747/CBDT. - Income Tax - 747/CBDT

INSTRUCTION NO. 747/CBDT Dated : April 30, 1974 An instance has come to the notice of the Board where a person who was a partner in a firm in his individual capacity had impressed one half of his share in the firm with the character of a joint family property thereby abandoning all his individual rights over the half share in the firm in favour of a joint family of which he was a 'karta'. On the basis of a declaration to this effect duly reduced in writing and placed before the I.T. Officer, the assessee claimed and had 50 per cent of the share of profits accruing to him in the firm taxed in the hands of the HUF of which he was a 'karta". 2. The Board being advised that such a claim made by the assessee was not in order, have examined the issues involved in detail. Under the Hindu law, if a separate property voluntarily is thrown into the joint stock with the intention of abandoning of separate claims upon it, then it becomes joint family property. However this doctrine of blending can be applied where the separate property which is thrown into the common stock confers benefits on the joint family. If such separate property involves liability then the doctrine of blending would not be applicable because a co-parcener cannot unilaterally burden the joint family estate or the joint family with his separate property involving liabilities under the guise of throwing it into the common stock. In a case like the one under consideration, the assessee would be liable for the debts incurred by the firm, his debt not being confined to the extent of his share because as laid down in section 25 of the Indian Partnership Act, every partner is liable jointly and severally for all acts binding on the firm, thus including liability arising from contracts as well as torts. Hence, it would be incorrect to assume that the share of an assessee in the said firm consist only of income yielding assets. It equally comprises of risk and liability of paying debts on behalf of the firm. Therefore, the assessee cannot, under the Hindu law, make a declaration of the type under consideration whereby the joint family would have to bear the risk and liability of the business. Therefore, the declaration made by the assessee has to be ignored altogether. 3. The general position of law in a case like the one under consideration being what is indicated, necessary instructions may please be issued to all the Income-tax Officers working in your charge as to the correct position in law set out above. 4. A review of completed assessments in similar cases may also be carried out to retrieve revenue lost, if any on acceptance of such claims. A report indicating the number of cases reviewed, the number of cases in which such mistakes have been noticed and the rectificatory action taken thereon may please be sent to the Board positively by the 30th September, 1974.