Income Tax Appellate Tribunal - Mumbai
Seventh Income-Tax Officer vs Legal Heirs Of Late Sri Ramrao K. Rupji on 19 October, 1987
Equivalent citations: [1988]24ITD448(MUM)
ORDER
A.V. Balasubramanyam, Judicial Member
1. In this appeal by the revenue, the objection is in regard to the cancellation of assessment framed against the legal heirs of deceased Ramrao K. Rupji.
2. Ramrao K. Rupji was the karta of a Hindu joint family which possessed of some agricultural lands situate in Marol Village, Kurla Taluka, in the suburb of Bombay. The State Government of Bombay had taken up acquisition proceeding and issued a Notification under Section 4 of the Land Acquisition Act on 18-5-1955. Subsequently, the HUF entered into an agreement with Standard Vacuum Refining Oil Co. (India) Ltd. and pursuant thereto, possession of the land was taken on 23-4-1958. The lands were not acquired under the provisions of the Land Acquisition Act, but by means of a transfer upon agreed terms as a result of negotiations. According to the agreement, Ramrao K. Rupji, as karta of the HUF, agreed to sell the land to Bsso Company (Standard Vacuum Oil Company had come to be Esso by that time) for a price of Rs. 4,72,626. The agreement also provided that the HUF should be paid a sum of Rs. 1,49,665, as compensation, for use and occupation for the period from 23-4-1958 till the date of completion of the sale transaction. The said agreement for sale was made on 3-2-1970.
3. Before the sale transaction was put through, Ramrao K. Rupji died on 27-3-1970 survived by his wife, a son, a married daughter and two unmarried daughters. On 17-10-1970, all the heirs of Ramrao K. Rupji executed a sale deed in favour of Bsso and this indenture was registered on 21-6-1971. In other words, the heirs completed the sale transaction as per the original agreement dated 3-2-1970.
4. As per law, the deceased Ramrao K. Rupji had one-third share in the HUF property. His undivided interest, namely, one-third share, devolved upon his class I heirs in accordance with Section 8, Hindu Succession Act, 1956. The class I heirs are his wife, the son and three daughters.
5. A question of capital gains came up in the assessment of Kishore Rupji HUF (Kishore is the son of Ramrao K. Rupji) for 1971-72, as a result of the transfer effected vide sale deed dated 17-10-1980 in favour of his son. There was a dispute between Kishore R. Rupji HUF and the revenue which has been heard along with an appeal relating to 1973-74 in respect of the same HUF. The Tribunal consolidated those two appeals and disposed of the same by an order dated 18-1-1987. The dispute in the said proceeding was whether the income of capital gains should be computed in respect of the whole of the property or only in regard to two-third share inasmuch as it had been claimed by Kishore R. Rupji that the one-third share of the deceased Ramrao K. Rupji had passed on to his class I heirs in specific shares and that the said one-third share was not includible in the HUF assessment. The Tribunal accepted the assessee's submission and held that only two-third share in the HUF property could be considered for the purpose of capital gains and that the one-third share of the deceased Ramrao K. Rupji was not includible. Reliance upon Section 171, made by the revenue, was held to be mis-placed. Suffice it to say that the Tribunal followed the decision of the Kerala High Court in the case of ITO v. Smt. N.K. Sarada Thampatty [1976] 105 ITR 67. This finding has become final inasmuch as no reference was preferred by the revenue. Subsequent to the Tribunal's order in the case of HUF assessment for 1971-72, the ITO issued notice under Section 148 to the legal heirs of the deceased Ramrao K. Rupjj, who in response thereto, filed a return on 24-4-1969 declaring 'nil' income. The ITO framed an assessment under Section 143(3) read with Section 144B whereby he brought to tax income by way of one-third capital gains of the deceased Ramrao K. Rupji in the HUF property. The ITO held that in respect of the capital gains referable to one-third share of the deceased, his legal heirs are liable to be assessed jointly. Aggrieved by the said assessment, the legal heirs had appealed. The CIT(A) by his impugned order dated 13-3-1984, held as hereunder :
The full consideration of Rs. 4,72,626 is assessable in the hands of the abovementioned persons as HUF and accordingly the ITO had in the original assessment order assessed them on the full amount. Here since the sale deed had been executed on 17-10-1970 long after the death of Sri Ramrao R. Rupji no share is attributable to the deceased and the amount becomes fully assessable in the hands of the abovementioned five individuals as HUF. The revenue should have followed its remedy of filing a reference application in the case of HUF against the decision of the Income-tax Appellate Tribunal excluding one-third share in the above-mentioned capital gain but failure to do so cannot entitle the revenue to assess one-third of the capital gains in the hands of the abovementioned five individuals as the legal heirs of late Sri Ramrao K. Rupji because accepting the appellant's own arguments, nothing survived for consideration in the assessment year 1971-72 as far as the deceased Sri Ramrao K. Rupji's share in capital gains concerned.
In the result, the appeal by the heirs came to be allowed.
6. The revenue is in appeal objecting to the said order and it is contended that capital gains in respect of one-third share of the deceased Ramrao K. Rupji is not taxable in the hands of the HUF as remarked by the CIT(A) and that the heirs are liable to be assessed jointly as the ITO has done.
