Commissioner of Income Tax vs Gordhandas Vallabhdas Kapadia and others

U.T. Shah J.

In this consolidated reference made by the Income Tax Appellate Tribunal ("the Tribunal") two issues are involved, namely, (i) whether the entire property of the bigger Hindu undivided family was partitioned amongst the seven smaller assessee Hindu undivided families, and (ii) whether the assessee-Hindu undivided families are entitled to benefit u/s 54 of the Income Tax Act, 1961 ("the Act").

This reference relates to the assessment years 1971-72 and 1972-73. There was a bigger Hindu undivided family of one Shri Vallabhdas Chaturbhuj Kapadia, having a property on Walkeshwar Road. The karta of that bigger Hindu undivided family Vallabhdas died some time in 1945 leaving behind his widow, one son, Gordhandas, and three daughters. The widow died some time in April, 1966. During her lifetime, she along with her son, Gordhandas, lived in the said Walkeshwar property. Gordhandas had six sons, Vijay, Krishna, Pratap, Rajesh, Dalip and Ravindra. On the death of the widow of the late Vallabhdas, the said Walkeshwar property came into the hands of Gordhandas and his sons. The three daughters of the late Vallabhdas had filed a suit for their rights in the said Walkeshwar property by virtue of their being daughters of the late Vallabhdas as well as his widow. In a settlement, these three daughters and Gordhandas got a 1/4th share each out of the 1/2 share of the widow. In this way, the Hindu undivided family of Shri Gordhandas Vallabhdas Kapadia got a 5/8ths portion in the said property. Therefore, the said property was given on a 98-year lease to Shri Ramniklal Talakshi Doshi who was carrying on business in partnership under the name and style of Messrs. Sheela Builders. Messrs. Sheela Builders started putting up a superstructure some time in 1968 after demolishing the old structure. The construction of the new property was completed in May, 1970 Meanwhile, on March 20, 1970, the Hindu undivided family of Shri Gordhandas Vallabhdas Kapadia partitioned its 5/8ths portion in the said Walkeshwar property and each of the members, i.e. Gordhandas and his six sons, got a 1/7th share. The smaller Hindu undivided familiars of Gordhandas and his sons sold their respective shares in the said property and the capital gains earned by them was invested in their new residential property.

On the aforesaid facts, the assessee Hindu undivided families took up a stand before the Revenue authorities that each of them had a 1/7th share in the 5/8ths portion of the bigger Hindu undivided family of Shri Vallabhdas Chaturbhuj Kapadia and that since each of them had invested the capital gains in the new residential premises. They would be entitled to the benefit u/s 54 of the Act. The Income Tax Officer as well as the Appellate Assistant Commissioner of Income Tax on appeal, negatived the case put forward by the assessee-Hindu undivided families as they were of the view that the entire Walkeshwar property belonged to the bigger Hindu undivided family of Shri Gordhandas Vallabhdas Kapadia after the death of Vallabhdas and his widow. They also held that the benefit u/s 54 of the Act was available to an individual assessee and not to a Hindu undivided family assessee. Therefore, the assessee-Hindu undivided families were not entitled to such a benefit.

The assessee Hindu undivided families took up the matter in appeal to the Tribunal and argued for acceptance of their contentions. In its order under reference, the Tribunal accepted both the contentions of the assessee-Hindu undivided families.

At the instance of the Revenue, the Tribunal has referred to us the following two questions u/s 256(1) of the Act :

"(1) Whether, on the facts and in circumstance of the case, the Tribunal was justified in holding that Shri Gordhandas Vallabhdas Kapadia and his six sons who in their turn constituted smaller Hindu undivided families had 1/7 share in the 5/8ths portion of the bigger Hindu undivided family property ?

(2) Whether, on the facts and in the circumstances of the case, Shri Gordhandas Vallabhdas Kapadia and his six sons who in their turn constituted smaller Hindu undivided families were entitled to the benefit u/s 54 ?"

Learned counsel for the Revenue argued that after the death of Vallabhdas in 1945, his widow continued to stay along with her son, Gordhandas, and, therefore, the entire property belonged to the Hindu undivided family Shri Gordhandas Vallabhdas Kapadia irrespective of the fact that the widow got certain rights under the Hindu Women''s Rights to Property Act, 1937. The case of the assessee-Hindu undivided families, on the other hand, was that since the widow died after the commencement of the Hindu Succession Act, 1956, her right (i.e. half share) in the property of the Hindu undivided family of Shri Vallabhdas Chaturbhuj Kapadia became absolute. Learned counsel for the assessee, on the other hand, therefore, supported the order of the Tribunal.

As regards the applicability of the provisions of section 54 of the Act, learned counsel for the Revenue pointed out that the benefit under that section was available only to an individual assessee an not to a Hindu undivided family-assessee. In this view of the matter, he submitted that the Tribunal was not not justified in holding that the assessee-Hindu undivided families would be entitled to the benefit u/s 54 of the Act. Learned counsel for the assessee, on the other hand, relied on the order of the Tribunal.

On a due consideration of the rival submissions of the parties and in view of the clear provisions of the Hindu law, we do not find any infirmity in the order of the Tribunal holding that only 5/8ths portion of the Walkeshwar property came into the hands of the bigger Hindu undivided family of Shri Gordhandas Vallabhdas Kapadia and his sons on the death of the widow of the late Vallabhdas, further, in view of the clear provisions of section 54 of the Act, as they stood at the relevant time the Tribunal erred in law in accepting the assessee Hindu undivided families claim of benefits u/s 54 of the Act as such benefit could be given only to an individual-assessee.

In view of the aforesaid discussion, we answer question No. 1 in the affirmative, i.e. favour of the assessee an against the Revenue and question No. 2 in the negative, i.e. in favour of the Revenue and against the assessee.

No order as to costs.