Lalitaben Hariprasad vs Commissioner of Income Tax

D.A. Mehta, J.—Both the reference and tax appeal are taken-up for hearing together as the issue involved is identical.

In Income Tax Reference No. 19 of 1998 following question of law arises at the instance of the assessee, Income Tax Appellate Tribunal, Ahmedabad Bench ''A'' having made a reference u/s 256(1) of the Income Tax Act, 1961 (''the Act''):

Whether on the facts and in the circumstances of the case, the assessee was entitled to claim Rs. 14,33,000 as additional cost of acquisition of the interest in property for purposes of computation of capital gains?

In Tax Appeal No. 158 of 1999 following two substantial questions of law have been formulated by the High Court while admitting the appeal vide order dated 27-1-2000:

Whether on the facts and in the circumstances of the case, the assessee was entitled to claim Rs. 14,33,000 as additional cost of acquisition of the interest in property for purposes of computation of capital gains?

Whether on the facts and in the circumstances of the case, the assessee undertook obligation to pay Rs. 14,33,000 to his son in return for being allotted � share instead of �th share in the immovable property at the time of total partition which became the added cost of acquisition to him?

The applicant in tax reference is Smt. Lalitaben Hariprasad Shah and the appellant in tax appeal is Shri Hariprasad H. Shah. Assessment year in question is 1988-89. There was a Hindu Undivided Family (HUF) of Hariprasad H. Shah consisting of Shri Hariprasad H. Shah (karta), his wife Smt. Lalitaben H. Shah and two sons Shri Deepak H. Shah and Shri Udayan H. Shah. The HUF owned immovable property known as ''Samir'' situate in Ahmedabad and the said property was a residential property. On 3-11-1986 the property came to be divided as part and parcel of total partition which took place amongst members of HUF. In the process of such partition, the father and mother, viz, karta and his wife, the assessees before the Court, took one half share each of the immovable property as the property admitted of such physical partition. Necessary entries in the city survey records were also duly made pursuant to the said partition. On 11-8-1999 the Assessing Officer made an order u/s 171 of the Act recognizing the partition.

Both the assessees, in their respective returns while computing capital gains on sale of their respective share of the immovable property claimed deduction of sum of Rs. 14,33,000 in hands of each one of them being the cost of acquisition of the house property. It is stated that at the time of partition Smt. Lalitaben H. Shah had undertaken to pay a sum of Rs. 14,33,000 to her son Shri Udayan H. Shah for an acquisition of his one fourth share in the immovable property; and similarly Shri Hariprasad H. Shah had undertaken to pay a like amount to the other son Shri Deepak H. Shah. The claim made by both the assessees came to be disallowed by the Assessing Officer holding that the property being of HUF, the only cost of acquisition which could be allowed was under the provisions of Section 49 of the Act, viz., the cost of acquisition in hands of the original owner from whom the property had been received on partition. Accordingly, deduction to the tune of the value of the property as on 1-4-1974 in hands of the HUF was granted to each of the assessees by taking one half of such value in their respective hands.

The assessee carried the matter in appeal before Commissioner (Appeals) and succeeded. The revenue challenged the orders made by Commissioner (Appeals) in hands of both the assessees before the Tribunal. The Appeal of Smt. Lalitaben H. Shah was heard and disposed of first in point of time by the Tribunal and revenue''s appeal came to be allowed for the reasons recorded in order dated 31-3-1997. In case of Shri Hariprasad H. Shah, the Tribunal followed its own order in case of Smt. Lalitaben and vide order dated 11-12-1998 allowed revenue''s appeal. Both these orders are under challenge in the present reference and tax appeal.

Mr. K.H. Kazi, learned Senior Advocate appearing on behalf of the assessees submitted that the Tribunal had erred in law in not appreciating the fact that the amount was paid by the mother and father respectively to the two sons for acquiring one-fourth share each of the two sons. Because of partition the assessees were otherwise entitled to one-fourth share each whereas in fact they had received one half share each in the immovable property. It was submitted that the partition having been accepted by revenue, the necessary consequences followed and revenue could not have taken a different stand while computing the liability to capital gains tax in hands of the assessees when the property acquired on partition was sold.

In support of the submissions made, reliance has been placed on the following five decisions:

(1) Commissioner of Income Tax, Gujarat-II Vs. Govindlal Mathurbhai Oza,

(2) Vimalbhai Nagindas Shah v. CIT [1983] 140 ITR 29 : [1981] 7 Taxman 294 (Guj.),

(3) CIT v. Daksha Ramanlal [1991] 197 ITR 123 : 65 Taxman 83 (Guj.),

(4) Rm. Arunachalam Vs. Commissioner of Income Tax,

(5) Commissioner of Income Tax Vs. Narendra N. Chauhan,

The learned Standing Counsel appearing for revenue has supported the orders of the Tribunal by submitting that the findings recorded by the Tribunal in case of Smt. Lalitaben H. Shah were findings of fact which could not be gone into by this Court and this Court was bound to proceed on the footing that the said factual findings are correct. That in fact, the so-called charge of Rs. 14,33,000 was a self-created charge as held by the Tribunal by virtue of declarations made by the members of HUF on 15-1-1987 after the partition had already taken place and thus were only self-serving statements. The learned Counsel therefore submitted that no interference was warranted in the facts of the present case.

