1986 (9) TMI 154 - AT - Income Tax

Summary

Issues Involved:
1. Assessability of the Hindu Undivided Family (HUF) in respect of the entire property.
2. Double addition of Rs. 64,000 in the wealth computation.
3. Deduction for municipal taxes in determining the value of house property.

Issue-wise Detailed Analysis:

1. Assessability of the HUF in Respect of the Entire Property:
The primary issue was whether the HUF was assessable for the entire property or only two-thirds of it. The assessee-HUF argued that upon the death of Nathmal Choudhary, his one-third share in the joint family properties devolved on his legal heirs by succession, leaving the HUF with only two-thirds of the properties. The Wealth Tax Officer (WTO) and the Income Tax Officer (ITO) contended that the HUF should be taxed on the entire property. However, the Appellate Assistant Commissioner (AAC) agreed with the assessee, stating that the HUF was liable to be assessed only for two-thirds of the property. The department's appeal argued that the one-third share did not cease to belong to the HUF and suggested that the legal heirs had thrown the property into the common hotchpot of the HUF. The tribunal, however, upheld the AAC's decision, emphasizing that the Hindu Succession Act, 1956, altered the devolution of interest in joint family property. The tribunal referenced the Gujarat High Court decision in CWT v. Kantilal Manilal, which supported the view that the share of a deceased coparcener devolves on his legal heirs by succession. Additionally, the tribunal dismissed the department's argument that the property was still owned by the HUF due to the lack of separation of the deceased's share, stating that the heirs and the HUF could hold the properties as tenants-in-common. The tribunal also rejected the inference that the legal heirs had blended the property with the HUF's assets, citing the Supreme Court decision in Venkata Reddi v. Lakshmama, which required a clear intention to waive separate rights for blending to occur. Furthermore, the tribunal noted that one of the legal heirs was a female, and under the established law, a Hindu female cannot be a coparcener, and thus the doctrine of blending does not apply to her, referencing the Supreme Court decision in Pushpa Devi v. CIT. Consequently, the tribunal concluded that the HUF was not assessable for the one-third share that had devolved to the legal heirs and upheld the AAC's order.

2. Double Addition of Rs. 64,000 in Wealth Computation:
The department contended that the AAC was not justified in deleting Rs. 64,000 on the grounds of double addition in the wealth computation for the assessment years 1978-79 to 1981-82. The tribunal restored the appeals to the AAC, directing him to decide the matter afresh after providing both the assessee and the department an opportunity to be heard.

3. Deduction for Municipal Taxes in Determining the Value of House Property:
In the cross-objection for the assessment year 1978-79, the assessee argued that the AAC erred by not providing a deduction for municipal taxes while determining the value of the house property at 16 times the rental income, resulting in an excessive valuation. The tribunal found that this issue had not been considered by the AAC and thus did not entertain this ground as it did not arise out of the AAC's order.

Conclusion:
The income-tax appeals filed by the department for the assessment years 1980-81 and 1981-82 were dismissed. The wealth-tax appeals for the assessment years 1978-79 to 1981-82 were partly allowed for statistical purposes, and the cross-objection of the assessee was dismissed.