1976 (6) TMI 46 - AT - Income Tax

Summary

Issues Involved:

1. Assessment of share income post partial partition.
2. Inclusion of minor sons' share income in the hands of Shankaraiah.
3. Existence and assessment of a "Body of Individuals" (BOI).
4. Legality of notices under Section 148.
5. Overriding obligation and superior title due to the agreement between Shankaraiah and his sons.
6. Applicability of the Hindu Minority and Guardianship Act.

Detailed Analysis:

1. Assessment of Share Income Post Partial Partition:

The court examined whether the share income from the partnership firm, which was divided among Shankaraiah and his sons, should be included in Shankaraiah's hands or assessed separately. The court noted that the share income from the firm was initially assessed in the hands of the HUF. After the partial partition on 26th October 1963, the share income was divided among Shankaraiah (12%) and his sons (6% each). The court concluded that the divided share incomes should not be included in the hands of Shankaraiah or assessed as a "BOI."

2. Inclusion of Minor Sons' Share Income in the Hands of Shankaraiah:

The Income Tax Officer (ITO) issued notices under Section 148, intending to assess the 24% share of profit received from the firm in the hands of a "BOI" consisting of Shankaraiah and his two minor sons. The court observed that the share income of the minor sons, as per the partial partition and agreement dated 26th October 1963, should not be included in Shankaraiah's hands. The court emphasized that there was an overriding obligation on Shankaraiah regarding the shares of profit attributable to his minor sons.

3. Existence and Assessment of a "Body of Individuals" (BOI):

The court analyzed whether Shankaraiah and his sons constituted a "BOI" liable to be assessed as an assessable entity. The court referred to various judgments, including the Andhra Pradesh High Court's decision in Deccan Wines and General Stores and the Gujarat High Court's decision in CIT vs. Harivadan Tribhuvandas. The court concluded that there was no "BOI" in this case, as there was no activity carried on by the "BOI" to produce income. The court stated, "There is no manner of doubt that there is no 'BOI' in this case."

4. Legality of Notices Under Section 148:

The court noted that the assessee had filed writ applications against the notices issued under Section 148, which were dismissed by the learned single judge and upheld in writ appeals. The court observed that the learned single judge's observations regarding the "BOI" were not final pronouncements but were made only to test the validity of the notices issued under Section 148.

5. Overriding Obligation and Superior Title Due to the Agreement Between Shankaraiah and His Sons:

The court acknowledged the argument that there was an overriding obligation on Shankaraiah and a superior title in favor of the two minors regarding their share of profit. However, the court emphasized that even in such circumstances, there could be no "BOI" emerging out of the agreement. The court stated, "Even without the specific agreement entered into by the parties, Shankaraiah would be under an obligation to pass on the share income to the divided members as per the partial partition."

6. Applicability of the Hindu Minority and Guardianship Act:

The court briefly addressed the contention that the agreement entered into by Shankaraiah with his two minor sons was contrary to Sections 6 and 8 of the Hindu Minority and Guardianship Act. However, the court deemed it unnecessary to decide on this contention, as it had already concluded that there was no "BOI" to be assessed as a unit of assessment.

Conclusion:

The court concluded that the assessments made on the "BOI" could not stand. The court canceled all the assessments and allowed the appeals, stating, "In view of the above discussion, there is no doubt that the assessment made on the 'BOI' as such cannot stand." The court also noted that for the assessment years 1966-67 and 1967-68, there were already assessments of individual members separately, and therefore, there could not be any separate assessment on "BOI."