1964 (10) TMI 107 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of personal expenditure incurred by the karta from his separate property in the taxable expenditure of the Hindu undivided family (HUF).
2. Inclusion of expenditure incurred by the dependents from trust income and their personal property in the taxable expenditure of the HUF.
3. Applicability of section 4 of the Expenditure-tax Act, 1957, as amended by the Finance Act, 1958.

Issue-wise Detailed Analysis:

1. Inclusion of Personal Expenditure Incurred by the Karta from His Separate Property:
The primary issue was whether the personal expenditure of Rs. 28,683 and Rs. 19,285 incurred by the karta, Surendra, from his separate and self-acquired property for the assessment years 1958-59 and 1959-60 respectively, could be included in the taxable expenditure of the HUF. The court noted that under Hindu law, a member of an HUF can hold self-acquired and separate properties. The Expenditure-tax Act recognizes two assessable entities: an individual and an HUF. The court emphasized that the karta is not considered a "dependant" under section 2(g)(ii) of the Act. The definition of "dependant" explicitly excludes the karta. Therefore, the personal expenditure incurred by the karta from his separate property cannot be included in the taxable expenditure of the HUF.

2. Inclusion of Expenditure Incurred by the Dependents from Trust Income and Their Personal Property:
The second issue was whether the expenditure of Rs. 10,321 and Rs. 7,951 incurred by the dependents (children) from the income of trust properties and their personal property for the assessment years 1958-59 and 1959-60 respectively, could be included in the taxable expenditure of the HUF. The court held that clause (i) of section 4 deals with expenditure incurred by a person other than the assessee for the benefit of the assessee or any of his dependants. Since the expenditure was incurred by the dependents for their personal requirements, it does not fall under clause (i). Clause (ii) of section 4 requires that the expenditure must be out of any gift, donation, or settlement on trust made by the assessee. The court found that the trust properties were not transferred directly or indirectly to the dependents by the HUF. Therefore, the expenditure incurred by the dependents from the trust income and their personal property cannot be included in the taxable expenditure of the HUF.

3. Applicability of Section 4 of the Expenditure-tax Act, 1957, as Amended by the Finance Act, 1958:
The court examined the applicability of the amended section 4 for the assessment year 1959-60. The amendment dropped the words "which, but for the expenditure having been incurred by that other person, would have been incurred by the assessee." The court reiterated that the expenditure incurred by the karta from his separate property and by the dependents from trust income does not fulfill the conditions of section 4, either in its original or amended form. The expenditure must be for the benefit of the assessee or any of his dependants, and the karta is not a dependant. Therefore, the amended section 4 does not change the conclusion that such expenditures cannot be included in the taxable expenditure of the HUF.

Conclusion:
The court concluded that none of the four items of expenditure could be included in the taxable expenditure of the HUF for either of the two assessment years. The answers to the questions posed were in the negative, and the Commissioner was directed to pay the costs of the reference to the assessee.