Exemption u.s 54

Ito vs P.C. Ramakrishna (Huf) on 28/7/2006
ORDER
Mahavir Singh, J.M.
1. These two appeals, one by the revenue and one by the assessee are directed
against two different orders of the Commissioner (Appeals). The appeal of the
assessee in ITA No. 783/Mad/2001 is against the order of the Commissioner
(Appeals)−XII, Chennai dated 19−2−2001 confirming the order of the assessing
officer regarding refusal to recognize the partition of HUF under Section 171 of
the Income Tax Act, 1961. The appeal of the revenue in ITA No. 907/Mad/2001 is
directed against the order of the Commissioner (Appeals)−XII, dated 19−2−2001 in
respect of the assessment framed by the assessing officer under Section 143(3)
of the Act.
2. First we will take up the assessees appeal in ITA No. 783/Mad/2001. The
only issue in this appeal relates to confirming the order of the assessing
officer by the Commissioner (Appeals) in regard to refusal to grant recognition
to the family partition of HUF under Section 171 of the Act which took place on
16−9−1994.
3. The briefly stated facts of the case are that the assessee HUF, of Shri
P.C. Ramakrishna consists of Shri P.C. Ramakrishna, his wife and his two
daughters viz., Ms. Samyuktha Ramakrishna and Ms. Saranya Ramakrishna. There was
an oral total partition of HUF on 16−9−1994 between Sri P.C. Ramakrishna, his
wife, Smt. Hymavathi Ramakrishna and two daughters. Under this oral partition,
the two daughters, Ms. Samyuktha Ramakrishna and Ms. Saranya Ramakrishna were
allotted Rs. 12,50,000 each and these amounts were adjusted against a sum of Rs.
12,50,000 advanced to each of them earlier as loan by HUF. In the said
partition, all other properties of HUF were allotted to Sri P.C. Ramakrishna.
This oral partition took place on 16−9−1994 which was subsequently confirmed by
a deed of declaration confirming the partition. In this deed of declaration of
confirmation dated 9−3−1995 which was signed by Sri P.C. Ramakrishna, for
himself and as guardian for his minor daughter, Ms. Saranya Ramakrishna and
elder daughter, Ms. Samyuktha Ramakrishna, Shri P.C. Ramakrishna was allotted
all the properties indicated in Schedule II, besides all liabilities of the HUF
existing on the date of partition and other liabilities that may be attributable
to the undivided HUF besides any other liability not specifically allocated to
any other person under the terms of the partition. The allocations made to Ms.
Samyuktha Ramakrishna and Ms. Saranya Ramakrishna in oral partition dated
16−9−1994 have been indicated in Schedules III and IV of the deed of declaration
confirming the partition dated 9−3−1995. This partition was filed before the
assessing officer under Section 171 of the Act seeking recognition of the
partition as provided under the Act. The petition was proceeded by the assessing
officer who vide his order dated 17−3−1998 held that partition is sham one and
the mere contrivance to divest the family funds to reduce the incidence of tax
and accordingly he declined to grant recognition to the partition in exercise of
his powers under Section 171 of the Act. The assessing officer considered the
declaration of partition and in view of the partition, Sri P.C. Ramakrishna who
is Karta of HUF is allotted immovable properties at Schedule I which consist of
(a) one flat on the third floor of the property No. 9, 2nd street, Venus Colony,
Alwarpet and (b) a flat at ground floor of the very same premises. Apart from
the above immovable properties, he has been allotted all shares, bank balances,
all monies receivable by family together with corresponding liabilities and both
the daughters, Ms. Samyuktha Ramakrishna and Ms. Saranya Ramakrishna were
allotted a sum of Rs. 12,50,000 each which was reported to be the loans due from
these daughters to the HUF Before the assessing officer, it was claimed that the
partition is on the basis of recently brought out amendment to the Hindu
Succession Act, i.e., Hindu Succession (Tamil Nadu Succession Act, 1989) by
Tamil Nadu Assembly. The assessing officer has rejected the claim of the
assessee by discussing the amendment as well as the "inherent right" and the
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term "sui juris", whether the right to property and partition is to the limited
extent qua the daughters for enforcing a clear right over the property or at par
with the sons of the family in the event of partition and he has held as under:
What has been amended is only Hindu Succession Act which provides for
succession by survivorship of the family members which is spes successionis. The
provision obtaining prior to the amendment was that in regard to coparcenery
property only the coparceners (male members) had the right to claim partition
after providing for the marriage and maintenance expenses of the female members
of the HUF. By making an amendment to the Succession Act, what the legislature
has intended to enact was, to provide an opening by way of right for the female
members of the family out of the ancestral property belonging to the family,
whenever a partition takes place. The contradistinction in this context is that
a mere right and not inherent right has been provided which is sui juris to the
limited extent of enforcing a clear right over the property, on par with the
sons of the family, in the event of partition. In this case, partition is
reported to have been effected unilaterally and recourse is had to be amendment
made by the Tamil Nadu Amendment Act. The amendment does not enjoin a right on
the female members to ensure an inherent right of partition."
Another reason to reject the assessees claim of partition is that the
assessees wife, Smt. Hymavathi Ramakrishna has not been provided any sum for her
maintenance in the declaration of partition. In view of these reasons, he
refused to recognize the partition under Section 171 of the Act. Aggrieved, the
assessee preferred an appeal before the Commissioner (Appeals). The Commissioner
(Appeals) has held that the provisions of Section 171 of the Act cannot confer
any right to a partition which is not available to any person under the Hindu
Law and according to him, under the Hindu Law, there should be a partition
between two or more coparceners and therefore, it cannot be a partition where
the HUF consists of only one coparcener. For this, he relied on the following
case law:
(i) V.V.S. Natarajan v. CIT (1978) 111 ITR 539 (Mad);
(ii) S. Sadasivam v. Commr. of Agrl. IT ;
(iii) T.G.K. Raman (HUF) v. CIT ;
(iv) Kundan Lal v. CIT ;
(v) Satpal Bansal v. CIT ;
(vi) B.T Ravindranath Punja v. CIT .
