Coparcener can’t be Taxed for Capital Gain from Property purchased in his Name out of Income of HUF: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chennai bench has held that an individual coparcener who is shown as owner in the sale deed cannot be taxed for Property belong to the Hindu Undivided Family ( HUF ).

Assessees is one of the coparceners of a HUF. Out of the income of the family, the father of the assessee purchased a property in the name of the assessee and his brother Shri B.S. Murugesan. On the date of purchase, the assessee and his brother were admittedly minors and they had no independent source of income. The income generated out of family business was invested in the said property. The Assessing Officer levied Capital gain Tax on the assessee.

Before the Tribunal, the assessee contended that the property belongs to Hindu Undivided Family of Shri Sambanda Mudaliar even though the document was registered in the names of minor children of Shri Sambanda Mudaliar.

The Tribunal noted that the property in question was mortgaged for borrowing loan for the family business and therefore, the property in question belongs to Hindu Undivided Family of Shri Sambanda Mudaliar.

While allowing the appeal of the assessee, the Tribunal observed that “Hindu Undivided Family is not a legal entity under the common law. Therefore, it cannot hold any property/title over the immovable property. Hence, the registered sale deed for the purchase of the property in question has to be in the individual name of the coparcener. In this case on our hand, the assessee and his brother are admittedly coparceners. Therefore, the property was purchased in the name of the assessee and his brother by their father.”

“However, under the Income-tax Act, Hindu Undivided Family is a separate and independent assessable unit. Since the property belongs to Hindu Undivided Family and the Hindu Undivided Family is an independent and separate assessable unit under the Income-tax Act, this Tribunal is of the considered opinion that the gain arising out of sale of property has to be assessed only in the hands of Hindu Undivided Family and definitely not in the hands of individual coparcener. The assessee and his brother are individual coparceners. Therefore, there cannot be any capital gain assessment in respect of the property belonging to the Hindu Undivided Family in the hands of the assessee,” the Tribunal said.