1962 (9) TMI 105 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income of Rs. 927 arising from the property covered by the declaration of August 27, 1955, is properly excluded from the total income of the assessee.
2. The legal capacity of a member of a Hindu undivided family (HUF) to create a separate assessable unit within the larger HUF.
3. The ability of a member to impress self-acquired property with the character of joint family property of a branch family.
4. The recognition of branch families as separate assessable units under the Indian Income-tax Act while the main HUF remains intact.
5. The implications of Section 25A of the Indian Income-tax Act.

Detailed Analysis:

1. Whether the income of Rs. 927 arising from the property covered by the declaration of August 27, 1955, is properly excluded from the total income of the assessee:

The core issue was whether the Rs. 927 income from the property declared by the assessee as joint family property should be excluded from his individual income assessment. The assessee had declared his self-acquired property as the joint family property of his branch family, consisting of himself, his wife, son, and daughters. The Income-tax Officer included this income in the individual assessment, but the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal held it should be excluded, considering it the income of the Hindu undivided family (HUF).

2. The legal capacity of a member of a Hindu undivided family (HUF) to create a separate assessable unit within the larger HUF:

The revenue argued that a joint Hindu family or a Hindu coparcenary is a creature of law and cannot be created by act of parties. They contended that the assessee, being part of a larger HUF, could not form a separate assessable unit within it. However, the court noted that a joint Hindu family springs from a Hindu male and can have various branches and sub-branches, each forming a joint family under Hindu law. The court concluded that the branch family could exist as a separate assessable unit within the larger HUF.

3. The ability of a member to impress self-acquired property with the character of joint family property of a branch family:

The revenue's argument that the assessee could only throw his self-acquired property into the hotchpotch of the main HUF, and not a branch family, was rejected. The court held that a member of a smaller joint family could impress his self-acquired property with the character of joint family property of that smaller unit. This action does not require the member to separate from the main HUF.

4. The recognition of branch families as separate assessable units under the Indian Income-tax Act while the main HUF remains intact:

The court affirmed that smaller corporate bodies within a larger HUF could possess property exclusively and be recognized as separate assessable units under the Indian Income-tax Act. The court referred to prior judgments, emphasizing that each branch family could exist as a joint family with its own property, independent of the main HUF's property.

5. The implications of Section 25A of the Indian Income-tax Act:

The revenue argued that without complete partition under Section 25A, no new HUF could be recognized. The court dismissed this argument, stating that Section 25A does not prohibit recognizing branch families as separate assessable units. The court clarified that the existence of a larger HUF does not preclude the recognition of smaller HUFs within it for tax purposes.

Conclusion:

The court upheld the decisions of the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, affirming that the Rs. 927 income should be excluded from the assessee's individual assessment. The court recognized the branch family as a separate assessable unit capable of holding property independently of the main HUF. The revenue's contentions were found unsustainable, and the court answered the reference question in the affirmative, directing the Commissioner to pay the assessee's costs.