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2020 (3) TMI 169 - AT - Income TaxProperties acquired by the HUF - Creation of smaller HUF - Deemed partition / Notional partition - death of a Mitakshara Coparcener - absence of partition u/s 171 of the Income Tax Act - section 6 of Hindu Succession Act - Taxability of Capital Gain - Surplus arising on sale of 3 immovable properties during the year wholly and exclusively in the hands of appellant HUF - HELD 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".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. As rightly contended by the learned senior counsel for the assessee, if one is to proceed on the basis that no partial partition of the HUF of Shodhan Sr has taken place as no order under section 171 is passed, the entire gains should have been assessed in the hands of that HUF of Shodhan Sr. AO however, proceeded to tax entire capital gain in the hands of the assesseen of the assessee before us i.e. HUF of Shodhan Jr. That course of action, in our humble understanding, is not permissible in law inasmuch as on one hand the AO proceeds on the basis that the larger HUF has come to an end on the death of Shodhan Sr, and, on the other hand, he also proceeds on the basis that entire assets of HUF of Shodhan Sr have also passed on to the HUF of Shodhan Jr. Once the assets of larger HUF are to go to small HUF, that can only be done only so far as ½ of such assets are concerned. The other ½ of the assets of HUF Sr have to essentially go to Shodhan Jr, in individual capacity, as he was the only class I heir to his father, i.e. Shodhan Sr. The stand of the Assessing Officer, which has met approval of the learned CIT (A) as well, cannot, therefore, meet our judicial approval. We uphold the plea of the assessee that the assessee HUF, at best, is taxable only in respect of ½ of the properties acquired by the HUF headed by Shodhan Sr.
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