income Tax Officer Vs. Smt. Lalitaben Hariprasad Shah. - Court Judgment

Excerpt:
the only dispute raised in the appeal filed by the revenue relates to computation of capital gains i.e., whether a deduction of assessees claim for a sum of rs. 14,33,000 as cost of acquisition of immovable property sold during the year under appeal, is allowable while computing the capital gains. to be precise the exact ground raised by the revenue reads as under : "the learned cit(a) has erred in law and on facts in directing the ao to compute the capital gains and the tax thereon by substituting the cost of acquisition of immovable property to rs. 14,09,040." 2. there was an huf of hariprasad h. shah in existence consisting of shri hariprasad h. shah karta, his wife smt. lalitaben h. shah (the present assessee) and two sons viz. s/shri deepak and udayan. the said huf owned immovable property known as samir opposite bank of india, c.g. road, ahmedabad, which was a residential property. on total partition of the huf on 3rd november, 1986, the said property was divided into two equal shares as it admitted such physical partition and each share was allowed to shri hariprasad h. shah - karta, and smt.lalitaben h. shah-the assessee before us. the entries to this effect were made in the city survey records. the said partition was recognised by the a.o. by passing an order under s. 171 on 11th august, 1989.before the ao the assessee claimed a sum of rs. 14,33,000 as deduction from the cost of acquisition of the house property while computing the capital gains. it was submitted before the ao that at the time of partition the assessee had undertaken an obligation to pay a sum of rs. 14,33,000 to her son shri udayan h. shah. a written explanation was furnished before the ao which has been reproduced by the ao at p. 3 of the assessment order which reads as under : "under the circumstances i submit that the amount of rs. 14,33,000 is not merely claimed by way of obligation to pay money to my son under the partition but in reality and in substance it is the amount which has been paid as cost of acquisition of additional one-fourth interest in the said immovable property which i was to be allotted on partition and the said amount was paid thus for acquiring the said additional interest and is, therefore, clearly deductible under s. 48 as cost of acquisition. it is submitted that when considering cost of acquisition in my hands of the said one-half interest in the property only rs. 1,87,000 cannot be taken because the said one-half interest is allotted to me not simpliciter but along with a liability to pay rs. 14,33,000 to my son for equalising distribution on partition. thus it is additional cost of acquisition incurred by me for acquiring one-half interest in the said immovable property in partition. i submit that this position is absolutely clear and it would be unthinkable and unrealistic to consider that though i was only entitled to one-fourth interest i was allotted one-half interest gratis and i realised capital gains on sale of the said property and earned capital gain ignoring the payment of rs. 14,33,000 made by me as aforesaid, for the purpose of acquiring additional one-fourth interest on partition." "submissions made by the assessee cannot be acceptable. the assessee has received property on partition of the huf. therefore in view of provision of s. 49 the cost of acquisition of this property in the hands of the assessee will be the cost of the acquisition to the previous owner i.e. huf. in this case, the value of the property in the hands of the huf as on 1st april, 1974 is rs. 3,75,000. therefore, as the assessee has received one-half share of the property on partition the cost of acquisition in the hands of the assessee will be rs. 1,87,500 only." 3. the assessee appealed to the cit(a). it was contended before him that the assessee had, on partition, acquired additional one-fourth interest in the said property only by paying rs. 14,33,000 to her son and therefore the said amount was liable to be taken into account while considering the cost of acquisition for the purpose of determining the capital gains. in support of this contention reliance was placed on the following authorities :ratilal b. dapatri vs. cit (1959) 36 itr 8 (bom) approved in murlidhar himat singka & anr. vs. cit (1966) 62 itr 323 (sc); the cit(a) allowed the claim of the assessee holding that the assessees inherent right in the house property was only to the extent of one-fourth and accordingly she was under obligation to pay a sum of rs. 14,33,000 to her son shri udayan h. shah. the revenue is in appeal before us against the order of the cit(a).4. shri prabhakant, the learned departmental representative strongly supported the order of the ao. he referred to the order passed by the ao under s. 171 and submitted that there was a physical division of the property and one-half share of the property came to the share of the assessee. relying upon the judgment of the supreme court in the case of ito vs. smt. n. k. sarada thampatty (1991) 187 itr 696 (sc), the learned departmental representative submitted that there must be a physical division of the property and in this case the property was divided physically and into two equal shares by