1992 (7) TMI 57 - HC - Income Tax

Summary

Issues Involved:
1. Whether the share income from Hind Automats was liable to tax in the hands of the assessee as an individual or as a Hindu Undivided Family (HUF).

Issue-wise Detailed Analysis:

1. Determination of Tax Liability as an Individual or HUF:
The primary issue was whether the share income from Hind Automats should be taxed in the hands of the assessee as an individual or as a Hindu Undivided Family (HUF). The assessee claimed that after his marriage, the share income should be considered as HUF income, which was initially rejected by the Income-tax Officer but accepted by the Appellate Assistant Commissioner. The Appellate Tribunal, however, held that the existence of a wife does not convert the income derived from ancestral property into HUF income, thus considering it as individual income.

2. Legal Precedents and Interpretation:
The court referred to several precedents to interpret the term "Hindu Undivided Family" within the context of the Income-tax Act, 1961. In Krishna Prasad v. CIT [1970] 75 ITR 526, it was established that a coparcener with his wife and unmarried daughters can constitute an HUF. The Supreme Court in Gowli Buddanna v. CIT [1966] 60 ITR 293 also affirmed that a single individual cannot form an HUF but can do so upon marriage.

3. Ancestral Property and Coparcenary Rights:
The court discussed the nature of ancestral property and coparcenary rights. The share obtained by a coparcener on partition is ancestral property concerning his male issue, who take an interest by birth. However, until a coparcener has a male issue, he holds the property as his separate property. The court emphasized that the property retains its character as joint family property even if temporarily held by a single coparcener.

4. Distinction Between Individual and Joint Family Property:
The court distinguished between two scenarios: (1) property not originally joint acquiring the character of joint family property, and (2) property already impressed with the character of joint family property coming into the hands of a single coparcener. The Supreme Court in N. V. Narendranath v. CWT [1969] 74 ITR 190 clarified that a Hindu joint family consists of all persons lineally descended from a common ancestor, including their wives and unmarried daughters.

5. Role of Wife in Constituting HUF:
Under Hindu law, the wife of a coparcener is a member of the family, and upon marriage, she has a right to claim maintenance from the joint family property. Therefore, the court held that upon the assessee's marriage, his wife became a member of his family, thus forming an HUF. The property in the hands of the assessee should be considered as held by him in the capacity of karta of the HUF.

6. Rejection of Contrary Views:
The court disagreed with the Full Bench of the Patna High Court in CIT v. Shankar Lal Budhia [1987] 165 ITR 380, which held that mere marriage does not convert individual property into HUF property. The court emphasized that the test is whether the wife is a member of the family with a right to seek maintenance, not whether she can challenge the alienation of property.

7. Affirmation of Previous Decisions:
The court affirmed the decision in Krishna Prasad's case [1970] 75 ITR 526, which stated that upon marriage, the sole member would be entitled to be assessed in the status of an HUF. The Supreme Court's affirmation of this decision further supported the assessee's contention.

Conclusion:
The court concluded that the share income from Hind Automats should be taxed in the hands of the assessee as HUF income, not as individual income. Consequently, the question referred was answered in the negative and against the Revenue.