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Dilip Chinubhai Shah Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1986)16ITD253(Ahd.)
AppellantDilip Chinubhai Shah
Respondentincome-tax Officer
Excerpt:
.....is an huf. the assessment year is 1979-80 and the relevant previous year ended on 31-3-1979.3. one shri chinubhai motilal shah had his wife, three daughters and four sons including shri dilipbhai chinubhai shah, who is the karta of the present assessee-huf. shri chinubhai had purchased one property at panchavati, ellisbridge, ahmedabad for his residence out of his own earnings. shri chinubhai died intestate on 20-2-1965. the wife, daughters and sons of the late shri chinubhai had divided certain properties keeping in mind the provisions of the hindu succession act, 1956, vide notes/ memorandum dated 1-11-1970. the panchavati property remained with the four sons of the late shri chinubhai in the name of 'shri chinubhai motilal, huf'.3.1. on 27-3-1973, the four sons of the late shri.....
Judgment:
1. The only point involved in this appeal pertains to the inclusion of capital gains of Rs. 34,425 in the total income of the assessee.

2. The assessee is an HUF. The assessment year is 1979-80 and the relevant previous year ended on 31-3-1979.

3. One Shri Chinubhai Motilal Shah had his wife, three daughters and four sons including Shri Dilipbhai Chinubhai Shah, who is the karta of the present assessee-HUF. Shri Chinubhai had purchased one property at Panchavati, Ellisbridge, Ahmedabad for his residence out of his own earnings. Shri Chinubhai died intestate on 20-2-1965. The wife, daughters and sons of the late Shri Chinubhai had divided certain properties keeping in mind the provisions of the Hindu Succession Act, 1956, vide notes/ memorandum dated 1-11-1970. The Panchavati property remained with the four sons of the late Shri Chinubhai in the name of 'Shri Chinubhai Motilal, HUF'.

3.1. On 27-3-1973, the four sons of the late Shri Chinubhai executed a deed captioned 'Memorandum/notes of partial partition' whereby one-fourth share in the Panchavati property (both land and superstructure) was allotted to each of the four sons of the late Shri Chinubhai. The relevant portion of the said deed reads as under: However, we the parties of all the four parts have mutually decided to divide by a partial partition, the said bungalow bearing Municipal Census No. A/1235/H and the plot of land on which it is situated and have actually divided the same on falgun vadi 7th day of Samvat year 2029, Monday the date 26-3-1973. Therefore, from the said date, we have ceased to treat the said bungalow and the plot land , as the joint property, and have declared that from the said date, we the parties of all the four parts have each, undivided one-fourth share in the said bungalow, and we have divided the same accordingly. That means, the said bungalow and its plot land become the joint property of the co-ownership of us, the parties of all the four parts, from the date 26-3-1973; and we have declared from the said date that each of us, the parties of all the four parts, has clear one-fourth share therein, and we have effected partition in that manner. That means, the one-fourth share of each of us the parties of four parts, has been of the full independent ownership of us each and the partition by metes and bounds of the said property, viz., the bungalow, has been reserved by us for being effected at our convenience. We have executed this writing in order to maintain the notes/memorandum of partition as above today and this writing is agreed to and approved by us, the parties of all the four parts.

3.2. Right from the assessment years 1974-75 to 1978-79 each of the four sons had shown one-fourth share of the self-occupied property income of the said Panchavati property in their respective HUF returns and were, accordingly, assessed by the ITO.3.3. Even for the year under appeal, they had shown one-fourth share of the self-occupied property income in their respective HUF returns for the period 1-4-1978 to 30-6-1978.

3.4. On 7-7-1978, the four sons of the late Shri Chinubhai executed a deed captioned 'Partition deed of the property' wherein they had estimated the value of the entire Panchavati property at Rs. 3 lakhs and their respective share therein at Rs. 75,000 each. Shri Jitendra and Shri Surendra took over the shares of Shri Bharatbhai and Shri Dilipbhai in the said property in lieu of payment of Rs. 1,50,000. Shri Bharatbhai Chinubhai Shah, HUF got Rs. 75,000 and Shri Dilipbhai Chinubhai Shah, HUF (the present assessee) got Rs. 75,000.

