Q; Can the Assessee claim that there was oral partition of Property and hence capital gains should be apportioned among the members ?
Assessee filed his return of income declaring certain capital gains apportioned amongst himself and his three sons stating that there was an oral partition
Assessing Officer completed assessment accepting income declared by assessee
Commissioner in exercise of powers under section 263 observed that vacant land was recorded in name of assessee only and there was no other evidence to show that land was divided amongst assessee and his sons
Further construction agreement executed indicated that assessee was owner of property and sons signed power of attorney only
Commissioner set aside assessment under section 263 and directed Assessing Officer to compute capital gains at hands of assessee .
IN THE ITAT VISAKHAPATNAM BENCH
Palla Appala Raju
Commissioner of Income-tax-2, Visakhapatnam
AND SAKTIJIT DEY, JUDICIAL MEMBER
IT APPEAL NO. 107 (VIZAG.) OF 2014
[ASSESSMENT YEAR 2004-05]
MARCH 5, 2015
Section 45 read with section 263 of the Income-tax Act, 1961
Assessment year 2004-05
Subject : Capital gains Chargeable as Transfer of land
Saktijit Dey, Judicial Member – Aforesaid appeal of the assessee is directed against the order dated 12.02.2014 passed under section 263 of the Act for the assessment year 2004-05.
2. Assessee has raised the following effective grounds:
|“1.||The learned CIT is not correct in giving directions to the AO to revise the order passed under section 143(3) r.w.s. 147 dated 16.12.2011 directing the Assessing Officer to ignore the partition of property amongst the assessee and his three sons and assess the entire capital gains arising from the transfer of property by way of development agreement in the hands of the assessee.|
|2.||The learned CIT has not considered any new material other than the one considered/taken into account and decided upon by the AO. Therefore, the direction of the learned CIT amounts to change of opinion which is not permitted under law.|
|3.||The learned CIT is not correct in giving directions to the AO to adopt the market value of the property received in kind in place of cost of construction to the builder adopted by the assessee.|
|4.||In the alternative and without prejudice to the above grounds, the learned CIT is not correct in directing the Assessing Officer to grant exemption under section 54F with respect to investment in only one flat contrary to the judicial opinion on the same.|
|5.||The learned CIT is not correct in giving directions to revise the order passed by the Assessing Officer even though there is no loss of revenue, consequently the order of the Assessing Officer is not prejudicial to the interests of the Revenue”.|
3. Briefly the facts are, the deceased assessee was an individual. Initially assessee did not file any return of income for the impugned assessment year. A survey under section 133A of the Act was conducted in case of M/s Sri Siva Ratna Engineers and Builders, Visakhapatnam. As observed by Assessing Officer, in course of survey it came to the notice of the Department that the assessee along with his three sons has entered into a development with the said firm for transfer of 480 sq. yards of land in survey No. 54, 55, Ward-1 Muralinagar, Visakhapatnam, in the relevant previous year for development purpose. In consideration for such transfer of land, assessee and his sons received cash of Rs. 3.00 lakhs and 10 numbers of two bedroom flats and three shops in the building proposed to be constructed. Thus, as per the agreement to sale cum GPA, the land was transferred for a total consideration of Rs. 10,56,000 in kind (flats) and Rs. 3.00 lakhs (in cash), out of which assessee’s share is Rs. 1,50,000 in cash and Rs. 79,200 in kind (1 flat). In response to the notice issued, assessee filed his return of income computing capital gain at Rs. 1,17,143 after claiming exemption under section 54F. On the basis of return filed in response to notice issued under section 148, Assessing Officer completed the assessment vide order dated 16.12.2011 by accepting the income returned by the assessee. Learned CIT, Visakhapatnam in exercise of power under section 263 of the Act called for the assessment records for the impugned assessment year and after examining the same was of the view that the assessment order is erroneous and prejudicial to the interests of the Revenue due to the following reasons:
|•||Assessee has apportioned the capital gain amount amongst himself and three of his sons by stating there was an oral partition between them. However, on going through the registered power of attorney cum GPA as well as the information submitted by assessee along with his return of income, it was seen, a vacant land of 480 sq. yards was recorded in the name of assessee only.|
|•||There was no evidence to show that the land was divided amongst the assessee and his three sons. The subsequent construction agreement in respect of the remaining land which was executed on 20.03.2006 clearly indicates that the assessee is the owner of the property and the sons of the assessee signed the power of attorney only for avoiding any misunderstanding amongst prospective buyers in future. Therefore, transfer within the meaning of section 2(47)(v) took place on 28.11.2003 i.e. on the date on which the development agreement cum power of attorney was entered into between the assessee and M/s Siva Ratna Engineers & Builders.|
|•||The capital gain arising from the above transfer is assessable in the hands of the assessee alone. According to the CIT, the apportioning of the sale consideration (cash, built-up area of flats and shops) amongst the assessee and 3 HUFs of his sons is only application of income. The learned CIT observed that the fair market value of three shops and ten flats together with the cash of Rs. 3.00 lakhs is required to be taken as the total fair market value for computing the capitals in the hands of the assessee.|
4. As the Assessing Officer accepted the income declared by the assessee, without assessing the total capital gain at the hands of the assessee, learned CIT considered the assessment order to be erroneous and prejudicial to the interests of the Revenue and issued a show cause notice to explain why assessment order shall not be revised.
