1965 (11) TMI 9 - HC - Income Tax

Court rules on partnership interest income & ancestral property in income tax assessment under Hindu law

Pratap Narain Versus Commissioner of Income-Tax, Uttar Pradesh.

The court held that the interest paid by a partnership firm to the wife of an assessee was not the income of the assessee as the money had been ... Inclusion of interest in the assessment was not legal and valid - amount paid as interest by the partnership firm is not liable to be included in the assessment of the assessee unless the provisions of s. 16(3) are attracted - Tribunal is not justified in holding that the properties received by an issueless male at a partition between coparceners would be his individual properties and not that of the HUF of himself and his wife Issues:1. Inclusion of interest in assessment.2. Nature of properties received at partition between coparceners.Issue 1: Inclusion of interest in assessmentThe case involved two questions referred to the court by the Income-tax Appellate Tribunal. The first question was whether the inclusion of interest of Rs. 3,000 in the assessment was legal and valid. The assessee, a partner in a firm, transferred Rs. 50,000 to his wife, and interest on this amount was credited to her account by the partnership firm. The Income-tax Officer and the Appellate Assistant Commissioner included this interest in the total income of the assessee. However, the Appellate Tribunal found that no gift was made to the wife, and the money continued to belong to the assessee. The court held that the amount of Rs. 50,000 was indeed transferred to the wife, and thus, the interest paid by the partnership firm was not the income of the assessee. The court refrained from deciding on the application of section 16(3) and concluded that the interest was not liable to be included in the assessment unless section 16(3) applied.Issue 2: Nature of properties received at partition between coparcenersThe second question referred to the court was regarding the nature of properties received by the assessee at a partition between coparceners. The assessee and his brother formed a Hindu undivided family holding certain properties. Upon partition, some properties fell to the share of the assessee, who contended that this income should be treated as belonging to the Hindu undivided family, not his individual income. The income-tax authorities disagreed, stating that the property was held by him as separate property until he had a male issue or adopted a son. The court held that when Hindu undivided family property is partitioned, the share obtained by a coparcener remains ancestral property as regards his male issue. The birth of a son does not change the nature of the property, which continues to be coparcenary property. Therefore, the court concluded that the properties received at partition were not liable to be included in the assessment of the assessee as an individual.This judgment clarifies the treatment of transferred amounts and properties received at partition in the context of income tax assessments, emphasizing the distinction between individual and coparcenary ownership under Hindu law.