1973 (7) TMI 22 - HC - Income Tax

Grandfather made gifts to grandsons - Father also made gifts to sons equally - Whether Tribunal was right in holding that 660 shares belonged to the assessee s Hindu undivided family and therefore the income therefrom was not taxable in the hands of the assessee in the status of an individual ? (2) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the Appellate Assistant Commissioner of Income-tax was justified in reducing the interest income from Rs. 13, 352 to Rs. 6, 157 ? Questions answered in the affirmative

Issues Involved:
1. Ownership of shares and taxability of income from shares in the hands of the Hindu undivided family (HUF) versus individual.
2. Justification of reducing interest income by the Appellate Assistant Commissioner of Income-tax.
3. Exclusion of the value of shares and deposits from individual assessment in Wealth-tax.

Issue-wise Detailed Analysis:

1. Ownership of Shares and Taxability of Income from Shares:
The primary issue in Income-tax Reference No. 28 of 1969 and No. 80 of 1971 revolves around whether the shares belonged to the assessee's Hindu undivided family (HUF) and thus the income therefrom was not taxable in the hands of the assessee as an individual. The Tribunal held that the shares were part of the HUF based on the surrounding circumstances and the intention of the donors. The gifts were made per stirpes, indicating an intention to benefit the family branches rather than the individual donees. The Tribunal's decision was influenced by the practice of partitioning self-acquired property among family branches, supported by an affidavit from Raj Bans Bahadur. The Tribunal also noted the assessee's own treatment of the shares as HUF property upon the birth of his son. The court supported the Tribunal's view, emphasizing the need to consider all surrounding circumstances to ascertain the donor's intention, as highlighted in the Supreme Court's judgment in C. N. Arunachala Mudaliar v. C. A. Muruganatha Mudaliar.

2. Justification of Reducing Interest Income:
In Income-tax Reference No. 80 of 1971, the second issue was whether the Tribunal was right in holding that the Appellate Assistant Commissioner of Income-tax was justified in reducing the interest income from Rs. 13,352 to Rs. 6,157. The court did not provide a detailed separate analysis for this issue, but the affirmation of the Tribunal's decision implies that the reduction was justified based on the circumstances and evidence presented.

3. Exclusion of Value of Shares and Deposits from Individual Assessment in Wealth-tax:
In Wealth-tax Reference No. 2 of 1972, the issue was whether the shares and part of the deposits belonged to the HUF and should be excluded from the individual assessment of the assessee. The Tribunal, following the reasoning in the income-tax cases, held that the shares and deposits were HUF property. The court agreed, noting that the intention of the donors and the treatment of the shares and deposits by the assessee indicated they were meant for the HUF. The court reiterated that the nature of the gift, as intended for the family branch, could not be altered by the donee's subsequent actions or misunderstandings.

Conclusion:
The court answered all the questions in the affirmative, supporting the Tribunal's findings that the shares and related income belonged to the HUF and not to the individual assessees. The court emphasized the importance of the donor's intention and the surrounding circumstances in determining the nature of the gifts. The decisions were in favor of the assessees and against the revenue, with no order as to costs.

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