1991 (4) TMI 48 - HC - Income Tax

High Court affirms partnership income as individual, validating long-standing family property declaration.

The High Court upheld the Tribunal's decision that the income derived from the partnership was individual income of the assessee, who had voluntarily and ... HUF Issues:1. Whether the assessee converted individual property into that of their smaller Hindu undivided family by declarations in income-tax and wealth-tax returns.2. Whether the assessee became a partner in a partnership firm in their individual capacity or representing their smaller Hindu undivided families.Analysis:1. The case involved three brothers who were part of an undivided Hindu family conducting business under a specific name. They decided to dissolve the family and form a new partnership firm on December 30, 1956. The capital of the family was negative, divided equally among the brothers. A claim for partial partition was accepted for the assessment year 1957-58.2. The assessee filed returns for the years 1958-59 to 1970-71, declaring income from the partnership as belonging to their smaller Hindu undivided family. However, an audit objection led to the reopening of assessments for the years 1970-71 and 1973-74. The income was then assessed as individual income, leading to a series of appeals and tribunal proceedings.3. The Tribunal found that the income derived from the partnership was individual income of the assessee. The main question was whether the assessee had converted their individual property into joint family property by consistently declaring income as belonging to the smaller Hindu undivided family over more than 12 years. The Tribunal held that the consistent conduct indicated an unambiguous intention to blend separate property with joint family property.4. The Tribunal's decision was based on the principle that clear intention is crucial for blending separate property with joint family property under Hindu law. The Tribunal found the assessee's conduct and declarations over 12 years demonstrated a voluntary and unambiguous intention to merge individual property with joint family property. No evidence was presented to contradict this intention.5. The High Court upheld the Tribunal's finding, stating that there was no reason to disturb it. The court ruled in favor of the assessee, concluding that the consistent conduct and declarations indicated a clear intention to blend individual property with joint family property. As a result, the question was answered in favor of the assessee, and the reference was disposed of without costs.