Finally, he held that even after introduction of amendment in Tamil Nadu in
1989, the daughters cannot claim partition in the joint family property of the
HUF and accordingly, he confirmed the action of the assessing officer.
Aggrieved, the assessee is in second appeal before the Tribunal.
4. Before us, the learned Counsel for the assessee filed a paper book
containing the following documents at pp. 1 to 21:
(i) The Hindu Succession (Tamil Nadu Amendment) Act, 1989−Act No. 1 of
1990.
(ii) Hindu Succession (Amendment) Act, 2005 (Act No. 39 of 2005).
(iii) Statement of facts and grounds of appeal before Commissioner
(Appeals)−in the appeal against order under Section 171 of the Act−may be taken
as written submissions in the present appeal before the Honble Tribunal.
(iv) Deed of declaration dated 9−3−1995 confirming oral partition on
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16−9−1994.
5. The learned Counsel for the assessee relied on the Honble Apex Court
judgment in the case of S. Sai Reddy v. S. Narayanan Reddy & Ors. and argued
that what has been considered by the
Honble Apex Court is the amendment by introduction of Section 29A in Hindu
Succession Act, 1956 as amended by the State legislature by Hindu Succession
(Andhra Pradesh Amendment) Act, 1986. Similar is the amendment of the Hindu
Succession (Tamil Nadu Amendment) Act, 1989 as per Chapter II−A, . succession by
survivorship. He further argued that the Honble Apex Court has laid down the
principle regarding the concept of partition that the legislature has in mind
cannot be equated with a mere severance of the status of the joint family which
can be effected by an expression of a mere desire by a family member to do so.
The −partition that the legislature has in mind is a partition complete in all
respects which has brought about an irreversible situation. Where a partition of
the property is effected by metes and bounds, the daughters cannot be deprived
of the benefits conferred by the Act. According to the learned Counsel for the
assessee, the Honble Supreme Court has held that the legislation is beneficial
and placed on the statute book with the avowed object of benefiting daughter
which is a vulnerable section of the society in all its strata, it is necessary
to give a liberal effect to it. Further he argued that as per the amended
provisions in the Hindu Succession (Tamil Nadu) Act, the difference between
daughter and son of the Mitakshara Hindu family is removed and the daughter is
conferred the coparcenary rights in the joint family property by birth in the
same manner and to the same extent as the son. In view of the new provisions,
daughter is entitled to claim partition of HUF. Hence, family partition of Shri
P.C. Ramakrishna is perfectly in accordance with the provisions of law and the
same should be recognized as a family partition under Section 171 of the Act.
Accordingly, he urged the Bench to recognize the partition and reverse the
orders of the lower authorities.
6. The learned departmental Representative relied on the orders of the lower
authorities and supported the orders as these are based on judicial
pronouncements as mentioned in the order of the Commissioner (Appeals).
Accordingly, he urged the Bench to confirm the orders of the authorities below.
7. We have heard the rival contentions. The facts are undisputed. First of
all, we have to go through the case law of the Honble Apex Court cited supra
wherein by way of amendment, Section 29A was introduced by Hindu Succession
(Andhra Pradesh Amendment) Act, 1986. The Honble Apex Court has considered the
newly inserted Section 29A and the same reads as under:
29A. Equal rights to daughter in coparcenary
property.Notwithstanding anything contained in Section 6 of this Act:
(i) in a joint Hindu family governed by Mitakshara law, the daughter of a
coparcener shall by birth become a coparcener in her own right in the same
manner as the son and have the same rights in the coparcenary property as she
would have had if she had been a son; inclusive of the right to claim by
survivorship; and shall be subject to the same liabilitiesand disabilities in
respect thereto as the son,
(ii) at a partition in such a joint Hindu family the coparcenary property
shall be so divided as to allot to a daughter the same share as is allottable to
a
son:
Provided that
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the share which a predeceased son or a predeceased daughter would have got
at the partition if he or she had been alive at the time of the partition shall
be allotted to the surviving child of such predeceased son or of such
predeceased daughter:
Provided further
that the share allottable to the predeceased child of a predeceased son or
of a predeceased daughter, if such child had been alive at the time of the
partition, shall be allotted to the child of such predeceased child of the
predeceased son or of the predeceased daughter as the case may be;
(iii) any property to which a female Hindu becomes entitled by virtue of
the provisions of Clause (i) shall be held by her with the incidents of
coparcenary ownership and shall be regarded, notwithstanding anything contained
in this Act or any other law for the time being in force, as property capable of
being disposed of by her by will or other testamentary disposition;
(iv) nothing in Clause (ii) shall apply to a daughter married prior to or
to a partition which had been effected before the commencement of the Hindu
Succession (Andhra Pradesh Amendment) Act, 1986."
8. The Honble Apex Court has considered the issue regarding the preliminary
decree which has already been passed prior to the amended provisions and the
High Court committed an error in directing the Trial court to allot shares to
the unmarried daughters. This was pleaded before the Honble Apex Court. The
Honble Apex Court has admitted that under the unamended Act, unmarried daughters
of a Hindu Mitakshara family were not entitled to any share in the joint family
property. But the State of Andhra Pradesh removed the injustice to the daughters
so far as that State was covered by newly introduced Section 29A in the Act and
the Honble Apex Court has held in para 6 that by way of amendment, the daughter
is conferred the coparcenary rights in the property by birth in the same manner
and to the same extent as the son, para 6 of the judgment reads as under:
6. It is obvious that under the aforesaid provision, the difference between
daughter and son of the Mitakshara Hindu family is removed and the daughter is
conferred the coparcenary rights in the joint family property by birth in the
same manner and to the same extent as the son. She is, therefore, now entitled
to claim partition and her share in the family property. The amending provision
is a beneficial legislation which, among other things, is also directed towards
eradicating social evils such as dowry and dowry deaths. It also achieves the
constitutional mandate of equality between sexes."
