D.K. Kapur, J.
1. This judgment in Income-tax Reference No. 76 of 1971 will also substantially govern Income-tax References Nos. 108 of 1973 and 109 to 112 of 1974, as the same question arises in different years in respect of the assessed, Shri Kishan Lal. The statement of case in the six cases is similar. The assessment years involved are 1964-65 and 1966-67 to 1970-71. Income-tax Reference No. 76 of 1971 relates to the assessment year 1964-65.
2. The facts stated in the statement of case show that the assessed was a partner in a firm, Kishan Lal & Company, his share being 50%. This partnership started in September, 1956, and the business was that of wine merchants. Shri Kishan Lal, the assessed, was assessed on his share in the partnership business right up to 1963-64, but in 1964-65 he did not show this income in his personal return because he claimed that the share in the partnership had been transferred to the HUF consisting of himself, his wife, his minor sons and minor daughters. There was a deed of declaration dated June 1, 1963, to this effect. After the declaration had been made, an estimate for the purpose of advance tax was also made in the name of the HUF. A gift-tax return was filed in which it was claimed that no gift-tax was payable regarding the transfer of the partnership share to the HUF. This return was accepted in due course as per annexs. B-4 and B-5 which are annexed to the statement of case.
3. In the assessment order relating to the year 1964-65, the ITO rejected the contention that the share of profits from the partnership firm was not assessable in the assessed's hands. The reasons given by the ITO were - (a) that there was no HUF on June 1, 1963, because there was no ancestral property, (b) there was a debit balance in the capital account of the partnership firm to the extent of Rs. 50,000 and also a loan had been taken from the partnership-firm to the extent of Rs. 94,077.50. Hence, there was only a liability which could not be transferred to the family. And (c), the firm was dealing in liquor and hence transfer to the family required a public notice to the creditors of the business.
4. On appeal to the AAC, the decision of the ITO was upheld. A copy of the AAC's order, which is annexed to the statement of case, shows that the decision was based on the absence of a nucleus, in the HUF. Moreover, it was thought that the assessed could not transfer debts to a family whose pot was already empty. Amongst other reasons given by the AAC were two points which may be mentioned here. The firm was dealing in wines, which required a declaration of the constitution of the firm with the Government and no change was possible; and secondly, the partners had an unlimited liability, hence a public notice was necessary.
5. On appeal to the Income-tax Appellate Tribunal, it was held that what was actually transferred was an asset and not a liability. This was based on an examination of the account of the firm and, moreover, it was held that the share in the partnership business was a lucrative source of income and so it could not be held that it was a liability which was transferred and not an asset. On the said facts, the following question has been referred to us under s. 256(1) of the I. T. Act, 1961 :
'Whether, on the facts and in the circumstances of the case, and having regard to the terms of the deed of declaration dated June 1, 1963, (sic) should be assessed in the hands of Kishan Lal, individual, or in the hands of the joint family of Kishan Lal ?'
6. The question as posed seems to reveal that there is some omission in the question, but in substance the question posed for our decision is whether the income arising from the partnership business and falling to the share of Shri Kishan Lal is to be assessed in the hands of Shri Kishan Lal as an individual or in the hands of the joint family of Shri Kishan Lal. That is the way in which we are answering the question.
7. It is unnecessary to deal with the point raised in this case in very great detail because the points are more or less completely covered by a series of decisions. It is settled law that a coparcencer, who is a member of an HUF, has a right to throw his self-acquired property into the common hotchpot. The two decisions of the Supreme Court which have some bearing on this point are Mallesappa Bandeppa Desai v. Desai Mallappa, : 3SCR779 and Lakkireddii Chinna Venkata Reddi v. Lakkireddi Lakshmama, : 2SCR172 . The following quotation from the judgment of Shah J. in the latter case indicates the legal position (at p. 1604) :
'Law relating to blending of separate property with joint family property is well settled. Property, separate or self-acquired of a member of a joint Hindu family, may be impressed with the character of joint family property if it is voluntarily thrown by the owner into the common stock with the intention of abandoning his separate claim therein : but to establish such abandonment a clear intention to waive separate rights must be established.'
8. The only question that requires our decision is whether a share in a partnership can be so transferred to the HUF. In this respect, it is sufficient to notice the following passage from Addanki Narayanappa v. Bhaskara Krishnappa, : 3SCR400 :
'It is true that even during the subsistence of the partnership a partner may assign his share to another. In that case what the assignee would get would be only that which is permitted by s. 29(1), that is to say, the right to receive the share of profits of the assignor and accept the account of profits agreed to by the partners.'
9. Thus, there can be no doubt that the assessed could assign his share to the HUF. In a sense as held in the previously quoted judgment of the Supreme Court, a declaration by a coparcener that his self-acquired property is the property of the joint family is not really a gift. In such a case, the member merely impresses the self-acquired property with the characteristics of joint Hindu family property. Thus, there can be no doubt that the transfer by the assessed to the joint family in this case by a declaration was valid and the only point that now requires decision is whether it makes any difference that the asset is, in a sense, a liability.
10. The Tribunal has given a finding that the asset is not a liability and this is binding on us. This finding is also borne out by reference to the income derived from the asset in subsequent years. The statement appearing in the reference for the later years, i.e., in Income-tax Reference Nos. 109 to 112 of 1974, shows that the share for these years, 1967-68 to 1970-71, are Rs. 65,066, Rs. 43,788 Rs. 35,422 and Rs. 43,788. When an asset yields income of this type, it cannot be treated as being a liability and not an asset.
11. However, assuming that there was no profit in later years and there was a loss, even then it seems that there can be no restriction on the right to transfer the share. This is because section 29 of the India Partnership Act, 1932, is in the following terms :
'29. Right of transferee of a partner's interest. - (1) A transfer by a partner of his interest in the firm, either absolute or by mortgage or by the creation by him of a charge on such interest, does not entitle the transferee, during the continuance of the firm, to interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm, but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed to by the partners.
(2) If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is entitled as against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution.'
12. This section shows that a partner can transfer his interest in the firm, whether it is a liability or whether it is a profitable venture or not does not seem to make any difference.
13. Our attention has been invited to a Division Bench decision of this court in CIT v. Pushpa Devi : 82ITR7(Delhi) , which is a case where a female member of an HUF sought to throw her share in that partnership into the hotchpot. It was held that she could not do so, but it was taken for granted that if it was a male, he could undoubtedly do so. The said judgment was affirmed by the Supreme Court in Pushpa Devi. v. CIT : 109ITR730(SC)
14. We were also referred to a judgment of Supreme Court in Surjit Lal Chhabda v. CIT : 101ITR776(SC) , where it was held that, the self, acquired property thrown into the family hotchpot was still to be assessed in the hands of the owner in spite of being thrown into the family hotchpot. But, it is clear that judgment was given on the basis that there was no son and, till a son was born, income from the property was to be assessed in the hands of the original assessed. As that is not the situation in this case, the judgment is not applicable.
15. We would, thereforee, answer the question as follows. The income derived from the share of Shri Kishan Lal in the partnership firm, M/s. Kishan Lal & Company, is taxable not in the hands of Shri Kishan Lal, individual, but in the hands of the joint family of Shri Kishan Lal. The assessed will get his costs. Counsel's fee Rs. 500.