1997 (12) TMI 55 - HC - Income Tax

HUF income from Madras Estates Act assessed, not individual. Tribunal decision upheld.

The court upheld the Tribunal's decision that the income derived from the compensation received under the Madras Estates (Abolition and Conversion into ... HUF, Wealth Tax, Impartible Estate Issues Involved:1. Status of the assessee regarding the compensation amount received under the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948.2. Assessment of income derived from the compensation under the Income-tax Act and Wealth-tax Act.3. Nature of the impartible estate and its transformation post-abolition.4. Applicability of Hindu undivided family (HUF) status versus individual status for tax purposes.5. Legal implications of the Hindu Succession Act, 1956, on the impartible estate.Detailed Analysis:1. Status of the Assessee Regarding the Compensation Amount:The primary question was whether the income derived from the compensation received under the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948, should be assessed in the hands of the assessee as a Hindu undivided family (HUF) or as an individual. The assessee and his father were owners of an impartible estate, which was abolished in 1951. The compensation received was invested, and the interest from these investments was also reinvested. The question was whether this income should be assessed as individual income or HUF income.2. Assessment of Income Derived from the Compensation:The Income-tax Officer initially assessed the income from the properties in the status of an individual. However, the Appellate Assistant Commissioner found that under section 46(6) of the Estates Abolition Act, the compensation amount would be divided among the sharers as if there was a partition on the notified date, treating it as joint family property. Therefore, the compensation and the interest thereon should be assessed as HUF income. The Tribunal upheld this view, stating that the property was ancestral and should be treated as joint family property.3. Nature of the Impartible Estate and Its Transformation Post-Abolition:The court considered the nature of the impartible estate, where the members of the family had certain rights, including the right of survivorship, which was not inconsistent with the custom of impartibility. The Estates Abolition Act treated the compensation amount as joint family property and deemed a partition among the sharers on the notified date. The compensation amount retained the character of joint family property, even though it was divided among the sharers.4. Applicability of HUF Status Versus Individual Status for Tax Purposes:The Tribunal reasoned that the property in the hands of the assessee was ancestral, and upon the birth of a son, the property should be regarded as joint family property. The Tribunal also noted that the assessee had returned the compensation amount as joint family property, indicating that it was treated as such. The Tribunal placed reliance on the Supreme Court decision in N. V. Narendranath v. CWT, which supported the view that property obtained on partition should be treated as joint family property.5. Legal Implications of the Hindu Succession Act, 1956, on the Impartible Estate:The court discussed the impact of the Hindu Succession Act, 1956, which abolished the custom of impartibility, making the property joint family property. Several decisions, including those of the Supreme Court and various High Courts, supported the view that post-enactment, the impartible estate's character was lost, and the property became joint family property. The court concluded that the compensation amount received by the assessee was joint family property and should be assessed as such.Conclusion:The court upheld the Tribunal's decision that the income derived from the compensation received under the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948, should be assessed in the hands of the Hindu undivided family and not in the status of an individual. The court found no legal infirmity in the Tribunal's view and answered the common question of law in the affirmative, against the Revenue. There was no order as to costs.