The Honble Apex Court further has held in para 7 as under:
7. The question that falls for our consideration is whether the preliminary
decree has the effect of depriving respondents 2 to 5 of the benefits of the
amendment. The learned Counsel placed reliance on Clause (iv) of Section 29A to
support his contention that it does. Clause (ii) of the section provides that a
daughter shall be allotted share like a son in the same manner treating her to
be a son at the partition of the joint family property.
However, the legislature was conscious that prior to the enforcement of the
amending Act, partitions will already have taken place in some families and
arrangements with regard to the disposition of the properties would have been
made and marriage expenses would have been incurred, etc. The legislature,
therefore, did not want to unsettle the settled positions. Hence, it enacted
Clause (iv) providing that Clause (ii) would not apply to a daughter married
prior to the partition or to a partition which had already been effected before
the commencement of the amending Act. Thus, if prior to the partition of family
property a daughter had been married, she was disentitled to any share in the
property. Similarly, if the partition had been effected before 5−9−1985 the date
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on which the amending Act came into force, the daughter even though unmarried
was not given a share in the family property. The crucial question, however, is
as to when a partition can be said to have been effected for the purposes of the
amended provision. A partition of the joint Hindu family can be effected by
various modes, viz., by a family settlement, by a registered instrument of
partition, by oral arrangement by the parties, or by a decree of the court. When
a suit for partition is filed in a court, a preliminary decree is passed
determining shares of the members of the family. The final decree follows,
thereafter, allotting specific properties and directing the partition of the
immovable properties by metes and bounds. Unless and until the final decree is
passed and the allottees of the shares are put in possession of the respective
property, the partition is not complete. The preliminary decree which determines
shares does not bring about the final partition. For, pending the final decree
the shares themselves are liable to be varied on account of the intervening
events. In the instant case, there is no dispute that only a preliminary decree
had been passed and before the final decree could be passed the amending Act
came into force as a result of which Clause (ii) of Section 29A of the Act
became applicable. This intervening event which gave shares to respondents 2 to
5 had the effect of varying shares of the parties like any supervening
development. Since the legislation is beneficial and placed on the statute book
with the avowed object of benefiting women which is a vulnerable section of the
society in all its strata, it is necessary to give a liberal effect to it. For
this reason also, we cannot equate the concept of partition that the legislature
has in mind in the present case with a mere severance of the status of the joint
family which can be effected by an expression of a mere desire by a family
member to do so. The partition that the legislature has in mind in the present
case is undoubtedly a partition completed in all respects and which has brought
about an irreversible situation. A preliminary decree which merely declares
shares which are themselves liable to change does not bring about any
irreversible situation. Hence, we are of the view that unless a partition of the
property is effected by metes and bounds, the daughters cannot be deprived of
the benefits conferred by the Act. Any other view is likely to deprive a vast
section of the fair sex of the benefits conferred by the amendment. Spurious
family settlements, instruments of partitions not to speak of oral partitions
will spring up and nullify the beneficial effect of the legislation depriving a
vast section of women of its benefits."
9. Now, we will go through the Hindu Succession (Tamil Nadu Amendment) Act
which came into force on 25−3−1989 and the Hindu Succession Act, 1956 as
applicable to the State of Tamil Nadu amended by Hindu Succession (Tamil Nadu
Amendment) Act, 1989. Chapter IIA−Succession by survivorship as amended reads as
under:
29A. Equal rights to daughter in coparcenary propertyNotwithstanding
anything contained in Section 6 of this Act:
(i) in a joint Hindu family governed by Mitakshara Law, the daughter of a
coparcener shall by birth become a coparcener in her own right in the same
manner as a son and have the same rights in the coparcenary property as she
would have had if she had been a son, inclusive of the right to claim by
survivorship; and shall be subject to the same liabilities and disabilities in
respect thereto as the son;
(ii) at a partition in such a joint Hindu family the coparcenary property
shall be so divided as to allot to a daughter the same share as is allowable to
a
son:
Provided that
the share which a predeceased son or a predeceased daughter would have got
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at the partition if he or she had been alive at the time of the partition shall
be allotted to the surviving child of such predeceased son or of such
predeceased daughter:
Provided further
that the share allottable to the predeceased child of a predeceased son or
of a predeceased daughter, if such child had been alive at the time of the
partition, shall be allotted to the child of such predeceased child of the
predeceased son or of the predeceased daughter, as the case may be;
(iii) any property to which a female Hindu becomes entitled by virtue of
the provisions of Clause (i) shall be held by her with the incidents of
coparcenary ownership and shall be regarded, notwithstanding anything contained
in this Act or any other law for the time being in force, as property capable of
being disposed of by her by will or other testamentary disposition;
(iv) nothing in this Chapter shall apply to a daughter married before the
date of the commencement of the Hindu Succession (Tamil Nadu Amendment) Act,
1989;
(v) nothing in Clause (ii) shall apply to a partition which had been
effected before the date of the commencement of the Hindu Succession (Tamil Nadu
Amendment) Act, 1989.
29B. Interest to devolve by survivorship on deathWhen a female Hindu dies
after the date of the commencement of the Hindu Succession (Tamil Nadu
Amendment) Act, 1989, having at the time of her death, an interest in a
Mitakshara coparcenary property by virtue of the provisions of Section 29A, her
interest in the property shall devolve by survivorship upon the surviving
members of the coparcenary and not in accordance with this Act:
Provided that
if the deceased had left any child or child of a predeceased child, the
interest of the deceased in the Mitakshara coparcenary property shall devolve by
testamentary or intestate succession, as the case may be, under this Act and not
by survivorship."
