1990 (9) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Partition of Hindu Undivided Family (HUF) property and its impact on income assessment.
2. Applicability of Section 171 of the Income-tax Act, 1961.
3. Effect of the Hindu Succession Act, 1956, on the property rights of a widow.
4. Validity of gift made by a successor to HUF property.

Detailed Analysis:

Partition of Hindu Undivided Family (HUF) Property and Its Impact on Income Assessment:
The primary issue was whether 50% of the income from business and property should be assessed in the hands of the HUF and the remaining 50% in the hands of an individual, Nand Kumar Prasad Sah. The Tribunal held that upon the death of Shri Tunki Sah, his widow, Smt. Budhi Devi, became entitled to a 50% share in the HUF property. Upon her death, her son, Baidyanath Prasad Sah, succeeded to her share in his individual capacity and subsequently gifted it to Nand Kumar Prasad Sah. The Tribunal concluded that the Income-tax Officer was incorrect in including the income from this property in the total income of the HUF.

Applicability of Section 171 of the Income-tax Act, 1961:
The Revenue argued that since no partition claim under Section 171 of the Income-tax Act was made, the entire income should be assessed in the hands of the HUF. Section 171 mandates that a Hindu family assessed as undivided shall continue to be treated as such unless a finding of partition is recorded. The court agreed with this argument, stating that without a claim under Section 171, the HUF would be deemed the owner of the property and the recipient of the income.

Effect of the Hindu Succession Act, 1956, on the Property Rights of a Widow:
The court analyzed whether the widow's interest in the HUF property, which became absolute under Section 14(1) of the Hindu Succession Act, 1956, would affect the assessment. The court noted that the widow's interest became absolute, but since no partition was claimed, her interest merged back into the HUF property upon her death. The court referred to various precedents, including the Supreme Court's decisions in Potti Lakshmi Perumallu v. Potti Krishnavenamma and CED v. Alladi Kuppuswamy, which stated that without a claim for partition, the HUF remains intact.

Validity of Gift Made by a Successor to HUF Property:
The Tribunal had held that Baidyanath Prasad Sah, having succeeded to his mother's property in his individual capacity, could validly gift it to his adopted son. However, the court found that since no partition was claimed under Section 171, the property remained part of the HUF. Therefore, the gift made by Baidyanath Prasad Sah was not valid for the purpose of excluding the income from the HUF's total income.

Conclusion:
The court concluded that the Tribunal erred in holding that 50% of the income from the business and property should be assessed in the hands of the individual, Nand Kumar Prasad Sah. The court held that, in the absence of a partition claim under Section 171, the entire income should be assessed in the hands of the HUF. The court answered the referred question in the negative and against the assessee, with each party bearing its own costs.