Puranchand & Family (HUF), CHENNAI V. ITO, CHENNAI

ITA 2974/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7876 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-01-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 19-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B. SAHADEVAN
• Keywords: Capital asset; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 54F; 139(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO. 2974/MDS/2016 / ASSESSMENT YEAR : 2012-13 SHRI PURANCHAND & FAMILY (HUF), NO.11, LLOYDS LANE, CHENNAI 600 014. PAN : AAEHP3644P V. THE INCOME TAX OFFICER, NON-CORPORATE WARD 12(3), CHENNAI 34. ( /APPELLANT) ( !' /RESPONDENT) # /APPELLANT BY : SHRI K. BALASUBRAMANIAN, CA !' # /RESPONDENT BY : SHRI B. SAHADEVAN, JCIT # /DATE OF HEARING : 05.01.2017 # /DATE OF PRONOUNCEMENT : 31.01.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 13, CHENN AI DATED 15.09.2016 AND PERTAINS TO THE ASSESSMENT YEAR 2012 -13. 2. SHRI K. BALASUBRAMANIAN, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HUF, SOLD 122.8 40 CARAT OF DIAMONDS ON 02.01.2012 FOR A TOTAL CONSIDERATION OF 57,12,060/-. THE 2 I.T.A. NO. 2974/MDS/2016 LONG TERM CAPITAL GAIN COMPUTED AT 42,65,619/-. ACCORDING TO THE LD. REPRESENTATIVE, THERE WAS NO DISPUTE ABOUT SALE OF DIAMONDS AND THE COMPUTATION OF LONG TERM CAPITAL GAIN AT 42,65,619/-. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE PURCHASED A HO USE PROPERTY AT DOOR NO.23, LLYODS ROAD, FIRST LAND, ROYAPETTAH, CHE NNAI 14 ALONG WITH THREE OTHER COPARCENERS OF HUF ON 14.10.2011 FO R A TOTAL CONSIDERATION OF 1,35,00,000/-. 1/4 TH SHARE OF THE ASSESSEE HUF COMES TO NEARLY 38,08,750/-. THE PURCHASE OF PROPERTY ALONG WITH OTHER COPARCENERS OF HUF IS ALSO NOT IN DISPUTE. AC CORDING TO THE LD. REPRESENTATIVE, THE ASSESSING OFFICER FOUND THAT TH E SALE DEED WAS EXECUTED IN THE INDIVIDUAL NAME OF THE KARTA AND NO T IN THE NAME OF THE HUF. THE ASSESSING OFFICER HAS DISALLOWED THE CL AIM OF EXEMPTION UNDER SECTION 54F OF THE INCOME TAX ACT, 1 961 (IN SHORT THE ACT), ON THE GROUND THAT THE SALE PROCEED OF THE DIAMOND WAS NOT UTILIZED BY THE ASSESSEE FOR PURCHASING THE PROPERT Y. THE ASSESSING OFFICER FOUND THAT THE BORROWED FUNDS WERE UTILIZED FOR PURCHASING THE NEW ASSET. THE ASSESSING OFFICER HAS ALSO DISALLOWE D THE EXPENDITURE INCURRED BY THE ASSESSEE FOR RENOVATION. REFERRIN G TO THE FIRST ISSUE OF DISALLOWANCE, NAMELY PURCHASE OF PROPERTY IN THE IN DIVIDUAL NAME OF THE KARTA, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE BANGALORE BENCH OF THIS TRIBUNAL IN ITO V RAMESH KU MAR (HUF) IN ITA NO.628/BANG/2010 EXAMINED THIS ISSUE AND FOUND T HAT A KARTA OF 3 I.T.A. NO. 2974/MDS/2016 HUF OR A COPARCENER OF HUF CAN HOLD A PROPERTY ON BE HALF OF THE HUF. PLACING RELIANCE ON THE JUDGMENT