B.S. Dhillon J.
1. This common judgment will dispose of Income-tax References Nos. 54 and 55 of 1974. The said references have been made at the instance of the Commissioner of Income-tax, Patiala, by the Income-tax Appellate Tribunal, Amritsar.
2. The brief facts giving rise to the references are that the assessee, Shri Dilbagh Rai, is an individual. His original assessment for the assessment year 1965-66, relevant to the accounting period ending on March 31, 1965, was completed on November 16, 1967. This assessment was reopened under the provisions of Section 147 of the I.T. Act, 1961, to include his share income from the firm known as 'Messrs. Union Import and Export Corporation, Amritsar'. The assessee contended that he became a partner of the said firm on August 14, 1963, that his share in the profits and losses of the firm was 8 naye paise in a rupee and that he threw his share in the partnership in the common hotchpotch of HUF, consisting of himself, his two minor sons and his wife by making a written declaration on September 5, 1963. It was thus claimed by the assessee that the share income from the firm of Messrs. Union Import and Export Corporation, Amritsar, belonged to his HUF and as such the same could not be included in his personal assessment. The plea of the assessee was not accepted by the ITO. The ITO came to the conclusion that the assessee had not invested any capital in the firm and that he being merely a working partner could not make a gift of his share in the firm to the HUF. Consequently, the ITO included the share incomeof Rs. 41,341 in the assessment of thejassessee for the assessment year 1965-66. Similarly, the ITO included a sum of Rs. 9,780 being the share income from the firm of Messrs. Union Import and Export Corporation, Amritsar, in the income of the assessee for the assessment year 1966-67.
3. The assessee's appeal before the AAC was dismissed. The AAC recorded a finding that there was no nucleus of the HUF on September 5, 1963, and thus the question of throwing any property in the common hotchpotch of the family could not arise. He also observed that the assessee was merely a working partner in the firm of Messrs. Union Import and Export Corporation without investment of any capital and that his share in the profits and losses of the firm was in lieu of his contribution of manual and mental work and as such this share could not be legally transferred to the HUF. He observed that the business of the said firm could result in losses and thus the assessee could not by making the declaration in question burden the HUF with losses.
4. On second appeal, the Tribunal accepted the plea of the assessee and deleted the additions of Rs. 41,341 and Rs. 9,780 from the income of the assessee for the assessment years 1965-66 and 1966-67. The two references in question have been made by the Income-tax Appellate Tribunal, Amritsar, at the instance of the revenue pertaining to assessment for the assessment years 1965-66 and 1966-67 for soliciting the opinion of this court on the following question of law:
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has rightly deleted the additions of Rs. 41,341 and Rs. 9,780 from the income of the assessee for the assessment years 1965-66 and 1966-67 ?'
5. After hearing the learned counsel for the parties, we are of theopinion that the question referred to us has to be answered in the affirmative. The view taken by the AAC that since the HUF had no nucleus onSeptember 5, 1963, when the declaration was made by Shri Dilbagh Raithrowing his share in the firm in the common hotchpotch of the HUF isnot sustainable in law. It is well established that a coparcener in a jointHindu family has a right to throw his self-acquired property in the common hotchpotch by making a declaration and further that it is not necessary that the HUF must hold some property before any such declarationcan be made by the coparcener. In other words it is not necessary that theHUF must hold property to enable a coparcener to impress his personalproperty with the character of joint family property. This proposition oflaw has not been even challenged by Mr. Awasthy, the learned counselappearing for the revenue. The Tribunal placed reliance on the followingdecisions in this regard :
(i) R. Subramia Iyer v. CIT : 28ITR352(Mad) , decided by the Madras High Court; (ii) Damodar Krishnaji Nirgude v. CIT : 46ITR1252(Bom) , decided by the Bombay High Court and (iii) CIT v. Pushpa Devi : 82ITR7(Delhi) , decided by the Delhi High Court.