mutual consent of the members of the family and the assessee was under no obligation to pay any amount to her son. he further submitted that at best it can be said that the assessee had undertaken to give some amount to her son on some future date which was not specified and at the time of the partition the property had not been sold and as such how the assessee arrived at her obligation to pay rs. 14,33,000, is not understood. he submitted that the partition need not be in equal shares as held by the supreme court in the case of apoorva shantilal shah vs. cit (1983) 141 itr 558 (sc). in the assessees case also instead of dividing the property into four portions the members of the family chose to divide the property physically into two portions. on such division the assessee became absolute owner of her share of the property and was under no obligation to pay any amount to her son. he further submitted that the assessee never disclosed the correct position because the deed of partition was not produced before the ao at any stage nor before the cit(a). the learned departmental representative prayed that the order of the cit(a) be reversed and that of the ao restored.5. shri k. h. kaji, the learned counsel for the assessee strongly supported the order of the cit(a). he also referred to the order passed by the ao under s. 171 and submitted that there was total partition of the property but the assessee was under an obligation to pay a sum of rs. 14,33,000 being one-fourth share of the property to her son shri udayan h. shah, as was done by her husband i.e., the karta of the huf who was also under an obligation to pay similar sum of rs. 14,33,000 to his second son shri deepak. the learned counsel for the assessee drew our attention to the sworn declarations dt. 15th january, 1987 filed by shri hariprasad h. shah -karta (pp. 1 to 8 of the paper-book) declaration by shri udayan h. shah (pp. 17 to 19 of the paper-book) and submitted that both the assessee and her husband shri h. h. shah who got the property on partition in equal shares were under obligation to pay a sum of rs. 14,33,000 each to the respective sons for their 1/4th share in the property. according to the learned counsel for the assessee the amount of rs. 14,33,000 was a charge on the property and was allowable as a deduction while computing the capital gains in view of the following decisions : 6. by way of rejoinder to the arguments of the learned counsel for the assessee, shri prabhakant, the learned departmental representative submitted that the declarations on which the learned counsel has placed reliance were only self-serving statements and did not prove that the assessee was under any legal obligation to pay a sum of rs. 14,33,000 to her son. he submitted that as a matter of fact the assessee by creating this type of non-existent charge resorted to a colourable device to evade tax because the obligation was discharged by the assessee after the sale of the property in september, 1987.7. we have considered the rival submissions and perused the facts on record. the property on the sale in september, 1987 of which the capital gains arose originally belonged to the huf styled as m/s.hariprasad hiralal shah and was constituted of shri hariprasad h.shah-karta and his wife smt. lalitabeen h. shah (the assessee) and their two sons viz. udayan and deepak. on total partition of the said huf on 3rd november, 1987 the said property was physically divided (as it admitted of such division) in equal proportions between the two members viz. the assessee and her husband. the partition is a severance of joint status and as such it is a matter of individual volition. all that is necessary, therefore, to constitute a partition is a definite and unequivocal indication of his/her intention by a member of an huf to separate himself/herself and enjoy his/her share in severality. the total partition was duly recognised by the ao stating "one-half shares of the land and building have been taken by shri hariprasad hiralal and smt. lalitaben (wife) and the entries in the city survey records have been made regarding the partition of land and building.". the effect of the above order recording a total partition is to recognise, for purpose of income-tax administration, that the joint family status is severed and the property is partitioned among the members of the family. an order of total partition under s. 171(3) is binding on all the members of the joint family because once a declaration that a partition has been effected is made, no member of the family can be said to be a member of the family. the severance of the joint family and total partition between the members of the assets of joint family property have the effect of vesting each member with absolute right in the property allotted to him/her which has fallen to his/her share. so on total partition, the assessee got absolute right in one-half of the property which fell to her share and it cannot be said that the son of the assessee viz. shri udayan h. shah (huf) had a charge on her share of property. though the two sons were coparceners/members of the family but on total partition they did not get any part of the property. by mutual consent, the members of the huf divided the property into