1970 (11) TMI 27 - HC - Income Tax

Partition of HUF - whether actual division of property is necessary - whether assets acquired on partition can be treated as that of family

Summary

Issues:
1. Whether the assets of the Hindu undivided family could be deemed to have been partitioned on specific dates.
2. Whether the income from the business set up by individual family members using family funds could be assessed in the hands of the Hindu undivided family.

Analysis:
The judgment pertains to a reference under section 66 of the Indian Income-tax Act, 1922, involving the assessment years 1956-57, 1957-58, and 1958-59 of a Hindu undivided family. The family claimed partition in 1948, dividing assets within and outside the books, with a partnership firm taking over the business assets. However, the Income-tax Officer deemed the partition as a sham transaction, leading to assessments based on the assets being considered joint family property. This decision was upheld by the Appellate Assistant Commissioner and the Appellate Tribunal.

The Appellate Tribunal referred two questions to the High Court. The first question concerned the partition of assets besides specific items already divided among family members. The Tribunal noted that while shares were ascertained, individual items were not physically divided in 1948, leading to a negative answer against the assessee on this issue. The second question related to income from businesses set up by family members post-1948 using family funds. The High Court observed that assets were eventually divided among family members, ceasing to be joint family property. Therefore, income from businesses set up by individual members could not be assessed as belonging to the Hindu undivided family, resulting in a negative answer in favor of the assessee on this issue.

In conclusion, the High Court ruled against the assessee on the first question regarding the partition of assets and in favor of the assessee on the second question concerning the assessment of income from individual family member businesses. The judgment clarified the distinction between joint family assets and individual member assets, ultimately determining the tax liability of the Hindu undivided family.