4. On the aforesaid facts, in its return originally filed by the assessee, one-fourth share of the self-occupied property income from 1-4-1978 to 30-6-1978 was shown at Rs. 157. The assessee had also attached a note wherein it had claimed benefit under Section 54 of the Income-tax-Act, 1961 ('the Act') in the following manner : Regarding Panchavati Property. -- A house property bearing Municipal No. 1235-H situated at Panchavati Ambavadi, Ellisbridge was purchased by Shri Chinubhai Motilal HUF before calendar year 1960, The property is used for self-residence. After the death of Shri' Chinubhai this property is partitioned between four brothers Shri Jitendrabhai, Shri Surendrabhai, Shri Dilipbhai (myself) and Shri Bharatbhai. In the assessment year 1979-80 a deed of distribution of the property was made in July 1978 on stamp paper of Rs. 6,000 between four brothers. The value of the said property was fixed at Rs. 3 lakhs. I have relinquished the right in the said property and received Rs. 75,000 towards my one-fourth share in the property from Shri Surendrabhai. I have constructed a property for self-residence in assessment year 1977-78 and invested about Rs. 92,000.

Thus, benefit of Section 54 of the Income-tax Act regarding exemption of capital gain (long-term) from tax would be available.

5. Thereafter, a revised return was filed wherein the assessee had shown capital gains of Rs. 34,425 in respect of the Panchavati property which was worked out as under: Working of capital gain (long-term) on transfer of house property situated at Panchvati, Ambavadi, Ahmedabad-6, on 7-7-1978Description of the property Owner's four brothers;Ground floor 370 sq. yards (1) JitendrabhaiFirst floor 152 sq. yards (2) Surendrabhai (3) Dilipbhai The said property was purchased by Shri Chinubhai Motilal, HUF before calendar year 1960 for self-residence. Shri Chinubhai expired on 20-2-1965. Thereafter partition took place on 26-3-1973, between four brothers of Shri Chinubhai Motilal, HUF, and the said property was divided between four brothers having one-fourth share in the said property. Income from the said property is shown in the personal assessment of each brother.Price of house property as on 7-7-1978 3,00,000Less: Cost of stamp paper used for distribution of property 6,000 ---------Less: Cost of property adopted, the fair market value on1-1-1964 was as under :Final plot No. 667, sq. yards 1916, sold by BalagauriBansidhar to Bank of India on 4-1-1964 for Rs. 2,25,000with superstructure as per certificate of Sub-Registrar,Ahmedabad dated 17-10-1981Price of calendar year 1964 on above base would beRs. 117.43 per sq. yard. Applying the above rate ofprice to plot No. 648 of 1331 sq. yards X Rs. 117.43 1,56,300 ---------One-fourth of above 34,425' --------- 6. By a letter dated 12-2-1982 of its tax consultant, the assessee claimed that in the aforesaid transaction no capital gains arose. With a view to complete our order, we reproduce below the contents of the said letter: The assessment proceedings of our abovenamed client for the assessment year 1979-80 were conducted in November 1981. During the year under assessment, our client received Rs. 75,000 from his brother Shri Surendra Chinubhai towards relinquishing his right in the house property of Panchavati, Ambavadi Ellisbridge, in July 1978. This transaction is considered being transfer -- long-term capital gain Rs. 34,425 as worked out under Section 45 and thereby revised return of income is submitted on 6-11-1981, declaring total income Rs. 58,097. The whole submission is not according to provisions of Income-tax Act.

The above said distribution of capital asset between members of association of persons is covered under Section 47(ii) of the Income-tax Act and it would not amount to transfer as per this provision of law. Thus, assessing our client on capital gain Rs. 34,425 by applying Section 45 of the Income-tax Act, would amount to misapplying the provisions of Income-tax Act and assessment would not be legal.

In view of this, we request you to consider the above facts at the time of finalising the assessment of the year 1979-80 and addition of long-term capital gain in the revised total income be deleted.

7. The ITO thereafter framed assessment under Section 143(3) of the Act, on 9-11-1981, wherein she included capital gains of Rs. 34,425, as disclosed by the assessee in its revised return, in the total income of the assessee.

8. In appeal before the AAC, the assessee once again urged that in view of the provisions of Section 47(ii) of the Act, the provisions of Section 45 read with Section 2 (47) of the Act, were not attracted and, therefore, the ITO was not justified in including the capital gains of Rs. 34,425 in the total income of the assessee. The AAC, however, upheld the action of the ITO in the following manner: 3. I have considered the contentions put forth above in the light of the copy of the assessment order. From the submissions put forth, it is seen that the appellant has relinquished his right in the abovementioned property. Since Section 2(47) of the Act includes the relinquishment in the definition of the transfer and as per the Section 45, any profits or gains arising from the transfer of the capital assets is chargeable to income-tax under the head 'Capital gains' and as the terms of Section 47(ii) are not applicable in the light of the facts furnished, the ITO was justified in assessing the said amount as long-term capital gains.

