1973 (8) TMI 24 - HC - Wealth-tax

Father and son divided family business and ran it as partnership - father died - Whether the amounts standing to his credit devolves on his son in his individual capacity or on undivided family of the deceased and his sons Whether on the facts and in the circumstances of the case the conclusion of the Tribunal that the sum of Rs. 1, 85, 043 and Rs. 1, 82, 742 did not constitute the assets of the assesee-Hindu undivided family is correct ? - Whether on the facts and in the circumstances of the case the interest of Rs. 23, 330 on said amount is allowable deduction in the computation of the business profits of the assessee-joint family ?

Summary

Issues:
Assessment of wealth and business income for Hindu undivided family post partial partition, inheritance of property, deduction of interest in business profits.

Analysis:
The judgment by the High Court of Allahabad pertains to a consolidated reference involving assessment years 1966-67 and 1967-68 under the Wealth-tax Act for a Hindu undivided family. The case revolves around the inheritance of assets and the treatment of wealth and business income post the death of the family patriarch, Rangi Lal. A partial partition had occurred in the family, leading to the division of business between the father and son, subsequently operated as a partnership. Upon Rangi Lal's demise, a credit balance of Rs. 1,85,043 remained in his account, which was a subject of contention regarding its inclusion in the net wealth of the family.

In the assessment year 1966-67, Chander Sen, as the surviving member of the family, filed a return of net wealth, excluding the amount inherited from Rangi Lal on the grounds of it being his individual property. However, the Income-tax Officer disagreed, asserting that the sum belonged to the family. A similar dispute arose in the assessment year 1967-68 concerning interest accrued on the credit balance. The Appellate Assistant Commissioner favored the assessee's claim, holding that the inherited capital was not part of the family's wealth. The Income-tax department challenged this decision before the Income-tax Appellate Tribunal.

The Tribunal dismissed the department's appeals but referred crucial questions to the High Court for consideration. The primary issue was whether the inherited amounts constituted assets of the Hindu undivided family or Chander Sen individually. The court analyzed the nature of inheritance under the Hindu Succession Act and precedent cases to determine the character of the inherited property. It was established that the property inherited by Chander Sen from his father was his separate property, not belonging to the family. Therefore, the court ruled in favor of the assessee, affirming that the inherited amounts were not part of the family's wealth.

Regarding the connected reference under the Income-tax Act, the court held that since the inherited amount belonged to Chander Sen individually, the interest claimed as a deduction in business profits was allowable. The court concluded that the interest was a legitimate deduction in computing the income of the assessee-family from the business. The judgment favored the assessee in both the wealth-tax and income-tax assessments, granting costs of Rs. 200.

In conclusion, the High Court's judgment clarified the distinction between individual and family property in the context of inheritance, providing a comprehensive analysis of the applicable laws and precedents to resolve the disputes over wealth and business income assessments for the Hindu undivided family.