1984 (8) TMI 134 - AT - Income Tax

Summary

Issues Involved:
1. Validity and recognition of partial partition under Section 171(9) of the Income-tax Act, 1961.
2. Assessment of income from the partnership firm in the hands of the Hindu Undivided Family (HUF).
3. Application of legal principles regarding the income earned by the members of the HUF.

Detailed Analysis:

1. Validity and Recognition of Partial Partition under Section 171(9):
The assessee, a Hindu Undivided Family (HUF), claimed a partial partition on 31-3-1979, which was initially recognized by the Income Tax Officer (ITO) on 29-11-1979. However, Section 171(9) of the Income-tax Act, effective from 1-4-1980, nullified any claims of partial partition post 31-12-1978. The Tribunal concluded that the order recording the partial partition had become null and void due to the provisions of Section 171(9)(a), which states that no claim of partial partition shall be inquired into or recorded, rendering any such finding null and void. Consequently, the HUF must be deemed to continue as undivided for tax purposes.

2. Assessment of Income from the Partnership Firm in the Hands of the HUF:
Despite the partial partition being nullified, the members of the erstwhile HUF entered into a partnership, which was recognized by the Tribunal. The partnership deed indicated that the business assets of the HUF were taken over by the partnership. The ITO included the income from the partnership firm in the hands of the HUF, which was upheld by the Appellate Assistant Commissioner (AAC). The Tribunal agreed with this assessment, citing that the HUF must be deemed to be the owner of the property and the recipient of the income from such property as per the Supreme Court's interpretation in Kalloomal Tapeswari Prasad (HUF) v. CIT.

3. Application of Legal Principles Regarding Income Earned by Members of the HUF:
The Tribunal applied the tests enumerated by the Supreme Court in Raj Kumar Singh Hukam Chandji v. CIT to determine whether the income was that of the HUF or the individual members. These tests include examining the real connection with joint family funds, direct relation to the utilization of family assets, detriment to family funds, and whether the income was received with the aid of family funds. The Tribunal found that the income had a real connection with the utilization of joint family funds, as the stock from the family business was significant in the partnership's turnover. Thus, the income was deemed to be that of the HUF. The Tribunal also noted the absence of any agreement to remunerate the partners individually, reinforcing the conclusion that the income belonged to the HUF.

Conclusion:
The Tribunal upheld the AAC's order, confirming that the partial partition was null and void under Section 171(9), and the income from the partnership firm should be assessed in the hands of the HUF. The appeal by the assessee was dismissed.