1984 (3) TMI 171 - AT - Income Tax

Summary

Issues Involved:
1. Condonation of delay in filing cross-objection by the revenue.
2. Inclusion of share income from the firm Akula Venkateswarlu & Co. in the hands of the HUF.
3. Status of the entity consisting of Sivanageswara Rao and his wife for tax assessment.
4. Inclusion of share income from the firm Prasad & Co. in the hands of the HUF.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing Cross-Objection by the Revenue:
The revenue's cross-objection was delayed by 61 days. An affidavit from the ITO explained that the delay was due to his leave of absence when the direction to file the cross-objection was received and that he only became aware of it upon receiving the notice of hearing. After considering the learned counsel for the assessee, the Tribunal condoned the delay and admitted the cross-objection.

2. Inclusion of Share Income from the Firm Akula Venkateswarlu & Co. in the Hands of the HUF:
The assessee contended that the share income from Akula Venkateswarlu & Co. should not be included in the HUF's assessment as he was a working partner without any capital investment. The ITO included this income in the HUF's assessment, arguing that approximately Rs. 4,000 remained invested in the firm from family funds. The Commissioner (Appeals) set aside the ITO's assessment, directing a fresh assessment considering the Supreme Court decision in Surjit Lal Chhabda's case. The Tribunal concluded that the share income from Akula Venkateswarlu & Co. should be excluded from the HUF's assessment, as the assessee was admitted as a partner for his services and did not invest family funds in this firm.

3. Status of the Entity Consisting of Sivanageswara Rao and His Wife for Tax Assessment:
The Tribunal examined whether the entity consisting of Sivanageswara Rao and his wife constituted a HUF. It was noted that Sivanageswara Rao received Rs. 26,744 on partial partition of the HUF, which represented family funds. By his marriage on 30-1-1980, Sivanageswara Rao and his wife constituted a HUF. The Tribunal referred to the Madras High Court decision in P.R. Ramasubramania Raja v. State of Tamil Nadu, which reviewed relevant Supreme Court and Privy Council decisions, affirming that the funds received on partition and invested in Prasad & Co. were HUF funds.

4. Inclusion of Share Income from the Firm Prasad & Co. in the Hands of the HUF:
The Tribunal found that the share income from Prasad & Co. was rightly included in the HUF's assessment. The funds received by Sivanageswara Rao on partition were invested in Prasad & Co. when he was a minor, and he was admitted to the benefits of partnership due to this investment. Upon attaining majority, he continued as a full-fledged partner, and the capital investment remained HUF property. The Supreme Court in Raj Kumar Singh Hukam Chandji's case provided tests to determine whether income derived from investment of family funds should be considered HUF income, which applied to the share income from Prasad & Co.

Conclusion:
The Tribunal set aside the findings of the Commissioner (Appeals) and concluded that:
(a) The assessee-HUF consisting of Sivanageswara Rao and his wife is assessable to tax.
(b) The share income from Prasad & Co. is includible in the HUF's assessment.
(c) The share income from Akula Venkateswarlu & Co. should be excluded from the HUF's assessment.
In the result, the cross-objection of the revenue was allowed in part, and the appeal of the assessee was allowed.