two equal shares and allotted one share each to the assessee and her husband. under the mitakshara law each coparcener takes an undefined share in the coparcenery property and hence the circumstance that the partition has been effected in unequal shares is an irrelevant consideration.8. the so-called charge of rs. 14,33,000 in our considered opinion, is a self-created charge - created by the declarations by the members of the huf, dt. 15th january, 1987 i.e. after the total partition claim filed before the ao and heavily relied upon by the learned counsel for the assessee. such a charge has no legal sanction and the declarations are nothing but self-serving statements. the deed of partition was neither produced before the ao nor before the cit(a) and nor before us to enable to ascertain whether such an obligation/charge was created at the time of complete partition. in fact, by claiming the amount of rs. 14,33,000 in the garb of charge on assessees share of property, the assessee made an attempt to reduce the capital gains liable to tax. we are unable to support such a device.9. coming to the cases relied upon by the learned counsel for the assessee, we find that the facts of the cases are distinguishable from the facts of this case.in cit vs. daksha ramanlal (supra), the property under dispute was mortgaged and accordingly it was held by the gujarat high court that when a person who has mortgaged the property transfers it to another person, what he transfers is only those rights which he possesses.accordingly, the payment of rs. 25,000 for removing that incumbrances was certainly the cost of acquisition of the interest of the mortgagee.in the case before us there was no charge like the mortgage.in cit vs. a. venkataraman & ors. (supra), under the sale agreement the assessee had to give vacant possession and accordingly the assessee made payments to the tenants to obtain vacant possession and it was held that such payments were deductible. thus, the charge was a real charge created by an agreement of sale and accordingly the facts of that case are distinguishable from the facts of the case before us where as held by us supra the so-called charge was self-created between the two members of the huf.in cit vs. c. v. soundararajan & anr. (supra) in a family partition, the assessees were allotted a property in which their mother was given a right of residence. in order to obtain a relinquishment of the said right of residence to enable them to sell the property, the assessees paid to their mother a sum of rs. 60,000. in computing the capital gains arising on the sale of the property, the claim of the assessee for deduction of this sum of rs. 60,000 was allowed by the ito. though the cit exercising his suo motu powers of revision set aside the said order giving deduction, the tribunal held that the money received by the mother was for extinguishment of her right of residence in the property and hence it could not be taken into the computation of capital gains and accordingly directed its deduction. the honble madras high court held that admittedly, the assessees did not have the benefit of the said sum of rs. 60,000 when the interest of the mother in the property in question had been purchased by getting the relinquishment for a consideration of rs. 60,000 and hence the said amount could not be taken as consideration paid in respect of the interest of the assessees. consequently, it was held that the tribunal was right in its view that the sum of rs. 60,000 paid to the mother was to be excluded in computing the capital gains. it is evident from the facts of the case referred to supra that there was a real obligation on the part of the assessees to pay a sum of rs. 60,000 to their mother for relinquishment of her right of residence in the said property whereas in the case before us there was no right which the assessee relinquished. the assessees right in the property was absolute.accordingly the ratio laid down by the high court is of no assistance to the assessee.in sajjan bagaria vs. cit (supra), the assessee in order to get the assignment of the interest of the assignor in the capital assets, viz.the house property, spent rs. 15,863 and the honble gauhati high court held that this amount had to be treated as cost of acquisition so far as the assessee was concerned. obviously the amount was paid for getting the interest whereas in the case before us there was no such liability incurred by the assessee. accordingly the facts of the case relied upon by the learned counsel are distinguishable from the facts of the case before us and the ratio laid down therein is of no assistance to the assessee.10. in the light of above discussion, we hold that the assessee was not entitled to a deduction of rs. 14,33,000 while computing the capital gains on sale of her share in the property known as samir. we accordingly reverse the findings of the cit(a) and restore those of the ao.11. in the cross-objection, the assessee has simply supported the order of the cit(a). since we have reversed the order of cit(a), we do not agree with the contents of the cross-objection (c.o.) and accordingly dismiss it.12. in the result, the appeal filed by the revenue is allowed and the assessees cross-objection is dismissed.

