Son’s share in HUF will become property of son’s HUF & father’s share will come to son in his individual capacity

Adhiraj Pranay Shodhan HUF Vs ITO (ITAT Ahmedabad)

The assessee before us is a HUF. During the relevant previous year, the assessee sold three properties. In the income tax return filed by the assessee, however, only the capital gains on sale of ¹/₂ of these properties were shown. When the Assessing Officer probed this apparent discrepancy, it was explained that these properties were purchased by Shri Pranayakumar Shodhan (Shodhan Sr, in short) HUF consisting of Shri P H Shodhan, his son Adhiraj P Shodhan, (Shodhan Jr, in short) and wife and children of Shodhan Jr, and that Shodhan Sr passed away intestate on 14^th December 2010. It was explained that in view of the provisions of Section 6(3) of the Hindu Succession Act, 1956, as they stood after the 2005 amendments thereto came into force, when a Hindu dies intestate, his interest in joint hindu family, governed by mitakshara law, shall devolve by intestate succession, and not by survivorship, and the coparcenary property shall be deemed to have been divided as if a partition in such property has taken place. In view of this legal position, as per the assessee, ¹/₂ of the property was passed on to Shodhan Jr, in his individual capacity as deceased’s son, and the other ¹/₂ property was passed on to the HUF headed by Shodhan Jr. The assessee explained that it was in this backdrop that the assessee, HUF headed by Shodhan Jr, was owner of only ¹/₂ of the properties held by HUF headed by Shodahn Sr, and the capital gains on this ¹/₂ share were duly disclosed in the income tax return. It was also explained by the assessee that the other ¹/₂ share belonged to Shodhan Jr in his individual capacity, and, as such, to that extent, ¹/₂ capital gains are disclosed in the income tax return filed by Shodhan Jr in his individual capacity. It appears that the assessee also relied upon certain observations made in some judicial precedents, but these were held to be inapplicable on the facts of this case, and the matter rests there. The Assessing Officer referred to the provisions of Section 171, specially to sub section 9 thereof, to highlight the fact that any partial partition of the HUF, after 31^st December 1978, cannot be recognized for the purposes of the Income Tax Act, 1961. A reference was then made to Hon’ble Supreme Court’s judgment in the case of ACIT Vs Venugopal Irani (239 ITR 514) in support of the proposition that whatever may be the position under the Hindu law, Section 171 has to apply for the income tax purposes. A reference was also made to Hon’ble Supreme Court’s judgment in the case of State of Maharshtra Vs Narayn Rao Shyam Rao Deshmukh (163 ITR 31) in support of the proposition that unless there is actual partition in pursuance of a deemed partition, the status of the family continues as joint family. A reference was also made to Hon’ble Supreme Court’s judgment in the case of ACIT Vs Maharani Raj Laxmi Devi (224 ITR 582) to support the contention that though, for Section 6 of Hindu Succession Act would govern the right of the parties, so far as income tax proceedings are concerned, section 171 of the Income Tax Act will hold the field.

We find that section 6(3) of the Hindu Succession Act, 1956, as it stands post 2005 amendment, provides that “where a Hindu dies after the commencement of the Hindu Succession (Amendment) Act, 2005, his interest in the property of a Joint Hindu family governed by the Mitakshara law, shall devolve by testamentary or intestate succession, as the case may be, under this Act and not by survivorship, and the coparcenary property shall be deemed to have been divided as if a partition had taken place”. It is thus clear that on the death of Shodhan Sr, who admittedly died intestate inasmuch as he did not make a will before his death, his HUF property is to devolve by intestate succession rather than survivorship of the HUF coparceners. It is also important to note that, for the purpose of devolution of property, a notional partition is to take place. When we assume that fiction, and considering that only Shodhan Sr and Shodhan Jr were coparceners in that HUF, the division of shares has to be one half to each- i.e. Shodhan Sr and Shodhan Jr. As for the share of the Shodhan Sr, that is what would go to Shodhan Jr, and as for the share of Shodhan Jr, that is what would constitute HUF nucleus for the smaller HUF of Shodhan Jr. In effect, thus, the son’s share in the HUF will become property of the son’s HUF, and the father’s share will come to son in his individual capacity. The plea of the assessee thus indeed seems correct.

In view of these discussions, and bearing in mind entirety of the case, we uphold the plea of the assessee that the assessee HUF, at best, is taxable only in respect of ¹/₂ of the properties acquired by the HUF headed by Shodhan Sr.

As ITAT have accepted the main plea itself, ITAT need not adjudicate on the alternative plea taken by the assessee. These grounds of appeal are dismissed as infructuous and academic as on this stage.

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