Commissioner of Income Tax vs M.P. Jain and Sons

At the instance of the revenue, the Tribunal referred the following question, relating to the assessment years 1975-76 and 1976-77, for the opinion of this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that only 40% share in the income of the firm Chamanlal Mohinder Prakash should be included in the assessment of the assessee-HUF instead of the entire income of the above firm ?"

The facts as stated in the ''statement of the case'' by the Tribunal are that the assessee is a HUF headed by its karta. He filed returns of income showing Rs. 10,890 for the assessment year 1975-76 and Rs. 9,700 for the assessment year 1976-77. The HUF disclosed, inter alia, share income from the firm Chamanlal Mohinder Prakash. The ITO, following his order relating to the assessment year 1975-76 in the case of the said firm, assessed the entire income from that firm in the hands of the HUF.

On appeal, the AAC held that the entire income of the firm could not be included in the hands of the HUF. The karta of the HUF was a partner in the aforesaid firm having 40 per cent share. On further appeal, the Tribunal held that only 40 per cent share income from the firm could be assessed in the hands of the HUF.

Undisputed fact is that the karta represented his HUF in the assessee- firm having only 40 per cent Share. On these facts, it is obvious that only income falling to the share of the HUF could be assessed in the hands of the HUF and not the entire income of the firm. We, therefore, answer the aforementioned question in the affirmative, that is, in favour of the assessee and against the revenue.