1. to 21. [These paras are not reproduced here as they involved minor issues.] 22. The last objection in the revenue's appeal is to the decision of the CIT (Appeals) holding that the exemption under Section 54 was available to the assessee, who was assessed in the status of HUF.During the previous year, the assessee sold his residential house at No. 110, West Sandaipettai Street, Madurai for Rs. 6 lakhs on 6-5-1981.
In respect of the long-term capital gains arising on the sale of this property, the assessee claimed exemption Under Section 54(1) of the IT Act, which was disallowed by the ITO for the reason that the assessee was not entitled to this relief, as he was being assessed in the status of a Hindu Undivided Family. According to the Income-tax Officer only individuals can claim this relief Under Section 54(1). The CIT (Appeals), however, disagreed with this view of the Income-tax Officer and held that the language used in Section 54(1) was such that the relief could be claimed either by an individual or by an HUF. He further held that in the case of an individual, the benefit could be availed, whether the individual himself uses the building for his own residence or whether his parent used the building for his residence and that in the case of a Hindu undivided family, the HUF alone -must use the building for the residence of all the members of the HUF. In support of his conclusion, the CIT (Appeals) relied on the decision of the Tribunal, Madras Bench-D in the case of T.N. Ramanathan v. ITO [IT Appeal No. 3109 (Mad.) of 1977-78 dated 8-1-1979]. According to the CIT (Appeals), the condition was more liberal in the case of individuals and less liberal in the case of HUFs, but that the relief applies to both. He also referred to Section 54(1) as amended by the Finance Act of 1982 only with effect from 1-4-1983, i.e. assessment year 1983-84 and subsequent assessments and pointed out that after this amendment, only individuals can claim the benefit of Section 54(1), but that this amendment was not applicable to assessment year 1982-83. He therefore directed the Income-tax Officer to grant the relief Under Section 54(1) to the present assessee. This is being objected to by the revenue in ground Nos. 9 to 11.
23. Shri Seshagiri Rao, the learned departmental representative submitted that the decision of the CIT (Appeals) was contrary to law and that the CIT (Appeals) failed to apply the principles enunciated in K. I. Viswambharan & Bros. v. CIT [1973] 91 ITR 588 (Ker.) (FB) and Shrigopal Rameshwardas v. Addl. CIT [1979] 119 ITR 980 (MP).
He further argued that the amendment brought about by the Finance Act of 1982 should be considered as of a clarificatory nature and that therefore it would be applicable for the assessment year 1982-83 also.
Shri Seshagiri Rao further relied on the decision of the Karnataka High Court in CIT v. C. Chandrashekar [1984] 145 ITR 429 and of Madhya Pradesh High Court in the case of Smt. Rampyarlbal Narayandas v. CIT [1984] 147 ITR 223 in support of his submissions. He therefore submitted that the order of the CIT (Appeals) directing the granting of exemption under Section 54(1) to the assessee should be reversed and that of the ITO restored.
24. The learned Chartered Accountant for the assessee submitted that the assessee's HUF consisted of only two members, namely the assessee and his wife, that the assessee was the sole coparcener of the said HUF and that the assessee had sold the property as an individual only, as he had absolute powers of disposal of the property of the HUF as the kartha of the HUF. He therefore submitted that the assessee would be entitled to the relief of exemption under Section 54(1) of the Act and that the CIT (Appeals) was therefore right in directing the Income-tax Officer to allow this exemption to the assessee. In support of his submissions, the learned counsel relied on the following decisions :ITO v. K.C. Sahni (HUF) 25. In the present case there is no dispute that the assessee is the sole surviving coparcener in his HUF which consisted of himself and his wife during the previous year under appeal. In fact, this position is further proved from the discussion under the head 'status' in the assessment order dated 26-9-1973 for the assessment year 1971-72 when for the first time the assessee came to be assessed as a Hindu undivided family. For the earlier assessment years, it appears, the assessee has been assessed in the status of an individual. We quote below the relevant portion of the said assessment order : Status - The assessee has all along been assessed in the status of 'Individual' as he is the only sole coparcener in his family. This was done in accordance with the view prevailing before the Supreme Court decision in Narendranath's case. All his business and assets were inherited by him from his father. He is a married person. As per Supreme Court decision in Narendranath's case, his status is to be treated as HUF. The return has been accordingly filed changing the status as HUF. The status declared is in order.
It is because of this changed status in which the assessee is assessed that the department is seeking to deny the relief claimed by him under Section 54(1) of the Act in respect of the capital gains arising on the sale of his residential property. In support of their contention, they rely on the decision of the Kerala High Court in K.I. Viswambharan & Bros.' case (supra), which was a case of a partnership firm claiming exemption under Section 54 in respect of the house property purchased by the firm. The Full Bench of the Kerala High Court held that neither the partnership firm nor the partners would be entitled to the exemption under Section 54(1) of the Act. We are unable to see how this decision would be of any relevance or help to the revenue in the present case.
