Sh. Pankil Garg, Shahabad V. Pr. CIT, Karnal

ITA 773/CHANDI/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7543 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 28-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S PHANI KISHORE
• Assessee Lawyers: K R CHHABRA
• Keywords: Gift; Revision of order; Capital receipt; Condonation of delay; Set aside
• Section: 143(3); 56(2); 147; 148; 56; 263

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B, CHANDIGARH , ! '# $ % & '# , () BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO. 773/CHD/2018 / ASSESSMENT YEAR : 2011-12 SHRI PANKIL GARG, AGGARWAL BHAWAN, SHAHBAD (M) THE PR. CIT, KARNAL ./PAN NO. AFOPG2875E / APPELLANT /RESPONDENT ! /ASSESSEE BY : SHRI K.R. CHHABRA, ADVOCATE ' ! / REVENUE BY : SH. G.S. PHANI KISHORE, CIT DR # $ % /DATE OF HEARING : 15.07.2019 &'() % / DATE OF PRONOUNCEMENT : 17.07.2019 (*/ ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER DATED 19.3.2018 OF THE PR. COMMISSIONER OF IN COME TAX, KARNAL [HEREINAFTER REFERRED TO AS PCIT] AGAINST THE REV ISION ORDER PASSED U/S 263 OF THE ACT, WHEREBY, THE LD. PCIT HAS SET ASIDE THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WITH A DIRECT ION TO MAKE ASSESSMENT AFRESH U/S 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'). ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 2 2. THE APPEAL OF THE ASSESSEE IS BARRED BY LIMITATI ON PERIOD OF 06 DAYS. A SEPARATE APPLICATION FOR CONDONATION OF DEL AY HAS BEEN MOVED BY THE ASSESSEE PLEADING THAT THE COUNSEL FOR THE A SSESSEE DUE TO MEDICAL REASONS COULD NOT FILE THE APPEAL WITHIN THE STIPUL ATED PERIOD. THE AVERMENTS MADE IN THE APPLICATION HAVE BEEN CORROBO RATED WITH THE AFFIDAVIT OF THE COUNSEL FOR THE ASSESSEE. CONSIDERING THE GROUNDS MENTIONED IN THE APPLICATIO N FOR CONDONATION OF DELAY WHICH ARE DULY SUPPORTED WITH THE AFFIDAVIT AND ALSO CONSIDERING THE SHORTNESS OF THE DELAY PERIOD OF ONLY 06 DAYS, THE DELAY IN FILING THE PRESENT APPEAL IS HEREBY CONDON ED. 3. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE A SSESSEE FILED HIS RETURN OF INCOME ON 9.3.2012 DECLARING AN INCOME OF RS. 14,32,982/-. THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFIC ER VIDE ORDER DATED 13.3.2014 U/S 143(3) OF THE ACT ACCEPTING THE RETUR NED INCOME. SUBSEQUENTLY, THE ASSESSING OFFICER REOPENED THE AS SESSMENT U/S 147 READ WITH SECTION 148 OF THE ACT ON THE GROUND THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD RECEIVED A GIFT OF RS. 5,90,000/- FROM HIS HINDU UNDIVIDED FAMILY(HUF). THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE AMOUNT OF SAID GIFT WAS MOR E THAN RS. 50,000/-, HENCE, THE SAME WAS EXIGIBLE TO TAX AS INCOME FROM OTHER SOURCES U/S 56(2)(VII) OF THE I.T. ACT. HOWEVER, THE ASSESSEE IN THE REOPENED ASSESSMENT PROCEEDINGS RELIED UPON THE DECISION O F THE COORDINATE ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 3 RAJKOT BENCH OF THE TRIBUNAL ORDER DATED 17.5.2011 , IN THE CASE OF VINEETKUMAR RAGHAVJIBHAI BHALODIA VS ITO PASSED IN ITA NO. 583/RJT/2007 FOR ASSESSMENT YEAR 2005-06, WHICH HAS BEEN FURTHER FOLLOWED BY THE HYDERABAD BENCH (SMC) OF THE TRIBUN AL, ORDER DATED 17.6.2015 IN MR.BIRAVELLI BHASKAR VS ITO ITA NO. 398/HYD/2015 FOR A.Y. 2008-09, WHEREIN, IT HAS BEEN HELD THAT 'H UF' BEING A GROUP OF RELATIVES, HENCE, THE GIFT BY THE 'HUF' TO AN IND IVIDUAL IS NOTHING BUT A GIFT FROM GROUP OF RELATIVES AND FURTHER AS PER THE EXCLUSION CLAUSE 56(2)(VII) OF THE ACT, A GIFT FROM RELATIVE IS NOT EXIGIBLE TO TAXATION, HENCE, THE GIFT RECEIVED BY THE ASSESSEE FROM THE HUF WAS NOT TAXABLE. THE ASSESSING OFFICER ACCEPTED THE CONTENTIONS RAIS ED BY THE ASSESSEE AND ACCORDINGLY ASSESSED THE INCOME OF THE ASSESSEE AT THE RETURNED INCOME. HOWEVER, SUBSEQUENTLY, THE LD. PCIT INVOKING HIS JU RISDICTION U/S 263 OF THE ACT, SET ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER AND HELD THAT THE 'HUF' DOES NOT FALL IN THE DEFINITION OF RELATIVE IN CASE OF AN INDIVIDUAL AS PROVIDED IN EXPLANATION TO CLAUS E (VII) TO SECTION 56(2) AS SUBSTITUTED BY FINANCE ACT, 2012 WITH RETR OSPECTIVE EFFECT FROM 1.10.2009. THAT THOUGH, THE DEFINITION OF A RELATI VE IN CASE OF A 'HUF' HAS BEEN EXTENDED TO INCLUDE ANY MEMBER OF THE 'HUF ', YET, IN THE SAID EXTENDED DEFINITION, THE CONVERSE CASE IS NOT INCLU DED THAT IS TO SAY IN THE CASE OF INDIVIDUAL, THE 'HUF' HAS NOT BEEN MENT IONED IN THE LIST OF RELATIVES. LD. PCIT, THUS, FORMED A VIEW THAT THOUG H A GIFT FROM A ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 4 MEMBER THEREOF TO THE 'HUF' WAS NOT EXIGIBLE TO TAX ATION AS PER THE PROVISIONS OF SECTION 56(2)(VII) OF THE ACT, HOWEVE R, A GIFT BY THE 'HUF' TO A MEMBER EXCEEDING A SUM OF RS. 50,000/- WAS TAX ABLE. SHE ALSO REJECTED THE CONTENTION OF THE ASSESSEE THAT THE AFORESAID GIFT AMOUNT WAS RECEIVED BY THE ASSESSEE FROM THE INCOME OF TH E 'HUF' AND THUS WAS EXEMPT FROM TAXATION U/S 10(2) OF THE ACT, HOL DING THAT TO CLAIM EXEMPTION U/S 10(2) OF THE ACT, THE MEMBER 'HUF' MU ST RECEIVE ANY AMOUNT FOR A CONSIDERATION OUT OF THE INCOME OF THE 'HUF'. THAT SINCE THE ASSESSEE HAD RECEIVED THE AFORESAID AMOUNT OF R S. 5,90,000/- WITHOUT CONSIDERATION, HENCE, THE SAME WAS NOT TAX EXEMPT. SHE ALSO HELD THAT THE DECISION OF THE COORDINATE RAJKOT BENCH OF THE TRIBUNAL IN THE CASE OF VINEETKUMAR RAGHAVJIBHAI BHALODIA VS ITO (SUPR A) AND HYDERABAD BENCH IN MR.BIRAVELLI BHASKAR VS ITO (SUPRA) WERE NOT IN CONSONANCE WITH THE STATUTORY PROVISIONS OF SECTION 56(2)(VII) AND SECTION 10(2) OF THE I.T. ACT AND, THUS, THE ASSESSING OFFICER HAD M ADE A MISTAKE IN NOT TAKING RECOURSE TO THE CLEAR AND UNAMBIGUOUS PROVIS IONS OF SECTION 56(2)(VII) OF THE ACT AND IN UNDULY PLACING RELIANC E ON THE JUDICIAL DECISIONS WHICH WERE NOT IN ACCORDANCE WITH THE PRO VISIONS OF LAW. SHE, THEREFORE, HELD THAT THE ORDER PASSED BY THE ASSESS ING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. SHE, ACCORDINGLY, SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND DI RECTED THE ASSESSING OFFICER TO MAKE ASSESSMENT AFRESH. ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 5 4. BEING AGGRIEVED BY THE ABOVE ORDER OF THE LD. PC IT, THE ASSESSEE HAS COME IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORD. IN THIS CASE, ORIGINALLY, THE ASSESSME NT WAS FRAMED U/S 143(3) OF THE ACT ACCEPTING THE RETURNED INCOME. TH E ASSESSMENT WAS REOPENED U/S 147 OF THE ACT ONLY TO EXAMINE THE ISS UE AS TO THE TAXABILITY OF THE AMOUNT OF GIFT RECEIVED BY THE AS SESSEE FROM HIS 'HUF'. THE ISSUE WAS EXAMINED BY THE ASSESSING OFFICER AND HE ACCEPTED THE RETURNED INCOME HOLDING THAT THE GIFT RECEIVED FROM 'HUF' WAS NOT EXIGIBLE TO TAX BY RELYING UPON THE DECISIONS OF TH E COORDINATE RAJKOT BENCH OF THE TRIBUNAL IN THE CASE OF VINEETKUMAR RA GHAVJIBHAI BHALODIA VS ITO (SUPRA) AND HYDERABAD BENCH OF THE TRIBUNAL IN MR.BIRAVELLI BHASKAR VS ITO (SUPRA). THE DECISIONS OF THE HIGHER JUDICIAL AUTHORITIES WERE BINDING UPON THE ASSESSING OFFICER AND THE ASSESSING OFFICER ACCORDI NGLY FOLLOWED THE SAME. IN VIEW OF THIS, THE ASSESSING OFFICER TOOK A POSSIBLE VIEW IN THE LIGHT OF THE DIRECT JUDICIAL DECISIONS ON THE ISSUE . UNDER THE CIRCUMSTANCES, THE ORDER OF THE ASSESSING OFFICER C ANNOT BE SAID TO BE ERRONEOUS. THE HONBLE SUPREME COURT IN THE CASE O F MALABAR INDUSTRIES CO. LTD. VS CIT (2000) 243 ITR 83 HAS HELD THAT FOR EXERCISE OF JURISDICTION BY THE COMMISSIONER U/S 26 3 OF THE ACT, PRE- REQUISITE CONDITION IS THAT THE ORDER OF THE INCOME TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE IN TEREST OF REVENUE. THUS, ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 6 THE COMMISSIONER HAS TO BE SATISFIED IF THE TWIN CO NDITIONS NAMELY (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REV ISED IS ERRONEOUS AND; (II) IT IS PREJUDICIAL TO THE INTEREST OF REVE NUE. THE HONBLE SUPREME COURT HAS FURTHER HELD THAT IF ONE OUT OF THE AFORESAID TWIN CONDITIONS IS ABSENT, THE RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT BY THE COMMISSIONER. AS OBSERVED ABOVE, SINCE T HE ASSESSING OFFICER HAD DULY APPLIED HIS MIND TO THE ISSUE AND FOLLOWED THE DECISIONS OF THE HIGHER JUDICIAL AUTHORITIES I.E. C OORDINATE BENCHES OF THE TRIBUNAL (SUPRA), HENCE, IN THE LIGHT OF THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES CO . LTD. VS CIT (SUPRA), THE ORDER OF THE ASSESSING OFFICER CANNOT BE HELD TO BE ERRONEOUS AND, THEREFORE, THE LD. PCIT WRONGLY EXE RCISED JURISDICTION U/S 263 OF THE ACT AND THE SAME CANNOT BE HELD TO B E JUSTIFIED. THE ORDER OF THE LD. PCIT IS LIABLE TO BE SET ASIDE ON THIS S CORE ALONE. 