1985 (10) TMI 138 - AT - Income Tax

Issues Involved:
1. Determination of the status of the assessees (individual vs. HUF).
2. Validity of the appeals filed by the assessees.
3. Applicability of Hindu law principles regarding HUF and income assessment.
4. Evaluation of the evidence and surrounding circumstances presented by the assessees.
5. Analysis of relevant case law cited by both parties.

Detailed Analysis:

1. Determination of the Status of the Assessees (Individual vs. HUF):
The primary issue in these appeals is whether the share incomes from the firm Devendra Bros. should be assessed as incomes of the individual partners or as incomes of their respective Hindu Undivided Families (HUFs). The assessees argued that they joined the firm as kartas of their HUFs, and thus, the income should be assessed in the status of HUFs. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) determined that the incomes were assessable as individual incomes because the income was not derived with the aid and assistance of ancestral funds or impressed with the character of joint family property.

2. Validity of the Appeals Filed by the Assessees:
The departmental representative argued that the appeals should be dismissed as frivolous and infructuous since the ITO had accepted the returns on a protective basis, thus taking the assessments out of the scope of section 246 of the Income-tax Act, 1961. However, the tribunal decided to address the matter on merits despite the preliminary objection.

3. Applicability of Hindu Law Principles Regarding HUF and Income Assessment:
The tribunal emphasized that merely stating in the partnership deed that the partners entered as kartas of their HUFs does not create HUFs if they do not exist in law. The tribunal noted that there was no capital investment by the partners in the partnership business, which was carried out using borrowed funds from a sister concern. The tribunal applied the four tests laid down by the Supreme Court in Raj Kumar Singh Hukam Chandji v. CIT to determine if the income could be considered HUF income:
- Whether the income had any real connection with the investment of joint family funds.
- Whether the income was directly related to the utilization of family assets.
- Whether the family suffered any detriment in the process of realizing the income.
- Whether the income was earned with the aid and assistance of family funds.

None of these tests favored the assessees' standpoint, leading the tribunal to conclude that the incomes were individual incomes.

4. Evaluation of the Evidence and Surrounding Circumstances Presented by the Assessees:
The tribunal considered the partnership deed and the arguments presented by the assessees but found that the existence of smaller HUFs was not established. The tribunal noted that the HUF of Shri Girdharilal Jain continued to be intact, and there was no evidence of any gifts or other actions that could lead to the formation of smaller HUFs. The tribunal also noted that the business was carried out using borrowed funds, not family funds.

5. Analysis of Relevant Case Law Cited by Both Parties:
The tribunal reviewed several decisions cited by the assessees, including:
- Ram Laxman Sugar Mills v. CIT: The tribunal found this case inapplicable as the facts were different.
- M.P. Periakaruppan Chettiar v. CIT: The tribunal found this case irrelevant as it dealt with gifts to individuals, not HUFs.
- CIT v. Dilbagh Rai: The tribunal noted the significant difference in facts and found it inapplicable.
- M. Raghava Mudaliar v. CGT: The tribunal found this case irrelevant as it involved employment of joint family funds.
- Seth Chunilal Parsram v. CIT: The tribunal found this case irrelevant as it dealt with accounting entries.
- Thakur Hari Singh v. CIT and Gundlapalli Mohan Rao v. Gundlapalli Satyanarayana: The tribunal found these cases irrelevant as they dealt with blending individual property into HUF, which was not the case here.

The tribunal concluded that the departmental authorities were justified in assessing the incomes as individual incomes and dismissed the appeals.

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