1978 (5) TMI 59 - AT - Income Tax

Issues Involved:
1. Validity of the transfer of Rs. 1 lakh by Shri Chandmal Modi as Karta of the HUF to Smt. Chunnibai.
2. Taxation of interest income earned on such deposits.
3. Validity of the sub-partnership between Shri Chandmal Modi and Smt. Chunnibai.
4. Inclusion of the entire income of the sub-partnership in the hands of the HUF.

Issue-wise Detailed Analysis:

1. Validity of the Transfer of Rs. 1 Lakh:
The Tribunal examined the circumstances under which the transfer of Rs. 1 lakh was made, noting family disputes and the appointment of an arbitrator, Shri Surajmal Jain. The arbitrator's award, given on 5th Sept., 1961, mandated that Rs. 1 lakh be given to Smt. Chunnibai for her maintenance, either in cash or as a credit entry in a third party's books. The award was accepted by the parties and was never challenged under s.30 of the Indian Arbitration Act. The Tribunal concluded that the award was valid and binding, equating it to a final judgment. The Tribunal found that the transfer was genuine, supported by entries in the books of New Ganesh Finance Co., and corroborated by the statements and affidavit of Smt. Chunnibai. The Tribunal emphasized that the transfer was acted upon, reducing the HUF's capital account by Rs. 1 lakh, and thus, the transfer was valid.

2. Taxation of Interest Income:
The interest income earned by Smt. Chunnibai on the deposit of Rs. 90,000 in the books of New Ganesh Finance Co. was regularly returned and assessed in her hands from the assessment years 1962-63 to 1971-72. The Tribunal noted that these assessments were final and still held good. Consequently, the interest income could not be included in the hands of the assessee (HUF) as it was the income of Smt. Chunnibai, duly assessed by the competent authority.

3. Validity of the Sub-Partnership:
The sub-partnership deed dated 11th Jan., 1963, between Shri Chandmal Modi and Smt. Chunnibai specified the profit-sharing ratio and other terms. The Tribunal found that the sub-partnership was genuine, supported by the statements of both parties and the additional evidence submitted. The Tribunal noted that the share income from the sub-partnership was duly credited in the books of New Ganesh Finance Co. and assessed in the hands of Smt. Chunnibai. The Tribunal concluded that the sub-partnership was valid and not a sham.

4. Inclusion of Sub-Partnership Income in HUF's Hands:
The Tribunal reviewed the additional evidence and the assessments of Smt. Chunnibai, which included her share income from the sub-partnership. The Tribunal emphasized that these assessments were not protective and were final. The Tribunal ruled that the income earned by Smt. Chunnibai from the sub-partnership could not be included in the assessment of the HUF, as it was her income, duly assessed separately.

Conclusion:
The Tribunal allowed all the appeals, concluding that the transfer of Rs. 1 lakh was valid, the interest income earned by Smt. Chunnibai could not be included in the hands of the assessee, the sub-partnership was genuine, and the income from the sub-partnership should be excluded from the assessment of the HUF.

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