1978 (4) TMI 110 - AT - Income Tax

Summary

Issues Involved:
1. Status of Ambika Parshad: Individual vs. HUF
2. Taxability of Income from Four Firms
3. Taxability of Salary and Meeting Fee from Amar Flour Mills (P) Ltd.

Issue-wise Detailed Analysis:

1. Status of Ambika Parshad: Individual vs. HUF

The primary issue in this case was whether Ambika Parshad should be assessed as an individual or as a Hindu Undivided Family (HUF). The Income Tax Officer (ITO) initially assessed Ambika Parshad as an individual, including income from four firms and salary from Amar Flour Mills (P) Ltd. The Appellate Assistant Commissioner (AAC) accepted Ambika Parshad's contention that he should be assessed as HUF, noting that his brothers were similarly assessed as HUF in similar circumstances. The AAC referenced judgments in CWT vs. Ridhkaran and Roshan Director Hatti vs. CIT to support the claim that the status declared by the assessee could not be changed during assessment proceedings. The Tribunal upheld this view, stating that Ambika Parshad, along with his wife and two sons, constituted an HUF, and the share allotted to him in the firms post-partition was received from his father, Suraj Mal, who represented his HUF. The Tribunal concluded that Ambika Parshad should be assessed as HUF for income from the four firms.

2. Taxability of Income from Four Firms

The ITO included the income from the four firms in Ambika Parshad's individual assessment, arguing that there was no evidence showing how the liability of Rs. 29,162 was settled and that Ambika Parshad had himself declared this income as individual income in previous years. The AAC, however, held that the income from these firms should be assessed as HUF income, noting that Ambika Parshad's brothers were similarly assessed. The Tribunal agreed, referencing the Patna High Court judgment in Bhimraj Bansidhar vs. CIT, which stated that a business could be divided by dividing book balances, even if they were negative. The Tribunal also cited the case of CIT Lucknow vs. M/s. Tulsi Lal Mills, Agra, which supported the validity of partial partition involving debit balances. The Tribunal concluded that the share income from the four firms should be taxed as HUF income.

3. Taxability of Salary and Meeting Fee from Amar Flour Mills (P) Ltd.

The AAC held that the salary and meeting fee received from Amar Flour Mills (P) Ltd. should be taxed as Ambika Parshad's individual income, not HUF income. The Tribunal upheld this decision, noting that Ambika Parshad's shareholding in Amar Flour Mills was only 3.3%, and there were other shareholders with larger holdings. The Tribunal referenced the Supreme Court judgment in Raj Kumar Singh Hukam Chandji vs. CIT, which established that salary received due to personal qualifications should be treated as individual income. The Tribunal found that Ambika Parshad's appointment as Managing Director was due to his personal qualifications, not his HUF's investment, and confirmed the AAC's order to tax the salary and meeting fee as individual income.

Conclusion:

The Tribunal dismissed the appeal, confirming the AAC's order that Ambika Parshad should be assessed as HUF for income from the four firms and as an individual for salary and meeting fees from Amar Flour Mills (P) Ltd.