OF KARNATAKA HIGH COURT IN DIT V MRS. JENNIFER BHIDE [2011] 15 TAXMANN.COM 82 ( KAR.), THE LD.REPRESENTATIVE SUBMITTED THAT THE KARNATAKA HIGH COURT FOUND THAT THERE WAS NO REQUIREMENT THAT THE INVESTMENT SHOULD BE IN THE NAME OF THE ASSESSEE ONLY. IN THE CASE BEFORE THE KARNATAK A HIGH COURT, THE ASSESSEE SOLD THE PROPERTY AND PURCHASED ANOTHER PR OPERTY IN THE JOINT NAME OF HERSELF AND HER HUSBAND. THE KARNATAKA HIGH COURT FOUND THAT MERELY BECAUSE IN THE SALE DEED, THE ASSESSEE S HUSBAND NAME WAS ALSO MENTIONED, THE BENEFIT OF DEDUCTION CANNOT BE DENIED ON THAT GROUND. THEREFORE MERELY BECAUSE THE PROPERTY WAS R EGISTERED IN THE NAME OF THE KARTA OF HUF, THE ASSESSING OFFICER CANN OT DISALLOW THE CLAIM OF DEDUCTION UNDER SECTION 54F. 3. REFERRING TO THE UTILIZATION OF BORROWED FUNDS, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE PROPERTY WAS IN FACT PURCHASED ON 14.10.2011 BEFORE 2 MONTHS OF THE SAL E OF DIAMOND ON 02.02.2012. THEREFORE, THE ASSESSEE CANNOT USE THE SALE PROCEEDS OF THE DIAMOND FOR PURCHASING THE PROPERTY. IN OTHER WORDS, THE SALE PROCEEDS CANNOT BE UTILIZED BEFORE THE DIAMOND WAS ACTUALLY SOLD. REFERRING TO SECTION 54F OF THE ACT, THE LD. REPRESE NTATIVE SUBMITTED THAT SECTION ITSELF PROVIDES FOR INVESTMENT IN THE IMMOVABLE PROPERTY 4 I.T.A. NO. 2974/MDS/2016 WITHIN A PERIOD OF ONE YEAR BEFORE THE SALE OF THE CAPITAL ASSET. THEREFORE, THE ASSESSEE CAN INVEST THE SALE PROCEEDI NGS BEFORE ONE YEAR OR BEFORE THE SALE OF THE ASSET ITSELF. THEREF ORE, THERE IS NO PROHIBITION IN THE SECTION 54F OF THE ACT, FOR ALLOW ING DEDUCTION WHEN THE ASSESSEE HAS INVESTED THE FUNDS BEFORE SALE OF THE CAPITAL ASSET. HENCE, BORROWING THE FUNDS FOR THE PURPOSE OF ACQUI RING CAPITAL ASSET BEFORE ONE YEAR FROM THE DATE OF SALE OF THE CAPITA L ASSET CANNOT BE A REASON FOR DISALLOWING THE CLAIM OF THE ASSESSEE. 4. ON THE CONTRARY, SHRI B. SAHADEVAN, THE LD. DEPA RTMENTAL REPRESENTATIVE SUBMITTED THAT THE DIAMOND SAID TO B E BELONGING TO HUF. ACCORDING TO THE LD. D.R., THE HUF IS AN INDEP ENDENT ASSESSABLE UNIT. SHRI PURANCHAND IS AN INDIVIDUAL AND ASSESSABLE AS SUCH IN HIS INDIVIDUAL CAPACITY. THEREFORE, WHEN TH E DIAMOND BELONGS TO HUF, THE CAPITAL GAIN HAS TO BE ASSESSED ONLY IN THE HANDS OF HUF. THEREFORE, FOR THE PURPOSE OF CLAIMING EXEMPTION UND ER SECTION 54F OF THE ACT, THE INVESTMENT HAS TO BE MADE ONLY IN THE HANDS OF HUF AND NOT IN THE INDIVIDUAL NAME OF PURANCHAND. HENCE, T HE ASSESSING OFFICER HAS RIGHTLY REJECTED THE CLAIM OF THE ASSES SEE. 5. