TMI Blog1992 (10) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Mrs. Amita Rajkumar Agarwal (c) Master Bharat R. Agarwal 2. Ami Sharad Agarwal (HUF) (a) Rajkumar Bansilal Agarwal, Karta (b) Mrs. Amita Rajkumar Agarwal (c) Master Sharad R. Agarwal 3. Sharad Bharat Agarwal (HUF) (a) Rajkumar Bansilal Agarwal, Karta (b) Master Sharad R. Agarwal (c) Master Bharat R. Agarwal 4. R. K. Sharad (a) Rajkumar B. Agarwal, Karta (b) Master Sharad R. Agarwal 5. R. K. Bharat Agarwal (HUF) (a) Rajkumar B. Agarwal, Karta (b) Master Bharat R. Agarwal 6. R. K. Agarwal (HUF) (a) Rajkumar B. Agarwal, Karta (b) Mrs. Amita R. Agarwal. 4. The concept of an HUF under the Hindu Law including both Mitakshara and Dayabhaga is a lawful status which comes into existence by virtue of law. The HUFs cannot be created by an act of a man. The concept of creation of an HUF by an act of a man is unknown to Hindu Law. By a fiction of law an entity can be brought into existence but that does not mean an entity of an HUF can be created. Mostly a Karta of an HUF acts as Karta or Manager of one HUF only. It is also not known to the Hindu Law that one man to act as a Karta is eligible to create HUFs as in the instant case. 5. Mr. Rajkumar B. Agarwal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to one school of Hindu law only but to all schools of law. The question may be looked at from another point of view as was looked at by the Supreme Court in the case of Surjit Lal Chhabda v. CIT [1975] 101 ITR 776. There, the Supreme Court observed that a joint family under the Dayabhaga law was like a Mitakshara family normally joint in food, worship and estate. In both systems the property of a joint family might consist of ancestral property, joint acquisition and self-acquired properties thrown into the common stock. In fact, whatever be the school of Hindu law by which the person was governed, the basic concept of an HUF in the sense of who could be its members was just the same. Generally speaking, the Supreme Court noted, the normal state of every Hindu family was joint and, in the absence of proof of a division, such was the legal presumption. A joint Hindu family with all its incidence, the Supreme Court pointed out, was a creature of law and could not be created by an act of parties except to the extent to which a stranger might be affiliated to the family by adoption. " 7. By following these two decisions of the Supreme Court, the Dy. CIT(A) held that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was accepted by the ITO and having done so he could not have changed the status of an HUF to AOPs. This decision is also mis-placed. On the action of changing the status the decision of the Rajasthan High Court in the case of CWT v. Ridhkaran [1972] 84 ITR 705. It was pointed out that in view of the said decision of the Supreme Court in the case of CIT v. K. Adinarayana Murty [1967] 65 ITR 607 the ITO do not have any jurisdiction to change the status of HUF to AOP. According to them the assessment made is a nullity. But two decisions relied upon by the Dy. CIT(A) are not at all either tried to be distinguished or not applicable to the action adopted by the Assessing Officer and upheld by the Dy. CIT(A). There is no dispute about making gifts of Rs. 7,500 to each HUF in question. The dispute is regarding creation of HUFs, their doing business in clothes and assessment of income from such cloth business is in dispute. A karta of Bigger HUF gifted a sum of Rs. 7,500 to each smaller HUFs. Thus a karta of a Bigger HUF is giving gift to himself and accepting the same on behalf of other HUFs created by him. In view of the decision of the Calcutta High Court in the case of P. N. Talukdar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f from the corporate body and leave the rest of the members of the corporate body united. Therefore, the Madras High Court held that the facts were not sufficient to indicate in that case that the father had blended his self-acquired properties with those of a joint Hindu family consisting of the persons stated in the declaration purporting to throw the property into the hotchpotch. Again none of the members of Bigger HUF divided themselves off from the corporate body and leave the rest of the family off the corporate body united in this case. All the decisions cited on behalf of the appellants are either in respect of partial partition of the members of properties or notional partition. The said concepts have not arisen in the instant appeals. However, it was much emphasised on the word " entity " which does not lend any help to the creation of an HUF by an act of a party. 12. The HUFs in question are not eligible to assume the character of an HUF created by virtue of law either by division of members or a division of property. In the instant appeals the Karta of a Bigger HUF gifted the amounts to the HUFs created by him and received the same on behalf of their members. Shri Kha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of McDowell Co. Ltd. v. CTO [1985] 154 ITR 148 cannot be said that the same is not applicable. By creating such smaller HUFs by an act of parties the payment of income-tax as well as wealth-tax is reduced by claiming to charge the income at a minimum marginal rate. 14. In his reply Mr Gargieya urged that even after the Judgment in the case of Shantikumar Jagabhai the Full Bench of the Madras High Court has not restricted the creation of legal entity. According to him even after throwing self-acquired property into stock is not helpful. There is no doubt that karta has a right to make a gift as per the decision of the Rajasthan High Court in the case of CIT v. Braham Dutt Bhargava [1962] 46 ITR 387 and relevant observation on page 397. But the purpose and limit of making such gifts cannot be ignored. According to the appellants the pious purpose and reasonable limits of making gifts are not essential factors. He has also urged that the decision of the Bombay High Court in the case of M. M. Khanna is also not applicable. He has contended that no constructive trust can be brought into existence and his reply to the decision of the Supreme Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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