1992 (1) TMI 90 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of share income received by Ramanlal from the partnership firm in his capacity as karta of a smaller Hindu undivided family (HUF).
2. Clubbing of share incomes derived by Rajendrakumar and Dilipkumar, minor sons of Ramanlal, with Ramanlal's share income from the partnership firm.
3. Taxability of share income derived by Ramanlal from the partnership firm in the hands of the larger HUF.

Detailed Analysis:

Issue 1: Taxability of Share Income Received by Ramanlal from the Partnership Firm in His Capacity as Karta of a Smaller HUF

The court examined whether the share income received by Ramanlal from the partnership firm, Messrs. Nahalchand Dhanjibhai and Co., was taxable in his hands as the karta of a smaller HUF consisting of himself, his wife, and their two unmarried daughters. The Tribunal had held that the share income was indeed taxable in this capacity, relying on the Supreme Court's decision in Gowli Buddanna v. CIT [1966] 60 ITR 293, which established that the character of the property as HUF property does not change merely because the family is represented by a sole surviving coparcener. The court noted that Ramanlal, post-partition, constituted an HUF with his wife and unmarried daughters, and the property retained its character as HUF property. The court upheld the Tribunal's view that the share income received by Ramanlal was taxable in his hands as the karta of the smaller HUF. Thus, Question No. 1 was answered in the affirmative and against the Revenue.

Issue 2: Clubbing of Share Incomes Derived by Rajendrakumar and Dilipkumar with Ramanlal's Share Income

The court considered whether the share incomes derived by Ramanlal's minor sons, Rajendrakumar and Dilipkumar, from the partnership firm should be clubbed with Ramanlal's share income. The Tribunal had held that these incomes could not be clubbed with Ramanlal's share income taxable in his capacity as karta of the smaller HUF. The court referred to the decision in Dinubhai Ishvarlal Patel v. K. D. Dixit, ITO [1979] 118 ITR 122, which stated that the word "individual" in section 64(1)(ii) of the Income-tax Act must be confined to a person assessed in his individual capacity. Since Ramanlal was assessed as karta of the HUF, the share incomes of his minor sons could not be clubbed with his income. Consequently, Question No. 2 was answered in the affirmative and against the Revenue.

Issue 3: Taxability of Share Income Derived by Ramanlal from the Partnership Firm in the Hands of the Larger HUF

The court addressed whether the share income derived by Ramanlal from the partnership firm was taxable in the hands of the larger HUF, comprising Ramanlal, his wife, their major son Jayantilal, their minor sons Rajendrakumar and Dilipkumar, and their minor unmarried daughters. The Tribunal had held that the share income was not taxable in the hands of the larger HUF. The court upheld this view, noting that the property retained its character as HUF property even after partition and was taxable in the hands of the smaller HUF. Given the answers to Questions Nos. 1 and 2, Question No. 3 was answered in the affirmative and against the assessee.

Conclusion:

The reference was disposed of with no order as to costs. The court affirmed the Tribunal's conclusions on all issues, maintaining the taxability of the share income in the hands of Ramanlal as karta of the smaller HUF and rejecting the clubbing of his minor sons' share incomes with his own.