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Issues Involved:
1. Taxability of the entire share of profit in the hands of the assessee. 2. Validity of the enhancement of income made by the Commissioner (Appeals). 3. Inclusion of interest income earned by the alleged smaller-Hindu undivided families in the total income of the assessee-Hindu undivided family. Detailed Analysis: Issue 1: Taxability of the Entire Share of Profit The court examined whether the entire share of profit (32%, 30%, and 39%) in the firms of Pipe Dealers, Tube Dealers, and Pipe Distributors, respectively, was taxable in the hands of the assessee-Hindu undivided family (HUF). The assessee argued that due to partial partitions, it no longer remained a partner in these firms, and thus, the share of profit should not be included in its total income. However, the Income-tax Officer, relying on sub-section (9) of section 171 of the Income-tax Act, 1961, which was inserted by the Finance (No. 2) Act of 1980, rejected this contention. This provision states that any partial partition after December 31, 1978, is unrecognizable, and the HUF shall continue to be assessed as if no partition had taken place. The Commissioner (Appeals) and the Tribunal upheld this view, leading to the conclusion that the entire original share of profit was taxable in the hands of the HUF. Issue 2: Validity of the Enhancement of Income The second issue concerned the legality of the enhancement of income by the Commissioner (Appeals). The Commissioner had enhanced the income by including the original share of profit (32%, 30%, and 39%) instead of the reduced shares (27%, 25%, and 35%) resulting from the partial partitions. The court found that the answer to this question was dependent on the first issue. Since the court upheld the non-recognition of partial partitions under section 171(9), it validated the Commissioner's enhancement of income. The court also noted that the Commissioner had the power under section 251(1)(a) to confirm, reduce, enhance, or annul the assessment. Issue 3: Inclusion of Interest Income The third issue was whether the interest income earned by the alleged smaller-Hindu undivided families was rightly included in the total income of the original assessee-HUF. Given the court's decision on the first issue, it held that the interest income earned by the smaller-HUFs was correctly included in the total income of the original HUF. This was in line with the principle that partial partitions post-December 31, 1978, are not recognized for tax purposes, and thus, the original HUF remains liable for the income. Conclusion: The court answered all three questions in favor of the Revenue and against the assessee. It upheld the taxability of the entire original share of profit in the hands of the assessee-HUF, validated the enhancement of income by the Commissioner (Appeals), and confirmed the inclusion of interest income earned by the smaller-HUFs in the total income of the original HUF. The court made no order as to costs.
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