1982 (5) TMI 104 - AT - Income Tax

Summary

Issues:
Inclusion of income from property used for the business of a firm in the assessment of a Hindu Undivided Family (HUF).

Analysis:
The appeals filed by the assessee, a HUF, contested the inclusion of income from a property used for the business of a firm in which the HUF was a partner, for the assessment years 1978-79 and 1979-80. The assessments were initially completed under section 143(1) of the Income-tax Act, 1961, adopting the share-income from the firm in which the assessee-HUF was a partner. The dispute arose when the Income Tax Officer (ITO) estimated property income at Rs. 1,200, which the assessee objected to, claiming the property was used for earning share-income and should not be considered as the HUF's income. The Assessing Officer (AO) overruled the objection, leading to an appeal before the Appellate Authority Commissioner (AAC), where it was argued that no rent was charged for the property used by the firm, which was owned by the assessee-HUF. The AAC upheld the ITO's decision, stating that the property income should be included. The assessee then appealed to the Tribunal against the AAC's order for both years.

The representative of the assessee contended that the income from the property used for the firm's business should not be included in the HUF's assessment. Citing a ruling of the Gujarat High Court, it was argued that since the property was used for business purposes, it should not be considered as the HUF's income. The departmental representative, however, supported the lower authorities' decisions, noting the presence of a stranger partner in the firm. The Tribunal analyzed the situation, acknowledging that the share-income from the firm belonged to the assessee-HUF. It referred to a Supreme Court ruling emphasizing that a partner's share of income is business income and should be considered while computing taxable income. However, it clarified that in this case, the property in question belonged to the HUF, a separate entity from the partner in the firm. As a HUF cannot be a partner in a partnership, the Tribunal concluded that the business of the firm could not be considered as the business of the assessee-HUF. Therefore, the Tribunal confirmed the AAC's order for both years, dismissing the appeals.

In conclusion, the Tribunal upheld the inclusion of the property income in the assessment of the HUF, reasoning that the property belonged to the HUF, which could not be considered a partner in the firm. The decision was based on the distinct legal status of the HUF and the partner in the firm, leading to the dismissal of the appeals filed by the assessee.