Capital gains on sale of Land acquired through inheritance 

 Assessee having acquired the land by way of succession/inheritance from her husband who had acquired the same prior to 1-4-1981, cost of acquisition was to be determined in accordance with relevant provisions of law as well as the fair market price of the land as on 1-4-1981.

Assessee had acquired an agricultural land by way of succession/inheritance from her husband after his death. The land was acquired prior to 1-4-1981. AO had taken the cost of acquisition as “Nil” while charging capital gains in her hands. 

It was held that AO had applied the cost of acquisition of the land at Nil without considering the provisions of the Income Tax Act in respect of the asset which was acquired by the assessee as under succession/inheritance and previous owner of the land had acquired the agricultural land prior to 1-4-1981. Therefore, the matter was remanded back to AO to determine the correct cost of acquisition by considering the fair market price of the land as on 1-4-1981.

Decision: In assessee’s favour.

IN THE ITAT, JAIPUR BENCH

VIJAY PAL RAO, J.M. & VIKRAM SINGH YADAV, A.M.

Sushila Devi Meena & Ors. v. ITO

ITA Nos. 419 to 423/Jp/2016

A.Y. 2006-07

4 April, 2018

Assessee by: Mahesh Gehlot

Revenue by: Seema Meena

By the Bench

These are five appeals by the assessees who are family members : mother, three sons and one daughter-in-law arising from separate orders of learned Commissioner (Appeals) all dt. 26-2-2016 for the assessment year 2006-07.

2. The assessments in these cases were framed by the assessing officer under section 147 read with section 144 of the Act. The assessing officer has reopened the assessment by issuing notice under section 148 of the Act to assess the capital gain arising from sale of agricultural land in the hands of Smt. Dhapu Devi Meena and the deposits in the bank accounts of the sons/daughter-in-law of Smt. Dhapu Devi Meena. In the reassessment, the assessing officer assessed the capital gain arising from sale of agricultural land in the hands of Smt. Dhapu Devi Meena and the income on account of deposits made in the bank accounts of the sons and daughter-in-law of Smt. Dhapu Devi Meena. The assessees challenged the action of the assessing officer before the learned Commissioner (Appeals) and contended that the agricultural land in question was inherited by all the assessees on death of Shri Bhawara @ Bhura in the year 2004 and thereafter the land in question was sold vide sale deed dt. 11-8-2005 for a consideration of Rs. 1,76,34,000. Since there was no response to the notice issued under section 142(1) of the Act, the assessing officer also made addition in the hands of Smt. Dhapu Devi Meena on account of unexplained deposits in bank account of Rs. 32,95,345. However, it was contended before the learned Commissioner (Appeals) that all the legal heirs of late Shri Bhawara @ Bhura were having equal shares in the land in question and therefore, the sale consideration was also received in equal shares. Since there was relinquishment deed dt. 14-6-2005 prior to the transfer of the property, therefore, the learned Commissioner (Appeals) did not accept this contention of the assessee and confirmed the entire capital gain in the hands of Smt. Dhapu Devi Meena, widow of Late Shri Bhawara @ Bhura. The additions made by the assessing officer on account of unexplained deposits in the bank account were also confirmed by the learned Commissioner (Appeals) in the hands of the sons and daughter-in-law and the explanation of the assessees that the deposits were made out of the sale proceeds of land in question was not accepted.

3. Before the Tribunal, the assessee challenged the addition made by the authorities below and also filed additional grounds which are common in these appeals as under :–

“4. Under the facts and circumstances of the case and under the law, the learned assessing officer grossly erred in ignoring sales receipts of the agricultural land i.e., sales consideration received by the appellant, ignoring section 8 and section 10 of the Hindu Succession Act, 1956 read with ss. 4, 45 and 48 of the Income Tax Act, 1961. This is in connection with the matter of her mother-in-law Dhapu Devi Meena (PAN : BZSPD1376G).

4.1 Under the facts and circumstances of the case and under the law, the learned assessing officer has admitted that the agricultural land in question was ancestral and still the learned assessing officer has not divided the gross sale proceeds amongst the six sons and the widow appellant. By compulsion of law, the sons had legal and valid right to receive the property and the sale consideration thereof.

4.2 Under the facts and circumstances of the case and under the law, the widow assessee was, by law, bound to divert the gross receipts under section 8 and section 10 of the Hindu Succession Act, 1956, as the cost of transfer read with sections 4, 45, 47, 48 (mode of computation) of the Income Tax Act, 1961.

5. Under the facts and circumstances of the case and under the law, the appellant-assessee was entitled for the fair market value as cost of acquisition of the said agricultural land, which was acquired before 1-4-1981. The learned assessing officer has not calculated the cost of acquisition, which is against the principles of natural justice.

