1987 (8) TMI 59 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of section 64(2) of the Income-tax Act, 1961.
2. Applicability of section 4(1A) of the Wealth-tax Act, 1957.
3. Assessment of income from converted property post-partition.
4. Status of property and income for a smaller Hindu undivided family (HUF) post-partition.

Detailed Analysis:

1. Applicability of Section 64(2) of the Income-tax Act, 1961
The primary issue was whether the interest income of Rs. 22,006 should be considered as the individual income of the assessee or as belonging to the smaller Hindu undivided family (HUF) consisting of the assessee and his wife. The Tribunal and the Revenue held that the provisions of section 64(2) applied because the properties were initially individual properties converted into joint family properties by the assessee. Consequently, the income arising from these properties was deemed to be the individual income of the assessee. The Tribunal's decision was based on the interpretation that the converted property retained its character as the individual's property for tax purposes, even after partition, under section 64(2)(c).

2. Applicability of Section 4(1A) of the Wealth-tax Act, 1957
The second issue was whether Rs. 1,88,862, which the assessee received on partition, should be considered as individual property or as belonging to the smaller HUF for wealth-tax purposes. The Revenue applied section 4(1A), asserting that the properties should be deemed individual properties. The Appellate Assistant Commissioner initially disagreed, stating that section 4(1A)(c) did not apply since no property was allotted to the spouse or minor child. However, the Tribunal reversed this, aligning with the Revenue's interpretation that the converted property should be assessed as the individual's property.

3. Assessment of Income from Converted Property Post-Partition
The court examined whether the income from the converted property post-partition should be taxed as the individual income of the assessee or as the income of the smaller HUF. The court referenced the Supreme Court's decision in Surjit Lal Chhabda v. CIT, which held that income from property converted into joint family property remained the individual's income if there were no coparceners (i.e., sons) entitled to claim a share. The court concluded that the income from the converted property should be assessed as the individual's income, not the HUF's, because the assessee was the sole surviving coparcener.

4. Status of Property and Income for a Smaller HUF Post-Partition
The court acknowledged that legally, after partition, the assessee and his wife could form a smaller HUF. However, it emphasized that in the absence of a son, the property technically belonging to the HUF would, in reality, belong to the sole surviving coparcener. The court cited the Supreme Court's distinction in Surjit Lal Chhabda, noting that the property thrown into the family hotchpot did not change in nature for tax purposes if there were no coparceners.

Conclusion:
The High Court concluded that the income from the converted property and the property itself should be assessed in the hands of the assessee as an individual. This conclusion was reached not by the direct application of section 64(2) of the Income-tax Act or section 4(1A) of the Wealth-tax Act, but through the application of general principles of Hindu law. The court reframed the question to focus on whether the income and property should be assessed as the individual's, and answered in the affirmative, favoring the Revenue. Both issues were resolved by affirming that the properties and income in question should be treated as belonging to the individual assessee for tax purposes.

The judgment thus upheld the Revenue's stance, ensuring that the converted properties and the income arising from them post-partition were assessed in the hands of the individual, not the smaller HUF.