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Issues: Validity of declaration throwing partnership interest into joint family hotchpot under Hindu law.
The judgment pertains to a reference under section 256(1) of the Income Tax Act, 1961, regarding the validity of a declaration made by an individual, K. N. Narayan, throwing his interest in two partnership firms into the joint family hotchpot. The Commissioner set aside the assessment order for the year 1971-72, directing a reassessment by ignoring the declaration, citing that under Hindu law, a joint family cannot bear the risk and liability of a business. The Tribunal, however, allowed the appeal, relying on a precedent from the Income Tax Appellate Tribunal, 'C' Bench, Madras, and held that such a declaration was valid and could not be ignored by the Income Tax Officer. The central question was whether a coparcener could merge their interest in a partnership with the joint family property. The court discussed the principles of Hindu law, emphasizing that separate property could be converted into joint family property if there was a clear intention to abandon individual rights. The court also clarified that a coparcener's investment in a partnership would not automatically make the family a partner; rather, it would remain the individual's partnership. The court further highlighted that the share in a partnership is an asset, and once thrown into the joint family hotchpot, the income derived should be included in the assessment of the Hindu Undivided Family (HUF). The court cited precedents from the Gujarat, Madras, and Delhi High Courts to support its reasoning. Ultimately, the court answered the question in the affirmative, ruling against the Revenue and making no order as to costs.
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