Judgment:
The only dispute raised in the appeal filed by the Revenue relates to computation of capital gains i.e., whether a deduction of assessees claim for a sum of Rs. 14,33,000 as cost of acquisition of immovable property sold during the year under appeal, is allowable while computing the capital gains. To be precise the exact ground raised by the Revenue reads as under : "The learned CIT(A) has erred in law and on facts in directing the AO to compute the capital gains and the tax thereon by substituting the cost of acquisition of immovable property to Rs. 14,09,040." 2. There was an HUF of Hariprasad H. Shah in existence consisting of Shri Hariprasad H. Shah Karta, his wife Smt. Lalitaben H. Shah (the present assessee) and two sons viz. S/Shri Deepak and Udayan. The said HUF owned immovable property known as Samir opposite Bank of India, C.G. Road, Ahmedabad, which was a residential property. On total partition of the HUF on 3rd November, 1986, the said property was divided into two equal shares as it admitted such physical partition and each share was allowed to Shri Hariprasad H. Shah - Karta, and Smt.

Lalitaben H. Shah-the assessee before us. The entries to this effect were made in the city survey records. The said partition was recognised by the A.O. by passing an order under s. 171 on 11th August, 1989.

Before the AO the assessee claimed a sum of Rs. 14,33,000 as deduction from the cost of acquisition of the house property while computing the capital gains. It was submitted before the AO that at the time of partition the assessee had undertaken an obligation to pay a sum of Rs. 14,33,000 to her son Shri Udayan H. Shah. A written explanation was furnished before the AO which has been reproduced by the AO at p. 3 of the assessment order which reads as under : "Under the circumstances I submit that the amount of Rs. 14,33,000 is not merely claimed by way of obligation to pay money to my son under the partition but in reality and in substance it is the amount which has been paid as cost of acquisition of additional one-fourth interest in the said immovable property which I was to be allotted on partition and the said amount was paid thus for acquiring the said additional interest and is, therefore, clearly deductible under s. 48 as cost of acquisition. It is submitted that when considering cost of acquisition in my hands of the said one-half interest in the property only Rs. 1,87,000 cannot be taken because the said one-half interest is allotted to me not simpliciter but along with a liability to pay Rs. 14,33,000 to my son for equalising distribution on partition. Thus it is additional cost of acquisition incurred by me for acquiring one-half interest in the said immovable property in partition. I submit that this position is absolutely clear and it would be unthinkable and unrealistic to consider that though I was only entitled to one-fourth interest I was allotted one-half interest gratis and I realised capital gains on sale of the said property and earned capital gain ignoring the payment of Rs. 14,33,000 made by me as aforesaid, for the purpose of acquiring additional one-fourth interest on partition." "Submissions made by the assessee cannot be acceptable. The assessee has received property on partition of the HUF. Therefore in view of provision of s. 49 the cost of acquisition of this property in the hands of the assessee will be the cost of the acquisition to the previous owner i.e. HUF. In this case, the value of the property in the hands of the HUF as on 1st April, 1974 is Rs. 3,75,000. Therefore, as the assessee has received one-half share of the property on partition the cost of acquisition in the hands of the assessee will be Rs. 1,87,500 only." 3. The assessee appealed to the CIT(A). It was contended before him that the assessee had, on partition, acquired additional one-fourth interest in the said property only by paying Rs. 14,33,000 to her son and therefore the said amount was liable to be taken into account while considering the cost of acquisition for the purpose of determining the capital gains. In support of this contention reliance was placed on the following authorities :Ratilal B. Dapatri vs. CIT (1959) 36 ITR 8 (Bom) approved in Murlidhar Himat Singka & Anr. vs. CIT (1966) 62 ITR 323 (SC); The CIT(A) allowed the claim of the assessee holding that the assessees inherent right in the house property was only to the extent of one-fourth and accordingly she was under obligation to pay a sum of Rs. 14,33,000 to her son Shri Udayan H. Shah. The Revenue is in appeal before us against the order of the CIT(A).

