9911796707
TMI Blog1981 (4) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm could be validly thrown into the hotchpot of the HUF of which the said individual was the karta ? " Assessee, Keshavlal Prabhudas Shah, had two sources of income. He had shares in partnership firms including a partnership firm running in the name and style of M/s. Bharat Oil Mill (hereinafter referred to as " the firm ") He had also a property from which he derived income. The assessee held shares in Narhari Marine Insurance Company Ltd. (hereinafter referred to as " the company "); but there is nothing on record to indicate that the assessee derived any income by way of dividends from his shares in the said company. The above properties were self-acquired properties of the assessee and until the assessment year 1971-72, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includible in his total income inasmuch as this income belonged to his HUF. The ITO accepted the declaration made by the assessee before the Taluk Magistrate to be genuine and acted upon it. In other words, he accepted the contention of the assessee that the share income from the firm belonged to his HUF. He, however, included one-fifth share of the assessee and one-fifth share of the assessee's wife, i.e., in all two fifths share of the income, derived from the firm in the total income of the assessee under s. 64(2) of the Act. He did not include three-fifths of the assessee's income from the firm in the assessee's total income on the ground that this share income was impressed with the character of HUF property by the assessee's declarati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective. It was contended that the action taken by the ITO in excluding three-fifths of the share income from the firm from the assessee's total income for the assessment years in question was in accordance with law. The Commissioner, however, rejected the contention of the assessee and held that the declaration dated October 17, 1970, made by the assessee is invalid and inoperative, inasmuch as it was likely to saddle the HUF with the liability in case the firm suffered losses. In the result, the Commissioner directed the ITO to ignore the declaration) and include the full share from the firm in the total income of the assessee for the aforesaid assessment years. Being aggrieved by the order passed by the Commissioner, the assessee carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was being impressed with the character of HUF and not assets. Now, a share in a partnership firm having assets is property. In other words, the share which the assessee had in the firm was one of the properties held by him. This property admittedly was the self-acquired property of the assessee. It is open to a coparcener or a member of the HUF to impress his selfacquired property with the character of HUF property. The share in the firm being one of the self-acquired properties of the assessee, he could certainly have impressed it with the character of HUF property, if he chose to do so. There is no legal bar or impediment, and none is pointed out to us against conversion of the share in a partnership firm into HUF property. There was, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d receive in future, would be received by him in his individual capacity. Mr. Raval contended that the only consequence which would flow from the declaration made by the assessee was that the income which the assessee received from the firm in his individual capacity would ultimately go to the hands of the HUF. Mr. Raval submitted that this was a clear case of application of income after it was received by the assessee in his individual capacity. Receipt of the income by the assessee from the firm being in his individual capacity, it was liable to be assessed to income-tax in the, hands of the assessee. The Commissioner also did not direct the ITO to include the entire share income from the firm in the total income of the assessee on the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration throwing his share in the firm into the hotchpot of the HUF on October 17, 1970, only 13 days before the close of the accounting year. The question which arises is whether the share of the assessee in the income of the firm earned up to October 17, 1970, could be said to belong to the HUF. The ITO has proceeded to make assessment on the basis or assumption that the assessee's share in the entire income of the firm for the year of account relevant to the assessment year 1971-72 belonged to the HUF, and it is on that basis that he added only 2/5ths share in the income derived from the firm in the assessee's income-tax assessment for the assessment year 1971-72. The ITO did not apply his mind to the question whether or not the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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