Commissioner of Income Tax vs Smt. Bhavani Bai and Others

Gokal Chand Mital, A.C.J.—The income tax Appellate Tribunal, Chandigarh Bench, has referred the following question for opinion of this Court:

Whether, on the facts and in the circumstances of the case the Tribunal was right in law in holding that the share income of Talu Ram from Ganesh Factory should be assessed in the hands of Talu Ram HUF and not Talu Ram, individual.

The aforesaid question arises from the following facts:

Prior to 1st April, 1960, there was a Hindu Undivided family consisting of Mukhi Kesho Ram as the Karta and his two sons Talu Ram and Madan Lal as the other co-parceners. The HUF had a business in which it had net capital of Rs. 27,440, which was divided equally amongst the co-parceners. At the time of the aforesaid partition, Talu Ram constituted his own HUF, consisting of himself as Karta, his wife, a major son, a minor son and a minor daughter, as members of the HUF. Talu Ram represented his HUF of five members as a partner in representative capacity as Karta in M/s Ganesh Factory Rajpura, till 30th September, 1966. On 1st October, 1966. Talu Ram effected a partial partition of the capital of Rs. 23,852 which stood invested in the aforesaid firm. Talu Ram, his wife and two sons were allotted one-fourth share in the partial partition. The HUF share in the building and machinery was kept joint.

The dispute has arisen with regard to one-fourth share allotted to Talu Ram in partial partition effected on 1st October, 1966, as to whether it has to be considered as belonging to him in his individual capacity or to the smaller HUF representing Talu Ram, his wife and his minor daughter.

For the assessment years 1971-72 and 1972-73, Talu Ram, as Karta of the smaller HUF, declared an income of Rs. 25,350 and Rs. 23,290, respectively. Before the income tax Officer, in assessment proceedings, the question arose as to whether the share which was allotted to Talu Ram in the partition effected on 1st October, 1966, which remained invested in M/s Ganesh Factory, belonged to him individually or to the smaller HUF as claimed by the Assessee. While the income tax Officer held that the income has to be considered as individual income of Talu Ram, the Appellate Assistant Commissioner and the Tribunal decided in favour of the Assessee on the basis of certain decided cases. That is how the question of law has been referred.

On a consideration of the matter, we are of the view that the facts of the case are identical with the facts of Commissioner of Income Tax Vs. K. Satyanarayan Murty, , a decision of the Division Bench of the Orissa High Court. The following dictum was laid by Hon''ble R.N. Misra, C.J. (the present Chief Justice of India):

In the instant case, the property in dispute (the share in Sri Durga Stores, allotted to him on partial partition) was his personal property and had no longer the incidence of joint family character. There is no claim of throwing it into the family hotchpot.

The aforesaid quotation squarely applied to the facts of the present case. On partition of the investment made in M/s Ganesh Factory, Talu Ram was allotted one-fourth share which he allowed to continue in the same business and from that share he earned income to be accounted for in the assessment years 1971-72 and 1972-73. On partial partition of the business assets, it is hard to understand how the share allotted to Talu Ram became the asset of smaller HUF. One can understand that if a Karta effects partial partition with his sons, grandsons and great-grandsons, the share allotted to his sons may be considered to belong to their HUF. In this case, on 1st October, 1966, there was partial partition of the assets in a business by father of Talu Ram and his two sons and the share which came to Talu Ram was rightly considered as belonging to Talu Ram''s HUF. But, once Talu Ram effected partial partition in the business of M/s Ganesh Factory, one fails to understand how the share allotted to Talu Ram constituted the asset of smaller HUF.

On behalf of the Prem Chand Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad, , a decision of Andhra Pradesh High Court, and Gopal Ramanarayan Vs. Commissioner of Income Tax, , a decision of the Karnataka High Court, have been cited. The Andhra Pradesh High Court dissented from the decision of the Orissa High Court whereas the Karnataka High Court did not refer to that decision. On a consideration of all the three judgments, with due respect, we follow the reasoning of the Orissa High Court judgment, referred to above.

In fairness to the counsel for the Assessee, reference may also be made to COMMISSIONER OF INCOME TAX Vs. POLAKI BUTCHI BABU., , another decision of the Orissa High Court. We have gone through the judgment. The facts are distinguishable. Moreover, in this judgment the earlier decision was not considered.

For the reasons recorded above, we answer the referred question in favour of the Revenue and against the Assessee, in negative. The Tribunal was not right in holding that the share income of Talu Ram from Ganesh Factory should be assessed in the hands of Talu Ram HUF. It should be assessed in the hands of Talu Ram individual. However, there will be no order as to costs.