4. Shri Prabhakant, the learned Departmental Representative strongly supported the order of the AO. He referred to the order passed by the AO under s. 171 and submitted that there was a physical division of the property and one-half share of the property came to the share of the assessee. Relying upon the judgment of the Supreme Court in the case of ITO vs. Smt. N. K. Sarada Thampatty (1991) 187 ITR 696 (SC), the learned Departmental Representative submitted that there must be a physical division of the property and in this case the property was divided physically and into two equal shares by mutual consent of the members of the family and the assessee was under no obligation to pay any amount to her son. He further submitted that at best it can be said that the assessee had undertaken to give some amount to her son on some future date which was not specified and at the time of the partition the property had not been sold and as such how the assessee arrived at her obligation to pay Rs. 14,33,000, is not understood. He submitted that the partition need not be in equal shares as held by the Supreme Court in the case of Apoorva Shantilal Shah vs. CIT (1983) 141 ITR 558 (SC). In the assessees case also instead of dividing the property into four portions the members of the family chose to divide the property physically into two portions. On such division the assessee became absolute owner of her share of the property and was under no obligation to pay any amount to her son. He further submitted that the assessee never disclosed the correct position because the deed of partition was not produced before the AO at any stage nor before the CIT(A). The learned Departmental Representative prayed that the order of the CIT(A) be reversed and that of the AO restored.

5. Shri K. H. Kaji, the learned counsel for the assessee strongly supported the order of the CIT(A). He also referred to the order passed by the AO under s. 171 and submitted that there was total partition of the property but the assessee was under an obligation to pay a sum of Rs. 14,33,000 being one-fourth share of the property to her son Shri Udayan H. Shah, as was done by her husband i.e., the Karta of the HUF who was also under an obligation to pay similar sum of Rs. 14,33,000 to his second son Shri Deepak. The learned counsel for the assessee drew our attention to the sworn declarations dt. 15th January, 1987 filed by Shri Hariprasad H. Shah -Karta (pp. 1 to 8 of the paper-book) declaration by Shri Udayan H. Shah (pp. 17 to 19 of the paper-book) and submitted that both the assessee and her husband Shri H. H. Shah who got the property on partition in equal shares were under obligation to pay a sum of Rs. 14,33,000 each to the respective sons for their 1/4th share in the property. According to the learned counsel for the assessee the amount of Rs. 14,33,000 was a charge on the property and was allowable as a deduction while computing the capital gains in view of the following decisions : 6. By way of rejoinder to the arguments of the learned counsel for the assessee, Shri Prabhakant, the learned Departmental Representative submitted that the declarations on which the learned counsel has placed reliance were only self-serving statements and did not prove that the assessee was under any legal obligation to pay a sum of Rs. 14,33,000 to her son. He submitted that as a matter of fact the assessee by creating this type of non-existent charge resorted to a colourable device to evade tax because the obligation was discharged by the assessee after the sale of the property in September, 1987.

7. We have considered the rival submissions and perused the facts on record. The property on the sale in September, 1987 of which the capital gains arose originally belonged to the HUF styled as M/s.

Hariprasad Hiralal Shah and was constituted of Shri Hariprasad H.Shah-Karta and his wife Smt. Lalitabeen H. Shah (the assessee) and their two sons viz. Udayan and Deepak. On total partition of the said HUF on 3rd November, 1987 the said property was physically divided (as it admitted of such division) in equal proportions between the two members viz. the assessee and her husband. The partition is a severance of joint status and as such it is a matter of individual volition. All that is necessary, therefore, to constitute a partition is a definite and unequivocal indication of his/her intention by a member of an HUF to separate himself/herself and enjoy his/her share in severality. The total partition was duly recognised by the AO stating "One-half shares of the land and building have been taken by Shri Hariprasad Hiralal and Smt. Lalitaben (wife) and the entries in the city survey records have been made regarding the partition of land and building.". The effect of the above order recording a total partition is to recognise, for purpose of income-tax administration, that the joint family status is severed and the property is partitioned among the members of the family. An order of total partition under s. 171(3) is binding on all the members of the joint family because once a declaration that a partition has been effected is made, no member of the family can be said to be a member of the family. The severance of the joint family and total partition between the members of the assets of joint family property have the effect of vesting each member with absolute right in the property allotted to him/her which has fallen to his/her share. So on total partition, the assessee got absolute right in one-half of the property which fell to her share and it cannot be said that the son of the assessee viz. Shri Udayan H. Shah (HUF) had a charge on her share of property. Though the two sons were coparceners/members of the family but on total partition they did not get any part of the property. By mutual consent, the members of the HUF divided the property into two equal shares and allotted one share each to the assessee and her husband. Under the Mitakshara law each coparcener takes an undefined share in the coparcenery property and hence the circumstance that the partition has been effected in unequal shares is an irrelevant consideration.

