1978 (7) TMI 95 - HC - Income Tax

Summary

Issues: Determination of whether the income from trust properties declared as HUF property is includible in the individual's total income for specific assessment years.

Analysis:
The case involved the assessment of an individual, the assessee, who declared one-tenth share of income from trust properties as Hindu Undivided Family (HUF) property. The dispute arose when the Income Tax Officer (ITO) included this income in the individual's total income, which was contested by the assessee through appeals. The Appellate Assistant Commissioner (AAC) and the Tribunal had differing opinions on the matter. The Tribunal accepted the assessee's contention based on a written declaration made by the assessee on November 8, 1956, where he voluntarily impressed his right to the income from trust properties into the joint family. The Tribunal emphasized that no formalities were required for such an impression, except for a clear and unequivocal declaration, which the assessee had made. The Tribunal concluded that the income from the trust should be treated as HUF property and not as the individual income of the assessee for the relevant assessment years.

The revenue, represented by Mr. Joshi, argued that as the assessee was merely a beneficiary under the trust created by his father, his interest could not be considered as HUF property. Mr. Joshi contended that the interest of a beneficiary under a trust cannot be impressed with the character of HUF property, despite the declaration made by the assessee. However, the court referred to Section 8 of the Trusts Act, which does not restrict a family member from impressing his interest under a trust as HUF property. The court highlighted that a member of a joint Hindu family can unilaterally declare his separate property as HUF property, and once such a declaration is made, the interest is considered joint family property. The court noted that the genuineness of the declaration was not disputed by any taxing authority, and therefore, the income derived from the trust properties was rightfully treated as HUF property from the date of the declaration.

In conclusion, the court upheld the Tribunal's decision, stating that once the assessee made a clear declaration to impress his interest under the trust as HUF property, the income derived from it ceased to be his separate property and became part of the joint family property. Therefore, the income could not be considered as the individual income of the assessee. The court answered the referred question in favor of the assessee, and the revenue was directed to pay the costs.