1970 (2) TMI 38 - HC - Income Tax

Assessment - status - karta of HUF became partner in firm - assessability of share income -individual income or income of branch of Hindu Undivided Family

Summary

Issues Involved
1. Whether the share of profits from the firm M/s. Vijaykumar Ramanlal and Co. was rightly assessed in the hands of the Hindu undivided family (HUF) of which the assessee is the karta for the assessment year 1957-58.
2. Whether the Tribunal erred in law or acted without evidence in holding that the assessee was a partner in Vijaykumar Ramanlal and Co. in his capacity as the karta of the HUF.

Issue-Wise Detailed Analysis

Issue 1: Assessment of Share of Profits in Hands of HUF
The first reference questioned whether the share from the firm M/s. Vijaykumar Ramanlal and Co. was rightly assessed in the hands of the HUF of which the assessee is the karta for the assessment year 1957-58. The Tribunal had held that Champaklal, the assessee, held his share in the fourth firm in his individual capacity and not as a karta of the HUF. The Tribunal's decision was based on the fact that there was no family nucleus employed in acquiring the share in the firm, the profit earned was kept separate, and there was no indication in the partnership deed that Champaklal was a partner as a karta. Therefore, the Tribunal concluded that Champaklal's share in the firm was his individual income.

The High Court reframed the question to: "Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that for the assessment year 1957-58 the assessee was a partner in Vijaykumar Ramanlal and Co. in his individual capacity?" The Court upheld the Tribunal's decision, noting that the presumption under Hindu law is that a business standing in the name of any member is not a joint family business without evidence to the contrary. Since the fourth firm was a new business started after the partition of the joint family, and there was no evidence of family funds being used, the presumption was not rebutted. Thus, the share of profits from the firm was rightly assessed as the individual income of Champaklal.

Issue 2: Tribunal's Decision on Karta's Capacity
The second reference questioned whether the Tribunal erred in holding that the assessee, Mulchand, was a partner in Vijaykumar Ramanlal and Co. in his capacity as the karta of the HUF. The Tribunal had upheld the Appellate Assistant Commissioner's decision that Mulchand's share of the profits from the fourth firm was part of the income of his HUF. The Tribunal considered the declaration made by Mulchand in his return for the accounting year S.Y. 2011, where he stated that his share of income from the fourth firm was the income of his HUF.

However, the High Court noted that the intention of the karta must be ascertained from subsequent conduct and the income-tax returns filed. The returns up to S.Y. 2010 showed the income of the fourth firm as belonging to Mulchand personally. The correction made in S.Y. 2011 was argued to be a mistake when the return for S.Y. 2012 was filed. The Court held that the presumption under Hindu law that a business is not a joint family business unless proven otherwise must prevail. Since the fourth firm borrowed loans from Messrs. Chhaganlal Kasturchand like any other borrowing and there was no evidence of family funds being used, the presumption was not rebutted. Thus, the Tribunal erred in holding that Mulchand was a partner in the fourth firm as a karta of the HUF.

Conclusion
The High Court concluded that the share of profits from M/s. Vijaykumar Ramanlal and Co. was rightly assessed as the individual income of the assessees, Champaklal and Mulchand, and not as the income of their respective HUFs. The reframed question in the first reference was answered in the negative, and the question in the second reference was answered in the affirmative. The department was ordered to pay the costs of each assessee in their respective references.