6. Under the facts and circumstances of the case and under the law, the learned assessing officer has not allowed the deduction under section 54F in respect of construction of new residential house.”

Thus, the assessees raised the issue that the cost of acquisition was taken by the assessing officer at Nil whereas when the land was acquired by the ancestor prior to 1-4-1981 then, as per provisions of ss. 48 to 49 of the Income Tax Act, the cost of acquisition shall be deemed as per the fair market value of the land as on 1-4-1981. Further, the additional ground is also raised regarding the sharing of the sale consideration among all the legal heirs of late Shri Bhawara @ Bhura and therefore, the capital gain, if any, arising from the sale of the land has to be assessed in the hands of the legal heirs who had shared the sale consideration.

4. We have heard the learned Authorised Representative as well as the learned Departmental Representative on the additional grounds raised by the assessees. We find that the assessing officer has applied the cost of acquisition of the land at Nil without considering the provisions of the Income Tax Act in respect of the asset which was acquired by the assessee as under succession/inheritance and previous owner of the land had acquired the agricultural land prior to 1-4-1981. Therefore, we find substance and merit in the additional ground raised by the assessee so far as the cost of acquisition has to be determined by considering the relevant provisions of the Act as well as the fair market price of the land as on 1-4-1981. As regards the issue of assessing the capital gain in the hands of the legal heirs who have inherited the agricultural land in question instead of in the hand of only the widow of late Shri Bhawara @ Bhura, there was a relinquishment deed by the daughters and sons of late Shri Bhawara @ Bhura in favour of Smt. Dhapu Devi Meena whereby they released their rights in land to facilitate the sale of the land vide sale deed dt. 11-8-2005. It is pertinent to note that apart from the sons, the daughters of late Shri Bhawara @ Bhura have executed relinquishment deed dt. 14-6-2005 but the sale consideration has been shared by the widow and 6 sons. Therefore, once the sale consideration was shared among the mother and 6 sons being co-owners of the land in question and excluded the daughters, then long-term capital gain arising from sale of land in question is required to be assessed in the hands of 7 legal heirs who have inherited the land and also shared the sale consideration in equal shares. We further note that the amount which is shared by these 7 legal heirs of late Shri Bhawara @ Bhura is duly reflected in their respective bank accounts. The transaction of sale of land and the amounts deposited in their respective bank accounts of these persons/assessees are contemporaneous. Thus, once the amounts deposited in the bank accounts and the sale transactions in question are at the same point of time and there is no other source of income, then the explanation of the assessees that the amounts deposited in the respective bank accounts is nothing but their shares in the sale consideration received on transfer of agricultural land in question. The learned Departmental Representative has raised the contention that once sons have signed and executed the relinquishment deed along with the daughters of late Shri Bhawara @ Bhura in favour of their mother, then the subsequent sale would be treated as the sale by only one assessee Smt. Dhapu Devi Meena. We find that the relinquishment deed was sxecuted as per their family arrangement and mutual understanding so ±tat the family of the daughters of late Shri Bhawara @ Bhura and Smt. Dhapu Devi Meena would not claim the amount in future and therefore, he sole purpose of executing relinquishment deed was to avoid the future lispute/litigation in respect of the share in the land. Thus, the relinquishment deed made it possible to share and distribute the sale consideration among the mother and sons excluding the daughters. Since one of the sons expired therefore, the wife of the son is representing as legal heirs of the appeal in 1TA No. 419/Jp/2016. Accordingly, all sons and mother have shared the sale consideration received on transfer of the land in question and the deposit in bank accounts of the assessees is from amount received being represented as sale consideration. Hence, we find that the non-acceptance of the explanation of source as well as the sharing of the sale consideration by these assessees by the authorities below is not proper and justified. Accordingly, in view of the above facts and circumstances of the case, we admit the additional amount (sic-grounds) raised by the assessees.

5. These 7 assessees mother, sons and daughter-in-law have shared the sale consideration in equal shares therefore, the matter requires afresh consideration for assessing the capital gain in equal shares in the hands of the 7 assessees out of which 5 assessees are before us. The details of these legal heirs are as under :–

Total amount of sale consideration is Rs. 1,77,41,000

Accordingly, we set aside these matters to the record of the assessing officer for fresh adjudication of the same by consideration of the capital gain in the hands of these assessees in equal shares as well as considering the other claims of the assessees as per law. The other issues in these appeals also accordingly stand set aside to the record of the assessing officer. Since the assessing officer is required to consider the cost of acquisition as per fair market value as on 1-4-1981, therefore, all other claims of indexed cost and other .deductions are also required to be considered by the assessing officer. Accordingly, all these appeals are set aside to the record of the assessing officer in the above terms.

In the result, all the appeals of the assessees are allowed for statistical purposes.