1987 (8) TMI 159 - AT - Income Tax

Income Assessment Appeals Outcome: Individual appeals dismissed, HUF appeals allowed

The Tribunal dismissed the appeals for T. N. K. Iyengar, T. N. Soundararajan, and T. N. Kumar, upholding the assessment of income in their individual ... Transfer Of Assets, HUF Issues Involved:1. Application of Section 64(2) of the Income-tax Act, 1961.2. Assessment of income from partitioned property.3. Definition and scope of 'converted property' under Section 64(2).4. The taxability of income in the hands of individual coparceners versus their Hindu Undivided Family (HUF).Issue-wise Detailed Analysis:1. Application of Section 64(2) of the Income-tax Act, 1961:The appeals contested the addition of income under Section 64(2) of the Income-tax Act, 1961. The section pertains to the inclusion of income from converted property in the total income of the individual who converted his individual property into joint family property. The Tribunal noted that the legislative intent behind Section 64(2) was to prevent tax evasion by individuals who might otherwise transfer property to their families to reduce their tax burden. The Tribunal observed that the Supreme Court had previously ruled that the conversion of individual property into joint family property did not constitute a transfer for the purposes of Section 64(1).2. Assessment of income from partitioned property:The Tribunal examined whether the income arising from the property received on partition should be assessed in the hands of the individual coparceners or their respective HUFs. It was argued that the income from the partitioned property belonged to the smaller joint families of each coparcener and should not be assessed in the hands of the individual coparceners. The Tribunal agreed with this argument, noting that Section 64(2) applies only as long as the converted property is held by the family. Once partition occurs, the income from the property received by the spouse or minor child should be assessed in their hands, not in the hands of the individual coparcener.3. Definition and scope of 'converted property' under Section 64(2):The Tribunal clarified the scope of 'converted property' under Section 64(2). The section deems the income derived from converted property to arise to the individual as long as it is held by the family. Upon partition, only the income received by the spouse or minor child is deemed to arise to the individual. The Tribunal emphasized that the provisions of Section 64(2) should be strictly construed, as they create a legal fiction. The Tribunal concluded that the primary object of Section 64(2) was to prevent the conversion of individual property into joint family property to benefit the spouse and minor children indirectly.4. The taxability of income in the hands of individual coparceners versus their HUF:The Tribunal examined the taxability of income in the hands of individual coparceners versus their HUFs. For coparceners with another male member in their families (e.g., T. N. Gopalan, T. N. Desikan, T. N. Kishore, T. N. Kothandapani, and T. N. Sridharan), the income from the partitioned property was deemed to belong to their respective HUFs and could not be assessed in their individual capacities. In the case of T. N. Kumar, who was a bachelor, the income was assessed in his individual capacity as there was no HUF to which the income could be attributed. For T. N. K. Iyengar and T. N. S. Soundararajan, whose families consisted of themselves and their wives (and in one case, a daughter), the Tribunal held that the income from the partitioned property should be assessed in their individual capacities, as the existence of a wife or daughter does not make the income joint family property.Conclusion:The Tribunal dismissed the appeals for T. N. K. Iyengar, T. N. Soundararajan, and T. N. Kumar, upholding the assessment of income in their individual capacities. However, it allowed the appeals for T. N. Gopalan, T. N. Desikan, T. N. Kishore, T. N. Kothandapani, and T. N. Sridharan, deleting the additions made under Section 64 and assessing the income in the hands of their respective HUFs.