9911796707
TMI Blog1984 (3) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... firm Akula Venkateswarlu Co. should not be included in the assessment. The contention of the assessee was that the assessee had received Rs. 26,744 on partition of the HUF of which he was a member along with his father and out of that Rs. 25,000 was withdrawn on 30-8-1977 and invested in the firm Prasad Co. in which he became a partner. Thereafter he stated that there was only a nominal balance and together with interest it came to about Rs. 4,530 which remained with the firm Akula Venkateswarlu Co. He has also stated that he was taken as a partner in firm Akula Venkateswarlu Co. not because of any capital investment but he was only a working partner. Therefore, share income from this firm unlike the share income from the firm Prasad Co. was not assessable in the hands of the HUF. 3. The ITO did not accept the explanation. According to him, since about Rs. 4,000 remained invested in the books of the firm Akula Venkateswarlu Co. out of family funds and since the share income of the assessee was being credited to the same account, share income from firm Akula Venkateswarlu Co. should also be included in the hands of the assessee. Thus the ITO computed the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HUF and the share incomes to be included would have to be from both the firms, viz., Prasad Co. and Akula Venkateswarlu Co. 5. In the main appeal, the assessee has contended for exclusion of the share income from the firm Akula Venkateswarlu Co. but otherwise the assessee does not contest the assessment in the status of HUF and inclusion therein of the share of Prasad Co. 6. The learned counsel for the assessee took us through the history of the case. There was a HUF of which Venkateswarlu and Sivanageswara Rao, the assessee, were members. There was a partial partition of this HUF on 22-10-1976. The assessee and his father as well as the assessee's brother, Shri Srimannarayanamurthy, each got Rs. 26,744 on partial partition. This amount was got deposited in the firm Akula Venkateswarlu Co. in which at the material time the assessee was not a partner. Subsequently, the assessee, who was a minor, was admitted into the benefits of partnership of a firm Prasad Co. The relevant deed was dated 17-8-1977 and in the said deed it was expressly provided in clause 4 that the capital required was to be contributed by two of the partners as well as the two minors of whom the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in Prasad Co. was different from that in which he became a partner in Akula Venkateswarlu Co. He stated that in Prasad Co. the assessee was taken as a partner because of capital contribution which in terms of the deed he was required to make whereas in the latter firm it was expressly provided that the assessee was being taken in only as a working partner. His submission that merely because share income from this firm was credited to an account in the books of account of the firm in which there was a balance of about Rs. 4,000 would not make the share income the income of the HUF. 9. The learned departmental representative after adverting to the factual background relied on by the learned counsel for the assessee submitted that there were funds belonging to the HUF lying in the firm Akula Venkateswarlu Co. and into the same account the share incomes were being credited which showed the intention of the assessee to treat the incomes as HUF incomes alone. He, therefore, pleaded for the share income from the firm Akula Venkateswarlu Co. being included in the hands of the assessee-HUF. 10. Before us, the learned counsel for the assessee and the learned departmental repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned that the fourth and fifth partners were taken in view of the requirement of additional capital and manpower. But in view of the specific further description in clause 4 of the deed it is clear that Sivanageswara Rao was taken in only to provide manpower and not to provide any additional capital. He was, thus, only, a working partner in this firm and the same position continued when there was change in constitution evidenced by the later deed of 2-11-1978. 13. The first point for determination is what is the status of the entity consisting of Sivanageswara Rao and his wife. In the accounting year relevant to the assessment year now under consideration, their son Anand had not been born, the son having been born only after March 1981. Since capital had been received on partition by Sivanageswara Rao, it represented family funds and by his marriage on 30-1-1980 it is clear that he and his wife constituted a HUF. There is a discussion by the Madras High Court in the case of P.R. Ramasubramania Raja v. State of Tamil Nadu [1980] 121 ITR 879 wherein their Lordships have reviewed all the earlier salient decisions on the point including in particular the decisions of the Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the services rendered by the individual coparcener. If it is the former, it is an income of the Hindu undivided family but if it is the latter then it is the income of the individual coparcener. If the income, was essentially earned as a result of the funds invested the fact that a coparcener has rendered some service would not change the character of the receipt. But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu undivided family . . . " It is clear that it was because of investment of family funds that share income came to be derived from Prasad Co. Therefore, the share income from Prasad Co. was the income of the assessee-HUF and has been rightly taxed by the ITO. 14. Coming to the share income from Akula Venkateswarlu Co., we have referred to the relevant provisions of the partnership deeds. It was made explicit that Sivanageswara Rao was bei ..... 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