1981 (2) TMI 41 - HC - Income Tax

Summary

Issues:
1. Interpretation of blending of self-acquired property with family property.
2. Validity of Commissioner's cancellation of assessments treating the assessee as an HUF.
3. Reassessment of income by treating the assessee as an individual.

Analysis:
The High Court of Orissa addressed the issue of blending of self-acquired property with family property in the context of an appeal by the revenue under the Income Tax Act of 1961. The case involved the deceased's son treating partnership business as proprietary, claiming partnership capital as a loan from the HUF, and later investing it in a new firm. The Commissioner, exercising powers under section 263, canceled assessments treating the assessee as an HUF and directing reassessment as an individual. The Tribunal, relying on consistent declarations in returns, found sufficient evidence of blending and held that the Commissioner erred in vacating the assessments. The Court cited previous decisions emphasizing that blending is a mental act and formal declarations are not necessary if consistent declarations exist in returns.

The Commissioner's revisional order highlighted the argument that the son, by declaring income from inherited properties as belonging to the HUF, impressed the properties with joint family character, abandoning his absolute interest. However, the Commissioner found the evidence insufficient, emphasizing the need for a clear declaration to establish the intention to waive personal claims on the property. The Court, considering the verified declarations in returns over the years, reiterated that blending is a mental act and formal declarations are not mandatory. It referenced previous cases to support the view that declarations in returns can be evidence of blending, dismissing the Commissioner's interpretation of an application from 1974.

In conclusion, the High Court upheld the Tribunal's decision, stating that the action of the Commissioner in vacating the orders of the ITO was not justified. The Court awarded costs to the assessee and assessed the consolidated hearing fee. Justice B. N. Misra concurred with the judgment delivered by Chief Justice R. N. Misra, affirming the Tribunal's decision regarding the blending of self-acquired property with family property and the validity of assessments treating the assessee as an HUF.