6. In addition to the above-mentioned decisions of the High Courts on the point in issue, we may also make a mention of a decision of the Gujarat High Court in Ratilal Khushaldas Patel v. CIT : 55ITR517(Guj) , where a similar view was taken by the High Court of Gujarat.
7. From what has been stated above, it is obvious that Shri Dilbagh Rai, the assessee, being a coparcener of the HUF, even though the HUF had no property of its own, could throw his individual property in the common hotchpotch by making a declaration. It is also not disputed that Shri Dilbagh Rai did make such a declaration on September 5, 1963, which is as follows:
'I, Dilbagh Rai, s/o. Shri Girdharilal, do hereby declare on solemn affirmation :
(a) That I have thrown my share in M/s. Union Export and Import Corporation, Amritsar, in the common hotchpotch of the Hindu undivided family which is constituted by me with my sons, Rajiv and Sanjiv, and my wife, Smt. Phoolan Rani,
(b) that the above declaration is absolute and irrevocable.'
8. The only contention urged by Mr. Awasthy, the learned counsel for the revenue, is that since the assessee had not made any capital investment in the firm and his share of 8 naye paise in a rupee was only in the profits and losses of the firm and that income in the nature of things was yet to accrue to the assessee by passage of time, therefore, his share in the firm could not be thrown in the hotchpotch of the HUF in law. We do not find any merit in this contention. It cannot be disputed that the share of a partner in a firm is his wealth or an asset. Reference at this stage may be made to the provisions of Section 4(1)(b) of the W.T. Act, 1957, wherein it has been provided that in computing the net wealth of an individual; the value of the interest of the assessee in a firm or association determined in the prescribed manner shall be taken into consideration. Merely because a partner has not made investment in the form of capital would not change the nature of the assets of the partner, who has definite share in the partnership of the firm. It is no doubt true that it has been found as a fact in this case that the assessee had not contributed any capital in the firm during the period for which the assessment is in question, but the fact remains that no finding has been recorded by any authority below that the assessee had no interest in the capital or assets of the firm. It could well be in a given case that the partners may agree to give a share in the assets of the firm in lieu ofthe profits falling to the share of a particular partner or, even when a particular partner has not made capital investment, the other partners may agree to give a share to such partner in the capital of the firm. That apart, the criteria whether a partner has made contribution towards the capital or not is hardly relevant to consider the question whether a partner has a right to throw his assets in the common hotchpotch of the HUF by making a declaration. The share of a partner in the firm which is an asset can also be termed as a property. Its character would not change merely because a partner has not made contributions to the capital for the time being. In a given case, one partner may make an investment in the capital during a particular period whereas another partner may make investment in a subsequent period. If the contention of Mr. Awasthy is accepted, that would mean that during the assessment year where a partner did not make investment towards a capital, he will be held to be not entitled to throw his share in the common hotchpotch of the HUF, but if in a subsequent period, he makes such a contribution, his declaration made earlier which could not be considered to be valid for the period during which contribution was not made shall have to be considered valid for subsequent assessment. Thus, if the contention of Mr. Awasthy is accepted, anomalous results are bound to follow. A partner in the firm is a partner. It is wholly immaterial whether his share is because of investment in the capital or otherwise. Share of a partner in the firm is his asset or property. Its nature will not change in either case. That being so, the assessee in the present case having made a valid declaration on 5th September, 1963, that is, within 22 days of his becoming a partner in the firm in question, the income from the firm became the income of the HUF. It is also not disputed that the assessee duly accounted for the income of Rs. 41,341 for the assessment year 1965-66 and Rs. 9,780 for the assessment year 1966-67 in the returns filed on behalf of the HUF and the assessee did pay the income-tax on the said income in the hands of the HUF.
9. For the reasons recorded above, the view taken by the Tribunal in accepting the appeal is unexceptionable. The question referred to us is, therefore, answered in the affirmative. There will be no order as to costs.