Income Tax Appellate Tribunal - Mumbai
Sudha V. Iyer, Mumbai vs Assessee on 8 September, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH "E",
MUMBAI
BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A.M)
ITA NO.4886/MUM/2011(A.Y.2006-07)
Smt. Sudha V. Iyer, The I.T.O 19(3)(4),
B-212, Char Dham CHS Ltd., Mumbai.
Road No.1, TPS IV, Bandra (W), Vs.
Mumbai - 5-.
PAN:AACPI 9337G
(Appellant) (Respondent)
Appellant by : S/Shri K.Gopal, Satendra Pandey,
Nadish Vyas
Respondent by : Shri B.Jayakumar
Date of hearing : 08/09/2011
Date of pronouncement : 14/09/2011
ORDER
PER N.V.VASUDEVAN, J.M,
This is an appeal by the assessee against the order dated 25/4/2011 of CIT(A) XXX, Mumbai relating to assessment year 2006-07. Grounds of appeal raised by the assessee read as follows:
'1.The ld. Commissioner of Income Tax (Appeals) 30, Mumbai [hereinafter referred as "Ld. CIT(A)] erred in confirming the action of the Assessing Officer of treating the capital receipt on partition of HUF as gift and taxing the same as income from other sources without appreciating the facts and circumstances of the case.
2. The ld. CIT(A) failed to appreciate that complete partition of H. Venkateshwaran (HUF) had taken place vide deed of partition dated 1/4/2005 and vide order dated 14/10/2008 passed under section 171, the ld. A.O confirmed the complete partition on 31//3/2005. The appellant, therefore, prays that the ld. A.O is not at all justified in treating the amount of Rs. 19,19,996/- received on partition of H. 2 ITA NO.4886/MUM/2011(A.Y.2006-07) Venkateshwaran (HUF) as gift and taxing the same under the head Income from Other Sources.
3. without prejudice to the above, the ld. CIT(A) failed to appreciate that the amount received on partition of HUF, even if treated as gift, shall not be taxable under provision of Sec. 56(2).
4. The ld. CIT(A) erred in not appreciating the fact that the partition takes place from the date mentioned in the order passed under Sec. 171 and not from the date of the order passed under Sec.171 of the Income Tax Act,1961. The appellant, therefore, prpays that the ld. A.O is not justified in treating the amount of Rs. 19,19,996/- received on partition of H. Venkateshwaran (HUF) as gift and taxing the same under the head Income from Other Sources.
5. The Appellant denies any liability to pay the interest under section 234B and 234C of the Income Tax Act, 1961. Hence the same are not leviable.
2. The assessee is an individual. She filed a return of income for A.Y 2006-07 on 18/9/06 declaring total income of Rs.1,41,369/-. The return was accepted under section 143(1) of the Act on 20/4/2007. The case was later selected for scrutiny assessment. In the course of such assessment proceedings the AO noticed that in the capital account of the assessee for 2006-07 a sum of Rs. 19,99,996/- had been credited. This was stated to be a sum received on account of partition of H.Venkateshwaran HUF. The AO asked for the details of the partition of the HUF and also demanded order under section 171 of the Act by the Competent AO recognizing the partition of the HUF. The query was raised by the AO in this regard by his notice under section 143(2) of the Act. In the absence of any order under section 171 of the Act, the AO was of the view that the claim of the assessee that there was a partition of the HUF on which the assessee got aforesaid sum cannot be accepted. Before the AO the assessee had furnished evidence of having filed an application for recognizing partition of the HUF. According to the AO this application had been made only on 8/8/08 and, therefore, as on 3 ITA NO.4886/MUM/2011(A.Y.2006-07) the last date of the financial year 2005-06, relevant to A.Y 2006-07 there could not have been a partition of the HUF. The AO thereafter noticed that the HUF namely M. Venkateshwaran HUF originally consisted of Mr. H.Venkatshwaran as the Kartha. The assessee was also a co-parcener in the said HUF. Mr.H. Venkatshwaran died on 8/5/1993. Thereafter the assessee as Manager of the HUF consisting of herself as Kartha and son by name Hari Venkat and daughter by name Swetha constituted the HUF namely H. Venkaeshwaran HUF. After the demise of H. Venkatshwaran the returns were being filed by HUF by the assessee acting as Manager of the HUF consisting of herself and her two children. The assessee pointed out that for A.Y 2005-06 return was filed by the HUF and accepted under section 143(1) of the Act. The HUF was being assessed to tax by the ITO Ward1(4), Thirunelveli, Tamil Nadu. Alongwith the return filed for A.Y 2005-06 a computation of total income was filed. In such computation it was informed to the AO that there was a partition of the HUF as on 31/3/2005 under section 171 of the Act. Aongwith return of income the assessee also had filed a questionnaire under section 171 of the Act giving all the details of partition. The return of income alongwith questionnaire was filed on 27/3/2006.
