1994 (7) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee can constitute a separate Hindu undivided family (HUF) consisting of himself, his wife, and minor daughters in respect of his income from dividends.
2. Whether there can be more than one HUF having the same karta.

Issue-Wise Detailed Analysis:

1. Separate HUF for Dividends:
The court examined if the assessee, after a partial partition, could form a separate HUF with his wife and minor daughters for the purpose of assessing dividend income. The assessee had been assessed as an HUF with his wife and minor daughters for assets acquired from a partial partition with his late father. A son was born in 1970, prompting a partial partition between the assessee and his minor son, each receiving company shares worth Rs. 10,00,000. The Income-tax Officer initially rejected the claim of a smaller HUF, asserting that the income should be assessed with the original HUF. However, the Appellate Assistant Commissioner and the Tribunal upheld the assessee's claim, stating that the ownership and enjoyment of the assets and income absolutely vested with the smaller HUF consisting of the assessee, his wife, and minor daughters.

The court noted that the partial partition had been accepted by the Department under section 171 of the Income-tax Act, 1961. The order under section 171, which had become final, indicated that the shares worth Rs. 20,00,000 were divided between the assessee and his minor son. Consequently, the income from the shares allotted to the assessee should be assessed in the hands of the smaller HUF.

2. Multiple HUFs with Same Karta:
The court also considered whether the same individual could be the karta of more than one HUF. The Department argued that it was not possible under Mitakshara law to have two separate HUFs with the same karta. However, the court referred to precedents, including the Supreme Court's decision in N. V. Narendranath v. CWT and Gowli Buddanna v. CIT, which supported the notion that a coparcener could hold property as HUF property even if it consisted of himself, his wife, and minor daughters.

The court further noted that the Bombay High Court in CIT v. M. M. Khanna held that smaller joint families within a larger joint family could hold property independently. Thus, the assessee could indeed act as karta for both the bigger HUF and the smaller HUF. The smaller HUF, consisting of the assessee, his wife, and minor daughters, could legally exist and hold property distinct from the bigger HUF.

Conclusion:
The court concluded that the income from the shares allotted to the assessee in the partial partition should be assessed in the hands of the smaller HUF. The assessee could legally constitute a separate HUF with his wife and minor daughters, and there was no legal impediment to him acting as karta for both the bigger and smaller HUFs. Both questions were answered in the affirmative and against the Department. The court affirmed the Tribunal's order and fixed the counsel's fee at Rs. 1,000, with no order as to costs.