2001 (1) TMI 5 - HC - Income Tax

Hindu Undivided Family, Partition In HUF - Whether, on the facts and circumstances of the case, the share income from Karshandas Bechardas and Sons was rightly deleted from the total income of the assessee who was assessed in the status of an individual? - in our opinion, the share income from Karshandas Bechardas and Sons was rightly deleted from the total income of the assessee who was assessed in the status of an individual, since the said income is required to be assessed in the hands of the Hindu undivided family of the assessee. - We accordingly answer the reference in the affirmative, i.e., in favour of the assessee and against the Revenue.

Summary

Issues Involved:
1. Validity of the partial partition of a Hindu Undivided Family (HUF) when the assessee was a minor.
2. Whether the share income from the firm should be assessed in the individual capacity of the assessee or in the capacity of a Hindu Undivided Family (HUF).

Detailed Analysis:

Issue 1: Validity of the Partial Partition
The respondent-assessee was a member of a Hindu Undivided Family (HUF) known as "Kantilal Karshandas," which was a partner in the firm of Karshandas Bechardas and Sons through its karta. A partial partition occurred in the family during the assessment year 1970-71, distributing the amount standing in the HUF's name among its members. The assessee, being a minor at the time, had his share of income included in his father's hands as per Section 64 of the Income-tax Act, 1961. Upon attaining majority, his share was assessed in his individual capacity. The Income-tax Officer (ITO) initially deemed the partition invalid, relying on the Tribunal's order in Apoorva Shantilal, confirmed by the Gujarat High Court, which was later reversed by the Supreme Court in Apoorva Shantilal Shah v. CIT [1983] 141 ITR 558.

Issue 2: Assessment of Share Income
Upon getting married, the assessee claimed that his share of profits from the firm belonged to his smaller HUF, not to him individually. The ITO disagreed, stating that since the assessee was a minor at the time of partition, the partition was invalid, and thus, the share income should be clubbed in his individual capacity. The Appellate Assistant Commissioner accepted the validity of the partition but held that the share of income belonged to the assessee individually until a son was born in the smaller HUF. The Tribunal, however, accepted the assessee's contention, directing the ITO to modify the assessment, treating the income as belonging to the HUF.

Legal Precedents and Court's Opinion
The court examined whether a Hindu joint family could be formed with a sole male member. It was concluded that a Hindu joint family could consist of a single male member and his wife and daughters, as per the Hindu system of law. The Supreme Court in Surjit Lal Chhabda v. CIT [1975] 101 ITR 776 held that a joint Hindu family could exist with a sole male member, his wife, and unmarried daughter. The property received on partition retains its character as joint family property even if the family is reduced to a single male member.

The court also considered prior judgments, including N.V. Narendranath v. CWT [1969] 74 ITR 190, which held that ancestral property allotted to a member whose family consisted of himself, his wife, and daughter was property belonging to a HUF. Similarly, Bharatkumar Chinubhai v. CIT [1969] 71 ITR 1 and CWT v. Harshadlal Manilal [1974] 97 ITR 86 supported the view that property received on partition by a coparcener with a wife and daughter belonged to the HUF and was assessable as such.

The court disagreed with the Full Bench decision of the Patna High Court in CIT v. Shankar Lal Budhia [1987] 165 ITR 380, which required at least two male members for a HUF. Instead, it upheld that an individual receiving ancestral property at partition and subsequently acquiring a family, even without male issues, would hold the property as HUF property.

Conclusion
The court concluded that on the marriage of the assessee, his wife became a member of his family with a right to claim maintenance charged on the property held by the assessee. Thus, the family constituted a joint family, and the property in the hands of the assessee was to be considered as property held by him as the karta of the HUF. Consequently, the share income from Karshandas Bechardas and Sons was rightly deleted from the total income of the assessee assessed in the status of an individual and should be assessed in the hands of the HUF.

The reference was answered in the affirmative, in favor of the assessee and against the Revenue, with no order as to costs.