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBMI TTED THAT FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 54F OF THE ACT, THE 5 I.T.A. NO. 2974/MDS/2016 ASSESSEE HAS TO NECESSARILY INVEST THE SALE PROCEED S OF THE CAPITAL ASSET. THE SALE PROCEEDS DO NOT MEAN THE BORROWED F UNDS. THEREFORE, WHEN THE ASSESSEE INVESTED THE BORROWED F UNDS, THE SAME CANNOT BE A REASON FOR ALLOWING THE CLAIM OF THE AS SESSEE. MOREOVER, EVEN THOUGH THE ASSESSEE CLAIMS THAT THE CAPITAL AS SET WAS RENOVATED AFTER PURCHASE, THE ASSESSEE HAS NOT OBTAINED ANY A PPROVAL FROM THE CORPORATION OF CHENNAI. THEREFORE, THE ASSESSING O FFICER HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE WHICH WAS CONF IRMED BY THE CIT(APPEALS). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESS EE SOLD A CAPITAL ASSET NAMELY DIAMOND AND CLAIMS EXEMPTION ON THE CA PITAL GAIN UNDER SECTION 54F OF THE ACT. THE ASSESSING OFFICER REJECT ED THE CLAIM OF THE ASSESSEE ON THREE GROUNDS. 1) FIRST, THE CAPITAL ASSET WAS PURCHASED IN THE IND IVIDUAL NAME OF COPARCENER OF HUF. 2) BORROWED FUNDS WERE USED FOR PURCHASE OF THE NEW ASSET AND NOT THE SALE PROCEEDS OF THE DIAMOND. 3) THERE WAS NO CONSTRUCTION ON THE NEW ASSET. 6 I.T.A. NO. 2974/MDS/2016 7. AS REGARDS THE INVESTMENT MADE IN THE INDIVIDUAL CAPACITY, EVEN THOUGH HUF IS AN INDEPENDENT ASSESSABLE UNIT UN DER INCOME TAX ACT, UNDER THE COMMON LAW, HUF CANNOT BE CONSIDER ED TO BE A LEGAL ENTITY. THE HUF HAS TO BE REPRESENTED THROUGH ANY ONE OF THE COPARCENERS. THEREFORE, WHEN THE ASSESSEE HUF INVEST ED THE FUNDS IN THE NAME OF ANY ONE OF THE COPARCENER, IT HAS TO BE CONSTRUED THAT THE INVESTMENT WAS MADE IN THE NAME OF HUF. WHEN T HE NUCLEUS OF THE HUF FUND WAS USED FOR PURCHASE OF A PROPERTY IN THE NAME OF ANY ONE OF THE COPARCENER, THE PROPERTY BELONGS TO THE HUF, EVEN THOUGH THE PROPERTY WAS REGISTERED IN THE INDIVIDUAL NAME OF ONE OF THE COPARCENER. THE PROPERTY BELONGS TO ALL THE COPARC ENERS IN EQUAL SHARES AS MEMBERS OF HUF. THEREFORE, THE ASSESSING O FFICER IS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE ES PECIALLY, WHEN THE INVESTMENT WAS MADE IN THE NAME OF KARTA OF HUF. 8. NOW COMING TO SECOND REASON FOR DISALLOWANCE OF CLAIM OF THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT ONLY TH E BORROWED FUNDS ARE USED FOR PURCHASE OF NEW ASSET. AS RIGHTLY SUB MITTED BY THE LD. REPRESENTATIVE FOR THE ASSESSEE, PROVISIONS OF SECT ION 54F OF THE ACT, REQUIRES THE ASSESSEE TO PURCHASE A PROPERTY ONE YE AR BEFORE THE DATE OF THE SALE OR TWO YEARS AFTER THE DATE OF THE SALE OF ASSET. IF THE ASSESSEE COULD NOT INVEST WITHIN THE TIME FRAME PRO VIDED IN THE ACT, 7 I.T.A. NO. 2974/MDS/2016 THE SAME HAS TO BE DEPOSITED IN ANY ONE OF THE CAPI TAL GAIN ACCOUNT WITHIN THE DUE DATE PROVIDED FOR FILING THE RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. NO ONE COULD EXPECT THE ASSESSEE TO UTILIZE THE SALE PROCEEDS OF THE CAPITAL ASSET OR THE CAPIT AL GAIN ARISING FROM SUCH SALE BEFORE THE DATE OF THE SALE OF THE CAPITA L ASSET. THE ASSESSEE CANNOT HAVE ANY SALE