5. In response to the said notice assessee submitted that the land given for development was purchased by the assessee on 20.03.1970. Subsequently, land was partitioned long back amongst the assessee and his three sons by virtue of an oral partition. For substantiating such claim, assessee referred to the sale cum GPA wherein the fact of partition was mentioned. Learned CIT however, did not accept the contentions of the assessee. Referring to the agreement of sale cum GPA and construction agreement dated 20.03.2006 learned CIT observed that recitals therein clearly shows that it is the assessee who is the sole owner of the property, in question, and the name of his sons were included in the agreement only to avoid future legal problems amongst them as well as with outsiders. Learned CIT observed that on going through the construction agreement, it is also evident that as per oral partition the property was not specifically divided mentioning share of each person. Accordingly he concluded that the claim of oral partition is only an after thought for reducing tax liability. Having held so learned CIT set aside the impugned assessment order with a direction to the Assessing Officer to compute the capital gain at the hands of the assessee by taking into account the entire sale consideration i.e. value of the built up area of the flats and the shops and the receipts under the development agreement as well as the cash amount of Rs. 3.00 lakhs as the fair market value. Learned CIT also directed Assessing Officer to allow deduction under section 54F in respect of one residential unit as claimed by the assessee in the return of income.
6. The learned Authorised Representative more or less reiterating the submissions made before the revisional authority submitted before us, as there is a partition between father and sons with regard to the vacant land given for development, the entire capital gain cannot be assessed at the hands of the assessee only. The learned Authorised Representative submitted, since the fact of partition is referred to in the agreement to sale cum GPA which is a registered document, the CIT cannot question the genuineness of such partition, even though it is an oral partition, without bringing cogent evidence to disprove it. In support of such contention learned Authorised Representative relied upon a judgment dated 14.6.2012 of Hon’ble Karnataka High Court in case of C.B. Somanna v. Govt. of Karnataka [Writ Petition No. 31999 of 2009 (KLR-RRSUR), dated 14-6-2012], a copy of the judgment was placed on record. Learned Authorised Representative submitted that even in terms with the oral partition, assessee and two of his sons have filed return of income showing capital gain falling into their respective shares. In view of such facts, the order passed by the learned CIT in directing Assessing Officer to assess the entire capital gain at the hands of the assessee is not justified. Learned Authorised Representative challenging the directions of the CIT with regard to consideration of fair market value for computing capital gain submitted before us that the FMV as on the date of transfer should be the cost of construction to the builder and not the value of the constructed flats. Learned Authorised Representative also submitted, if at all, the entire capital gain is to be assessed at the hands of the assessee, then the deduction under section 54F should not be restricted to only a single flat but to all the 10 flats as they are in different floors of the same building having common door number. Learned Authorised Representative submitted if deduction under section 54F is allowed for all ten flats, there will be negative income, hence there is no prejudice caused to the revenue. In support of his contention learned Authorised Representative relied upon following decisions:
7. The learned Departmental Representative on the other hand submitted before us, there is no dispute to the fact that the land in question was purchased by the assessee and it stood recorded in the name of assessee till its transfer to developer. There is no evidence that either there was a larger HUF or smaller HUF of the sons as no return of income was filed earlier in the capacity of HUF. No return was also filed either by the assessee or his sons offering capital gain voluntarily. Only after notice under section 148 was issued, the assessee and his sons came forward to file the returns of income offering capital gain in respective hands. Learned Departmental Representative submitted that the so called oral partition claimed to have been entered between the parties is only with an intention to apportion the capital gain for reducing the tax burden.