6. WE WOULD LIKE TO FURTHER ADD THAT THE LD. PCIT W HILE PASSING THE IMPUGNED ORDER, HELD THAT THE DECISIONS OF THE COOR DINATE RAJKOT AND HYDERABAD BENCHES OF THE TRIBUNAL (SUPRA) WERE NOT CORRECT DECISIONS WHICH, IN OUR VIEW, TANTAMOUNT TO JUDICIAL INDISCIP LINE. WHEN THERE WERE DIRECT DECISIONS OF THE HIGHER COURTS AVAILABL E WITH THE ASSESSEE WHICH WERE DULY CITED BEFORE THE LD. PCIT AND ALSO WHICH WERE DULY DISCUSSED IN THE IMPUGNED ORDER OF THE ASSESSING OF FICER, THE LD. PCIT NEITHER HAD ANY POWER NOR ANY JUSTIFICATION TO SAY THAT THE ASSESSING ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 7 OFFICER SHOULD NOT HAVE PLACED RELIANCE ON THE SAID JUDICIAL DECISIONS. IF SUCH A COURSE IS ALLOWED TO SUBSIST, THEN THERE WIL L BE NO CERTAINTY AND FINALITY TO THE LITIGATION. IF THE DECISIONS PASSE D BY THE HIGHER AUTHORITIES ARE NOT FOLLOWED BY THE LOWER AUTHORITI ES, THERE WILL BE CHAOS RESULTING INTO NEVER ENDING LITIGATION AND MULTIPLI CATION OF THE CASES. IN VIEW OF THE ABOVE DISCUSSION, THE IMPUGNED ORDER OF THE LD. PCIT IS NON SUSTAINABLE AS PER LAW. 7. NOW COMING TO THE OBSERVATIONS MADE BY THE LD. P CIT ON THE MERITS OF THE CASE. THE ASSESSEE IN THIS CASE HAS T AKEN A PLEA THAT THE AFORESAID GIFT HAS BEEN RECEIVED BY THE ASSESSEE OU T OF THE INCOME OF THE 'HUF' AND THAT THE SAME WAS EXEMPT U/S 10(2) OF THE I.T. ACT. THERE IS A DIRECT DECISION OF THE COORDINATE RAJKOT AND HYDER ABAD BENCHES OF THE TRIBUNAL (SUPRA) ON THIS ISSUE, HOLDING THAT FOR GETTING ANY EXEMPTION U/S 10(2) OF THE ACT, THE INDIVIDUAL ASSESSEE MUST SATISFY TWO CONDITIONS, FIRSTLY, HE IS A MEMBER OF THE 'HUF' AND, SECONDLY , HE RECEIVES A SUM OUT OF THE INCOME OF THE SUCH 'HUF', MAY BE OF EAR LIER YEARS. THE LD. PCIT IN THE IMPUGNED ORDER PASSED U/S 263 OF THE AC T, HOWEVER, HELD THAT THE WORD PAID OUT MEANS THAT SUM MUST BE PAI D OUT EITHER IN RETURN OF GOODS OR SERVICES OR THAT THE SAME MUST BE FOR SOME CONSIDERATION. SUCH AN INTERPRETATION BY THE LD. PC IT OF SECTION 10(2) OF THE ACT IS WHOLLY MISCONCEIVED. THERE IS NO REBU TTAL OR DENIAL EITHER IN THE ORDER OF THE ASSESSING OFFICER OR IN THE ORD ER OF THE LD. PCIT IN ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 8 RESPECT OF THE CONTENTION OF THE ASSESSEE THAT AMOU NT IN QUESTION WAS RECEIVED OUT OF THE INCOME OF THE 'HUF'. IN VIEW OF THIS, THE ASSESSEE, OTHERWISE, IS ENTITLED TO EXEMPTION U/S 10(2) OF TH E ACT. 8. NOW COMING TO THE FINDINGS OF THE LD. PCIT THAT AS PER THE PROVISIONS OF SECTION 56 (2)(VII) OF THE ACT, THOU GH THE MEMBERS OF THE 'HUF' ARE TO BE TAKEN RELATIVES OF THE 'HUF' FOR T HE PURPOSE OF THE SAID SECTION, HOWEVER, THE CONVERSE IS NOT TRUE THAT IS TO SAY THAT 'HUF' IS NOT A RELATIVE OF THE INDIVIDUAL MEMBER AS PER MEAN ING OF RELATIVE GIVEN IN THE CASE IF INDIVIDUAL UNDER EXPLANATION TO SECT ION 56(2)(VII) OF THE ACT. BEFORE FURTHER DELIBERATING ON THIS QUESTION, WE DE EM IT NECESSARY TO