10. Prior to the amendment to the Hindu Succession Act, 1956 by the Hindu
Succession (Tamil Nadu Amendment) Act, 1989, the rules of ancient Hindu Law
governing the rights of the women in the family in the Mitakshara School of
Hindu Law, no doubt female members had no right to claim partition of the family
properties but had a right to maintenance and even the share in the property can
be allotted equal to that of a son. This custom is still prevalent under the
Benares and Bombay School of Mitakshara Hindu Law. However, in Southern India,
or Madras School of Mitakshara Hindu Law, this custom has become obsolete as
observed by the learned author Mulla on Hindu Law at paras 3 and 15 of p. 436 of
15th Edition but diverse view has been taken in the case of K.V. Thangavelu v.
The court of Wards, Madras & Ors. (1946) 2 MLJ 143 (Mad) at p. 148 wherein their
Lordships of Madras High Court have observed as under:
No doubt as pointed out in Maynes Hindu Law (10th Edition) P. 543, the
rules of the Mitakshara allotting a share to wives, widows, mothers and
grandmothers have became obsolete in Southern India owing to the influence of
Smriti Chandrika and Saraswathi Vilasa, but in the Northern provinces, the rules
are still in force."
The above decision clearly indicates that as far as the Southern or Madras
School of Mitakshara Law is concerned, the females in the family have got no
right to a share in the family property in the event of partition.
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11. Similarly, this question again came up for consideration before the
Karnataka High Court while dealing with tax laws itself, in the case of N.
Ramachandra Bhat v. CED . In the above case, the issue involved is as under:
11.1 Consequent to the death of one Govinda Bhat, the question arose as to
the estate passing on death chargeable to estate duty under the Estate Duty Act,
1953. The family of said Govinda Bhat at the time of his death consisted of
himself, his wife and two sons and he was the manager of joint Hindu family.
Before the Asstt. CED it was contended by the accountable person that only 1/4th
interest in the joint family property passed on the death of Govinda Bhat on the
basis that the wife of Govinda Bhat also had a share in the joint family
property. The Asstt. CED rejected the said contention. The CED(A) also rejected
it in the appeal filed by the accountable person. Aggrieved by the order of the
appellate Controller, the accountable person filed an appeal before the
Tribunal, Bangalore Bench. In that appeal, in addition to the contention
referred to above, he raised a further contention that by virtue of Section
33(1)(n) of the Act, the value of the interest of the lineal descendants in the
residential house in which the deceased was living, was also not liable to be
included for the purpose of rate under Section 34(1)(c) of the Act. The Tribunal
held that the entire value of the residential house had to be excluded from
consideration both under Section 34(1)(a) and under Section 34(1)(c), in view of
Section 33(1)(c) of the Act. But the contention of the accountable person that
the wife had also a share in the joint family property during the lifetime of
Govinda Bhat was rejected.
11.2 Against the said order of the Tribunal, the accountable person went on
reference to the High Court on the question whether the Tribunal was right in
law in holding that the wife of the deceased had no share in the HUF property
and also no amount was to be allotted towards maintenance. This reference was
decided by the Karnataka High Court in the case reported in (1980) 123 ITR 841
(Kar) (supra). While deciding the issue the Honble court held as follows:
The second question relates to the contention of the accountable person
that on the death of N. Govinda Bhat only 1/4th of the share in the coparcenary
property passed and not 1/3rd as held by the authorities under the Act. This
contention is based on the assumption that the wife of Govinda Bhat had a share
in the family property before his death. Since it is admitted that the joint
family in question was governed by the Madras School of Mitakshara Law, it has
to be held that the wife of Govinda Bhat had no share in the family property
during his lifetime."
The above case law clearly indicates the proposition of law that under the
Madras or Southern School of Mitakshara Law, a female member such as wife had no
share in the property of an HUF. In the circumstances, it is submitted that the
partition in the present case does not suffer from any legal infirmity and has
to be taken as a total partition and not a partial partition.
11.3 Incidentally, the Madras High Court in the case of Smt. G.
Shenbegammal v. CED , has held that while under
general rules of Hindu law, the husband has got an obligation to maintain
his wife and this obligation is independent of possession of any property by the
husband, this obligation is not fixed or fastened to any particular property.
This right of the wife to be maintained by the husband and the obligation of the
husband to maintain the wife will not, by themselves create any charge or
encumbrance over the property of the husband and unless and until it is made a
charge on the property, it is not enforceable, like any other liability.
11.4 While the above decision does not deal directly with the right of the
wife in the family property, still it is indicative of the proposition that
maintenance of a wife is the personal obligation of the husband which does not
result in any share in the husbands property, which is indicative of the fact
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that a wife has got no legal right to claim any share in the husbands property
whether it is his individual property or his right in the joint family property.
12. The assessing officer while refusing recognition to the partition has
also stated that the partition was by reason of unilateral action on the part of
the father and hence cannot be accepted as genuine. Factually, this view of the
assessing officer is incorrect and has probably arisen as a result of the
misunderstanding on the part of the assessing officer in interpreting the
provisions of Tamil Nadu Amendment Act, 1989, incorporating Section 29A to the
Hindu Succession Act, 1956. The assessing officer has started with the
proposition that the effect of the Amending Act of 1989 is not to make the
daughters coparceners but only confers on them a right to claim a share equal to
that of the coparcener (male members) in the event of partition. A reading of
Sub−section (1) of Section 29A clearly indicates that the daughter of a
coparcener shall become a coparcener in her own right in the same manner as a
son and have the same rights in the coparcenary property as she would have had
if she had been a son, inclusive of the right to claim by survivorship and shall
be subject to the same liabilities and disabilities in respect thereto as a son.