3. As already stated the AO refused to accept the fact that there was a partition of the HUF because of the absence of an order under section 171 of the Act. He was of the view that on the death of the Kartha the HUF need not necessarily come to an end and that the HUF still continues. Thereafter the AO considered a sum of Rs. 19,99,996/- as an amount received for consideration from HUF and brought the said sum to tax under section 56(2)(v) of the Act. The relevant observation of the AO in this regard were as follows:
4 ITA NO.4886/MUM/2011(A.Y.2006-07)"14. The assessee has received an amount of Rs. 19,99,996/- from M/s. H. Venkateshwaran HUF without any consideration. The said HUF was not partitioned as already established above. Therefore. The amount which was received without consideration and credited to the capital account for the year is taxable in the hands of the assessee as 'gift' received from M/s. H.Venkateshwaran HUF during the year. The scope of non-taxable gifts/receipts of sums of money has been defined by the Finance Act, 2004 w.e.f. 1//4/2005 vide insertion of section 56(v) in the Act. The said section of the IT Act defines the scope of persons who can give a sum of money exceeding twenty five thousand rupees without consideration to another set of persons/donees without attracting taxation in the hands of donees/receivers in the section 56(v) of the Act. The list of donors/givers does not inclue any HUF which effectively means that a HUF can not give any sum of money exceeding Rs.25,000/- to any person without consideration. However, the list of donees/receivers mentions a person or an HUF. This fact makes the intent of the legislature amply clear which is that no HUF is allowed to give/gift a sum of money exceeding Rs.25,000/- without consideration to anybody. If that would not have been the case, the donors list should have included HUF of a relative also as defined in that section.
15. Therefore, since the assessee has received a sum of Rs. 19,99,996/- from M/s. H.Venkateshwaran HUF during the year without any consideration, the same is taxable u/s. 56(v) of the Act as already discussed above. The amount of Rs. 19,99,996/- is therefore added to the total income of the assessee as income from other sources. Penalty proceedings u/s. 271(1)(c) are also initiated for furnishing inaccurate particulars of income."
4. Before CIT(A) the assessee filed a copy of the partition deed dated 1/4/2005 by which all the assets of the HUF was partitioned. The assets of the HUF consisted of only deposits and shares and there was no requirement of any registration. The assessee also filed a copy of the order passed by the AO in charge of the assessment of the HUF namely ITO, Ward 1(4), Thirunelveli. This order was dated 14/10/2008. A copy of the partition deed had also been filed before the AO and on perusal of all the details the AO passed the following order.
5 ITA NO.4886/MUM/2011(A.Y.2006-07)"The assessee filed a copy of the partition deed dated 1st April 2005 and the questionnaire under section 171 of the Act. H.Venkateshwaran (HUF) was partitioned by metes and bounds and I am satisfied about the partition having been effected as per the above partition deed and pass this order under section 171 of the Income Tax Act recording the partition."
