1964 (9) TMI 88 - HC - Income Tax

High Court rules on income assessment in Hindu Undivided Family vs. Individual status

L. HIRDAY NARAIN Versus COMMISSIONER OF INCOME-TAX, U.P.

The Allahabad High Court ruled in a case involving the assessment of income in a Hindu undivided family versus individual status. The Court upheld the ... - Issues:Assessment of income in the hands of Hindu undivided family vs. individual status, validity of gift deed by the karta, applicability of section 16(3)(a)(iv) to Hindu undivided family, consent of minor in gift transaction.Analysis:The judgment by the Allahabad High Court involved the assessment of income in the hands of a Hindu undivided family versus individual status. The case revolved around the validity of a gift deed executed by the karta of the family in favor of his minor son and the applicability of section 16(3)(a)(iv) to a Hindu undivided family. The assessee, a Hindu undivided family, underwent a partition, post which a partnership firm was formed with the karta and his sons. The Income-tax Officer assessed the karta as an individual, including the minor sons' share in the firm's income. The Appellate Assistant Commissioner upheld the individual assessment but directed the exclusion of one son's share. The Income-tax Appellate Tribunal determined that the income should be assessed in the hands of the Hindu undivided family, not as an individual. The Tribunal also considered an additional ground raised by the departmental representative regarding the minor son's share, which was admitted and decided in favor of the family.The assessee sought a reference to the High Court, questioning the Tribunal's decision on various grounds. The High Court considered the validity of the gift deed made by the karta to his minor son. It was established that the gift was valid, and the Tribunal's finding to the contrary was deemed incorrect. The Court relied on precedents stating that alienation by the family manager without legal necessity is voidable, not void, and can be challenged by the coparceners. The Court also rejected the argument that the minor son's consent to the gift was necessary, as the transaction was to his benefit. Additionally, the Court dismissed the Commissioner's argument that section 16(3)(a)(iv) applied, emphasizing that the provision pertains to individual income computation, not applicable to a Hindu undivided family. Therefore, the Court concluded that the minor son's share in the firm's income should not be included in the family's assessment, ruling in favor of the assessee.In conclusion, the High Court answered the reference question in the negative, stating that the inclusion of the minor son's share income with the karta was not justified in law. The Court directed the Tribunal to receive a copy of the judgment and awarded costs to the assessee.