1972 (5) TMI 4 - HC - Income Tax

Present assessee is admittedly a Hindu undivided family (H.U.F.) carrying on business in jute and country produce in the name and style of Tolaram Bijoy Kumar, of which Tolaram Saraf is the karta - When a Hindu joint family carries on the business after its partition, if the business is carried on by a partnership firm inconstituted by the co-parceners, whether the partners income can be treated as his separate income

Summary

Issues Involved:
1. Determination of the status of the income from the petrol business of Messrs. Nathmal Tolaram (Petrol Depot).
2. Assessment of whether the income should be taxed as the individual income of Tolaram or as the income of the Hindu Undivided Family (H.U.F.) of Tolaram Bijoy Kumar.

Comprehensive, Issue-Wise Detailed Analysis:

1. Determination of the Status of the Income from the Petrol Business:
The primary issue was whether the share income of Rs. 21,746 from Messrs. Nathmal Tolaram (Petrol Depot) should be assessed as the individual income of Tolaram or as the income of the H.U.F. of Tolaram Bijoy Kumar. The Tribunal found that the business initially carried on by Narmal and his sons was treated as a joint family business. The Tribunal noted that the returns submitted by the family indicated the business as a joint family business, which was also evidenced by the partnership deed and the partition deed. The Tribunal concluded that the property, including the business, did not lose its character as joint family property even after partition and when it came into Tolaram's hands.

2. Assessment of Whether the Income Should Be Taxed as Individual or H.U.F. Income:
The Tribunal held that the income from the petrol business should be assessed in the hands of the H.U.F. and not as Tolaram's individual income. The Tribunal's decision was based on the fact that the business was treated as joint family property and that Tolaram joined the partnership representing his branch of the family. The Tribunal rejected the claim that the property was Tolaram's self-acquired property, emphasizing that the property retained its character as joint family property even after the partition.

Legal Principles and Precedents:
The court referred to Mulla's Hindu Law and relevant Supreme Court decisions to elucidate the principles governing joint family property and its assessment. The court cited the Supreme Court's decision in N.V. Narendranath v. Commissioner of Wealth-tax, which held that property received on partition by a coparcener remains joint family property in the hands of the coparcener and his male issue. Similarly, in P.N. Krishna Iyer v. Commissioner of Income-tax, the court held that income received by a member of a H.U.F. from a business where family funds are invested is taxable as the income of the H.U.F.

Analysis of the Tribunal's Findings:
The court agreed with the Tribunal's findings that the business was treated as joint family property. The Tribunal noted that the partition deed and the partnership deed both acknowledged the business as joint family property. The Tribunal also observed that Tolaram's actions, such as submitting returns as an individual, could not override the legal character of the property as joint family property.

Rejection of Petitioner's Arguments:
The court addressed and rejected the petitioner's arguments, which included:
1. The submission of returns by Tolaram as an individual.
2. The absence of a statement by Tolaram claiming to carry on business as karta of the H.U.F.
3. The introduction of an outsider as a partner in the petrol business.
4. The substitution of Srinivas's widow as a partner.

The court held that these factors did not alter the fundamental character of the property as joint family property.

Distinguishing Case Law:
The court distinguished the present case from the Allahabad High Court's decision in Chiranji Lal v. Commissioner of Income-tax, noting that in the Allahabad case, there was a complete partition of the business capital among the family members, which was not the situation in the present case.

Conclusion:
The court concluded that the Tribunal was justified in holding that the share income from Messrs. Nathmal Tolaram (Petrol Depot) was assessable in the hands of the H.U.F. of Tolaram Bijoy Kumar. The question of law was answered in the affirmative, and no order as to costs was made.

Judgment:
Question answered in the affirmative.

Agreement:
BAHARUL ISLAM J. concurred with the judgment.