1988 (8) TMI 56 - HC - Income Tax

Summary

Issues Involved:

1. Inclusion of share income and interest from the firm in the assessee's hands.
2. Deductibility of interest paid to members of the Hindu undivided family.
3. Deduction for maintenance and marriage expenses of the unmarried daughter.
4. Inclusion of income from the smaller Hindu undivided family in the assessee's hands.
5. Deduction of interest of Rs. 14,056.
6. Applicability of section 64 to accretions to converted property.

Detailed Analysis:

1. Inclusion of Share Income and Interest from the Firm:

The primary issue revolves around the interpretation of section 64 of the Income-tax Act, 1961. The court analyzed section 64(2) of the Act, which deals with the conversion of self-acquired property into joint family property. The court held that the income derived from the converted property, attributable to the individual's interest in the family property, is deemed to be an asset belonging to that individual. The court concluded that the provisions are clear and do not admit of any doubt, thereby answering the first question in the affirmative and against the assessee.

2. Deductibility of Interest Paid to Members of the Hindu Undivided Family:

The Tribunal held that the share income of the assessee, his wife, and minor sons must be included in the assessee's income. The interest paid to the wife and minor sons should be included again in the assessee's income as per section 64(2)(c). The court found this view indisputable. Regarding the interest paid to the major son, Jawahar, the deduction was allowed at 10% instead of the claimed 18%, based on the Appellate Assistant Commissioner's findings. The court upheld this view and answered the second question in the affirmative and against the assessee.

3. Deduction for Maintenance and Marriage Expenses of the Unmarried Daughter:

The court noted that even if section 64(1) was not attracted, the deduction for maintenance and marriage expenses of the unmarried daughter would not arise. The assessee's counsel conceded this point, and the court answered the third question against the assessee.

4. Inclusion of Income from the Smaller Hindu Undivided Family:

The court examined whether the interest income accruing to the smaller Hindu undivided family of the assessee and his wife could be included in the assessee's income. It was concluded that the smaller Hindu undivided family should be treated as a separate assessable unit. The court referred to the decision in Surjit Lal Chhabda v. CIT and held that the income from the property allotted to the smaller Hindu undivided family should be assessed in the status of a Hindu undivided family, not clubbed with the assessee's income. Therefore, the court answered the fourth question in the negative and in favor of the assessee.

5. Deduction of Interest of Rs. 14,056:

The interest amount represented borrowings from two other firms, not from the Hindu undivided family. The court referred to the decision in Baldev Ramnarayan v. CIT and noted that the assessee's counsel did not press this question. Thus, the court answered the fifth question against the assessee.

6. Applicability of Section 64 to Accretions to Converted Property:

The assessee contended that section 64 should not apply to income arising from accretions to the converted property. The court referred to the decision in Srinivasan (S.) v. CIT, which distinguished between interest earned on deposits and accumulated profits. The court held that the Tribunal was correct in rejecting this claim, answering the sixth question in the affirmative and against the assessee.