COMMISSIONER OF INCOME TAX vs JANKIDAS RAM PRATAP.

B. R. ARORA, J. :

Sarvashri Asha Ram and Brij Ratan, who were the partners in the assessee firm M/s Jankidas Ram Pratap, Bikaner, inherited certain funds on the death of their father Sunder Lal, who died intestate on 7th Sept., 1973. The assessee-firm, for the asst. yr. 1984-85, paid interest amounting to Rs. 23,098 to the HUF of these two partners. The ITO, A Ward, Bikaner added back the amount of this interest under s. 40(b) of the IT Act on the ground that in view of the provisions of s. 8 of the Hindu Succession Act, 1956, Asha Ram and Brij Ratan became the sole owner of their respective shares which devolved upon them out of the separate property of their deceased father and for all intents and purposes these are the individual funds of the partners Asha Ram and Brij Ratan.

Aggrieved with the order dt. 26th Aug., 1986 passed by the assessing authority making disallowance of this amount of interest, the assessee preferred an appeal before the CIT(A), Jodhpur, who, by his order dt. 2nd Sept., 1988 allowed the appeal filed by the assessee and deleted the disallowance of Rs. 23,095 made by the ITO under s. 40(b) of the Act.

The Revenue, dissatisfied with the order dt. 2nd Sept., 1988, preferred an appeal before the Tribunal, Jaipur Bench, Jaipur and the Tribunal, by its order dt. 8th Nov., 1991 dismissed the appeal filed by the Revenue and maintained the order dt. 2nd Sept., 1988 passed by the CIT(A), Jodhpur. Aggrieved with the order passed by the Tribunal, Jaipur Bench, Jaipur, dismissing the appeal filed by the Revenue, the Revenue moved an application under s. 256(1) of the Act to refer the questions of law mentioned in the application. The application filed by the Revenue under s. 256(1) of the Act was dismissed by the Tribunal by its order dt. 29th April, 1993. The Revenue, dissatisfied with the order passed by the Tribunal refusing to refer the questions of law for the opinion of the High Court, filed the present application under s. 256(2) of the Act and prayed that the Tribunal may be directed to state the case and refer the following question of law for the opinion of this Court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in deleting the amount of interest included in the total income by virtue of s. 40(b) of IT Act on the funds held by the parties as individual and not in their HUF capacity ?"

It is contended by the learned counsel for the Revenue that the controversy involved in the present case is squarely covered by the decision of the Supreme Court rendered in Commissioner of Wealth Tax, Kanpur and Others Vs. Chander Sen and Others, and the Tribunal was not justified in refusing to refer the question of law for the opinion of the High Court on the ground that the order of the Tribunal is based on the decision of the Rajasthan High Court in the case of the assessee itself for the asst. yr. 1976-77 which is in favour of the assessee and, therefore, it is not necessary to refer the question for the opinion of the High Court. Learned counsel for the assessee, on the other hand, has supported the order passed by the Tribunal and submitted that when the matter in the case of the assessee for the earlier year has been decided in favour of the assessee, therefore, the Tribunal was justified in not referring the question of law for the opinion of this Court.

We have considered the submissions made by the learned counsel for the parties.

The controversy "whether the income or asset which a son inherits from his father when separated by partition, should be assessed as the income of the HUF of the son or his individual income and what would be the effect of s. 8 of the Hindu succession Act, 1956" came up for consideration before the apex Court in the case of CWT vs. Chander Sen (supra) and Supreme Court, affirming the view taken by the Allahabad High Court, Madras High Court, Madhya Pradesh High Court and the Andhra Pradesh High Court, held that "it would be difficult to hold today that the property which devolved on a Hindu under s. 8 of the Hindu Succession Act would be HUF property in his hands vis-a-vis his own son; that would amount to creating two classes among the heirs mentioned in Class I, the male heirs in whose hands it will be joint Hindu family property vis-a-vis their sons and female heirs with respect to whom no such concept could be applied or contemplated".

The view taken by the Tribunal, Jaipur Bench, Jaipur is, therefore, contrary to the view taken by the Supreme Court and the Tribunal was, therefore, not justified in refusing to refer the question of law for the opinion of the High Court. The order passed by the Tribunal refusing to refer the question of law, therefore, deserves to be quashed and set aside.

In the result, the application under s. 256(2) of the IT Act is allowed and the Tribunal is directed to state the case and refer the following question of law for the opinion of this Court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in deleting the amount of interest included in the total income by virtue of s. 40(b) of the IT Act on the funds held by the parties as individual and not in their HUF capacity ?"