1979 (8) TMI 20 - HC - Income Tax

Summary

Issues Involved:

1. Whether the income of Rs. 63,430 belonged to the joint Hindu family and not to the individual assessee.
2. Whether the sum of Rs. 2,60,494 belonged to the HUF and, therefore, not assessable in the hands of the assessee in his individual capacity.

Issue-wise Detailed Analysis:

1. Income Tax Reference (T.C. No. 170 of 1975):

The primary issue was whether the income of Rs. 63,430 should be assessed in the hands of the assessee as an individual or as a Hindu Undivided Family (HUF). The facts revealed that the assessee received a gift of Rs. 10,000 and Rs. 100 in cash from his father with the intention that the benefits should go to the assessee's future wife and children, and the sums should be treated as joint family property under Hindu law. The assessee, who was a bachelor at the time, accepted the gift and invested it in a business, which later accrued income.

The Income Tax Officer (ITO) rejected the claim that the income should be assessed as HUF income. The Appellate Assistant Commissioner (AAC) upheld this decision, noting that the assessee got married and had a daughter, but the assessment year in question ended before these events. The Tribunal, however, held that the income should be assessed as HUF income, as the gift was accepted with the condition of being treated as joint family property.

The court examined various precedents, including the Privy Council's decision in Kalyanji Vithaldas v. CIT and the Supreme Court's rulings in C. N. Arunachala Mudaliar v. C.A. Muruganatha Mudaliar and Gowli Buddanna v. CIT. The court concluded that the property given as a gift did not automatically become joint family property merely because the donor intended it to be so. The existence of a wife and daughter did not justify the assessment of income in the status of an HUF unless a son was born, who would have taken an interest in the property by birth.

The court held that since the property was obtained under a gift and not through partition, and there was no joint family at the time of the gift, the income should be assessed in the hands of the individual. The question referred in T.C. No. 170 of 1975 was answered in the negative and in favor of the revenue.

2. Wealth Tax Reference (T.C. No. 171 of 1975):

The issue was whether the sum of Rs. 2,60,494, representing the accretions to the original gifted amount, should be assessed in the hands of the HUF or the individual. The Wealth Tax Officer (WTO) and the AAC rejected the claim for assessment in the status of an HUF. The court applied the same reasoning as in the income tax reference, emphasizing that the property obtained under a gift did not acquire the character of joint family property merely because the donor intended it to be so.

The court reiterated that the property would have to be assessed in the hands of the individual until the birth of a son, who would change the legal incidence of the property. The question referred in T.C. No. 171 of 1975 was also answered in the negative and in favor of the revenue.

Conclusion:

The court concluded that both the income of Rs. 63,430 and the wealth of Rs. 2,60,494 should be assessed in the hands of the individual assessee and not as HUF property. The revenue was entitled to its costs, with counsel's fee set at Rs. 500 for one set.