FIRST DISCUSS AS TO WHAT CONSTITUTE 'HUF' (HINDU UN DIVIDED FAMILY). THE 'HUF' HAS BEEN INCLUDED WITHIN THE MEANING OF WORD PERSON IN SECTION 2(31) OF THE INCOME TAX ACT, 1961 AS A SEPA RATE TAXABLE ENTITY BUT 'HUF' HAS NOT BEEN DEFINED IN THE INCOME TAX AC T, WHEREBY, IT MEANS THAT THE EXPRESSION 'HUF' IN THE ACT IS USED IN THE SENSE IN WHICH A HINDU JOINT FAMILY OR A HINDU UNDIVIDED FAMILY ('HUF') IS UNDERSTOOD IN THE PERSONAL LAWS OF HINDUS. A HINDU JOINT OR UNDIVIDED FAMILY IS NOT CREATED FOR ANY BUSINESS PURPOSES, RA THER, IT IS A NORMAL CONDITION OF HINDU SOCIETY AND PREVALENT THROUGHOUT INDIA BASED ON THE SOCIAL NECESSITY. SUBJECT TO THE SUBSEQUENT AMENDM ENTS IN HINDU SUCCESSION ACT, AS PER THE HINDU LAW AND USAGE, A HINDU JOINT FAMILY ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 9 CONSISTS OF MALE MEMBERS DESCENDED LINEALLY FROM A COMMON MALE ANCESTOR, TOGETHER WITH THEIR MOTHERS, WIVES OR W IDOWS AND UNMARRIED DAUGHTERS BOUND TOGETHER BY THE FUNDAMENTAL PRINCIP LE OF SAPINDASHIP OR FAMILY RELATIONSHIP WHICH IS THE ESSENCE AND DIS TINGUISHING FEATURE OF THE INSTITUTION. IT IS PURELY A CREATION OF LAW AND CANNOT BE CREATED BY AN ACT OF PARTIES EXCEPT IN THE CASE OF ADOPTION OR A MARRIAGE, ONLY WHEN A STRANGER CAN BECOME A 'HUF' MEMBER. AN UNDIVIDED FAMILY IS A NORMAL CONDITION OF A HINDU SOCIETY WHICH IS ORDINARILY JO INT NOT ONLY IN ESTATE BUT ALSO IN FOOD AND WORSHIP. THE CORD THAT KNITS OF THE FAMILY TOGETHER IS NOT PROPERTY BUT RELATIONSHIP. THERE IS NO PRES UMPTION THAT A FAMILY IS JOINT BECAUSE IT IS POSSESSED OF JOINT PROPERTY. IF THE PERSONS IN THE FAMILY LIVE TOGETHER AND ARE JOINT IN FOOD AND WORS HIP, IRRESPECTIVE OF THE FACT THAT THERE IS JOINT PROPERTY OF THE FAMILY , IT CONSTITUTES 'HUF'. IT IS A FLUCTUATING BODY, ITS SIZE INCREASES WITH BIRT H OF A MEMBER IN THE FAMILY AND DECREASES ON DEATH OF A MEMBER IN THE FA MILY. FEMALES GO AND COME INTO THE 'HUF' ON MARRIAGE. A COPARCENARY IS A NARROWER BODY THAN A JOINT FAMILY AND CONSISTS OF ONLY PERSO NS WHO TAKE BY BIRTH AN INTEREST IN THE JOINT FAMILY PROPERTY AND CAN EN FORCE A PARTITION WHENEVER THEY LIKE. THOUGH, MEMBERS OF 'HUF' ARE EN TITLED TO BE MAINTAINED OUT OF THE JOINT FAMILY FUNDS, HOWEVER, THE MEMBERS OF THE NARROWER BODY WITHIN 'HUF' CALLED COPARCENARY HAV E BIRTH RIGHTS IN THE JOINT FAMILY PROPERTY. HINDU LAW DOES NOT RECO GNIZE AN 'HUF' AS AN ENTITY SEPARATE FROM THE MEMBERS OF THE FAMILY. IN AN 'HUF', THE ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 10 MEMBERS COLLECTIVELY OWN IT. THE INTEREST AND SHAR E OF THE MEMBERS IN THE ESTATE OF THE FAMILY IS UNDIVIDED AND UNDETERMI NED. ALL THE MEMBERS COLLECTIVELY OWN AND ENJOY THE PROPERTY WITHOUT DET ERMINATION OF THEIR SHARES UNTIL THE SAME IS PARTITIONED. THERE IS COMM UNITY OF INTEREST AND UNITY OF POSSESSION BETWEEN ALL THE MEMBERS AND UPO N THE DEATH OF ANY