been followed in the subsequent case of CIT v. P.L. Karuppan Chettiar (1992) 197 ITR 646 (SC). In this case, the Supreme Court considered the case of the deceased who, with his wife, sons and daughter constituted an HUF at the time of his death. His heirs including his son succeeded to the properties left by the deceased under s. 8 of the Hindu Succession Act, 1956. The question was whether the income from the property coming to the son on the death of the deceased should be assessed as the income of the joint family of the son. The Supreme Court held that the income from the property which was inherited by the son on is father's death was not assessable as income of the joint family.
18. The ratio of these cases would apply to the present case also and the share in the Rajpipla Palace inherited by Raghubirsinghji under section 8 of the Hindu Succession Act, 1956, on the death of Maharaja Rajendrasinghji cannot be considered as an HUF 10 property in his hands. Therefore, income from such share in Rajpipla Palace will have to e considered as his individual income.
19. We have to consider the nature of the interest of Raghubirsinghji in the Rajpipla Palace. As Rajpipla Palace was a property belonging to the HUF of Rajendrasinghji, Raghubirsinghji had an interest in the said property by virtue of his being a coparcener in the said HUF, But in respect of the interest of Rajendrasinghji in the said HUF property, a portion of which devolved by intestate succession on Raghubirsinghji under the Hindu Succession Act of 1956, Raghubirsinghji would be entitled to it as an individual inheriting the property under section 6 of the Hindu Succession Act. The income, therefore, which accrues to Raghubirsinghji in respect of the said property will have to be proportionately divided and a portion considered as income of the HUF and the remaining income as income of Raghubirsinghji as an individual. The division of income will have to be in the same proportion as the HUF interest of Raghubirsinghji in the said property and his individual interest in the said property which he inherited from his father under the Hindu Succession Act."
In our view, the ratio of the judgment of the Hon'ble Bombay High Court squarely applies to the present case and the share in the subject property inherited by the appellant assessee under section 8 of the Hindu Succession Act 1956 on the death of Vithal Manaji Gawali cannot be considered as an HUF property in his hands. So, however, we have to consider the nature of interest of the assessee in the subject property. As the subject property belonged to the HUF of Vithal Manaji Gawali, which is a factum clearly established and has also been accepted by the Commissioner of Wealth-tax (Appeals), a position which is undisputed, therefore, the assessee had an interest in the subject property by virtue of his being a coparcener in the HUF i.e. Vithal Manaji Gawali HUF. But in respect of the interest of Vithal Manaji Gawali in the said HUF property, a portion of which devolved by intestate succession onto the assessee under the Hindu Succession Act of 1956, the assessee would be entitled to it as an individual inheriting the property under section 6 of the Hindu Succession Act. The wealth, therefore, which enures to the assessee in respect of the subject property, will have to be proportionately divided and a portion considered as wealth of the HUF and remaining wealth as wealth of the assessee as an individual. The division of wealth will have to be in the same proportion as the HUF interest of the assessee in the subject property and his individual interest in the said property which he inherited from his father under the Hindu Succession Act, 1956. Therefore, in view of the aforesaid discussion, the Commissioner of Wealth-tax (Appeals) was 11 not correct in concluding that for the captioned assessment years the property devolved on to the assessee in his individual capacity in entirety.
13. Since the division of wealth as noted in the aforesaid paras involves factual appreciation, we deem it fit and proper to restore the matter to the file of the Assessing Officer for the above purpose. The share of the assessee in the said property as a coparcener in the HUF of Vithal Manaji Gawali as also his share in the property as heir of Vithal Manaji Gawali under the Hindu Succession Act, 1956 shall be worked out when the matter goes back to the Assessing Officer to give effect to our order. Presently, we are dealing with the assessment made by the Assessing Officer in the hands of the assessee in his individual capacity and therefore, the Assessing Officer shall bring to tax assessee's share in the said property as the heir of Vithal Manaji Gawali under the Hindu Succession Act, 1956. The assessment of the HUF is not before us and therefore for the assessment of the share of the assessee in the subject property as a coparcener in the HUF of Vithal Manaji Gawali HUF is left to the Assessing Officer, who may proceed in the matter as advised by law.
14. Since we have adjudicated the preliminary ground raised by the assessee and have found infirmity in the approach of the Assessing Officer, the other issues raised by the assessee including Additional Ground relating to the valuation of the property and non-inclusion of the asset in the definition of 'urban land' in view of the definition in section 2(ea)(v)(b) are not being adjudicated as the same are rendered academic. However, the assessee shall be at liberty to raise such points before the Assessing Officer in the ensuring procveedings, if so advised.
15. In the result, we therefore set aside the matter to the file of the Assessing Officer who shall re-adjudicate the issue in view of the above discussion and in accordance with law, after providing a reasonable opportunity of being heard to the assessee in the matter.
12
16. Before parting, we may refer to the stand of the Revenue that capital gain arising on the execution of Development agreement dated 6.3.2006 has been shown by the assessee himself in his individual capacity in the return of income for the assessment year 2006-07. This has been countered by the appellant by referring to the copy of income-tax return for assessment year 2006-07, placed at pages 115-116 of Paper Book and the intimation under section 143(1) of the Income-tax Act, 1961 dated 13.12.2006, placed at page 114 of the Paper Book to point out that no such capital gain income has been declared. In any case, in our view, the issue in question is liable to be decided in the face of the legal position and therefore we have adjudicated the controversy in the aforesaid paras in the said light.
17. In the result, the appeals of the assessee are treated as partly allowed.
Decision pronounced in the open court on this 27th day of September, 2011.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune: Dated: 27th September, 2011
B
Copy of the order is forwarded to :
1. Appellant
2. Respondent
3. CWT(A)-I Pune
4. CWT-I, Pune
5. The D.R, 'A' Bench, Pune
6. Guard File
7.
"True copy" By order
Asstt. Registrar, ITAT, Pune Benches, Pune