1990 (7) TMI 191 - AT - Income Tax

Summary

Issues Involved:
1. Partial partition of HUF and its recognition.
2. Validity and effect of the memorandum of understanding dated 1st July, 1979.
3. Assessment of income and wealth in the hands of the appellant, HUF, and other family members.
4. Concept of overriding title and real income.

Issue 1: Partial Partition of HUF and Its Recognition

The facts reveal a partial partition of the HUF of Y.A. Khare on 1st July, 1969, which included his son Anant Y. Khare and his wife Sumati Y. Khare. The partition divided the 14% share of Y.A. Khare equally among himself, his son, and his wife. This partition was recognized by the ITO for the assessment years 1970-71 and 1971-72. Consequently, the shares of the Khare family in the partnership firm were adjusted accordingly, and these changes were accepted by the Department for subsequent assessment years.

Issue 2: Validity and Effect of the Memorandum of Understanding Dated 1st July, 1979

The memorandum of understanding dated 1st July, 1979, was a key document in these appeals. It recorded the interests of the Khare family members in the partnership firm and was intended to avoid differences and complications. Despite the CIT(A)'s initial refusal to admit this document as evidence, the Tribunal found it to be genuine and contemporaneous. The document was stamped and dated, and its contents aligned with the facts and conduct of the parties over the years.

Issue 3: Assessment of Income and Wealth in the Hands of the Appellant, HUF, and Other Family Members

The Tribunal examined the assessments from the assessment year 1966-67 onwards, noting that the shares of the partnership were assessed separately in the hands of Y.A. Khare (Individual), A.Y. Khare (HUF), and Smt. Sumati Y. Khare. However, from the assessment year 1979-80, the Department taxed the entire 31% share in the hands of A.Y. Khare (Individual). The Tribunal had to decide whether the memorandum of understanding provided an overriding title on the shares earned by A.Y. Khare, thereby necessitating separate assessments for the HUF and Smt. Sumati Y. Khare.

Issue 4: Concept of Overriding Title and Real Income

The Tribunal referred to several legal precedents to understand the concept of real income and overriding title. The Bombay High Court in Ratilal B. Daftari vs. CIT held that real income is what remains after deducting amounts diverted by an overriding title. The Supreme Court in State Bank of Travancore vs. CIT emphasized that if there is a diversion of income by overriding title, then there is no income to the assessee. The Tribunal found that the memorandum of understanding created an overriding title in favor of the HUF of A.Y. Khare and Smt. Sumati Y. Khare. This arrangement was supported by the conduct of the parties and the assessments made by the Department in the past.

Conclusion:

The Tribunal concluded that the memorandum of understanding dated 1st July, 1979, was a genuine and contemporaneous document that created an overriding title. Consequently, the share earned by A.Y. Khare from the partnership firm had to be assessed in the hands of the HUF of A.Y. Khare and Mrs. Sumati Y. Khare to the extent of their entitlement. The appeals were allowed, and similar assessments were to be made under the Wealth-tax Act for the respective parties.