2003 (6) TMI 199 - AT - Income Tax

Summary

Issues involved:
1. Taxability of interest income on fixed deposits in the hands of a Hindu Undivided Family (HUF).
2. Recognition of a family arrangement as a partial partition under section 171(9) of the Income-tax Act, 1961.
3. Validity of a family arrangement depriving the rights of unmarried minor daughters conferred by law.

Analysis:
Issue 1: The appeals were filed by the Revenue against the deletion of interest income on fixed deposits from the income of the HUF by the Commissioner of Income-tax (Appeals). The family arrangement executed set apart fixed deposits and cash for the maintenance and marriage expenses of the minor daughters. The Assessing Officer added the interest income to the total income, which the assessee contested for multiple assessment years. The Commissioner (Appeals) allowed the claim based on a judgment of the Madras High Court. However, the Tribunal held that the interest on fixed deposits should be assessed in the hands of the HUF, setting aside the Commissioner's orders.

Issue 2: The Revenue contended that the family arrangement should be considered a partial partition, which is not recognized under the Income-tax Act. The Departmental Representative argued that the daughters being coparceners by birth, the family arrangement was invalid. The Tribunal noted the specific provisions of the family arrangement and the legal rights of coparceners, ultimately deciding that the arrangement did not amount to a valid partition under the Act.

Issue 3: The Revenue further argued that the family arrangement was illegal and deprived the unmarried minor daughters of their rights conferred by law. The Tribunal observed that the arrangement, while purporting to set apart assets for the daughters, did not legally separate them from the HUF. The Tribunal emphasized that the daughters, being coparceners, were entitled to equal rights, and the arrangement did not constitute a recognized partition under the Income-tax Act.

In conclusion, the Tribunal held that the interest income on fixed deposits should be taxed in the hands of the specified HUF, overturning the decisions of the Commissioner of Income-tax (Appeals). The Tribunal determined that the family arrangement did not amount to a valid partition under the law, and thus, the Revenue's appeals were allowed.