1983 (7) TMI 103 - AT - Income Tax

Income From House Property, Individual Income, Individual Property Into HUF Property, Interest Payable

Summary

Issues Involved:
1. Ownership of the property
2. Blending or transfer of personal funds to family
3. Applicability of section 64(2) of the Income-tax Act, 1961
4. Deductibility of interest on housing loan

Issue-wise Detailed Analysis:

1. Ownership of the Property:
The property in question was purchased and constructed by the appellant, a Hindu Undivided Family (HUF), with Shri G. Ramanujulu Naidu as its karta. The property was shown as belonging to the family, and the income from the property was returned as such. The Income Tax Officer (ITO) presumed blending of personal funds and treated the income as belonging to the individual, Shri G. Ramanujulu Naidu. The first appellate authority upheld that section 64(2) was attracted but held that only a part of the income was includible in the hands of the individual.

2. Blending or Transfer of Personal Funds to Family:
The appellant contended that the karta did not blend or transfer his personal funds to the family but treated them as loans. The ITO and the first appellate authority disagreed, considering the funds as personal and their use in family investment as a transfer under section 64(2). The appellant argued that the funds were always considered loans, supported by affidavits from family members and consistent treatment of the property as family property in various documents.

3. Applicability of Section 64(2) of the Income-tax Act, 1961:
Section 64(2) deals with the conversion of individual property into family property through blending or transfer without adequate consideration. The appellant argued that there was no blending or gift, as the funds were intended as loans. The Tribunal found that the karta's intentions were clear and consistent with treating the funds as loans, not as blending or gifts. The Tribunal emphasized that blending requires a clear intention to abandon separate rights, which was not present in this case.

4. Deductibility of Interest on Housing Loan:
The appellant claimed a deduction for interest on the housing loan under section 24(1)(vi) of the Act. The ITO disallowed this, considering the loan as personal. The Tribunal found that the family had undertaken to pay the interest, and the income was credited to a family account. Therefore, the interest was deductible as it was used for constructing the family property.

Conclusion:
The Tribunal allowed the appeal, holding that the entire income from the property is assessable in the hands of the HUF. The assessee was eligible for a deduction of Rs. 6,298 under section 24(1)(vi). The Tribunal concluded that there was no blending or transfer of personal funds to the family, thus section 64(2) was not applicable. The property belonged to the family, and the funds used were treated as loans, not gifts or blended assets.