During course of hearing, the Court called upon the learned Counsel for revenue to inform the Court as to whether while recording and recognizing partition, the Assessing Officer had noted the mode of partition of the property in question as the said order was not available on record. The learned Counsel for revenue after going through the said order informed the Court that both the assessees viz., the father and mother had received one half share in total amongst them.

The impugned orders of Tribunal cannot be sustained. The Court would not have gone behind the facts found by the Tribunal. But in the present fact situation, the Tribunal has not recorded the facts correctly in light of the statutory provisions engrafted by way of Section 171 of the Income Tax Act. Under Sub-section (1) of Section 171 of the Act, it is provided that unless and until a finding is recorded by the Assessing Officer as to partition of a Hindu family hitherto assessed as undivided, such a family shall be deemed for the purpose of the Act, to continue to be a Hindu Undivided Family. u/s 172(2) of the Act, the Assessing Officer is obliged to make an inquiry as to whether any partial or total partition has taken place in a case, where, at the time of making assessment u/s 143 or Section 144 of the Act, such a partition is claimed by any member of the HUF. The said section further provides that the Assessing Officer shall make such inquiry after giving notice of the inquiry to all the members of the family. Thereafter, on completion of the inquiry, the Assessing Officer is bound to record a finding as to whether there has been a partial or total partition of the joint family property, and if a partition has taken place, the date of such partition. This is provided categorically under Sub-section (3) of Section 171 of the Act. For the present, it is not necessary to refer to other sub-sections of Section 171 of the Act. Therefore, when Assessing Officer makes an inquiry by calling upon all members of HUF to inform the officer as to whether a partition as claimed has taken place or not, the members would have to either affirm or deny the factum of such partition. This process would require the member concerned to make a statement either orally before the Assessing Officer and the Assessing Officer recording such statement, or the member concerned, would make a statement by way of a declaration, or in writing, and tendering the same to the Assessing Officer. In the facts of the present case, admittedly while framing an order u/s 171 of the Act, the Assessing Officer has taken on record declarations made by all the four members of the HUF. Thereafter, the Assessing Officer has by making an order on 11-8-1999 accepted the claim of partition. The said order has attained finality.

In light of the aforesaid position in law and the facts of (he case it is apparent that the Tribunal has committed a grave error in law in terming the said declarations filed by the members of HUF before the Assessing Officer in proceedings u/s 171 of the Act, as being self-serving, as being self-created charge. The Tribunal in fact failed to appreciate the said declarations made by all the members of the HUF, the authority before whom the declarations were filed, and the import of such declarations. The Tribunal, it appears, has lost sight of the procedure prescribed under the provisions of Section 171 of the Act, while recording the finding in paragraph No. 8 of the impugned order dated 31-3-1997.

In the case of Narendra N. Chauhan (supra) this Court has in almost similar fact situation, observed as under:

Having heard learned Counsel for the parties, we are of the view that since at the time of partition the assessee was not entitled to get the entire property valued at Rs. 67,000 as the assessee''s share in the property of the larger Hindu undivided family and since the entire amount of Rs. 23,000 paid by the assessee to the larger Hindu undivided family pertained to the additional interest in the property, i.e., interest in addition to the interest allottable to the assessee at the time of partial partition quantified at Rs. 44,000, the Tribunal was right in allowing the said amount of Rs. 23,000 as cost of acquisition to the assessee for the additional interest u/s 48 of the Act. Obviously, this additional interest was not obtained by the assessee as a part of his share in the property of the larger Hindu undivided family at the time of partial partition. The provisions of Section 49(1)(i) are applicable to only that portion of the property which the assessee got as the assessee''s share in the property of the larger Hindu undivided family and not in respect of the property or interest which was in excess of such share. (p. 189)

Applying the ratio to the facts of the present case, it is apparent that the cost of acquisition in hands of the previous owner, viz., HUF, as proportionately available in hands of each of the assessees, would be governed by provisions of Section 49(1)(i) of the Act; whereas the amount of Rs. 14,33,000 paid by each of the assessees to the other two members of the HUF would be termed to be the cost of acquisition to the assessees u/s 48 of the Act, being cost of acquisition of the additional interest or additional share acquired by them at the time of partition.

In the circumstances, for the reasons stated hereinbefore, the impugned orders of the Tribunal cannot be sustained. The Tribunal committed an error in law in holding that the assessees were not entitled to claim Rs. 14,3 3,000 as additional cost of acquisition of interest in the property for the purpose of computation of capital gains in hands of each of the assessees.

Accordingly, the question raised in the reference is answered in the affirmative i.e., in favour of the assessee and against the revenue. Reference stands disposed of accordingly with no order as to costs.

Both the questions in tax appeal are answered in the affirmative i.e., in favour of the assessee and against the revenue. The tax appeal stands allowed accordingly with no order as to costs.