1978 (2) TMI 136 - AT - Income Tax

Summary

Issues involved:
1. Whether the income from a property, which was mortgaged to a company, can be included in the individual assessment of the assessee when the property was declared as part of a Hindu Undivided Family (HUF).
2. Whether the act of throwing self-acquired property into the common stock of an HUF constitutes a valid transfer for tax purposes.

Detailed Analysis:

1. The assessee, an individual, constructed a building and mortgaged it to Tata Iron Steel Co. The assessee then declared the property as part of the HUF. The Assessing Officer (AO) initially did not include the property income in the individual assessment, considering it part of the HUF. However, in subsequent assessments, the AO included the income, stating that the property belonged to the individual as it was mortgaged to TISCO without informing the company. The Appellate Authority Commissioner (AAC) upheld the inclusion of income, citing that the assessee had no right to transfer the property due to the mortgage agreement. The AAC referred to a circular prohibiting such claims by government officers. The AAC confirmed the inclusion of income from the property in the individual's assessment.

2. The counsel of the assessee argued that throwing self-acquired property into the HUF did not constitute a transfer, relying on a Supreme Court decision. The Departmental Representative contended that the property, being mortgaged, could not be validly included in the HUF. The AAC maintained the inclusion of income based on the mortgage to TISCO, restricting transfer until the loan was cleared. The Supreme Court precedent stated that throwing self-acquired property into the HUF did not amount to a transfer for tax purposes. The AAC's objection regarding the lack of a valid transfer due to the mortgage was deemed incorrect based on the Supreme Court decision.

3. The AAC's decision was based on the property being mortgaged and the absence of a valid transfer due to loan restrictions. However, the Supreme Court precedent clarified that throwing self-acquired property into the HUF did not constitute a transfer. Therefore, the inclusion of property income in the individual assessment was deemed unsustainable.

4. The assessment orders of the HUF for previous years confirmed that the property income had been taxed in the HUF's hands. The AO had previously accepted the property as part of the HUF based on the declaration. Considering this factual evidence, the inclusion of income from the property in the individual assessment was deemed unwarranted, leading to the deletion of the income inclusion.

In conclusion, the appeals were allowed, and the inclusion of property income in the individual assessment was deleted based on the legal principles surrounding the transfer of self-acquired property to an HUF and the mortgage restrictions on the property.