5. The CIT(A) called for Remand Report from the AO on the additional evidence filed before him. The AO in his remand report has submitted as follows:
"The order u/s.171(1) of the IT Act dated 14/10/2008 thereby partitioning the said HUF is not applicable in the case of the assessee for the A.Y 2006-07 since the HUF was not partitioned as per the provisions of the Act on the date the amount from the HUF was credited in the capital account of the assessee. The HUF was partitioned wef. 14/10/2008 only. It is also worth mentioning that the assessee applied for partition only after enquiries were made during the assessment proceedings. Therefore, since the HUF was in existence as on 31/3/2006, the amount received by the assessee from such HUF without any consideration is taxable in her hands in the year in which such sum was received. Even if the partition deed was made and filed before the AO, no partition can be said to have been effected until the AO had passed an order u/s. 171(1) of the Act which was not the case as on 31/3/2006. There are several case laws reiterating the above position of law and the same have been already discussed in the assessment order."
6. After considering the objections of the AO the CIT(A) held as follows:
"7. I have carefully gone through the assessment order, the remand report of the AO., the submissions of the appellant on the remand report and various case laws quoted by the AO. In this case, the moot issue is whether there was partition on the date of assessment or not. I find the following facts from the records:-
(i) That M/s. H.Venkateshwaran (HUF) was not partitioned u/s.
171 of the IT Act till the end of F.Y. 2005-06 relevant to A.Y 2006-07.
(ii) The application to partition H. Venkatashwaran (HUF) was submitted on 8.8.2008 i.e. only after the issue was duly raised during the assessment proceedings.
6 ITA NO.4886/MUM/2011(A.Y.2006-07)(iii) An amount of Rs. 19,99,996/- was received by the appellant from H.Venkateshwaran (HUF) without any consideration.
The said HUF was not partitioned till the end of F.Y. 2005-06. I also agree with the contention of the AO that the amount which was received without consideration and credited to the capital account of the appellant is taxable in the hands of the appellant as 'gift'. Further I could not find much force in the argument of the A.R of the appellant that it had missed the attention of the grandparents of the appellant who were looking after the affairs of the appellant in Tirunelveli to obtain the necessary certificate u/s. 171 of the I.T. Act. If the HUF is assessed to tax then section 171 of the Act comes into play and it is a necessary perquisite that a finding u/s.171 is recorded by the relevant Income Tax authority confirming the partition of the HUF after which only the assets of the HUF can be distributed by the members among themselves. In view of the above findings, I am of the considered view that the AO is fully justified in adding the sum of Rs. 19,99,996/- as income from other sources in the hands of the appellant. Therefore, the addition so made by the AO is confirmed. The grounds of appel are dismissed."
7. Aggrieved by the order of the CIT(A) the assessee has filed the present appeal before the Tribunal.
8. We have heard the rival submissions. The learned counsel for the Assessee drew our attention to the partition deed dated 1.4.2005 by which the HUF partitioned the assets of the HUF which consisted of investments in Bank Deposits, Government of India Bonds, Post Office Monthly Income Scheme etc., The Partition Deed recognises the fact that the family is no longer joint family and that the properties of the HUF have already been divided between the parties as on 31st March,2005 by passing entries in the books of accounts. Our attention was drawn to the fact that as early as 27.3.2006 the Assessee along with the return of income of the HUF filed for AY 05-06 filed a computation of total income and had appended a note thereto which is as follows:
"It is hereby informed under Sec.171 of the Income Tax act, that the HUF was fully partitioned on 31st March, 2005 between the members. A copy of the personal account is enclosed."7 ITA NO.4886/MUM/2011(A.Y.2006-07)