In the circumstances and in the light of the fact that one of the daughters of
Sri P.C. Ramakrishna, namely Ms. Samyuktha had attained majority and has signed
the declaration dated 9−3−1996 confirming the partition on 16−9−1994, the
assessing officer is factually wrong in holding that the partition was by
unilateral action of the father and hence cannot be accepted as genuine.
Further, the assessing officer has also said that since no provision was made
for the maintenance and marriage of daughters in the partition, this will be
another ground for holding that the partition was not genuine. This conclusion
of the assessing officer also flows from the misunderstanding of the provisions
of the Amending Act by the assessing officer. Once the daughter becomes
coparcener in he, own right with the same rights and liabilities as that of a
son with a right to claim partition and share in the family property, it is not
necessary to provide separately for the maintenance and marriage of the said
daughters in the family partition. After all, under the pre−amended provisions,
it has never been stated that the provision for maintenance and marriage of sons
has to be made in the family partition.
13. In view of the above discussions, considering the provisions of Hindu
Succession Act, 1956 as amended by Hindu Succession (Andhra Pradesh Amendment)
Act, 1986, introduction of Section 29A which was confirmed by the Honble Apex
Court in the case of S. Sai Reddy (supra) and also the amendment of Hindu
Succession Act, 1956 by the Hindu Succession (Tamil Nadu Amendment) Act, 1989,
which are the provisions similar to the Hindu Succession (Andhra Pradesh
Amendment) Act, we are of the considered opinion that the difference between
daughter and son of the Mitakshara Hindu family is removed and the daughter is
conferred the coparcenary rights in the joint family property by birth in the
same manner and to the same extent as the son. Daughter is entitled to claim
partition and her share in the joint family property, i.e., HUF property, is
without dispute. In the present case, Sri P.C. Ramakrishna, HUF apart from P.C.
Ramakrishna, Karta, two daughters, viz., Ms. Samyuktha Ramakrishna and Ms.
Saranya Ramakrishna along with his wife, Smt. Hymavathi Ramakrishna are the
members of HUF After the amendment by Hindu Succession (Tamil Nadu Amendment)
Act, 1989 vide clauses (i) and (ii), the daughter in HUF shall by birth become a
coparcener in her own right in the same manner as the son and have the same
rights in the coparcenary property as she would have had if she had been a son,
inclusive of the right to claim by survivorship and shall be subject to
liabilities and disabilities in respect thereto as the son. She is entitled to
partition of a joint Hindu family coparcenary property and in such partition,
Hindu family coparcenary property shall be so divided to a daughter so as to
allot the same share as is allottable to a son. The amendment brought out with
effect from 25−3−1989 has removed the distinction as regards to a son or a
daughter in respect thereto coparcenary property of joint Hindu family as
governed by Mitakshara Law and daughters are clearly treated as coparceners. In
the present case, there are two daughters to the Karta. Hence, there are three
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coparceners in the joint Hindu family and the daughters have been allotted a sum
of Rs. 12,50,000, i.e., Ms. Samyuktha Ramakrishna and Ms. Saranya Ramakrishna
each. Hence, we find no infirmity in the partition of the joint Hindu family
which is in accordance with the Hindu Succession (Tamil Nadu Amendment) Act,
1989. In view of this, we hold that the partition is as per the amended
provisions of Hindu Succession (Tamil Nadu Amendment) Act, 1989. Hence, there is
no reason to refuse registration to family partition of joint Hindu family
property. Accordingly, the partition of HUF is recognized under Section 171 of
the Act and the assessing officer is directed to pass a consequential order
recognizing the partition of the HUF. In the result, the assessees appeal is
allowed.
14. ITA No. 907/Mad/2001 : In this appeal of the revenue, the first issue is
regarding estimation of fair market value as on 1−4−1981 for the purpose of
computation of long−term capital gains on account of sale of property, i.e.,
house property at No. 24, Cathedral Road, Chennai.
15. We have heard the rival contentions and gone through the facts of the
case. The briefly stated facts are that the assessee claimed fair market value
of the property as on 1−4−1981 at Rs. 4.24 lakhs per ground for the purpose of
computation of capital gains on this property. The assessee has adopted the
value on the basis of valuation made by the registered valuer, M/s. K.B.
Subramaniam Associates who vide its report dated 3−9−1996 has given the
following reasons for valuing the property at Rs. 4,24,000 per ground:
For valuation of the land, the following sale instance has been relied upon
Document No. 6020/85 dated 23−12−1985 (sic), property at No. 82, Poes Garden,
vacant land of 2−1/2 grounds purchased by M/s. Crompton Greaves for Rs.
15,00,000 which works out to Rs. 6,00,000 per ground The sale instance property
is in Poes Garden, and the instance is as on December, 1985, working back for
1981 at 20 per cent rate of inflation per year, for the last 4−1/2 years, i.e.,
April, 1981 to December, 1985 the cost of land as on 1−4−1981 will be Rs.
2,65,000 per ground. The sale instance property is in a residential area. The
subject property is on Cathedral Road where the possible FSI is 2.5 times,
against 1.5 times available at Poes Garden. Therefore the land value of Poes
Garden is to be appreciated by 60 per cent (1.5 times − 2.5 times) which works
out to Rs. 4,24,000 per ground for the subject property as on 1−4−1981 and the
same is adopted in this valuation."
