1988 (11) TMI 53 - HC - Income Tax

Summary

Issues:
1. Whether the share of profit of a deceased individual in partnership firms should be included in the assessment of the Hindu undivided family?

Analysis:
The case involved a dispute regarding the inclusion of the share of profit of a deceased individual in two partnership firms in the assessment of the Hindu undivided family. The deceased individual, a partner in the firms, left behind a widow and two minor sons. The widow became a partner in one firm, while the minor sons were admitted to the benefits of the other firm. The Income-tax Officer initially held that the income from the deceased's share in the firms belonged to the Hindu undivided family. However, the Tribunal ruled in favor of the assessee, stating that the property inherited by the widow and sons was separate and not part of the Hindu undivided family until it was impressed with that character during a specific assessment year.

The Tribunal's decision was based on Section 8 of the Hindu Succession Act, 1956, which treats the property inherited by legal heirs as separate unless impressed with the character of a Hindu undivided family. The Tribunal held that the widow impressing a specific amount with the character of joint Hindu family property formed the Hindu undivided family only for that assessment year. The Tribunal concluded that the share income of the widow and minor sons from the firms should not be included in the Hindu undivided family's total income.

The Department argued that the deceased's estate was not equally distributed among legal heirs, indicating the formation of a Hindu undivided family. However, the court rejected this argument, emphasizing that the deceased was a partner in the firms in his individual capacity, making the provisions of the Hindu Succession Act applicable. The court noted that the Department had previously accepted the individual assessments of the heirs for the share income from the firms, indicating their acknowledgment of the separate property status.

The court highlighted that the widow impressing a portion of the deceased's capital with the character of Hindu undivided family property did not automatically establish the existence of a Hindu undivided family. The court distinguished the case from a precedent where the deceased was a karta of the Hindu undivided family. Ultimately, the court ruled in favor of the assessee, stating that the deceased's share income should not be included in the Hindu undivided family's assessment.