PROCEEDS BEFORE THE D ATE OF THE SALE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION , WHEN THE ASSESSEE BORROWED THE FUNDS AND UTILIZED IN PURCHAS ING THE CAPITAL ASSET AND THEREAFTER USES THE SALE PROCEEDS OR CAPI TAL GAIN FOR REPAYING THE LOAN BORROWED, THAT WOULD AMOUNT TO SU FFICIENT COMPLIANCE OF THE REQUIREMENT OF SECTION 54F OF THE ACT. THEREFORE, MERELY BECAUSE THE BORROWED FUNDS WERE USED WHEN TH E PROPERTY WAS PURCHASED BEFORE THE DATE OF THE SALE OF ASSET, THI S TRIBUNAL IS OF THE CONSIDERED OPINION, THIS CANNOT BE A REASON FOR DIS ALLOWING THE CLAIM OF THE ASSESSEE. 9. NOW, COMING TO THE LAST REASON FOR DISALLOWANCE BY THE ASSESSING OFFICER THAT NO CONSTRUCTION WAS MADE, AD MITTEDLY, THE ASSESSEE HAS PURCHASED A LAND AND BUILDING. THEREFO RE, IT IS NOT A CASE OF NEW CONSTRUCTION. THE ASSESSEE CLAIMS THAT THE BUILDING WAS RENOVATED TO MAKE IT FIT FOR HUMAN HABITATION AFTER PURCHASE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION, WHEN THE ASSE SSEE HAS 8 I.T.A. NO. 2974/MDS/2016 PURCHASED A BUILDING AND MADE SOME INVESTMENT FOR M AKING IT FIT FOR HUMAN HABITATION, THE SAME HAS TO BE TREATED AS PAR T OF THE INVESTMENT FROM OUT OF THE CAPITAL GAIN AND THE ASS ESSING OFFICER IS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT FILED ANY PROOF / PLAN FROM THE CO RPORATION OF CHENNAI. FOR THE PURPOSE OF RENOVATION AND MAINTEN ANCE, THE CORPORATION MAY NOT GIVE ANY APPROVAL OR PLANNING P ERMISSION. THE ASSESSEE HAS TO NECESSARILY OBTAIN THE PLANNING PER MISSION AND BUILDING APPROVAL IN CASE THERE WAS NEW CONSTRUCTIO N OR AN ADDITIONAL CONSTRUCTION OVER AND ABOVE THE EXISTING BUILDING. IN THE CASE BEFORE US, IT IS NOT THE CASE OF THE ASSESSEE THAT THERE W AS ADDITIONAL CONSTRUCTION OR NEW CONSTRUCTION. THE ADMITTED CA SE OF THE ASSESSEE THAT THE EXISTING BUILDING WAS MADE IT FIT FOR HUMA N HABITATION. THEREFORE ASSESSING OFFICER IS NOT JUSTIFIED IN DISA LLOWING THE CLAIM OF THE ASSESSEE. 10. IN VIEW OF THE ABOVE, WE ARE UNABLE TO UPHOLD THE ORDERS OF BOTH THE LOWER AUTHORITIES. ACCORDINGLY, THE ORDER S OF BOTH THE LOWER AUTHORITIES ARE SET ASIDE AND THE ADDITION IS DELET ED. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF EXEMPTION UNDER SECTION 54F OF THE ACT, TO THE EXTENT OF THE AMOUNT INVESTED ON OR BEFORE THE DATE OF FILING OF RETURN OF INCOME AS PROVIDED UNDER SECTIO N 139(1) OF THE ACT. 9 I.T.A. NO. 2974/MDS/2016 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED. ORDER PRONOUNCED ON 31 ST JANUARY, 2017 AT CHENNAI. SD/- SD/- ( . . ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) /ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, /DATED, THE 31 ST JANUARY, 2017. JR. # ! $ % $ /COPY TO: 1. /APPELLANT 2. !' /RESPONDENT 3. &' ( )/CIT(A)-13, CHENNAI 4. &' /CIT 5. ! $ /DR 6. () /GF.