During the course of assessment proceedings, the assessing officer deputed an
Inspector for verification of the fair market value and the Inspector reported
on 26−12−1997 on the basis of information gathered from the registering
authority and the guideline value of various properties at Cathedral Road
between Rs. 75,000 and Rs. 1,00,000. When this is pointed out to the assessees
representative, he argued before the assessing officer that the property is in a
dominant location where a reputed jewellery shop, petrol bunk and drive−in
restaurant are located. The assessees representative further argued that there
is also a prime locality just adjacent to the famous womens college Stella
Maris. It was also argued that opposite to the assessees property a seven
storeyed building, i.e., Crowns court has also come up. In view of this, he
argued that due to location advantage coupled with hotel facility and good
transportation the value of the property is very high and this property is a
block piece of land of more than 4 grounds, eventually the value is higher. In
spite of these arguments, the assessing officer estimated the fair market value
at Rs. 2 lakhs per ground only. Aggrieved, the assessee preferred an appeal
before the Commissioner (Appeals). The Commissioner (Appeals) adopted the value
at Rs. 3.5 lakhs per ground as against Rs. 2 lakhs per ground estimated by the
assessing officer. The Commissioner (Appeals) has gone into the arguments of the
assessee before the assessing officer as well as before him. He has also found
that the valuation made by the assessee was based on approved valuers report.
Even he considered the argument of the assessee that the property is located in
a better situation and compared to the sale instances brought out by the
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Inspector in his report. After taking into consideration all these facts, he
adopted the value of the property at Rs. 3.5 lakhs per ground. Before us also,
the assessees representative reiterated the arguments which were advanced before
the lower authorities. In view of the above discussions, we are of the
considered opinion that the assessees property is in prime location where a
reputed jewellery shop, petrol bunk, drive in restaurant, womens college Stella
Maris and a seven storeyed building, i.e., Crowns court are located. In our
view, the adoption of value by the assessee is based on the valuation made by
the registered valuer who vide his report dated 3−9−1996 has given the reasoning
that the property in question, Cathedral Road where possible FSI is 2.5 times
against 1.5 times available at Poes Garden. The sale instance given by the
assessee is of residential property. According to the assessing officer, he
deputed an Inspector of income−tax who has brought out the value of the property
of Cathedral Road between Rs. 75,000 and Rs. 1,00,000. He has not given any
basis for the adoption of value at Rs. 2 lakhs and even the department has not
referred the matter to the Valuation Cell for knowing the fair market value as
on 1−4−1981. Hence, we are of the view that the Commissioner (Appeals) has
rightly estimated the fair market value as on 1−4−1981 at Rs. 3.5 lakhs and we
do not find any infirmity in the order of the Commissioner (Appeals) and the
same is confirmed. The revenue fails on this ground.
16. The next issue in this revenues appeal is as to whether the assessee is
entitled to deduction under Section 54 of the Act in view of capital gains in
regard to sale of two separate residential flats at Cathedral Road which are
situated one on the ground floor and other on the third floor or not.
17. We have heard the rival contentions on this issue and gone through the
facts of the case. The briefly stated facts of the case are that the assessee
claimed exemption of capital gains arising out of sale of property at No. 24,
Cathedral Road, Chennai measuring 4 grounds and 839 sq. ft. with house at Rs.
1.10 crores. The assessee claimed exemption under Section 54 of the Act for the
flats purchased by the assessee on ground floor and third floor. The assessee
under the term of agreement entered into with M/s Alacrity Housing Ltd. has
agreed to receive part of sale consideration of Rs. 1. 10 crores in the form of
two flats as detailed below:
(i) A flat of 247.122 sq. mtrs. (2660 sq. ft.) on the third floor with
11.148 sq. mtrs. (120 sq. ft.) undivided share in the recreation room valued at
Rs. 32,66,500.
(ii) A flat of 154.50 sq. mtrs. (1662 sq. ft.) on the ground floor with
6.968 sq. mts. (75 sq. ft.) undivided share in the recreation room valued at Rs.
20,40,975.
The assessee is accordingly entitled to total area of 4332 sq. ft. of flat
together with 195 sq. ft. undivided share in the recreation room. The assessee
has taken two different floors as the assessees mother who is entitled to be
provided with accommodation by the assessee is to stay in the property was
finding it difficult to stay in the upper floor due to old age and health,
required the accommodation on the ground floor. As a matter of fact, the
assessees mother, Smt. Seela Sokar is occupying the ground floor and Sri P.C.
Ramakrishna along with his wife and daughters occupied the third floor. The
assessee claimed exemption under Section 54 of the Act. In view of the above
facts, the assessing officer allowed the exemption in regard to the investment
in house property in respect of third floor flat and recomputed the capital
gains. Aggrieved, the assessee preferred an appeal before the Commissioner
(Appeals) who allowed the claim of the assessee. Aggrieved, the revenue is in
second appeal before the Tribunal.
18. The learned Departmental Representative relied on the grounds of appeal
as well as the order of the assessing officer. On the other hand, the learned
Counsel for the assessee, Shri T.N. Seetharamah argued that Section 54F which is
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pari materia with Section 54 of the Act clearly restricts the claim for
exemption of one residential house but there is no such restriction under
Section 54 of the Act. In view of this, he argued that there is no case for
restricting the claim for relief under Section 54 of the Act to one house. In
support of this, he relied on the Circular dated 25−3−1997. He also relied on
the following decisions of the various High Courts and the Tribunals:
(i) CIT v. Dr. Laxmichand Narpal Nagda (Decd. by LR) ;
(ii) CIT v. Mrs. Hilla J.B. Wadia ;
(iii) Shiv Narain Chaudhari v. CWT 1977 CTR (All) 149: (1977) 108 ITR 104
(All);
(iv) K.G. Vyas v. Income Tax Officer (1986) 16 ITD 195 (Bom);
(v) D. Anand Basappa v. Income Tax Officer (2004) 91 ITD 53 (Bang);
(vi) Smt. Hansa Bai Sanghi v. Income Tax Officer (2004) 89 ITD 239 (Hyd).
