1978 (8) TMI 117 - AT - Income Tax

Summary

Issues:
1. Inclusion of share income from a firm in the personal assessment of the assessee.
2. Whether the share income can be impressed with the character of HUF property by unilateral action of the assessee.
3. Interpretation of the doctrine of blending in Hindu Law.
4. Application of income by declarations and abandonment of separate rights.

Analysis:

1. The primary issue in this case was whether the share income received from a firm should be included in the personal assessment of the assessee. The Income Tax Officer (ITO) included the share income in the individual assessment, considering it not just income-yielding assets but also comprising risk and liability. However, the Appellate Assistant Commissioner (AAC) accepted the assessee's contention that the share could be impressed with the character of Hindu Undivided Family (HUF) property, as per Hindu Law principles. The Department appealed this decision.

2. The Tribunal referred to a previous decision in the assessee's case where it was held that there was no legal bar to impressing the share with the nature of HUF property by unilateral action of the assessee. The Tribunal also cited the Gujarat High Court decision supporting this view. The Departmental Representative raised concerns about throwing liabilities into the common hotchpot but the Tribunal differentiated, stating that in this case, only the right to share profits was thrown into the common stock, not liabilities.

3. The Tribunal analyzed the Department's argument regarding the application of income by declarations and abandonment of separate rights. It was noted that the declaration clearly impressed the shares with the character of joint family property and the assessee abandoned all separate rights. The Tribunal found support in the decisions of the Gujarat High Court and the Andhra Pradesh High Court, affirming that the shares were impressed with the character of HUF property, leading to the confirmation of the AAC's order to exclude the share from the assessee's hands.

4. Ultimately, the Tribunal dismissed the appeal, upholding the AAC's decision to exclude the share of 35/100 in the firm from the assessee's personal assessment. The judgment emphasized the application of Hindu Law principles in allowing the share income to be impressed with the character of HUF property, despite the Department's arguments regarding liabilities and income application.