OF THEM, THE OTHERS TAKE BY SURVIVORSHIP AND NOT BY SUCCESSION. AN HUF THOUGH TREATED AS A SEPARATE ENTITY FOR TAXAT ION PURPOSES, IT DIFFERS IN SEVERAL RESPECTS FROM A CORPORATION AN D FROM A PARTNERSHIP FIRM AS THE LATER ENTITIES CAN BE FORMED BY AN ACT OF PARTIES AND STRANGERS CAN BE THEIR MEMBERS, HOWEVER, 'HUF' IS A CREATION OF LAW AND THE MEMBERS HAVING NATURAL RELATIONSHIP AND A STRAN GER CANNOT BECOME ITS MEMBER EXCEPT BY ADOPTION OR MARRIAGE. APART FR OM THAT, IN A PARTNERSHIP FIRM, EACH OF THE MEMBERS OF THE PARTNE RSHIP FIRM HAS A DEFINITE AND DETERMINED SHARE IN CAPITAL AS WELL AS IN THE PROFITS OF THE FIRM. A MEMBER OF THE FIRM SUBJECT TO THE TERMS OF THE AGREEMENT / PARTNERSHIP DEED MAY DEPOSIT OR WITHDRAW HIS CAPITA L BUT THAT IS NOT SO IN THE CASE OF A 'HUF'. NEITHER THERE IS ANY DEF INITE SHARE OF ANY OF THE MEMBERS IN THE ESTATE OF THE HUF NOR ANY MEMBER I S ENTITLED TO ANY SHARE IN THE PROFITS IF THE 'HUF IS ENGAGED IN ANY BUSINESS. THE INCOME OF THE 'HUF GOES TO THE COMMON KITTY. THE PROPERTY AND THE INCOME OF THE 'HUF IS MANAGED BY KARTA OR MANAGER OF THE ' HUF' WHO GENERALLY IS A SENIOR MOST MALE MEMBER OF THE FAMILY. THE POW ERS OF THE KARTA OF MANAGEMENT TO THE PROPERTIES OF THE HUF ARE WI DE AND HE IS NOT ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 11 LIABLE TO GIVE DAY TO DAY ACCOUNTS OF THE PROPERTIE S TO THE MEMBERS OF THE 'HUF. SINCE THE PROPERTY OF THE 'HUF' DOES NOT BELONG SOLELY TO AN INDIVIDUAL MEMBER AND THE SHARES OF THE MEMBERS ARE NOT DETERMINED, HENCE, THE 'HUF' IS MADE A TAXABLE ENTITY IN ITSELF . AS PER THE PROVISIONS OF SECTION 10(2) OF THE I.T. ACT, ANY SUM RECEIVED BY AN INDIVIDUAL, AS A MEMBER OF 'HUF', WHICH HAS BEEN PAID OUT OF THE INC OME OF THE FAMILY OR OUT OF THE INCOME OF THE ESTATE OF THE FAMILY IS NOT EXIGIBLE TO TAXATION. THE SAID EXEMPTION HAS BEEN GIVEN ON THE PATTERN OF A PARTNERSHIP FIRM TO AVOID DOUBLE TAXATION OF THE SA ME AMOUNT. IN THE CASE OF PARTNERSHIP FIRM, WHEN THE PARTNERSHIP FIRM HAS BEEN ASSESSED TO INCOME TAX SEPARATELY, THEN, THE SHARE OF PROFIT RE CEIVED BY AN INDIVIDUAL PERSON IS NOT TAXABLE. IF A MEMBER DOES NOT OPT TO RECEIVE HIS SHARE OUT OF THE PROFITS OF THE FIRM AND OPTS THAT THE SAME B E ADDED TOWARDS HIS CAPITAL IN THE FIRM, EVEN THEN, WHEN THE SAID PARTN ER EITHER ON DISSOLUTION OF THE FIRM OR OTHERWISE RECEIVES BACK HIS CAPITAL, THE SAID CAPITAL IS NOT TAXABLE AS AN INCOME OF THE PARTNER , RATHER, THE SAME IS TAKEN AS A CAPITAL RECEIPT. HOWEVER, IN THE CASE OF 'HUF', OR TO SAY IN THE STRICT SENSE IN CASE OF COPARCENARY, THE INDIVIDU AL MEMBERS RECEIVE THEIR SHARE ON PARTITION. HOWEVER, DURING THE SUBSI STING COPARCENARY OR TO SAY BROADLY HUF', NO MEMBER IS ENTITLED TO RECE IVE ANY DEFINITE SHARE OUT OF THE INCOME OF THE 'HUF'. IT IS LEFT T O THE PRUDENCE AND WISDOM OF THE MANAGER WHO HAS TO MANAGE THE AFFAIRS OF