2017 (6) TMI 1355 - AT - Income Tax

Tribunal directs HUF income assessment, aligning with High Court rulings

K. Muniswamy Reddy (HUF), K. Muniswamy Reddy (Indl), K. Govinda Reddy (Indl.), K. Govinda Reddy (HUF), K. Ramesh Reddy (HUF), K. Ramesh Reddy (Indl.) Versus Asst. Commissioner of Income-tax, Central Circle 1 (3), Bengaluru

The Tribunal allowed all appeals, directing that income and properties be assessed in the hands of the Hindu Undivided Family (HUF) rather than ... Assessment of HUF - Addition in the hands of individual member OR HUF - individuals have inherited certain properties through partition of Krishna Reddy, HUF - Income derived from these properties is assessed in individual capacity of the respective persons by the AO - HELD THAT:- It is undisputed fact that in the immediately preceding assessment year i.e. 2003-03, the Hon’ble High Court that this property belongs to HUF of the appellant. Therefore, should be assessed only in the hands of the HUF of the appellant. Hence, the grounds of appeal filed by the assessee are allowed. For the assessment year 2004-05 unexplained investment on account of cost of construction in residential complex - CIT(A) was not justified in rejecting the same merely on the ground that this property does not find a place in the partition deed. It is always possible that property can be acquired out of nucleus of the funds of the HUF in which event, property always belongs to HUF. Therefore, income arising out of the property should be assessed only in the hands of the HUF. - Appeal of assessee allowed. Assessment of annual value of property at Renuka Bangalore, in the status of the individual of the assessee - contention of the assessee that it belongs to joint family and therefore, should be assessed in the status of HUF - HELD THAT:- There is no bar under law to throw individual property into common hotchpot of HUF, even if the contention of the assessee that this property was purchased out of funds received on partition under partition from erstwhile HUF of his father to be disbelieved. In the circumstances, we hold that annual value of property is to be assessed in the hands of the HUF. Thus ground No.2 is allowed. Assessment of annual value at No.1198, Renuka Nilaya, HAL III Stage, Bangalore - As claimed that purchase of site and construction of building thereon have been made out of sale consideration received from assessee’s share of flats in Krishna Apartment which are identified as HUF property - HELD THAT:- We are of the considered opinion that in absence of contrary evidence, explanation tendered in support of source of acquisition of property should be accepted. Therefore, we hold that annual value of property should be assessed only in the individual capacity. Addition on account of assessment of short term capital gain on sale of property at survey No.39/3, Doddanakundi, Bengaluru - HELD THAT:- It is trite law that in absence of any contrary evidence, explanation tendered by the assessee should e accepted. There is nothing on record to disbelieve the explanation tendered by the assessee. We hold that short term capital gains should be assessed only in the hands of HUF. Whether assessment can be made on disrupted HUF which is not hitherto assessed to tax? - HELD THAT:- This issue has come up before the Hon'ble jurisdictional High Court in the case of CIT vs. Lakkanna & Sons [2005 (5) TMI 684 - KARNTATAKA HIGH COURT] wherein it was held that where HUF has not been assessed earlier, enabling provisions of section 171 of the Act cannot be applied to assess after partition in status of HUF - Since HUF of respective parties is already disrupted, there cannot be any assessment. Therefore, assessments framed in the present case are cancelled. Issues Involved:1. Assessment of rental income from KMR Building.2. Unexplained investment on account of cost of construction in residential complex.3. Assessment of annual value of property at Renuka Bangalore.4. Assessment of annual value at No.1198, Renuka Nilaya, HAL III Stage, Bangalore.5. Assessment of short-term capital gains on sale of property at survey No.39/3, Doddanakundi, Bengaluru.6. Validity of assessments on disrupted Hindu Undivided Family (HUF).Detailed Analysis:1. Assessment of Rental Income from KMR Building:The assessee contended that the rental income from KMR Building amounting to Rs. 62,500 should not be assessed in the individual capacity but in the hands of the HUF, as per the Hon’ble High Court's decision. The Tribunal noted that in the preceding assessment year, the High Court had held that this property belonged to the HUF. Therefore, the rental income should be assessed in the hands of the HUF. The grounds of appeal filed by the assessee were allowed.2. Unexplained Investment on Account of Cost of Construction:For the assessment year 2004-05, the AO added Rs. 7,63,000 as unexplained investment in the cost of construction of a residential complex. The assessee argued that the property belonged to the HUF and no addition should be made in the individual assessment. The CIT(A) rejected this claim because the property was purchased in the name of the appellant and his wife after the partition deed. The Tribunal held that the CIT(A) was not justified in rejecting the claim merely because the property was not listed in the partition deed. It is possible that the property was acquired from the HUF's funds, and thus, the income should be assessed in the hands of the HUF. The appeals were allowed.3. Assessment of Annual Value of Property at Renuka Bangalore:The assessee contended that the property should be assessed in the status of HUF. The CIT(A) rejected this claim due to a lack of documentary evidence supporting the partition of the HUF. The Tribunal held that there is no bar under law to throw individual property into the common hotchpot of HUF, even if the partition claim is disbelieved. The annual value of the property should be assessed in the hands of the HUF. The ground was allowed.4. Assessment of Annual Value at No.1198, Renuka Nilaya, HAL III Stage, Bangalore:The assessee claimed that the site and construction were funded by the sale consideration from HUF property. The AO and CIT(A) disbelieved this due to a lack of evidence. The Tribunal held that in the absence of contrary evidence, the explanation provided by the assessee should be accepted. The annual value of the property should be assessed in the individual capacity. The appeals were allowed.5. Assessment of Short-Term Capital Gains on Sale of Property at Survey No.39/3, Doddanakundi, Bengaluru:The AO and CIT(A) disbelieved the assessee's claim that the property belonged to the HUF due to a lack of documentary evidence. The Tribunal held that in the absence of contrary evidence, the explanation provided by the assessee should be accepted. The short-term capital gains should be assessed in the hands of the HUF. The appeal was allowed.6. Validity of Assessments on Disrupted HUF:The issue was whether assessments could be made on a disrupted HUF that was not previously assessed to tax. The Tribunal referenced the Hon’ble High Court's decision in CIT vs. Lakkanna & Sons, which held that if an HUF was not previously assessed as undivided, it cannot be assessed after partition. The Tribunal concluded that since the HUFs of the respective parties were already disrupted, there could not be any assessment. The assessments were canceled, and the appeals were allowed.Conclusion:The Tribunal allowed all the appeals filed by the assessees, holding that the income and properties in question should be assessed in the hands of the HUF and not in the individual capacity, in line with the High Court's decisions and the principle that assessments cannot be made on disrupted HUFs.