26. The next decision relied on by the Revenue is the one in Shrigopal Rameshwardas's case (supra), which is wrongly quoted as 118 ITR in the grounds of appeal. No doubt, this decision of the Madhya Pradesh High Court is in favour of the revenue and this decision has been followed by the same High Court in its latest judgment reported in Smt.
Rampyaribai Narayandas's case (supra) and by the Karnataka High Court in C. Chandrashekar's case (supra).
27. As against these decisions relied on by the revenue, the learned counsel for the assessee relied on the decision of the Madras High Court in M.S.P. Rajah's case (supra) for the proposition that as the sole surviving coparcener of his family the assessee is entitled to dispose of the coparcenary or joint Hindu family property as if it were his separate property and that he may sell, mortgage or make a gift of it and that he should be deemed to have acted in his individual capacity when he sold the property. In this decision it was held by the Madras High Court that in a case where the joint Hindu family consists of only one male member and the other members were females or the only male member was the sole surviving coparcener, the said male member is entitled to dispose of the coparcenary or joint Hindu family property as if it were his separate property and that he may sell, mortgage or make a gift of it. In the case before them, their Lordships held that when the sole member gifted the property in favour of his wife, it was in his capacity as an individual with all the powers vested in him for the disposition of joint family property as if it were his separate property and that accordingly he should be deemed to have acted in his individual capacity while making the gift in favour of his wife. Their Lordships further held that the same result would be reached even if the father-karta was the sole surviving coparcener or the only male member of a joint family, that a father coparcener has certain special powers of disposing of the joint family or coparcenary property, that he can alienate without the consent of the other coparceners to the extent authorised by the Hindu Law and that he can also make a gift, within reasonable limits of movable property belonging to the family and that while making such a gift, the Karta does not act in a representative capacity, but in his individual capacity. Their Lordships further held that in the case before them the gift was out of affection and was within reasonable limits and hence was a valid gift made by the Karta in his individual capacity and not by his HUF. That was a case under the Gift-tax Act, where the assessee claimed exemption under Section 5(1)(viii) of the said Act and it was held by their Lordships that for application of Section 5(1)(viii) it is the nature of the gift that is relevant and not the status in which the return was filed by the assessee and that the fact that the assessee had submitted his return as that of the HUP could not therefore be relevant. Their Lordships therefore held that the assessee was entitled to the exemption under Section 5(1)(viii) of the Gift-tax Act. In this connection, their Lordships of the Madras High Court have followed the two decisions of the Andhra Pradesh High Court in Jana Veera Bhadrayya v. CGT [1966] 59 ITR 176 and Vadrevu Venkappa Eao v. CGT [1974] 95 ITR 313 and of the Punjab & Haryana High Court in CGT v. Hari Chand [1974] 95 ITR 308.
28. In Anil J. Chinai's case (supra), their Lordships of the Bombay-High Court have also taken a similar view and held that a sole surviving coparcener of HUF can dispose of coparcenary property as if it were his separate property, that the gifts made by the assessee in his capacity as sole surviving coparcener out of the immovable property of the HUF to his minor daughters and wife were valid gifts and that therefore the capital gains which arose to his wife and the two trusts in the said case could not be assessed in the hands of the assessee.
Their Lordships followed the decision of the Supreme Court in the case of Surjit Lal Chhabda v. CIT [1975] 101 ITR 776 and Anilkumar B.Laskari v. CIT 29. In our view, these two decisions of the Madras and Bombay High Courts are directly applicable to the facts of the present case. The decision of the Bangalore Bench of the Appellate Tribunal in K.L.
Ramachandra's case (supra) indirectly supports the assessee's contention, while the decision of the Delhi Bench of the Tribunal in the case of K.C, Sahni (supra) directly supports the assessee's contentions, though it is contrary to the decisions of the Madhya Pradesh and Karnataka High Courts. However, in view of our conclusion that the decisions of the Madras and Bombay High Courts relied on by the learned Chartered Accountant are applicable to the facts of the present case, we are of the view that the assessee could be held to have sold his property only as an individual, even though he is assessed in the status of a Hindu undivided family, as he is the sole surviving coparcener in the said HUF. Therefore, the decisions relied on by the revenue are inapplicable to the facts of the present case. We would, therefore, respectfully follow the two decisions of the Madras and Bombay High Courts relied on by the assessee and confirm the order of the CIT (Appeals) directing grant of exemption under Section 54(1) of the Act to the assessee.
30. In the result, the appeal for the year 1982-83 is also partly allowed.