9. Questionnaire u/s.171 of the Act was also filed. The AO of the HUF viz., The ITO, Ward 1 (4), Tirunelveli passed an order 14.10.2008 recognising partition as per the partition deed dated 1.4.2005. In view of the above order u/s.171 of the Act the HUF stands dissolved with effect from 31.3.2005 and has been recognised by the Department as required by the provisions of Sec.171 of the Act. It was his contention that the credit entry in the capital account of the Assessee of her share in the properties of the HUF which she obtained on partition cannot therefore be said to be sum or other assets received without consideration attracting the provisions of Sec.56(2)(v) of the Act. Since the basis on which the AO made the impugned addition was the absence of an order u/s.171 of the Act and in view of the order u/s.171 of the Act, the addition made by the AO is without any basis and the same should be deleted. It was also submitted that the CIT(A) erred in holding that the date of the order u/s.171 of the Act viz., 14.10.2008 is the date of partition is without any basis. In this regard our attention was drawn to the decision of the Hon'ble A.P. High Court in the case of ADIT Vs. A.Thimayya 46 ITR 999 (AP) and Commissioner of Income-tax v. Tatavarthy Narayanamurthy 83 ITR 58 (AP) (FB). In the Tatavarthy Narayanamurthy (Supra) the facts were that the assessee, a Hindu undivided family, was assessed to income-tax on August 29, 1949, for the assessment year 1949-
50. By order dated November 4, 1957, the Income-tax Officer levied a penalty on the assessee under section 28(1)(c) of the Indian Income-tax Act, 1922, for suppression of certain income. The assessee appealed against the order to the Appellate Assistant Commissioner. On November 6, 1958, the Income- tax Officer passed an order under section 25A recognising partition of the family with effect from October 30, 1957. Subsequently, in the appeal before the Appellate Assistant Commissioner against the order imposing penalty, it was contended by the assessee that since the family had become divided on October 30, 1957, the penalty levied on November 4, 1957, after the 8 ITA NO.4886/MUM/2011(A.Y.2006-07) disruption of the family, was illegal. The Appellate Assistant Commissioner held that, though the document of partition was executed on October 31, 1957, the partition became effective only after registration of the partition deed on November 27, 1957, and, therefore, the joint family continued to exist till that day and the levy of penalty was valid. On further appeal, the Appellate Tribunal upheld the assessee's contention that after the date of partition on October 31, 1957, there was no "person" as the Hindu undivided family in existence within the meaning of section 28 and allowed the appeal. On a reference to the High Court, it was contended for the revenue that for the purpose of assessment and penalty, it was the date of the order recognising the partition that was material and that, until that order was passed, the family should be deemed to continue as a Hindu undivided family; and that the word "assessment" in section 25A was a comprehensive expression capable of including penalty as well and, consequently, penalty proceedings also would fall within section 25A. The Full Bench of the Hon'ble A.P.High Court held agreeing with the Tribunal, that the Income-tax Officer could not levy penalty by his order dated November 4, 1957, on a Hindu undivided family which got disrupted on October 31, 1957.
(i) For imposing penalty for concealment of income or improper distribution of profits of a Hindu undivided family, proceedings will have to be taken only under section 28 and section 25A does not provide for imposition of any such penalty.
(ii) In order to impose penalty under section 28, the "person", which expression includes Hindu undivided family, must be in existence on the date of such imposition.
(iii) When an order under section 25A(1) is passed recording a partition of a Hindu undivided family, that family ceases to be a Hindu undivided family and a "person" for the purposes of section 28 with effect from the date of actual partition as recorded by the said order. In such cases the date of such an order is not material and sub-section (3) of section 25A has no application. It is only the date of actual partition as recorded in the order made under sub-section (1) of section 25A that is material and determines the actual date of cessation of the Hindu undivided family within the meaning of section 28.
9 ITA NO.4886/MUM/2011(A.Y.2006-07)10. The learned counsel for the Assessee submitted that the receipt by a co-parcener on partition of the HUF of which he is a co-parcener, is a capita receipt and cannot be considered as income. It cannot also be considered as Capital Gain, in view of the provisions of Sec.47(i) of the Act which provides that nothing contained in section 45 shall apply to transfer by way of distribution of capital assets on the total or partial partition of a Hindu undivided family.
11, The learned D.R. reiterated stand of the Revenue as reflected in the order of the CIT(A).
