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of <h1>Invested Ancestral Funds = HUF Property for Tax Exemption</h1> <h3>JP. Verma Versus Commissioner Of Income-Tax</h3> JP. Verma Versus Commissioner Of Income-Tax - [1991] 187 ITR 465, 81 CTR 296, 51 TAXMANN 232 Issues:1. Determination of whether the amount invested in the construction of a house is from Hindu undivided family funds.2. Assessment of whether the income from the house property can be considered as the income of the Hindu undivided family.Analysis:Issue 1:The assessee, an Assistant Engineer, declared his wife constructed a house using funds from various sources, including a loan from the assessee. The Income-tax Officer held that only a portion of the investments represented ancestral funds, treated as individual funds by the assessee. The Appellate Assistant Commissioner ruled the property belonged to the wife, deleting the addition to income. The Tribunal found the invested amount belonged to the assessee, not a loan to the wife. The Tribunal rejected the claim that the funds were Hindu undivided family funds, as the original family settlement was not provided. The Tribunal concluded the income from the property should be taxed in the hands of the assessee, not the Hindu undivided family.Issue 2:In a subsequent assessment year, the Income-tax Officer added income from the house property and interest income of the wife to the assessee's total income. The Appellate Assistant Commissioner considered these additions covered by the previous year's order and deleted them. The Tribunal held the invested amount was ancestral property in the hands of the assessee, and the income should be exempt from tax in the assessee's hands. The Tribunal's decision was based on the Mitakshara School of Hindu law principles, stating that the property invested in the house was considered Hindu undivided family property due to its ancestral nature.In conclusion, the High Court held that the invested amount linked to ancestral funds should be considered Hindu undivided family property. Therefore, the income from the house property proportionate to this investment should be exempt from income tax in the assessee's hands. The court's decision was based on the principles of Hindu law and the nature of the funds used for the investments.
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