Assessment distinctions: Individual vs. HUF status under Income Tax Act.

The Tribunal held that the assessee HUF had not been assessed as a HUF under the Income Tax Act prior to the relevant assessment years. Assessments made on an individual could not be equated to assessments made on the HUF. The Tribunal found that the assessments made on the individual prior to the partition of the HUF did not convert into assessments on the HUF itself. Consequently, the Tribunal's decision to delete certain share income and include a specific sum in the total income of the assessee was upheld, with the Reference Applications being rejected.

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Issues Involved:

1. Whether the Tribunal was justified in holding that the assessee was "not hitherto assessed to tax" and the provisions of sub-section (9) of section 171 were not applicable.
2. Whether the ITAT erred on facts and in law to hold that until the assessment years 1980-81 and 1981-82, property and assets held by M/s Manik Chand & Sons were being assessed in the hands of Shri Manik Chand, individual.
3. Whether the ITAT was correct to hold that the appellant HUF was not hitherto assessed as undivided prior to the date of partition on 20-10-1979.
4. Whether the ITAT was wrong on facts and in law to ignore the factual existence of HUF, even though wrongly assessed as individual until the assessment year 1979-80.
5. Whether the Tribunal was justified in deleting the share income of Rs. 71,869 from the income of the present assessee.
6. Whether the Tribunal was justified in directing to include the sum of Rs. 14,374 as part of the total income on a substantive basis.

Issue-wise Detailed Analysis:

1. Justification of Tribunal's Holding on "Not Hitherto Assessed to Tax":

The Tribunal held that the assessee HUF had not been assessed as a HUF under the Income Tax Act prior to 7-10-1983 (Assessment Year 1980-81). This finding was based on the fact that until the assessment years 1980-81 and 1981-82, the property and assets held by M/s Manik Chand & Sons were assessed in the hands of Shri Manik Chand, individual. The Tribunal noted that assessments made on an individual could not be equated to assessments made on the HUF, as the two are different entities. This finding of fact does not give rise to any question of law.

2. Tribunal's Findings on Assessment of Property and Assets:

The Tribunal found that for the first time, under the Income Tax Act, assessments were made for the assessment years 1980-81 and 1981-82 on the assessee HUF on 7-10-83 and 27-12-83. The Tribunal noted that the AAC failed to see that the assessments were made in the case of Manik Chand, individual, and not in Manik Chand & Sons, HUF. Thus, the Tribunal concluded that the assessments made on the individual could not be treated as assessments made on the HUF. This finding is a pure finding of fact and does not call for reference.

3. Tribunal's Holding on HUF Not Hitherto Assessed as Undivided:

The Tribunal considered the significance of the date (20-10-79) and concluded that Section 171(9) has to be applied as it stands. The Tribunal recorded its finding of fact that the assessee HUF had not been hitherto assessed as a HUF so as to attract section 171(9). This finding of fact does not give rise to any question of law.

4. Ignoring Factual Existence of HUF:

The Tribunal observed that the individual was assessed up to the assessment year 1979-80 on the income from the assets of the assessee-HUF. However, this does not convert the assessment into an assessment on the HUF itself. The Tribunal noted that the two entities are different, and there is a clear finding that no assessment had been made on the assessee-HUF as a HUF prior to 20-10-1979. This finding does not give rise to any question of law.

5. Deletion of Share Income of Rs. 71,869:

The Tribunal disposed of the dispute regarding the inclusion of a sum of Rs. 71,869 representing the share from the profits of the firm M/s Ladu Lal Kewal Chand, Shamli. The Tribunal upheld the claim of the assessee regarding the partial partition and held that no part of the share income was includible in the assessment of the assessee for the year in appeal. The Tribunal directed the exclusion of the sum of Rs. 71,869 from the assessment of the appellant. This question raised by the Commissioner is purely consequential to the finding of the Tribunal in the issue discussed under R. A. No. 583/87 and does not call for reference.

6. Inclusion of Sum of Rs. 14,374 as Part of Total Income:

The Tribunal allowed the assessee's appeal regarding the assessment of Rs. 14,374 representing 1/5th share of profit received by the assessee from the partnership of M/s Ladu Lal Kewal Chand. The Tribunal directed the ITO to include the sum as part of the total income of the assessee for the year 1981-82. This question raised by the Commissioner is purely consequential to the finding of the Tribunal in R. A. No. 583/87 and does not call for reference.

Separate Judgments Delivered:

The Judicial Member disagreed with the Vice President's view, stating that the peculiar situation of making assessments in two different statuses gave rise to a question of law. The Judicial Member proposed that the following question of law should be referred to the High Court:

"Whether on the facts and in the circumstances of the case, the Tribunal has been correct in law in holding that the assessee-HUF could not be said to be hitherto assessed as undivided prior to the date of claimed partition on 20-10-1979, when the previous year for the assessment year 1980-81 ended on Diwali 1979, in which year the claimed status was HUF and when as per the assessee's own version income for the earlier years also was that of the HUFRs."

The President, acting as the Third Member, agreed with the Vice President's view that no question of law arises out of the Tribunal's order. The President noted that the finding recorded by the Tribunal was a pure finding of fact and did not involve the interpretation of sub-section (9) of section 171. The President concluded that the Tribunal's order does not give rise to any question of law.

Conclusion:

The Reference Applications were rejected, and the Tribunal's findings were upheld as pure findings of fact, not giving rise to any question of law.

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