The Income Tax Appellate Tribunal (ITAT), Delhi, has held that income arising from the sale of ancestral agricultural land must be assessed in the hands of the Hindu Undivided Family (HUF) and not in the hands of an individual member. The decision came as a major relief for Mr. Tyagi, a resident of the Delhi-NCR region, who had been taxed personally for the sale proceeds of ancestral land inherited by his family.
The case originated when the Income Tax Department received information that Tyagi’s family had sold ancestral land worth ₹48.04 crore, of which Tyagi’s share amounted to ₹8 crore (₹8,00,72,200). However, no corresponding income tax return (ITR) was filed by Tyagi to disclose this income.
Consequently, the department reopened his assessment and issued a notice under Section 148 of the Income Tax Act on October 13, 2014. When Tyagi failed to respond, two more notices under Section 142(1) followed, with the second being issued on February 11, 2015.
Tyagi subsequently filed his ITR on February 17, 2015, and submitted a copy of the same to the Assessing Officer (AO) along with a covering letter. The very next day, on February 18, 2015, the AO issued another notice under Sections 143(2) and 142(1), fixing the hearing for February 20, 2015.
While Tyagi sought an adjournment, the case was eventually fixed for February 27, 2015. However, Tyagi failed to furnish the required details, leading the AO to complete the assessment under Sections 143(3)/147 on the same day.
The AO treated the ₹8.89 crore received by Tyagi as Long-Term Capital Gains (LTCG) from the sale of land, classifying the property as a capital asset and not as agricultural land. Additionally, ₹75,000 declared as agricultural income was treated as undisclosed income.
Tyagi challenged the order before the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO’s decision in an order dated February 17, 2016. Dissatisfied, Tyagi escalated the matter to the ITAT Delhi, which delivered its ruling in his favour on August 18, 2025.
Tyagi contended that the property in question was ancestral agricultural land inherited through family lineage, thereby belonging to his Hindu Undivided Family (HUF). He argued that the sale proceeds were received on behalf of the HUF and not in his individual capacity.
His counsel emphasized that the HUF had already disclosed the transaction and paid the applicable tax in its own return. Therefore, taxing the same income again in Tyagi’s hands would result in double taxation, which is impermissible under law.
The department, on the other hand, argued that the sale deed reflected Tyagi’s name as one of the six co-owners, and therefore, the capital gains were rightly taxed in his individual capacity. It also contended that the nature of the land should be determined as of April 1, 1981, rather than the date of sale.
After examining the facts, ITAT Delhi concluded that the lands were ancestral properties inherited from Tyagi’s forefathers and had been held jointly by six families, each with a 1/6th share. Tyagi, as head of his family, executed the sale deed representing his family’s 1/6th share, while other families were represented by their respective heads.
The Tribunal noted that:
- Mutation records confirmed ownership in the names of six co-owner families.
- Tyagi had submitted a family settlement agreement indicating that the sale proceeds were divided among him and his two sons, with Tyagi retaining only a 1/3rd share of his family’s 1/6th portion—effectively 1/18th of the total sale consideration.
- Litigation between Tyagi and his sons regarding the sale proceeds had been settled through an arbitration award, ratified by the Additional Civil Judge on June 28, 2017.
The ITAT observed that these facts clearly established that the sale proceeds were received on behalf of the smaller HUF unit and that the property never lost its ancestral character.
Citing the Supreme Court’s ruling in Tolaram Bijoy Kumar vs Commissioner of Income Tax, Assam (112 ITR 750), the Tribunal reiterated that once land is inherited from forefathers, it cannot be regarded as individually owned property.
Rejecting the department’s contention that the land should be assessed as a capital asset in Tyagi’s personal capacity, the ITAT ruled that:
“Once the lands are inherited from forefathers, it cannot be said that the land was owned by the assessee in his individual capacity. The capital gains arising from the sale of such lands must be assessed in the hands of the HUF.”
The Tribunal clarified that the character of the land and ownership status must be determined as of the date of sale, not April 1, 1981, as argued by the department.
Accordingly, the ITAT directed the AO to delete the additions made in Tyagi’s individual assessment and to take necessary action to assess the income in the hands of the HUF in accordance with law.
The Tribunal, however, upheld the addition of ₹75,000 made on account of agricultural income, as Tyagi had failed to provide supporting evidence to substantiate the claim.
“No documents were produced to demonstrate the existence of agricultural operations. Therefore, the addition made by the lower authorities stands confirmed,” the ITAT stated.
, Delhi, has held that income arising from the sale of ancestral agricultural land must be assessed in the hands of the Hindu Undivided Family (HUF) and not in the hands of an individual member. The decision came as a major relief for Mr. Tyagi, a resident of the Delhi-NCR region, who had been taxed personally for the sale proceeds of ancestral land inherited by his family.){kind=link}