12. We have considered the rival submissions. The relevant provisions of Sec.171 of the Act need to be seen.
171. Assessment after partition of a Hindu undivided family.--(1) A Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a Hindu undivided family, except where and in so far as a finding of partition has been given under this section in respect of the Hindu undivided family. (2) Where, at the time of making an assessment under section 143 or section 144, it is claimed by or on behalf of any member of a Hindu family assessed as undivided that a partition, whether total or partial, has taken place among the members of such family, the Assessing Officer shall make an inquiry thereinto after giving notice of the inquiry to all the members of the family.
(3) On the completion of the inquiry, the Assessing Officer shall record a finding as to whether there has been a total or partial partition of the joint family property, and, if there has been such a partition, the date on which it has taken place.
(4) Where a finding of total or partial partition has been recorded by the Assessing Officer under this section, and the partition took place during the previous year,--
(a) the total income of the joint family in respect of the period up to the date of partition shall be assessed as if no partition had taken place; and
(b) each member or group of members shall, in addition to any tax for which he or it may be separately liable and notwithstanding anything contained in clause (2) of section 10, be jointly and severally liable for the tax on the income so assessed.
10 ITA NO.4886/MUM/2011(A.Y.2006-07)(5) Where a finding of total or partial partition has been recorded by the Assessing Officer under this section, and the partition took place after the expiry of the previous year, the total income of the previous year of the joint family shall be assessed as if no partition had taken place; and the provisions of clause (b) of sub-section (4) shall, so far as may be, apply to the case.
(9) Notwithstanding anything contained in the foregoing provisions of this section, where a partial partition has taken place after the 31st day of December, 1978, among the members of a Hindu undivided family hitherto assessed as undivided,--
(a) no claim that such partial partition has taken place shall be inquired into under sub-section (2) and no finding shall be recorded under sub-section (3) that such partial partition had taken place and any finding recorded under sub-section (3) to that effect whether before or after the 18th date of June, 1980, being the date of introduction of the Finance (No. 2) Bill, 1980, shall be null and void ;
(b) such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place ;
(c) each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period, whether before or after such partial partition ;
(d) the several liability of any member or group of members aforesaid shall be computed according to the portion of the joint family property allotted to him or it at such partial partition.
and the provisions of this Act shall apply accordingly.
13. In view of the provisions of Sec.171(9) of the Act there cannot be a partial partition of a HUF after 1.4.1979 and there has to be partition of the entire family property i.e., total partition. In the present case, the partition of the HUF was a total partition and the AO assessing the HUF has in recognition of the same passed an order after arriving at the required satisfaction. This is clear from the following observations of the AO of the HUF in the order passed recognising partition u/s.171 of the Act:
"The Assessee filed a copy of the partition deed dated 1st April, 2005 and the questionnaire under Section 171 of the Acct. H.Venkateswaran(HUF) was partitioned by metes and bounds and I am satisfied about the partition having been effected as per the above partition deed and pass this order under Section 171 of the Income Tax Act recording the partition."11 ITA NO.4886/MUM/2011(A.Y.2006-07)
14. It is clear from the above order of the AO that the partition is recognised from the date of partition viz., 31.3.2005. The Partition deed is dated 1.4.2005 but it is clear from the deed that it records the factum of partition having already taken place on 31.3.2005. Thus as from 1.4.2005 the HUF as a person ceases to exist. The Assessee's share of the HUF assets were distributed to her by passing the necessary entries in her individual capital account. The money received on partition is a capital receipt not chargeable to tax. It cannot be brought to tax as capital gain in view of the specific provisions of Sec.47(i) of the Act. Thus the very basis of the assessment by the AO is non- existent. The argument of the revenue that the partition is valid from 14.10.2008, the date of the order u/s.171 of the Act, is again without any basis. As we have already seen the order dated 14.10.2008 recognises partition as on 31.3.2005. The decision of the Hon'ble A.P. High Court in the case of Commissioner of Income-tax v. Tatavarthy Narayanamurthy 83 ITR 58 (AP) (FB) rendered in the context of Sec.25A of the 1922 Act is clearly applicable even in the context of Sec.171 of the Act. The Hon'ble Full Bench of the A.P.High Court has held that when an order under section 25A(1) is passed recording a partition of a Hindu undivided family, that family ceases to be a Hindu undivided family and a "person" for the purposes of section 28 with effect from the date of actual partition as recorded by the said order. In such cases the date of such an order is not material and sub-section (3) of section 25A has no application. It is only the date of actual partition as recorded in the order made under sub- section (1) of section 25A that is material and determines the actual date of cessation of the Hindu undivided family within the meaning of section 28. In our view the action of the revenue authorities in bringing to tax the sum received by the Assessee from the HUF as co-parcener of the HUF, on partition of the HUF cannot be brought to tax as income and the addition made by the AO in this regard is directed to be deleted.