9. Being aggrieved by the order of the AAC, the assessee has come up in appeal before the Tribunal. The learned counsel for the assessee vehemently argued that on the facts and in the circumstances obtaining in the instant case, the income-tax authorities were not justified in including the capital gains of Rs. 34,425 in the total income of the assessee, as by virtue of the provisions of Section 47(ii) the provisions of Section 45 were not applicable in the assessee's case.

According to the learned counsel for the assessee, the deed executed on 27-3-1973 has no relevance in deciding the point at issue. But we should consider the regular partition deed executed on 7-7-1978 whereby the property in question was partitioned by metes and bounds. Inviting our attention to the decision of the Hon'ble Madras High Court in the case of M.K. Stremannv. CIT[1961] 41 ITR 297, more particularly, item (iii) appearing at page 298, the learned counsel for the assessee submitted that by executing the deed dated 7-7-1978, no transfer was involved and, therefore, the provisions of Section 45 cannot be attracted in the instant case. By the deed dated 27-3-1973, there was severance in status in respect of the Panchavati property inasmuch as the property hitherto held by the coparcenary was held thereafter by the separated members as tenants-in-coromon. Subsequent partition on 7-7-1978 between the divided members of the family does not amount to a transfer of assets from that body of the tenants-in-common to each of such tenants-in-common. Thereafter, inviting our attention to the decision of the Hon'ble Supreme Court in the case of CIT v. Keshavlal Lallubhai Patel [1965] 55 ITR 637, he highlighted the fact that at page 641 the Hon'ble Supreme Court has approved certain observations made by the Hon'ble Madras High Court in the case of M.K. Stremann (supra) regarding three stages of division of a coparcenary property. Relying on the decision of the Hon'ble Gujarat High Court in the case of CIT v.Vajulal Chunilal (HUF) [1979] 120 ITR 21, the learned counsel for the assessee submitted that a partial partition wherein one coparcener takes over the assets and pays off the other coparcener would be a valid partition. According to the learned counsel for the assessee, in the instant case the same thing had happened inasmuch as Shri Jitendra and Shri Surendra took over the entire Panchavati property and paid off Shri Bharatbhai and Shri Dilipbhai. Relying on yet another decision of the Hon'ble Gujarat High Court in the case of CIT v. Govindlal Mathurbhai Oza [1982] 138 ITR 711, the learned counsel for the assessee submitted that a partition of an HUF consists in ascertaining and defining the shares of the coparceners in the joint property and the actual division of property by metes and bounds is not necessary to constitute a partition. The division of properties by metes and bounds may take place subsequently. Recapitulating the facts obtaining in the instant case, the learned counsel for the assessee submitted that by the deed dated 27-3-1973, the shares of the coparceners in the Panchavati property were ascertained and defined and actual division of the said property by metes and bounds was reserved to a future date.

The actual division of the said property by metes and bounds took place on 7-7-1978 when Shri Jitendra and Shri Surendra took over the Panchavati property by paying off Rs. 75,000 each to Shri Bharatbhai and Shri Dilipbhai. He, therefore, very strongly argued that the capital gains of Rs. 34,425 included in the total income of the assessee should be deleted.

10. The learned representative for the department, on the other hand, strongly relied on the orders of the income-tax authorities and justified their action. Inviting our attention to the deed dated 27-3-1973 (the relevant portion of which is reproduced above), he highlighted the fact that the partition of the Panchavati property was made on that day in view of the clear understanding between the parties to the said deed. Not only that, right from the assessment year 1974-75 till the assessment year 1978-79, each of the four sons of the late Shri Chinubhai had shown one-fourth share of the self-occupied property income in respect of the Panchavati property in their respective HUF returns and were, accordingly, assessed by the ITO. He also highlighted the fact that even for the year under appeal also, the one-fourth share of the self-occupied property income was shown by the assessee for the period 1-4-1978 to 30-6-1978, i.e., till the date of the execution of the second deed, viz., 7-7-1978. In other words, he wanted to impress upon us that there cannot be two partitions in respect of the same property, one in 1973 and the other in 1978 as claimed by the assessee.

11. We have carefully considered the rival submissions of the parties and we do not find any merit in the stand taken on behalf of the assessee. It is pertinent to note that late Shri Chinubhai had died intestate on 20-2-1965. Therefore, by virtue of the provisions of the Hindu Succession Act, all the properties owned by the late Shri Chinubhai would be divided equally amongst his legal heirs, viz., the wife, daughters and the sons. However, it appears that on 1-11-1970, the wife, daughters and the sons of the late Shri Chinubhai executed a deed (a copy of which is not brought on record), whereby they made family arrangement regarding the properties left by the late Shri Chinubhai keeping in mind the provisions of the Hindu Succession Act.

