1999 (7) TMI 54 - HC - Income Tax

Issues Involved:
1. Assessability of share income from Vapson Products in the status of an individual or a Hindu undivided family (HUF).

Comprehensive, Issue-Wise Detailed Analysis:

1. Assessability of Share Income:

The primary issue in this case is whether the share income of Smt. Jasotiben Ramchand Lalwani from the firm Vapson Products should be assessed in her individual capacity or as part of a Hindu undivided family (HUF). The controversy arises from the inheritance of the share of profits and capital balance of the late Ramchand Lalwani, who was a partner in the firm along with his two sons.

Material Facts:
- Ramchand Lalwani died intestate on September 7, 1967.
- A new partnership deed dated September 8, 1967, stipulated that his share of profits and credit balance in the capital account would be paid to his legal heirs.
- Smt. Jasotiben was admitted as a partner in the firm from September 8, 1967, and the balance of Rs. 42,080 in Ramchand Lalwani's capital account was transferred to her account.
- On February 1, 1969, Smt. Jasotiben declared that she was a partner on behalf of the joint family comprising herself and her sons, claiming that her share income should be assessed in the hands of the HUF.

Proceedings and Decisions:
- The Income-tax Officer initially accepted her claim but later rejected it in reassessments for the years 1968-69 to 1974-75.
- The Appellate Assistant Commissioner of Income-tax and the Income-tax Appellate Tribunal (Tribunal) confirmed the rejection.
- For the assessment year 1978-79, the Tribunal accepted the assessee's contention based on the decisions of the Gujarat High Court and the Special Bench of the Tribunal in ITO v. Shri S.R. Kirloskar (HUF), which held that property inherited by sons would be HUF property.

Supreme Court Decision Impact:
- The Supreme Court in CWT v. Chander Sen [1986] 161 ITR 370 reversed the Gujarat High Court decisions, establishing that property inherited under section 8 of the Hindu Succession Act, 1956, devolves on heirs in their individual capacity and not as HUF property.
- The Tribunal's decision was based on now-overruled judgments, making it incorrect.

Legal Position:
- The property devolved on Smt. Jasotiben and her sons individually, not as HUF property.
- The declaration made by Smt. Jasotiben on February 1, 1969, did not change her status from individual to HUF.
- The Tribunal's reliance on the Special Bench decision and Gujarat High Court rulings was misplaced as they were no longer valid law post the Supreme Court ruling in CWT v. Chander Sen.

Conclusion:
- The share income received by Smt. Jasotiben from Vapson Products is assessable in her individual capacity.
- The Tribunal's decision to assess the income as HUF income was incorrect.
- The reference is disposed of in favor of the Revenue, confirming that the income is assessable in the individual capacity of Smt. Jasotiben.

Summary:
In conclusion, the High Court ruled that the share income of Smt. Jasotiben from Vapson Products should be assessed in her individual capacity and not as part of a Hindu undivided family. This decision aligns with the Supreme Court's ruling in CWT v. Chander Sen, which clarified that property inherited under section 8 of the Hindu Succession Act, 1956, devolves on heirs individually. The Tribunal's earlier reliance on overruled decisions was deemed incorrect, and the income was confirmed to be assessable in Smt. Jasotiben's individual capacity.

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