19. We have considered the submissions of both the sides. The facts are
undisputed. First of all we have gone through the provisions of Section 54(l)
which reads as under:
"Section 54
. Profit on sale of property used for residence.(1). (Subject to the
provisions of Sub−section (2), where, in the case of an assessee being an
individual or an HUF), the capital gain arises from the transfer of a long−term
capital asset, being buildings or lands appurtenant thereto, and being a
residential house, the income of which is chargeable under the head Income from
house property (hereinafter in this section referred to as the original asset),
and the assessee has within a period of (one year before or two years after the
date on which the transfer took place purchased), or has within a period of
three years after that date constructed, a residential house, then), instead of
the capital gain being charged to income−tax as income of the previous year in
which the transfer took place, it shall be dealt with in accordance with the
following provisions of this section, that is to say,
Further, we have also gone through the provisions of Section 54F(l) which
reads as under:
"Section 54F. Capital gain on transfer of certain capital assets not to be
charged in case of investment in residential house .(1) (Subject to the
provisions of Sub−section (4), where, in the case of an assessee being an
individual or an HUF J, the capital gain arises from the transfer of any long−
term capital asset, not being a residential house (hereafter in this section
referred to as the original asset), and the assessee has, within a period of one
year before or (two years) after the date on which the transfer took place
purchased, or has within a period of three years after that date constructed, a
residential house (hereinafter in this section Jeferred to as the new asset),
the capital gain shall be dealt with in accordance with the following provisions
of this section that to say,
(a) and (b)
Provided that
nothing contained in this sub−section shall apply where the assessee owns
on the date of the transfer of the original asset, or purchases, within the
period of one year after such date, or constructs, within the period of three
years after such date, any residential house, the income from which is
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chargeable under the head Income from house property, other than the new asset."
On a comparison of the phraseology of sections 54(1) and 54F of the Act as
above, it appears that the subject−matter of the transfer in Section 54(1) of
the Act is residential house whereas in Section 54F of the Act is any long−term
capital asset, not being a residential house, whereas in order to gain full
exemption under Section 54(1)(a) of the Act, only the whole of the amount of
capital gains arising out of transfer of the original asset, as distinguished
from the gross or net consideration for the transfer, needs be invested in the
purchase or construction, as the case may be, of the new asset. The requirement
under Section 54(1)(a) of the Act demands the investment of the entire "net
consideration" on such purchase or construction, as the case may be. It does not
affect another residential house having already been allowed exemption. Whereas
in the case of Section 54F of the Act benefit, such as purchase or construction
of another residential house forfeits the already allowed exemption. The
assessee can claim exemption under Section 54F of the Act only to one
residential house. There is distinction between Section 54 and Section 54F of
the Act. In view of the facts narrated above, we have to see as to whether the
assessee is entitled for deduction under Section 54 of the Act in respect of
both the flats acquired or not. The deduction under Section 54 is allowable in
respect of a residential house as worded in this section. Here, the assessing
officer has denied exemption only on the basis that residential house means, one
residential house and not more than one. But the contention of the assessee is
that residential house means any residential house and not only one residential
house. The assessee in this case acquired two flats, one on ground floor and the
other on third floor. The reasons stated by the assessee for acquiring the
ground floor is that the assessees mother who is entitled to be provided with
accommodation by the assessee is to stay in the property and she was finding it
difficult to stay on the upper floor due to her old age and health. The
assessees mother is staying on the ground floor and they are having common
kitchen on ground floor flat and there is no kitchen on third floor flat. These
flats fall under one building, i.e., ground floor and third floor. The desire of
the assessee is that these two flats are to be used as one house as it is seen
from the case law of the Tribunal of the Bombay Bench in the case of K.G. Vyas
(supra). The Tribunal allowed the claim of the assessee under Section 54 of the
Act by holding that since all the four apartments were in one building though on
different floors under occupation of the same family. Further it was held as
under
9. In the present case all the four flats have been purchased by the
assessee in the same building for the purpose of his own residence and are being
used by him for that purpose only. The mere fact that the assessee had purchased
them jointly either in the name of his wife or in the names of his sons would
not materially affect or alter the factual position that he is the owner of all
the four flats and that he is also living in them along with the members of his
family. The fact that on a future date the assessee may divide these properties
among the members of his family is of no relevance or consequence for the
purpose of allowing relief to the assessee under Section 54, since the assessee
has fulfilled the conditions laid down under Section 54, namely, that he had
purchased a house for his own residence by investing the sale proceeds of his
former residential house in the purchase of the assessees family with ten
members, the accommodation acquired by the assessee in the form of four flats in
the same building is commensurate to his requirements. We are, therefore,
inclined to accept the contentions of the learned Counsel for the appellant and
hold that the assessee is entitled to full relief under Section 54 in respect of
the entire amount of Rs. 1,77,750 as invested by him in the purchase of four
flats for the purpose of his own residence under Section 54(1). Accordingly, we
accept the contentions of the learned Counsel for the assessee and direct the
Income Tax Officer to allow deduction of the balance of Rs. 1,28,250 in the
computation of capital gains under Section 54(1) to the appellant.
