2003 (6) TMI 197 - AT - Income Tax

Summary

Issues Involved:
1. Existence of a valid Hindu Undivided Family (HUF) for tax assessment.
2. Status of the assessee as an Association of Persons (AOP) for tax purposes.
3. Protective assessment and substantive assessment of income.

Detailed Analysis:

1. Existence of a Valid HUF for Tax Assessment:
The primary issue was whether the assessee could be considered a valid HUF for tax purposes. The assessee filed returns claiming HUF status, which the Assessing Officer (AO) rejected, stating that the HUF did not exist. The AO noted that the HUF's first return was filed 35 years after its claimed formation, and there was no evidence of joint property or common residence among the coparceners. The CIT(A) initially upheld the AO's decision, stating that the existence of the HUF had not been proved.

Upon appeal, the Tribunal concurred with the AO and CIT(A), concluding that the claim of the status of the assessee as HUF was not conclusively proved. The Tribunal noted that the sources of income were agricultural income and interest income from FDRs, and the investments in FDRs were made from agricultural income and loans. The AO did not find evidence that the funds for the FDRs came from individual incomes of the alleged HUF members.

2. Status of the Assessee as an AOP:
The AO assessed the income in the status of AOP on a protective basis, arguing that the alleged HUF members had joined hands for a common purpose. The CIT(A) disagreed, stating that there was no evidence of an AOP and that the income should be assessed in the hands of the individuals.

The Tribunal's Accountant Member supported the AO's view, stating that the AO was justified in taking the status of the assessee as AOP. However, the Judicial Member dissented, arguing that the issue of AOP status was not a ground of appeal and that the protective assessment should be canceled, with the income assessed in the hands of the individuals.

The Third Member, Vice President M.A. Bakshi, concurred with the Judicial Member, stating that there was no scope or justification for declaring the assessments made by the AO on a protective basis as substantive assessments in the hands of the AOP. The substantive assessments had already been made in the hands of the individuals, and there was no evidence of an AOP's existence.

3. Protective Assessment and Substantive Assessment of Income:
The AO made protective assessments in the status of AOP, with substantive assessments in the hands of the individuals. The CIT(A) canceled the protective assessments, accepting the existence of the HUF and holding that the income should be assessed in the hands of the HUF on a substantive basis.

The Tribunal, agreeing with the AO and CIT(A) on the non-existence of the HUF, concluded that the protective assessments should be canceled and the income assessed in the hands of the individuals substantively. The Third Member confirmed this view, stating that the protective assessments in the status of AOP should be canceled, and the income should be assessed substantively in the hands of the individuals.

Conclusion:
The Tribunal, with the majority view, concluded that the claim of the assessee as HUF was not proved. The protective assessments in the status of AOP were canceled, and the income was to be assessed substantively in the hands of the individuals, Sri K.K. Barkataky and Sri Ajit Barkataky. The appeals filed by the department were allowed.