THE 'HUF', HE MAY SPEND THE MONEY OR PROPERTY OF THE HUF IN THE CASE OF A NEED OF A ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 12 MEMBER, SUCH AS ON THE MARRIAGE OF A UNMARRIED FEMA LE MEMBER OR IN CASE OF CERTAIN TREATMENT OF ANY DISEASE OF THE MEM BER OR IN CASE OF EDUCATIONAL NEEDS OF ANY CHILDREN IN THE 'HUF'. THE AMOUNT SPENT MAY BE MORE THAN THAT THE MEMBER MAY HAVE GOTTEN ON THE PARTITION OF THE 'HUF'. THE KARTA OF THE 'HUF', EVEN CAN GIFT OF T HE 'HUF' PROPERTY FOR PIOUS PURPOSE AND EVEN HE CAN CONTRACT A DEBT FOR T HE LEGAL NECESSITY AND FOR FAMILY PURPOSES AND CAN BIND THE OTHER MEMBERS TO THE EXTENT OF THEIR INTEREST IN THE FAMILY PROPERTY. IN THE ABOVE SCENARIO, THE PROPERTY OF THE 'HUF' NE ITHER CANNOT BE SAID TO BELONG TO A THIRD PERSON NOR CAN BE SAID TO BE IN CORPORATE ENTITY, RATHER, THE SAME IS THE PROPERTY OF THE MEMBERS OF THE FAMILY. IT IS BECAUSE THAT THE SHARE OF EACH OF THE INDIVIDUAL ME MBER IN THE PROPERTY OR INCOME OF THE HUF IS NOT DETERMINATE, HENCE, THE FAMILY, AS SUCH, IS TREATED AS SEPARATE ENTITY FOR TAXATION PURPOSE S. 'HUF' OTHERWISE IS NOT RECOGNIZED AS A SEPARATE JURISTIC PERSON DISTIN CT FROM THE MEMBERS WHO CONSTITUTE IT. A MEMBER OF THE HUF HAS A PRE- EXISTING RIGHT IN THE FAMILY PROPERTIES. A COPARCENER HAS A PRE-EXISTING RIGHT AND INTEREST IN THE PROPERTY AND CAN DEMAND PARTITION ALSO, HOWEVER , THE OTHER MEMBERS OF THE 'HUF' HAVE RIGHT TO BE MAINTAIN OUT OF THE 'HUF' PROPERTY. ON DIVISION, THE SHARE IN THE ESTATE / CAPITAL OF THE 'HUF' CANNOT BE TREATED AS INCOME OF THE RECIPIENT, RATHER, THE SAME WILL BE A CAPITAL RECEIPT IN HIS HANDS. HOWEVER, IN THE CASE OF A PARTNERSHIP FI RM, IF A MEMBER RECEIVES AN AMOUNT WHICH IS MORE THAN HIS SHARE IN THE CAPITAL OR IN THE ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 13 PROFITS OF THE FIRM, THE AMOUNT RECEIVED IN EXCESS OF THE SHARE CAN BE TREATED AS A GIFT BY THE FIRM OR BY OTHER PARTNERS TO THAT INDIVIDUAL WHICH WILL BE EXIGIBLE TO INCOME TAX. HOWEVER, IN THE CA SE OF AN 'HUF', SINCE THERE IS NOT ANY DETERMINED SHARE OF ANY MEMBER IN THE FAMILY PROPERTY, ANY AMOUNT RECEIVED BY A MEMBER OF A 'HUF' FROM PR OPERTY OF 'HUF' CANNOT BE SAID TO BE MORE THAN HIS SHARE IN THE PRO PERTY, RATHER, THE SAME IS GIVEN TO HIM IN THE NORMAL COURSE OF MANAGE MENT OF FAMILY AFFAIRS AS IS DEEMED FIT OR PRUDENT BY MANAGER / K ARTA OF THE 'HUF' AND IT CANNOT BE SAID THAT SUCH AN AMOUNT RECEIVED BY A MEMBER OF 'HUF' IS THE INCOME OF THE SAID MEMBER. IT IS RECEIVED OUT O F THE COMMON KITTY IN WHICH SUCH A MEMBER HAS ALSO A JOINT INTEREST ALONG WITH OTHER FAMILY MEMBERS. ALL THE ANCESTRAL PROPERTY BELONG TO THE F AMILY MANAGED BY THE HEAD OF THE FAMILY AND ONCE INCOME OF THE FAMIL Y IS ASSESSED OR SUBJECTED TO TAX AS PER THE PROVISIONS OF THE INCOM E TAX ACT, THEN, THE DISTRIBUTION / PAYMENT OUT OF THE JOINT FAMILY PROP ERTY