1985 (4) TMI 126 - AT - Income Tax

Summary

Issues Involved:
1. Status of property as HUF or individual property.
2. Character of impartibility of the property.
3. Assessment of income from property and business.
4. Compensation received due to abolition of Jagirdari system.
5. Intention to convert individual property into HUF property.
6. Partition of compensation and property.

Detailed Analysis:

1. Status of Property as HUF or Individual Property:
The assessee argued that the property should be assessed as HUF property, citing several cases including Bhawani Singh vs. CED, and Maharajadhiraj Himmat Singhji vs. CWT. The Department contended that the property, though belonging to HUF, should be assessed in the hands of the individual due to its impartible nature. The Tribunal noted that the properties and business income were returned by the assessee as HUF, but the Department considered them individual property due to their origin from Sanad, which was impartible.

2. Character of Impartibility of the Property:
The Department argued that the property was impartible, governed by the rule of primogeniture, and thus not subject to partition. The Tribunal, however, referred to previous judgments, including CIT vs. Thakur Ummed Singh, which indicated that properties acquired from Sanad income did not retain the character of impartibility. The Tribunal concluded that the properties and business income should be assessed as HUF property, as the impartibility ceased with the abolition of the Jagirdari system.

3. Assessment of Income from Property and Business:
The Tribunal considered the income from house properties, business styled as "Vakil & Co.," and interest on compensation. It was noted that the Department assessed these incomes in the hands of the individual, while the assessee claimed them as HUF income. The Tribunal referred to previous decisions, including those for assessment years 1960-61 to 1969-70, and concluded that the income should be assessed as HUF property.

4. Compensation Received Due to Abolition of Jagirdari System:
The compensation received by the assessee due to the abolition of the Jagirdari system was a significant issue. The Tribunal noted that the compensation was partitioned among family members and should be assessed in the hands of the HUF. The Department's view that the compensation retained its impartible character was rejected, with the Tribunal relying on the Rajasthan High Court's decision in the case of Thakur Bhairon Singh.

5. Intention to Convert Individual Property into HUF Property:
The assessee's intention to convert individual property into HUF property was supported by filing returns in the status of HUF. The Tribunal emphasized that such an intention, expressed through verified returns, should be accepted, referencing CIT vs. Himmatmal Jaswantraj and other cases. The Tribunal concluded that the properties, business income, and compensation should be treated as HUF property.

6. Partition of Compensation and Property:
The issue of partition of compensation and property, particularly Masuda House, was addressed. The Tribunal noted that the partition claim for 1968-69 was justified and directed the ITO to consider the claim under section 171. The Tribunal emphasized that the partition of funds, as opposed to physical property, was valid and should be recognized.

Conclusion:
The Tribunal concluded that the properties, business income, and compensation should be assessed as HUF property, rejecting the Department's view of impartibility. The Tribunal directed the ITO to consider the partition claim and assess the income accordingly. The appeals by the assessee were partly allowed, and those by the Department were dismissed.