12 ITA NO.4886/MUM/2011(A.Y.2006-07)15. The learned counsel for the Assessee also raised arguments that the sum received without consideration by a member of the HUF from the HUF cannot be taxed u/s.56(2)(v) of the Act, by placing reliance on the decision of the Hon'ble Rajkot Bench of ITAT in the case of Vineetkumar Raghavjibhai Bhalodia vs. ITO (ITAT Rajkot) wherein it was held that HUF is a "relative" for gifts exemption u/s 56(2)(v), (vi) & (vii). The facts in the aforesaid case was that the assessee received a gift of Rs.60 lakhs from his HUF. The AO & CIT(A) held that as HUF was not covered by the definition of "relative", the gift was chargeable to tax u/s 56(2)(v). The alternate submission that gift was exempt u/s 10(2) was rejected on the basis that s. 10(2) applied only to amounts received "out of income of the estate" on partial or total partition of the HUF. On appeal by the assessee, On further appeal, the Tribunal held:
(i) S. 56(2)(v) exempts gifts from a "relative". Though the definition of the term "relative" does not specifically include a Hindu Undivided Family, a 'HUF" constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. As all these persons fall in the definition of "relative", an HUF is 'a group of relatives'. As a gift from a "relative" is exempt, a gift from a 'group of relatives' is also exempt since the singular will include the plural;
(ii) The gift was also exempt u/s 10(2) because the two conditions required to be satisfied for relief viz (1) that the assessee is a member of the HUF and (2) that he receives the sum out of the income of such HUF (may be of an earlier Year) were satisfied.
16. We are of the view that the money received by the Assessee in her capacity as coparcener as and towards her share of the properties of the HUF, on partition of HUF, cannot be said to be sum of money or property received without consideration. The right, title and interest of the coparcener in the assets of the HUF will itself be a consideration. Therefore these arguments are not considered. The AO invoked the provisions of 13 ITA NO.4886/MUM/2011(A.Y.2006-07) Sec.56(2)(v) only because there was absence of order u/s.171 of the Act recognising the partition. We are therefore not dealing with this part of the argument. For the reasons stated above, we hold that the sum received by the Assessee as and towards her share as coparcener of the HUF, from the HUF, on partition of the HUF cannot be brought to tax as income and the addition made by the AO in this regard is directed to be deleted. The appeal of the Assessee is allowed.
17. In the result, the appeal by the Assessee is allowed.
Order pronounced in the open court on the 14th day of Sept., 2011.
Sd/- Sd/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated. 14th Sept.2011
Copy to: 1. The Appellant 2. The Respondent 3. The CIT City -concerned
4. The CIT(A)- concerned 5. The D.R"E" Bench.
(True copy) By Order
Asst. Registrar, ITAT, Mumbai Benches
MUMBAI.
Vm.
14 ITA NO.4886/MUM/2011(A.Y.2006-07)
Details Date Initials Designation
1 Draft dictated on 8/9/11 Sr.PS/PS
2 Draft Placed before author 12/9/11 Sr.PS/PS
3 Draft proposed & placed JM/AM
before the Second Member
4 Draft discussed/approved by JM/AM
Second Member
5. Approved Draft comes to the Sr.PS/PS
Sr.PS/PS
6. Kept for pronouncement on Sr.PS/PS
7. File sent to the Bench Clerk Sr.PS/PS
8 Date on which the file goes to
the Head clerk
9 Date of Dispatch of order