1988 (11) TMI 135 - AT - Income Tax

Summary

Issues Involved:
1. Whether the income from house property should be assessed in the hands of the minor grandsons or the major contributors.
2. Whether the partnership firm constituted for the transfer of property was genuine.
3. Whether the provisions of Section 64(1) of the Income Tax Act were applicable.
4. Whether the transaction was a device to avoid income tax and stamp duty.
5. Whether the assessment of income in the hands of the minor was justified.
6. Whether interest under Sections 139(8) and 217(1A) should be charged.

Detailed Analysis:

1. Assessment of Income from House Property:
The Income Tax Officer (ITO) assessed the income from house property in the hands of Shri G. Sharma Barua and Shri Phani Sharma, concluding that the partnership was a device to transfer property to minors without adequate consideration. The Appellate Assistant Commissioner (AAC) upheld this view, directing the ITO to assess the property income in the hands of Shri G. Sharma Barua and Shri Phani Sharma in the ratio of 106:35. The Tribunal found that the property income should be assessed solely in the hands of Shri G. Sharma Barua, as the land was under a lease to him, and the minors did not acquire any rights through the partnership.

2. Genuineness of the Partnership Firm:
The ITO and AAC concluded that the partnership firm was not bona fide and was created solely to transfer property to minors. The Tribunal upheld this view, noting that the firm was dissolved within 13 months, and there was no business activity. The Tribunal emphasized that the partnership was a sham, and the transfer of property was not genuine.

3. Applicability of Section 64(1):
The ITO invoked Section 64(1) to club the minor's income with that of the major contributors, arguing that the transfer of property was without adequate consideration. The AAC supported this view, stating that the minors were only admitted to the benefits of the partnership and did not acquire any rights in the property. The Tribunal agreed, concluding that the transaction was a device to avoid tax, and the income should be assessed in the hands of Shri G. Sharma Barua.

4. Device to Avoid Income Tax and Stamp Duty:
The ITO and AAC found that the partnership and subsequent transfer of property were designed to avoid income tax and stamp duty. The Tribunal upheld this finding, noting that the partnership was dissolved shortly after its formation, and the minors were not full-fledged partners. The Tribunal concluded that the entire transaction was a sham to avoid tax liabilities.

5. Justification of Minor's Assessment:
The AAC dismissed the appeal by the minor, Shri Chinmoy Sharma, and upheld the protective assessment made by the ITO. The Tribunal modified this view, concluding that the income should be assessed solely in the hands of Shri G. Sharma Barua, as the minors did not acquire any legal or beneficial ownership of the property.

6. Charging of Interest under Sections 139(8) and 217(1A):
The Tribunal noted that the point regarding the charging of interest did not arise from the AAC's order and directed the AAC to dispose of this matter afresh, providing both sides an opportunity to be heard.

Conclusion:
The Tribunal dismissed the appeals by the assessees and allowed the appeal by the revenue in full. It concluded that the entire income from the house property should be assessed in the hands of Shri G. Sharma Barua, as the partnership was a sham and the minors did not acquire any rights in the property. The Tribunal directed the AAC to reconsider the issue of charging interest under Sections 139(8) and 217(1A).