1986 (7) TMI 7 - SC - Wealth-tax

Intestate Succession after Partition - On death of father whether share of his business devolves to son in his individual capacity of HUF capacity of son and his sons - that the sums standing to the credit of Rangi Lal belongs to Chander Sen in his individual capacity and not the joint Hindu family the interest of 23, 330 was an allowable deduction in respect of the income of the family from the business - revenue s appeal is dismissed

Issues Involved:
1. Whether the sums of Rs. 1,85,043 and Rs. 1,82,742 constituted the assets of the assessee-Hindu undivided family.
2. Whether the interest of Rs. 23,330 was an allowable deduction in the computation of the business profits of the assessee-joint family.

Detailed Analysis:

Issue 1: Assets of the Assessee-Hindu Undivided Family
The primary issue was whether the amounts standing to the credit of late Rangi Lal were inherited by Chander Sen in his individual capacity or as the karta of the Hindu undivided family (HUF). The Wealth-tax Officer included these amounts in the net wealth of the assessee-family, but the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal held that these amounts devolved on Chander Sen in his individual capacity.

The High Court relied on the decision in CIT v. Ram Rakshpal Ashok Kumar [1968] 67 ITR 164 and concluded that under the Hindu Succession Act, 1956, the property inherited by a son from his father is considered his individual property and not that of the HUF. The court emphasized that section 8 of the Hindu Succession Act modifies the traditional Hindu law by specifying that property devolves upon heirs listed in Class I of the Schedule, which includes the son but not the grandson.

The Supreme Court affirmed the High Court's judgment, noting that section 8 of the Hindu Succession Act, 1956, provides that the property of a male Hindu dying intestate devolves upon his heirs as specified in Class I of the Schedule. This includes the son but excludes the grandson. The court held that the property inherited by a son from his father under section 8 is his individual property, not HUF property. The express language of section 8 must prevail, and the views of the Allahabad, Madras, Madhya Pradesh, and Andhra Pradesh High Courts were deemed correct over the contrary view of the Gujarat High Court.

Issue 2: Allowable Deduction of Interest
The second issue was whether the interest of Rs. 23,330 credited to the account of late Rangi Lal was an allowable deduction in computing the business profits of the assessee-joint family. The Income-tax Officer disallowed the claim, but the Appellate Assistant Commissioner and the Tribunal allowed it, holding that the interest was due to Chander Sen in his individual capacity.

The High Court, in line with its judgment on the first issue, concluded that the interest amount was an allowable deduction as it belonged to Chander Sen individually and not to the HUF.

The Supreme Court upheld this view, stating that since the sums standing to the credit of Rangi Lal belonged to Chander Sen in his individual capacity, the interest of Rs. 23,330 was an allowable deduction in respect of the income of the family from the business.

Conclusion:
The Supreme Court affirmed the judgment and order of the Allahabad High Court, holding that the sums of Rs. 1,85,043 and Rs. 1,82,742 did not constitute the assets of the assessee-Hindu undivided family and that the interest of Rs. 23,330 was an allowable deduction in the computation of the business profits of the assessee-joint family. The appeals and the special leave petition were dismissed with costs.

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