TO ANY MEMBER OF THE FAMILY CANNOT BE SAID TO BE INCOME OF SUCH A ME MBER. THE JUSTIFICATION OF THE PAYMENT OR THE QUANTUM OF AMOU NT PAID TO ANY MEMBER BY THE KARTA / MANAGER OF THE HUF IS THO UGH SUBJECT TO CHALLENGE BY OTHER MEMBERS OF THE HUF , IF FOUND T O BE NOT GENUINE OR NOT FOR FAMILY GOOD, HOWEVER, A THIRD PERSON CANNOT QUESTION IT. FAMILY INCOME FLOWS INTO A COMMON POOL FROM WHICH RESOURCE S ARE DRAWN TO MEET NEEDS OF ALL THE MEMBERS WHICH ARE REGULATED B Y THE HEAD OF THE FAMILY. IN SUCH CIRCUMSTANCES, ANY AMOUNT RECEIVED BY A MEMBER OF THE ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 14 'HUF', EVEN OUT OF THE CAPITAL OR ESTATE OF THE 'HU F' CANNOT BE SAID TO BE INCOME OF THE MEMBER EXIGIBLE TO TAXATION. SINCE SUCH A MEMBER HIMSELF HAS A PRE-EXISTING RIGHT IN THE PROPERTY OF THE 'HUF', HENCE, IT CANNOT BE SAID TO BE A GIFT WITHOUT CONSIDERATION BY THE 'HUF' OR BY THE OTHER MEMBERS OF THE 'HUF' TO THAT RECIPIENT MEMBER . IN SUCH CIRCUMSTANCES, THE PROVISIONS OF SECTION 56(2)(VII) ARE NOT ATTRACTED IN CASE AN INDIVIDUAL MEMBER RECEIVES ANY SUM EITHER D URING THE SUBSISTENCE OF THE 'HUF' FOR HIS NEEDS OR ON PARTIT ION OF THE 'HUF' IN LIEU OF HIS SHARE IN THE JOINT FAMILY PROPERTY. HOWEVER, THE CONVERSE IS NOT TRUE I.E. TO SAY IN CA SE AN INDIVIDUAL MEMBER THROWS HIS SELF-ACQUIRED PROPERTY INTO COMMO N POOL OF 'HUF'. THE 'HUF' OR OTHER MEMBERS OF THE 'HUF' DO NOT HAVE ANY PRE-EXISTING RIGHT IN THE SELF-ACQUIRED PROPERTY OF A MEMBER. IF SUCH AN INDIVIDUAL MEMBER THROWS HIS OWN/SELF-EARNED OR SELF-ACQUIRED PROPERTY IN COMMON POOL, IT WILL BE AN INCOME OF THE 'HUF', HOWEVER, THE SAME WILL BE EXEMPT FROM TAXATION AS THE INDIVIDUAL MEMBERS OF A N 'HUF' HAVE BEEN INCLUDED IN THE MEANING OF RELATIVE AS PROVIDED I N THE EXPLANATION TO SECTION 56(2)(VII) OF THE ACT. IT IS BECAUSE OF THI S SALIENT FEATURE OF THE HUF THAT IN CASE OF INDIVIDUAL, THE HUF HAS NOT BEE N INCLUDED IN THE DEFINITION OF RELATIVE IN EXPLANATION TO SECTION 56 (2) (VII) AS IT WAS NOT SO REQUIRED WHEREAS IN CASE OF HUF, MEMBERS OF THE HUF FIND MENTION IN THE DEFINITION OF RELATIVE FOR THE PURPOSE OF THE SAID SECTION. ITA NO. 773-C-2018 SH. PANKIL GARG, SHAHBAD 15 IN VIEW OF THE ABOVE DISCUSSION, THE AMOUNT RECEIVE D BY THE ASSESSEE FROM THE HUF, BEING ITS MEMBER, IS A CAPITAL RECE IPT IN HIS HANDS AND IS NOT EXIGIBLE TO INCOME TAX. IN VIEW OF OUR OBSERVATIONS MADE ABOVE, THE APPEAL OF THE ASSESSEE STANDS ALLOWED ON ALL THE THREE COUNTS AS DISCUSSED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 17.07.2019. SD/- SD/- ( $ % & '# / ANNAPURNA GUPTA) () / ACCOUNTANT MEMBER ( / SANJAY GARG) / JUDICIAL MEMBER DATED : 17.07.2019 .. '+ ,- .- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # / / CIT 4. # / ( )/ THE CIT(A) 5. -01 2 , % 2 , 34516 / DR, ITAT, CHANDIGARH 6. 15 7$ / GUARD FILE '+ # / BY ORDER, 8 ' / ASSISTANT REGISTRAR