8. As far as the FMV is concerned, the learned Departmental Representative submitted, the market value as on the date of GPF dated 28.11.2003 is to be taken. As far as the claim of deduction under section 54F is concerned learned Departmental Representative submitted, when the assessee himself has claimed deduction for one flat, further claim of the assessee for enhancing the deduction to all flats is not acceptable.
9. We have considered the submissions of the parties and perused the materials on record. Undisputedly assessee has purchased the land in question in the year 1970 in his individual capacity. However, it is the claim of the assessee that by virtue of an oral partition entered into in the year 1980, the property has been divided amongst the assessee and his three sons. Therefore, the capital gain arising out of the transfer of such land in pursuance to the agreement to sale cum GPA entered into with the developer in Nov. 2003 is to be assessed proportionately at the hands of the assessee and his three sons. As can be seen, apart from reference made in the agreement of sale cum GPA, there is no other documentary evidence submitted by the assessee to establish the fact that the so called oral partition between the assessee and his sons was actually acted upon since the property in question continued to be recorded in the name of the assessee till it was transferred to developer. Further assessee has not been able to explain as to whether the partition is only restricted to the aforesaid property or to all the properties of the assessee. Therefore, when the facts on record clearly show that the property given under development was a self acquired property of the assessee standing in his own name without any other evidence to corroborate the claim of oral partition of the property between assessee and his sons, such claim is not acceptable merely because a reference to such oral partition has been made in the registered agreement to sale cum GPA. The reference made to the decision of the Hon’ble Karnata High Court in case of K. Ponnappa (supra) in our view, is misplaced as the facts in that case are totally different. As can be seen from the facts of the case relied upon by the assessee, it was the claim of the petitioner that the property in question is a joint family property whereas the respondent disputed such claim. In fact, respondent demonstrated that there was partition of the joint property in pursuance to a palupatti executed amongst the members of joint family on 10.2.1974. Further, the party who claimed to have purchased the property on partition took steps for mutating his name. Considering these facts the Hon’ble Court held that recital in the registered sale deed will prevail over all other plea. However, in assessee’s case, apart from a passing reference in the agreement to sale cum GPA about oral partition long back, without disclosing the date of such partition, there is no other evidence to prove the partition. If at all there was a partition long back, there is no reason why the oral partition was not acted upon in letter and spirit all these years by getting the land registered in the names of all the parties. On the contrary, assessee continued to be the absolute owner of the property till it was transferred to developer. Assessing Officer has not at all examined this issue during the assessment proceedings by making any enquiry or applying his mind. At least nothing of the sort is evident either from the assessment order or any material brought before us. Considered in the aforesaid perspective, exercise of jurisdiction under section 263 is valid. However, in our view the learned CIT was not justified in straight away directing the Assessing Officer to consider the entire capital gains at the hands of the assessee. In our view the entire issue requires re-examination by the Assessing Officer. If the assessee can prove by furnishing necessary and cogent evidence that the property in question was actually partitioned, then assessee’s claim can be considered. In that view of the matter, we direct the Assessing Officer to consider assessee’s claim afresh and take decision after affording due opportunity of being heard to the assessee. In view of our aforesaid direction, other issues relating to adoption of fair market value and claim of exemption under section 54F are left open to be decided afresh depending upon the decision to be taken on assessee’s claim of partition. We make it clear that the Assessing Officer must afford reasonable opportunity of being heard to the assessee and consider submissions on all the issues raised by the assessee and decide them independently and in accordance with law without being influenced by any of the observations made by learned CIT. The order of the learned CIT is modified to the extent indicated hereinbefore.
10. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.