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Issues Involved:
1. Determination of whether the funds given by Shyamalambal to Appa Rao formed the nucleus of joint family property. 2. Assessment of the status of the assessee as an individual or as the karta of a Hindu Undivided Family (HUF) for the income derived from the properties and business. Issue-wise Detailed Analysis: 1. Determination of whether the funds given by Shyamalambal to Appa Rao formed the nucleus of joint family property: The primary issue revolves around the nature of the funds given by Shyamalambal to Appa Rao. The Income Tax Officer (ITO), Appellate Assistant Commissioner (AAC), and the Tribunal held the view that property proceeding from a female member cannot form the nucleus of joint family property under the law of Mitakshara. However, the High Court rejected this notion, stating that under Mitakshara law, property can become joint family property through various means, including gifts intended for the benefit of the family as a whole, irrespective of whether the donor is male or female. The Court cited Mayne's Hindu Law to support this, emphasizing that the intention of the donor is crucial in determining the character of the property. The Court examined the arbitrators' findings, which clearly indicated that Shyamalambal provided the funds with the intention of benefiting the family as a whole. Appa Rao accepted the funds on these terms and disclaimed any separate dominion over them, indicating that the funds were intended to be joint family property from the outset. The Court concluded that the funds given by Shyamalambal were indeed the nucleus of joint family property. 2. Assessment of the status of the assessee as an individual or as the karta of an HUF for the income derived from the properties and business: The second issue pertains to the status of the assessee for the assessment years 1968-69 and 1969-70. The ITO assessed the assessee as an individual, arguing that the properties acquired and divided under the arbitration award were not joint family properties but individual properties. The AAC and the Tribunal upheld this view, stating that since the properties originated from a female member, they could not be considered joint family properties. The High Court, however, disagreed with this assessment. It emphasized that the intention behind the gift of funds by Shyamalambal was to benefit the family as a whole, making the funds joint family property from the beginning. Consequently, the properties acquired with these funds also became joint family properties. The Court noted that the partition under the arbitrators' award was a partition of joint family properties. Therefore, any property allotted to a divided member of the family in a Mitakshara partition is joint family property in their hands. The Court concluded that the assessee should be assessed as the karta of an HUF, holding the properties allotted under the partition award as joint family properties. The Court answered the question of law in favor of the assessee, stating that he must be assessed in the status of an HUF. However, the Court also noted that further investigation into the real character of the properties and businesses held by the assessee, item by item, might be necessary to determine their true nature. Conclusion: The High Court concluded that the funds given by Shyamalambal to Appa Rao formed the nucleus of joint family property and that the assessee should be assessed as the karta of an HUF for the income derived from the properties and business. The reference was answered in favor of the assessee, and he was entitled to his costs.
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