8. The so-called charge of Rs. 14,33,000 in our considered opinion, is a self-created charge - created by the declarations by the members of the HUF, dt. 15th January, 1987 i.e. after the total partition claim filed before the AO and heavily relied upon by the learned counsel for the assessee. Such a charge has no legal sanction and the declarations are nothing but self-serving statements. The deed of partition was neither produced before the AO nor before the CIT(A) and nor before us to enable to ascertain whether such an obligation/charge was created at the time of complete partition. In fact, by claiming the amount of Rs. 14,33,000 in the garb of charge on assessees share of property, the assessee made an attempt to reduce the capital gains liable to tax. We are unable to support such a device.

9. Coming to the cases relied upon by the learned counsel for the assessee, we find that the facts of the cases are distinguishable from the facts of this case.

In CIT vs. Daksha Ramanlal (supra), the property under dispute was mortgaged and accordingly it was held by the Gujarat High Court that when a person who has mortgaged the property transfers it to another person, what he transfers is only those rights which he possesses.

Accordingly, the payment of Rs. 25,000 for removing that incumbrances was certainly the cost of acquisition of the interest of the mortgagee.

In the case before us there was no charge like the mortgage.

In CIT vs. A. Venkataraman & Ors. (supra), under the sale agreement the assessee had to give vacant possession and accordingly the assessee made payments to the tenants to obtain vacant possession and it was held that such payments were deductible. Thus, the charge was a real charge created by an agreement of sale and accordingly the facts of that case are distinguishable from the facts of the case before us where as held by us supra the so-called charge was self-created between the two members of the HUF.In CIT vs. C. V. Soundararajan & Anr. (supra) in a family partition, the assessees were allotted a property in which their mother was given a right of residence. In order to obtain a relinquishment of the said right of residence to enable them to sell the property, the assessees paid to their mother a sum of Rs. 60,000. In computing the capital gains arising on the sale of the property, the claim of the assessee for deduction of this sum of Rs. 60,000 was allowed by the ITO. Though the CIT exercising his suo motu powers of revision set aside the said order giving deduction, the Tribunal held that the money received by the mother was for extinguishment of her right of residence in the property and hence it could not be taken into the computation of capital gains and accordingly directed its deduction. The Honble Madras High Court held that admittedly, the assessees did not have the benefit of the said sum of Rs. 60,000 when the interest of the mother in the property in question had been purchased by getting the relinquishment for a consideration of Rs. 60,000 and hence the said amount could not be taken as consideration paid in respect of the interest of the assessees. Consequently, it was held that the Tribunal was right in its view that the sum of Rs. 60,000 paid to the mother was to be excluded in computing the capital gains. It is evident from the facts of the case referred to supra that there was a real obligation on the part of the assessees to pay a sum of Rs. 60,000 to their mother for relinquishment of her right of residence in the said property whereas in the case before us there was no right which the assessee relinquished. The assessees right in the property was absolute.

Accordingly the ratio laid down by the High Court is of no assistance to the assessee.

In Sajjan Bagaria vs. CIT (supra), the assessee in order to get the assignment of the interest of the assignor in the capital assets, viz.

the house property, spent Rs. 15,863 and the Honble Gauhati High Court held that this amount had to be treated as cost of acquisition so far as the assessee was concerned. Obviously the amount was paid for getting the interest whereas in the case before us there was no such liability incurred by the assessee. Accordingly the facts of the case relied upon by the learned counsel are distinguishable from the facts of the case before us and the ratio laid down therein is of no assistance to the assessee.

10. In the light of above discussion, we hold that the assessee was not entitled to a deduction of Rs. 14,33,000 while computing the capital gains on sale of her share in the property known as Samir. We accordingly reverse the findings of the CIT(A) and restore those of the AO.11. In the cross-objection, the assessee has simply supported the order of the CIT(A). Since we have reversed the order of CIT(A), we do not agree with the contents of the cross-objection (C.O.) and accordingly dismiss it.

12. In the result, the appeal filed by the Revenue is allowed and the assessees cross-objection is dismissed.