Separate property on succession under Hindu Succession Act not converted into HUF income by later partial impressment of assets.

Where a deceased partner held the partnership interest in his individual capacity, succession to that estate fell under section 8 of the Hindu Succession Act, 1956 and the heirs received the inherited assets as separate property. The fact that the heirs were assessed separately in earlier years supported that treatment. A later act of impressing only part of the inherited funds with HUF character did not show that the entire estate had already vested in a Hindu undivided family or that the earlier distribution was a sham. The share of profit and interest income was therefore not assessable in the hands of the HUF.

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Issues: Whether the share of profit and interest income arising from the deceased partner's interest and capital in the two firms was includible in the assessment of the Hindu undivided family, or whether the heirs took the estate as separate property under section 8 of the Hindu Succession Act, 1956 and the family HUF came into existence only when part of the inherited funds was later impressed with the character of HUF property.

Analysis: The deceased had been a partner in the firms in his individual capacity, so the succession to his estate fell within section 8 of the Hindu Succession Act, 1956. The heirs had been separately assessed in earlier years on their respective shares, which supported the position that the inherited property was treated as belonging to them in their individual capacity. The subsequent act of impressing only a portion of the inherited funds with HUF character could not, by itself, establish that the entire estate had been received by an existing Hindu undivided family or that the earlier distribution was sham. The relied upon authority was distinguishable because there the deceased had been a partner as karta of an HUF, unlike the present facts.

Conclusion: The share income and interest income were not assessable as the income of the assessee-HUF, and the question was answered in favour of the assessee and against the Revenue.

Final Conclusion: The estate left by the deceased was held to have devolved on the heirs as separate property, and the later conversion of part of it into HUF property did not make the entire income assessable in the hands of a Hindu undivided family.

Ratio Decidendi: Where a deceased partner held the partnership interest in his individual capacity, succession under section 8 of the Hindu Succession Act, 1956 gives the heirs separate property, and a later act of impressing only part of the inherited assets with HUF character does not retroactively convert the entire estate into HUF property.

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