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Income tax - If HUF does not file I-T Returns under bonafide belief, his action is not malafide, just because income from HUF was not declared by individuals in their return: ITAT

By TIOL News Service

NEW DELHI, NOV 14, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether non filing of I-T Returns by HUF on a bonafide belief that agricultural income was not liable to tax, cannot be termed as malafide, merely because individuals having their independent income from self acquired properties, had not included income of HUF in their return. NO is the answer.

Facts of the case:

The Assessee, an individual, had received interest on delayed payment of compensation which had not been disclosed in the return of income under the impression that it was exempt from tax. This case was selected in scrutiny to examine the undisclosed interest income of Rs.45,00,825/- in the return as per 26As of the assessee. From the reply, the assessee immediately confessed the error of non disclosure of interest of income hence undoubtedly it could be inferred that inspite of huge receipt of interest income, he had not disclosed this income under the impression that it was exempt from tax but the action of assessee gave impression that he was trying to mislead the department. In fact this interest income on which TDS was made, but as non disclosure was beneficial in terms of amount of tax involved, hence he preferred to keep it out of records assuming that it was exempt. It was learnt that scrutiny proceedings on identical nature in the case of assessee's brother namely Sri Naresh Tyagi and Satish Tyagi were pending for disposal. After some time, the AR of Assessee came up with a different stand that ancestral lands were acquired by Noida Authority and compensation awarded in 1989 to the father of the assessee in his HUF capacity and no taxes were paid, that the corpus of the HUF of father under the name of Sri R.D.Tyagi HUF existed in the form of lands and other properties and compensation received by the father in his HUF status and invested further in the various assets; that the interest income on delayed compensation received by assessee was belonging to the smaller HUF of the assessee. Ashwani Kumar Tyagi, HUF was liable for taxes if any and not the assessee; that the assessee had also not obtained the PAN of his HUF and therefore, the assessee individual PAN was used by the Noida Authority to deduct his tax which was actually belonging to the HUF of assessee in respect of the interest income and the TDS; that the proceedings initiated in the case of the assessee assuming that the interest income on delayed compensation was belonging to assessee was not correct.

On going through the contents of submission, it was perceived that scrutiny proceedings be dropped because the interest income belonged to assessee HUF which was not in-existence. The JCIT, Noida, however held that dispute whether the said acquired land belonged to Individual or HUF was totally irrelevant in the context of U.P.Zamindari Abolition and Land Reforms Act. He rejected the contention of assessee holding that it was taxable in individual capacity, because income from ancestral properties would be included in the individual hands and not in the capacity of HUF.

Tribunal held that,

++ the only issue involved in present appeal is whether the impugned agricultural land was ancestral coparcenary property passed on from Shri Ghisa to the joint families of Fateh Singh (Son), Rameshwer Dayal (Grand Son) and Naveen Kumar (Great Grand Son) by survivorship to the HUF of Shri Naveen Kumar Tyagi, incorrectly relying on S. 18 of the UP Zamidari Abolition and Land Reforms Act, 1950, ignoring S.37, which clearly provides for treating the Jt. Hindu Family as a separate unit. The main crux of the case lay in the fact of non-payment of tax by the HUF, which has now been paid under the IDS, leaving no ground left for sustaining the addition on any account. None of the HUFs, having only agricultural income was filing any return under Income Tax Act and was never assessed to tax, being not liable to tax. Thus the question of any ITO passing any order u/s 171 of the Act does not arise, nor is applicable to Agricultural families, having no income under the Income Tax Act. Non filing of returns under the Income Tax Act by the HUF was bonafide belief that agricultural income was not liable to tax under the Income Tax Act. What has been ignored/omitted is the fact that interest on enhanced compensation was taxable and the HUF should have filed its return of income for AY 2012-13, showing income from interest on enhanced compensation. The belief is bonafide and cannot in any manner be attributed to any malafide, merely because the individuals having their independent income from self acquired properties or other activities, had not included the income of the HUF in their return of income, which per se is contrary to law;

++ no individual/Karta is authorized to appropriate and show the income of the HUF in his hands, debarring the other co-parceners of their right claim to the share of HUF properties/assets/income. This fact is clear from the assessment order of the individual assessee. The same is discussed by the CIT(A) in the case of Shri Naveen Kumar, brother of the assessee, whose order has been followed in the case of the assessee. The crux of his arguments is that an HUF under Income Tax Act could be created only by a gift of property and not by inheritance/succession to the property of the bigger HUF, which is contrary to Hindu Law as well as the Income Tax Act. The background being the fact that none of the claimed HUFs were ever assessed to tax, which is again erroneous. According to him, if the HUF had filed its return showing income from interest on enhanced compensation, would have rendered a fool proof evidence of existence of HUF under the Income Tax Act and coparcenary property under Hindu Law. Now the question was, how the HUF could now declare its income and file the return, as the Act prohibits the same. Effort was thus made by the assessee to tax the HUF u/s.144A, but was declined by the JCIT. Luckily the IDS came into operation and taking advantage of the same, the two HUFs filed a declaration before the Commissioner of Income Tax, Noida declaring the interest on enhanced compensation and paid the tax. Obviously this evidence being subsequent could not be filed either before the AO or the CIT(A), although the fact of offer made before the JCIT u/s.144A has duly been discussed by both. Thus the factual reason to disallow the claim of the HUF is that no such return was filed and no such tax had been paid by the HUF. The issue gets settled by the payment of taxes by the HUF through the declaration made before the Pr. CIT under IDS, which has been accepted, as all taxes have been paid. Therefore, in such circumstances, and facts of the case, since the HUF has already paid tax due alongwith interest, etc and correct share had been declared at Rs. 27,79,279/- as against lesser amount of Rs. 22,50,413/- taken by both the authorities, the AO is directed to delete the addition so made.

(See 2017-TIOL-1577-ITAT-DEL)