1979 (9) TMI 35 - HC - Income Tax

Summary

Issues:
Assessment of share income from a partnership business in the hands of an individual or Hindu Undivided Family (HUF) status.

Analysis:
The judgment revolves around the assessment of share income from a partnership business in the hands of an individual or HUF status. The family of the assessee underwent a partial partition, leading to the conversion of their family business into a partnership business. The main contention was whether the share income from the partnership business should be assessed in the hands of the assessee as an individual or in the status of HUF. The Income Tax Officer (ITO) initially assessed the income in the hands of the individual, rejecting the claim of the assessee to be assessed in the status of HUF. The Appellate Tribunal also disagreed with the claim, stating that the property received on partial partition would be treated as ancestral property in the hands of the assessee, even though he was being assessed as an individual for income tax purposes.

For the assessment year 1972-73, a similar claim was made by the assessee regarding share income from the partnership business, which was rejected by the ITO. The Appellate Tribunal confirmed the action of the ITO based on its previous decisions. The main dispute centered on the character of the property received by a coparcener in a partial partition. The assessee claimed that he could impress his separate property with HUF character, while the department argued that the property was not capable of being blended as it was not self-acquired property.

The court analyzed the legal principles around coparcenary property and self-acquired property in Hindu Law. It referenced a Supreme Court decision stating that property obtained on partition is ancestral property as regards male issue but separate property for other relations. The court concluded that the property received by the assessee on partition was his self-acquired property, as he had no male issue other than the son who had separated. Therefore, the assessee had the right to impress the property with HUF character, allowing the income from the partnership business to be treated as the family's income.

In light of the above analysis, the court answered the question regarding the share income from the partnership business in favor of the assessee and against the department, as the income was to be treated as the income of the assessee's family. The question regarding property income was left unanswered due to a lack of material. The assessee was awarded costs and counsel's fees in the judgment.