7. For the assessee, Sri A.P. Sathe contended that the undivided share of Ramrao K. Rupji was inherited by his class I heirs in definite shares and that there is no question of a joint assessment inasmuch as the shares are specific and known and that there was immediate vesting of the interest in the heirs there being no scope for any administration. In this behalf, reliance was placed upon the decisions of the Supreme Court in the cases of Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum [1981] 129 ITR 440 ; State of Maharashtra v. Narayan Rao Sham Rao Deshmukh [1987] 163 ITR 31 ; and the decision in the case of CWT v. Chander Sen [1986] 161 ITR 370.
8. The assessee has filed cross-objections whereby it has put up the following contentions. First, it was said that the reopening was not good in law inasmuch as the conditions "for reopening under Section 147 were not present. Secondly, it was stated that the compensation received is not taxable since the lands were agricultural.
9. We will first of all take up for consideration the ground in the revenue's appeal. In the assessment for .1971-72 framed against the HUF, the karta of which was the son of Ramrao K. Rupji, the Tribunal has held that the one-third share of the deceased Ramrao K. Rupji devolved upon his class I heirs by virtue of Section 6 of the Hindu Succession Act and, as such, the said shares cannot be taxed in the hands of the HUF. To record that finding, the decision of the Kerala High Court in the case of Smt. N.K. Sarada Thampatty (supra) had been relied upon. Contrary to this, the CIT(A) has in para 9 of the impugned order remarks that the one-third share of the deceased was assessable in the hands of the heirs, as HUF and that the revenue should have preferred a reference from the Tribunal's order passed in the HUF case for assessment year 1971-72. This observation, as we presently point out, is not correct.
10. In the case of Gurupad Khandappa Magdum (supra), the Supreme Court has ruled that on the death of a coparcener, his undivided share in the coparcenary property would vest in the class I heirs (if any) and to determine their shares, a notional partition should be effected, that is a partition which could have taken place just before the death of the coparcener. In other words, to ascertain the share, a partition must be assumed to have taken place immediately before his death. This has been followed in its subsequent decision in the case of Narayan Rao Sham Rao Deshmukh (supra) and their Lordships have held that the right of a female heir to the interest inherited by her in the family property vest on the death of a male member under.section 6 of the Hindu Succession Act. It may be, as Their Lordships have stated, that a female member who gets a share does not cease to be a member of the family on the death of a male member. But that it does not mean that a female member who gets a share under Section 6 of the Hindu Succession Act would be a member of that joint family if she was not a member at the time of death of the male member. To illustrate, a married daughter getting a share out of her father's property would not be a member of the joint family of her father by the fact that a share is inherited.
11. An interest of a Hindu male having interest in a coparcenary property will devolve by survivorship according to Section 6. But an exception is made by the proviso where the deceased male leaves him surviving a female relative specified in clause I of the Schedule or a male relative, specified in that clause, who claims through such female relative, in which case, the interest of the deceased shall devolve either by testamentary or intestate succession, as the case may be, under the Act. To put it differently, in a case where the situation is covered by the proviso, the interest of the male does not pass on by survivorship according to Section 6, but according to testamentary or intestate succession, as the case may be, under the Hindu Succession Act. In the case of intestate succession, not covered by Section 6, the undivided interest of the male will pass on under Section 8 of the Hindu Succession Act upon class I heirs.
12. In the case of Chander Sen (supra), the Supreme Court has pointed out that in regard to the property that devolves under Section 8 of the Hindu Succession Act, it would be difficult to hold that the same could be HUF property in the hands of the heirs. The ratio laid down in this decision is that if a son who inherits as a class I heir will hold it in his individual capacity and not as karta of his own undivided family.
13. The undivided share of a male which passes on class I heirs under the Hindu Succession Act can only be under Section 8 in a case covered by the proviso to Section 6. Taking the facts of the present case itself, Ramrao K. Rupji left behind a married daughter and it is difficult to conceive that there was a joint family consisting of the widow, son, two unmarried daughters and the married daughter. It is amply clear that the one-third interest of Ramrao K. Rupji cannot be assessed in the hands of the heirs as HUF property.
14. The question before us is whether there should be one assessment against all the legal heirs of Ramrao K. Rupji. The shares of the heirs are known and certain. The vesting is specific and each individual got it as his/her individual property. The vesting of the property is co instanti with the death. We are unable to understand what administration is required to be made as urged by the learned Departmental Representative. Heirs have jointly executed the sale deed in favour of Esso and the sale proceeds might have been distributed in accordance with their respective share. The heirs have filed separate returns and they have been individually assessed under Section 143(3). In the circumstances, we are of the view that the assessment framed by the ITO jointly against the legal heirs of Ramrao K. Rupaji was not proper. The final order of the CIT(A) has to be sustained although for a different reason.
15. With regard to the cross-objections, the grounds do not survive in view of the finding we have recorded in the revenue's appeal. Even so, we may state that the question whether the lands were agricultural or not was not before the authorities below at any time. The ground does not emerge either from the order of the ITO or from the first appellate order. With regard to the jurisdiction, we have already held that a joint assessment against all the heirs was not proper and, as such, no specific finding need be recorded on the first ground raised in the cross-objections.
16. In the result, both the appeal by the revenue and the cross-objections by the assessee are dismissed.