From the deed dated 27-3-1973, it appears that the four sons of the late Shri Chinubhai had treated the Panchavati property as joint property of 'the HUF of Shri Chinubhai Motilal till such date. In the deed dated 27-3-1973 (the relevant portion of which is reproduced above), the four sons of the late Shri Chinubhai had partitioned their interest in the Panchavati property, each one of them taking one-fourth share therein. Not only that, in the assessment years subsequent to 27-3-1973, each one of the sons of the late Shri Chinubhai had shown one-fourth share of the self-occupied property income in respect of the Panchavati property in their respective HUF returns. All these will clearly show that the partition in respect of the Panchavati property was in fact, effected by the deed dated 27-3-1973. Thereafter, since the assessee and Shri Bharatbhai were not interested in having a share in the said Panchavati property, Shri Jitendra and Shri Surendra as parties of the first and second parts and Shri Bharatbhai and Shri Dilip-bhai as parties of the third part executed a deed on 7-7-1978 called by them as 'Partition deed of the property' whereby they estimated the value of the said Panchavati property at Rs. 3 lakhs.

Therefore, the value of the share of each one of them in the said property was Rs. 75,000. Since by the deed dated 27-3-1973, they had already partitioned their interest in the said property, Shri Jitendra and Shri Surendra paid Rs. 1,50,000 to Shri Bharatbhai and Shri Dilipbhai in consideration of relinquishing their right, title and interest in the said property. This sum of Rs. 1,50,000 was equally divided between Shri Bharatbhai and Shri Dilipbhai. This would clearly show that the assessee-HUF got Rs. 75,000 for relinquishing its right, title and interest in the Panchavati property which was earmarked by the deed dated 27-3-1973.

11.1. Keeping the facts and circumstances obtaining in the instant case, we are of the view that no help can be derived by the assessee from the decision of the Hon'ble Madras High Court in the case of M.K.Stremann (supra). In that decision, the Hon'ble High Court envisages a case where each of the tenants-in-common would take away his share in the coparcenary property. In the instant case, only the assessee and Shri Bharatbhai relinquished their right, title and interest in the Panchavati property, which Shri Jitendra and Shri Surendra took over from them for a consideration. In this view of the matter, even the decision in the case of Keshavlal Lallubhai Patel (supra) has no bearing on the facts and in the circumstances obtaining in the instant case. In our view, the decision in the case of Vajulal Chunilal (HUF) (supra) would help the stand taken on behalf of the revenue than to the . We make this observation as Shri Jitendra and Shri Surendra took over the entire Panchavati property by paying off Shri Bharatbhai and Shri Dilipbhai in respect of their shares in the said property. It is pertinent to note that the HUF of Shri Chinubhai Motilal was never assessed as such under the Act and; therefore, the decision in the case of Govindlal Mathurbhai Oza (supra) would not be of any help to the assessee. In our considered opinion, by the deed dated 27-3-1973, the Panchavati property was partitioned in accordance with the Hindu law whereby each of the parties got one-fourth share in the said property.

Since it was not physically possible to divide the said property, another deed was executed on 7-7-1978 whereby the shares fallen to the assessee and Shri Bharatbhai were sold to Shri Jitendra and Shri Surendra for a consideration of Rs. 1,50,000. The assessee-HUF got Rs. 75,000 and the HUF of Bharatbhai got the balance of Rs. 75,000. In this view of the matter, in our opinion, the provisions of Section 47(ii) would not be of any assistance to the assessee. The relevant portion of the said Section reads as under: Nothing contained in Section 45 shall apply to the following transfers : -- (ii) any distribution of capital assets on the dissolution of a firm, body of individuals or other association of persons ; Here also, we are of the considered view that if it was possible to divide the said Panchavati property into four shares, and if each of the sons of the late Shri Chinubhai gets his one-fourth share then the provisions of Section 45 would not be applied as no transfer was involved in such transaction. However, in the instant case, there is no dissolution of 'body of individuals or other association of persons' as only the assessee and Shri Bharatbhai had walked out from the Panchavati property by taking Rs. 75,000 each while Shri Jitendra and Shri continued to own the said property equally. For all these reasons, we have no hesitation in upholding the action of the income-tax authorities.


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