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Addl. Commissioner of Income-tax Vs. V.K. Purwar - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 829 of 1973
Judge
Reported in[1979]116ITR908(All)
ActsIncome Tax Act
AppellantAddl. Commissioner of Income-tax
RespondentV.K. Purwar
Appellant AdvocateAshok Gupta, Adv.
Respondent AdvocateBharatji Agarwal, Adv.
Excerpt:
.....his wife and daughter could hence validly be a huf for income-tax purposes as..........whereafter this firm was converted into a partnershipfirm. sri v. k. purwar became a partner. the share income received bysri v. k. purwar from the partnership firm, messrs. govind ram gajadharlal, is the subject-matter of dispute in this reference. 3. the assessee claimed that he became a partner in his capacity as karta of his own huf consisting of himself, his wife and daughter. the ito, however, repelled this claim, and brought the share income to assessment in his individual capacity. this happened for the assessment year 1966-67. for the two subsequent years, namely, 1967-68 and 1968-69, also the ito maintained the same position. the share income from this firm was assessed in the hands of sri purwar in his individual capacity. 4. for the assessment years 1969-70 and 1970-71, sri.....
Judgment:

Satish Chandra, J.

1. This reference relates to assessment years 1969-70 and 1970-1971, the relevant previous years being the financial years.

2. Sri V. K. Purwar, the assessee, was in service in the firm of Messrs. Govind Ram Gajadhar Lal. There was a partition in this firm in OctoberNovember, 1966, whereafter this firm was converted into a partnershipfirm. Sri V. K. Purwar became a partner. The share income received bySri V. K. Purwar from the partnership firm, Messrs. Govind Ram GajadharLal, is the subject-matter of dispute in this reference.

3. The assessee claimed that he became a partner in his capacity as karta of his own HUF consisting of himself, his wife and daughter. The ITO, however, repelled this claim, and brought the share income to assessment in his individual capacity. This happened for the assessment year 1966-67. For the two subsequent years, namely, 1967-68 and 1968-69, also the ITO maintained the same position. The share income from this firm was assessed in the hands of Sri Purwar in his individual capacity.

4. For the assessment years 1969-70 and 1970-71, Sri Purwar filed two returns--one in his individual capacity and another as the karta of his HUF. The share income from this firm was shown in the return filed as karta.

5. The ITO, relying mainly on his previous orders, repelled the claim of the HUF and brought the share income from this firm to tax in the hands of Sri Purwar in his individual capacity.

6. The assessee went up in appeal. In respect of one year he succeeded. The AAC held that the share income properly belonged to the HUF and was taxable in their hands. But for the year 1970-71, the appeal came up for hearing before another AAC, who differed from his predecessor, and rejected the claim of the HUF.

7. The result was that for the year 1969-70, the department went up in appeal to the Tribunal, while for the year 1970-71, the assessee-HUF went up in appeal.

8. The Tribunal reviewed the evidence as well as the legal position and came to the conclusion that it was clearly established that Sri Purwar had made an unequivocal declaration of his intention of throwing the sum of Rs, 10,000 advanced by him as his share of the capital in the firm, into the hotchpot of his HUF, and since then his HUF was really the partner in the firm and the share income in fact and in law belonged to the HUF. It was not liable to be assessed in the hands of Sri Purwar in his individual capacity.

9. At the instance of the department, the Tribunal has referred the following question of law 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 the share income from the firm, M/s. Govind Ram Gajadhar Lal, has to be excluded from the income of Sri V. K, Purwar, individual, as the same belongs to the HUF of which he is the karta ?'

10. The undeniable facts are that in Part II of the return filed by Sri Purwar for the assessment year 1966-67, Sri Purwar made an unequivocal declaration of his intention to abandon his separate right in the sum advanced to this firm, and invested it with the character of joint family property. In the next place, Sri V. K. Purwar stated before the ITO on January 11, 1967, while proceedings for the assessment year 1965-66 were being conducted, that he had gifted Rs. 5,000 to his HUF and become a partner in the said firm as the karta of Ms HUF. Further, on November 2, 1966, he addressed a letter to the ITO in respect of assessment proceedings for the years 1962-63 to 1966-67 that the initial investment of Rs. 5,000 in the partnership firm belonged to his HUF along with the share of profit. These pieces of evidence clearly showed that Sri Purwar had made an unequivocal declaration of his intention to abandon his separate interest, in these moneys and to impress them with the character of joint family property. We are satisfied that the Tribunal was justified in inferring that the sum of Rs. 10,000, which was Sri Purwar's contribution to the capital of the firm, was joint family property.

11. By now it is well settled that it is not necessary that there should be two male members in order to constitute a HUF even for purposes of the I.T. Act [See N. V. Narendranath v. CWT : [1969]74ITR190(SC) ]. The family consisting of Sri Purwar, his wife and daughter could hence validly be a HUF for income-tax purposes as well.

12. It is further settled that a HUF need not have any joint family property, and even if there is no such family property to start with, any member can validly throw his separate property into the hotchpot of the joint family, and thereafter such self-acquired property acquires the character of joint family property--See R. Subramania Iyer v. CIT : [1955]28ITR352(Mad) and CIT v. Pushpa Devi : [1971]82ITR7(Delhi) .

13. On the facts as found and in view of the clear legal position, the Tribunal was justified in holding that the share income from the firm of Messrs. Govind Ram Gajadhar Lal belonged to the HUF, of which Sri V. K. Purwar was the karta, and was assessable in its hands.

14. We, therefore, answer the question referred to us in the affirmative, in favour of the assessee and against the department. The assessee will be entitled to costs, which are assessed at Rs, 200. The fee of the learned counsel for the department is assessed at the same figure.


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