1989 (7) TMI 162 - AT - Income Tax

Summary

Issues Involved:
1. Whether the share of profit from the firm received by the assessee belongs to him in his individual capacity or it belongs to the HUF of which he is the Karta.

Detailed Analysis:

1. Facts and Background:
The cases involve three respondent HUFs, each represented by their Kartas, who were partners in the firm M/s Indian Handicrafts Emporium (IHE). The core issue is whether the share of profit from IHE belongs to the individual capacity of the Karta or to the HUF.

2. Case of Chaman Prakash & Sons:
- Partial partition occurred on 21st March 1973.
- The investment of Rs. 68,676.19 in IHE was divided among family members, with Rs. 10,000 set aside for the marriage of a minor daughter.
- The balance was allocated equally among Chaman Prakash, his wife, and two minor sons.
- The investment was credited to Chaman Prakash's individual account in the firm's books, and he was responsible for paying interest to other family members.

3. Case of Satya Prakash & Sons:
- Partial partition occurred on 30th Nov 1974.
- The total investment of Rs. 80,613.16 was divided equally among Satya Prakash, his wife, and minor son.
- The amounts allotted to the wife and minor son were credited as loans in the firm's books.
- The HUF filed its return stating that the share income from IHE belonged to Satya Prakash in his individual capacity.

4. Case of Om Prakash & Sons:
- Partial partition occurred on 21st March 1973.
- The investment of Rs. 55,446.69 was divided among Om Prakash, his wife, and two minor sons, with Rs. 10,000 set aside for a minor daughter's marriage.
- The investment was credited to Om Prakash's individual account in the firm's books.

5. Tribunal's Findings:
- In Om Prakash & Sons, the Tribunal accepted that the share income after 21st March 1973 was assessable as individual income of Om Prakash.
- The Tribunal highlighted that the partial partition covered the whole interest in the partnership firm, not just the capital contribution.
- The subsequent conduct of the parties and the entries in the books supported this view.

6. Divergent Views and Special Bench:
- In Chaman Prakash & Sons, a different Tribunal Bench initially took a contrary view, assessing the share income in the hands of the HUF.
- This led to the constitution of a Special Bench to resolve the divergent views.

7. Legal Precedents and Arguments:
- The Tribunal referred to the Supreme Court judgment in CHARANDAS HARIDAS vs. CIT, emphasizing that the partition of a family has no impact on the partnership firm.
- The Tribunal also considered the case of CIT vs. M.D. KANORIA, where the Bombay High Court held that the share incomes were assessable in the hands of the HUF.
- The Tribunal in the present cases found that the conduct of the families clearly showed that the right to receive profit or liability for losses was allotted to the Kartas in their individual capacities.

8. Conclusion:
- The Tribunal held that after the partial partitions, the right to receive profit or suffer losses from IHE belonged to the Kartas in their individual capacities.
- The respondent HUFs were not liable to be assessed for any share profit from the firm for the years under appeal.
- All the Revenue's appeals were dismissed, affirming the individual assessment of the Kartas' share income from IHE.