1967 (1) TMI 5 - HC - Wealth-tax

Assessment of net wealth - status - HUF - deed of gift was an absolute gift and in respect of properties covered by the deed of gift, the assessee must be assessed in his capacity as an individual

Summary

Issues Involved:
1. Status of the assessee for wealth-tax purposes.
2. Interpretation of the deed of gift.
3. Interpretation of the deed of partnership.
4. Applicability of Hindu undivided family (HUF) status to the assessee's properties.

Detailed Analysis:

1. Status of the Assessee for Wealth-Tax Purposes:
The primary issue was whether the assessee should be assessed as an individual or as a member of a Hindu undivided family (HUF) for the assessment years 1957-58 and 1958-59.

2. Interpretation of the Deed of Gift:
The assessee claimed that the properties received under the deed of gift were HUF properties. The Wealth-tax Officer and the Appellate Assistant Commissioner rejected this claim, stating that the properties were personal gifts from Amarchand to his sons, and thus, the properties were individual estates. The Tribunal, however, interpreted the deed of gift as part of a family arrangement, suggesting that the properties were intended to be HUF properties.

The High Court examined the deed of gift, which explicitly stated that the properties were given "absolutely and for ever and in equal shares" to the donees. The Court found no language in the deed indicating that the properties were to be held as HUF properties. The Court emphasized that at the time of the gift, the donees were minors, making it unlikely that the father anticipated their future family structures. Consequently, the Court held that the deed of gift was an absolute gift, and the assessee should be assessed as an individual for these properties.

3. Interpretation of the Deed of Partnership:
The Tribunal viewed the partnership deed as indicative of a family arrangement, suggesting that the business assets were intended to be HUF properties. The partnership deed included provisions for equal shares among the sons, succession by male descendants, maintenance for widows, and restrictions on the transfer of shares to family members only.

The High Court agreed with the Tribunal, noting that the partnership deed's provisions were consistent with a scheme of partition. The Court concluded that the business assets covered by the partnership deed were intended to be HUF properties.

4. Applicability of HUF Status to the Assessee's Properties:
The High Court differentiated between the properties covered by the deed of gift and those covered by the partnership deed. The Court held that the properties under the deed of gift were individual properties, and the assessee should be taxed as an individual for these properties. However, the business assets under the partnership deed were HUF properties, and the assessee could be taxed in his status as a member of an HUF for these assets.

Conclusion:
The High Court answered the referred question as follows:
(a) In the negative for the properties covered by the deed of gift.
(b) In the affirmative for the properties covered by the partnership deed.

Each party was directed to bear its own costs.