20. Now, the only issue that arises for consideration is that whether a
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residential house should be treated as allowable under Section 54 or whether
more than one residential house can be considered as allowable under Section 54
of the Act. A bare reading of Section 54 of the Act clearly infers that there is
no bar to claim deduction for more than one residential house and if the
assessee is holding a residential house and on sale of such property, the
assessee acquires another property, the assessee is eligible for deduction under
Section 54 of the Act. If the assessee, in the same year sells a residential
house and acquires a house property out of such transaction, still the assessee
is eligible for deduction under Section 54 of the Act. There is no bar in
acquiring more than one residential house under Section 54 unlike under Section
54F of the Act. It can easily be held that if the assessee purchases two houses
to meet his needs out of the sale proceeds of one residential house, he cannot
be denied exemption under Section 54 of the Act. What is to be examined is
whether the other conditions as specified in Section 54 are satisfied at the
time of investment in each of the property or not. In the present case, it is
clear that these two flats are acquired simultaneously under the terms of
agreement entered into on 29−10−1993 and on the same date the possession of
these flats was given in the same year, simultaneously. The meaning of term
residential house as used in Section 54 of the Act can be understood by
referring the decision of the Allahabad High Court in the case of Shiv Narain
Chaudhari (supra) wherein the Honble Allahabad High Court has held that
exemption under Section 5(1)(iv) of the Wealth Tax Act, 1957 is allowable in
respect of one house or part of house to the assessee and the relevant
discussion in pp. 107 and 108 reads as under:
To attract the exemption under Clause (iv) of Section 5(1) of the Act the
house owned by the assessee should be used by the assessee exclusively for
residential purpose. In the present case the assessee is an HUF consisting of
four adult male members. Each of them is occupying one residential unit in the
building bearing door Nos. 92 and 92A. It is well settled that though an HUF is
ordinarily joint not only in estate but also in food and worship, the members of
such family need not have a common residence. In other words, the family may
continue to remain undivided even though different members of the family are
residing separately. If a building otherwise comes within the meaning of the
word house, the mere fact that different members of the HUF who own that
building, are living separately in different self−contained portions thereof,
will not, in our opinion, constitute that building into many houses."
Further, the Honble Tribunal in the case of D. Anand Basappa (supra) has
discussed the words and phrase a residential house which reads as under:
7.6 It is also observed in Mrs. Gulshanbanoo R. Mukhis case (supra) that
the intention of the legislature is clear to grant exemption for only one house.
We are unable to find any such intention anywhere stated. It cannot be presumed
that if the legislature intended more than one residential unit, it could have
used the words house or houses. It can equally also be held that if the
intention of legislature is to restrict the deduction for only one house, then
instead of using the words a residential house the words one residential house
would have been used therein. It may also be noted that under General Clauses
Act, as per Section 13, singular shall include plural and vice versa. Reliance
placed on the decision of Honble Supreme Court in Vegetable Products Ltd. case
to the extent that if the language of the statute is plain, the fact that the
consequences of giving effect to it may lead to absurd result, is of no effect
in interpreting the provisions. However, the same decision also holds that if
there is ambiguity in interpretation of the provisions, the one which is in
favour of the assessee, should be adopted. The varying decisions at extreme ends
can definitely result into saying that there is an ambiguity in the provision.
Thus the one in favour of the assessee is to be adopted rather than applying a
strict meaning by saying that there is no ambiguity. Thus this issue is decided
in favour of the assessee."
Even the CBDT has discussed the scope and effect of amendment on Section 54
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with effect from 1−4−1983 which is explained in Circular No. 346, dated
30−6−1982, (1982) 138 ITR (St.) 23, which reads as under:
Modification of the provisions relating to exemption of capital gains on
transfer of self−occupied house property on investment in other house property
for selfoccupation−Section 54.
19.1 Under Section 54 of the Income Tax Act, capital gains arising on the
transfer of a house property which in the two years immediately preceding the
date of its transfer was used by the assessee or a parent of his for self−
residence is exempted from income−tax if the assessee, within a period of one
year before or after that date, purchases or within a period of two years after
the date of such transfer constructs a house property for the purpose of his own
residence. The exemption of capital gains is restricted to the amount of such
capital gain utilized for the purchase or construction of the new house
property. Where the amount of capital gain is greater than the cost of the house
property so purchased or constructed, the balance amount of the capital gains is
charged to tax. If, however, the amount of capital gain is equal to or less than
the cost of the house property purchased or constructed, the capital gain is
completely exempted from income−tax. If such house property purchased or
constructed is transferred within a period of three years of its purchase or
construction the capital gain on the property so transferred is calculated by
reducing the cost of its acquisition by the amount of the capital gain exempted
from income−tax.
19.2 The conditions of self−occupation of the property by the assessee or
his parent before its transfer and the purchase or construction of the new
property to be used for the residence of the assessee for the purposes of
exemption of capital gains created hardship for assessees. This was usually due
to the fact of employment or business of the assessee at a place different from
the place where such property was situated.
19.3 The Finance Act has made the following modifications in Section 54 of
the Income Tax Act, namely:
(i) The conditions of residence by the assessee or his parent in the
property which was transferred, as also residence by the assessee in the new
property purchased or constructed by him have been removed.
(ii) The period for construction of a new property has been raised from two
years to three years since assessees sometimes experience difficulty in
complying with the existing time−limit of two years for the construction of a
house property.
(iii) It is clarified that this exemption will be allowed only in the case
of individual assessees.
(iv) It has been provided that this exemption will apply only in relation
to long−term capital gains, that is gains arising from the transfer of a house
property which had been held by the assessee for a period exceeding 36 months.
19.4 This provision will take effect from 1−4−1983, and will accordingly
apply in relation to the assessment year 1983−84 and subsequent years."
In view of the above facts and the provisions including the case laws
referred, we are of view that both the flats are acquired by the assessee,
simultaneously and hence the conditions for acquiring the residential house
within the time specified under Section 54 of the Act are complied with. There
is no bar in acquiring more than one residential house to claim deduction under
Section 64 of the Act unlike Section 54F of the Act. Therefore, the assessee is
eligible for deduction under Section 54 of the Act in respect of the investment
made in both the flats simultaneously for computation of capital gains. In view
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of this, the revenues appeal deserves to be dismissed.
21. In the result, the appeal of the revenue is dismissed and the assessees
appeal is allowed.
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