1997 (5) TMI 30 - HC - Income Tax

Summary

Issues Involved:
1. Whether the status of the assessee should be a Hindu undivided family (HUF) after partition.
2. Whether an individual can form a HUF with his wife in respect of shares received on partition where the wife was also allotted a separate share.

Issue-Wise Detailed Analysis:

1. Whether the status of the assessee should be a Hindu undivided family (HUF) after partition:

In Tax Case No. 9 of 1982, the assessee argued that he should be assessed as a HUF even after the partition because he had a legal obligation to maintain his wife, and together they constituted a HUF. The Income-tax Officer (ITO) disagreed, stating that since the capital of the HUF had been partitioned and the wife had received a share, the assessee's status should be individual. The Appellate Assistant Commissioner reversed this finding, relying on the Supreme Court decision in N. V. Narendranath v. CWT [1969] 74 ITR 190, which held that an individual along with his wife could still form a HUF. The Appellate Tribunal affirmed this view, citing additional cases such as CIT v. Pannalal Rastogi [1974] 96 ITR 110 (Patna).

2. Whether an individual can form a HUF with his wife in respect of shares received on partition where the wife was also allotted a separate share:

In Tax Cases Nos. 61 and 62 of 1983, the assessees were members of a larger HUF and had undergone partial partition. The ITO noted that the capital had been partitioned among the assessees, their children, and their wives. The ITO held that the income received by the assessees from the assets post-partition was their individual income. The Appellate Assistant Commissioner and the Appellate Tribunal disagreed, maintaining that the assessees continued to form a HUF with their wives, even if the wives had received separate shares. The Tribunal relied on N. V. Narendranath's case [1969] 74 ITR 190 (SC) and other relevant cases.

Analysis:

The Supreme Court in N. V. Narendranath's case [1969] 74 ITR 190 held that a HUF could consist of a single male member and his wife and daughters. However, the facts of the present cases differ significantly because, in N. V. Narendranath's case, no separate share was allotted to the wife, whereas in the present cases, separate shares were allotted to the wives.

The Madhya Pradesh High Court in CIT v. Dhannamal [1984] 148 ITR 141 held that if the wife was not allotted any share in the partial partition, the assessee and his wife would constitute a HUF. However, if the wife received a separate share, the property in the hands of the assessee would be considered separate property.

The law, as summarized, indicates that on partition, the property coming into the hands of the assessee becomes his separate property vis-a-vis other coparceners, although it continues to be joint vis-a-vis his wife and children. However, if separate shares are allotted to the wife and children, the existence of the HUF comes to an end, and the property in the hands of the assessee becomes separate property, taxable as individual income.

Conclusion:

The Tribunal erred in holding that the assessees should be assessed in the status of a HUF. The questions referred to the court are answered in the negative, in favor of the Revenue and against the assessees. The property in the hands of the assessees, after partition and allotment of separate shares to the wives, should be assessed as individual property, not as HUF.