HUF character of partition assets and inherited property determined tax treatment of income and settlement-based inclusion

Property received on partition among family members, and property acquired from the income of such partition property, retained their Hindu law character and the income was assessable in Hindu undivided family status. In contrast, property inherited by a son from his father under section 8 of the Hindu Succession Act, 1956 was the son's separate property and the income was assessable in his individual hands. The settlement of properties in favour of minor daughters was treated as having been made by the assessee as karta of the Hindu undivided family, and on that basis the income from those properties was not includible in the Hindu undivided family assessment under section 9(2).

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Issues: (i) Whether the income from properties received on partition, properties acquired from the income of such properties, and properties inherited from the father was assessable in the status of a Hindu undivided family or as individual income; (ii) Whether the properties settled by the assessee on his minor daughters could be included in the assessee's assessment under section 9(2).

Issue (i): Whether the income from properties received on partition, properties acquired from the income of such properties, and properties inherited from the father was assessable in the status of a Hindu undivided family or as individual income.

Analysis: Property received on partition among the father, grandfather and the assessee, and property acquired from the income of such partition properties, retained the character assigned by the governing Hindu law as applied to the family arrangement and could be assessed according to that character. Property inherited by a son from his father under section 8 of the Hindu Succession Act, 1956, does not become Hindu undivided family property in the hands of the son vis-a -vis his own children and is assessable as his individual property.

Conclusion: The income from partition properties and properties acquired from them was assessable in the Hindu undivided family status, while the property inherited from the father was assessable in the assessee's individual hands.

Issue (ii): Whether the properties settled by the assessee on his minor daughters could be included in the assessee's assessment under section 9(2).

Analysis: The settlement in favour of the minor daughters was treated as having been made by the assessee in his capacity as karta of the Hindu undivided family consisting of himself, his wife and children. On that footing, the income from such settled properties could not be brought into the assessment of the Hindu undivided family under section 9(2).

Conclusion: The income from the properties settled on the minor daughters was not includible in the Hindu undivided family assessment under section 9(2).

Final Conclusion: The assessment was modified by directing the taxing authority to assess the income in accordance with the above classification of properties, resulting in a mixed outcome with partial relief to each side.

Ratio Decidendi: Property inherited by a son from his father under section 8 of the Hindu Succession Act, 1956 is the son's separate property and not Hindu undivided family property, whereas income from property settled out of joint family assets must be assessed according to the character of the underlying asset and the capacity in which the settlement was made.

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