By TIOL News Service

HYDERABAD, MAY 04, 2014: THE issues before the Bench are - Whether registration of a family arrangements is sine qua non for its authenticity; Whether under the Hindu Law an oral arrangement made between the coparceners of the family members have binding force and Whether in view of the provisions of section 64(2) every income from a property which belongs to an individual would be taxable in the hands of such individual and not in the hands of HUF if there is no proper transfer. And the verdict goes in favour of assessee.

The assessee is an individual filed his Return of Income for the impugned assessment year the same was processed under section 143(1) of the Act and later on the selected for scrutiny. During the course assessment proceedings the AO observed that assessee has claimed exemption of 54F of the Act. The AO framed the assessment. However, observing that the assessee has manipulated the capital gain reopened the assessment under section 147 of the act. During the course of re-assessment proceedings the AO observed that land on which exemption of 54F was claimed was belonging to assessee and subsequently transferred to HUF. Accordingly the AO issued notice under section 147 to all the coparceners of the HUF. Except the assessee the other coparceners could not file any return and informed the AO that they could not file any Income Tax Return originally as there were under impression that they were not liable to capital gain tax since there status is HUF and the sale consideration received by them in the capacity of coparceners was utilized by them in acquiring residential house in their individual names, they are not liable to Capital Gain Tax. The AO on going through the details of sale consideration shared between the family members noted that they have distributed the sale consideration among their family members under the guise of HUF.

In this back drop of the facts the AO took a view that without there being a proper transfer of the Individual property to HUF and as per the provision of section 64(2), income from a property, which has been thrown by an individual into the common hotch-pot of the HUF is taxable in the hands of that individual and not in the hands of HUF, therefore, the distribution done by the assessee and his family members is patently wrong and hence exemption of 54F is not available to the assess- CIT (A) affirmed the order of AO – Matter reached to the ITAT wherein the AR’s of the assessee argued that there was an oral agreement between the assessee and his family members for the impugned sale and purchase of the HUF property and the AO has wrongly denied the exemption on the ground that the arrangement so made was not registered.

After hearing the parties ITAT held that,

++ the law laid down in the aforesaid decision is to the effect that family arrangement entered into with a view to resolve family dispute, which is bonafide, voluntary and not induced by fraud, coercion or undue influence does not require registration. Such family arrangement by itself would convey right, title and interest in immovable property without any further requirements;

++ the AR apart from submitting before us that the properties have been distributed amongst the family members as per the partition deed dt. 11-11-2005 has not produced any supporting evidence to show that the family arrangement as per the terms of the partition deed dated 11-11-2005 was actually acted upon. There is no evidence on record to show that the family members actually became owners of the properties falling into their irrespective shares as per the family arrangement. At least no document has been produced before us to establish ownership of the property in the name of the family members as per the partition deed. As it appears, no such evidence was also produced before the authorities below. In these circumstances, it is difficult to accept the assessee’s claim of division of property as per the partition deed dt. 112005. Accordingly, we uphold the decision of the authorities below in taking the entire sale consideration at the hands of the assessee for computing capital gain.

(See 2014-TIOL-200-ITAT-HYD)