AI Drafter 
TaxTMI 
TaxTMI 
1978 (8) TMI 122
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....partition of the Hindu Undivided Family constituted joint family property. The Hindu Undivided Family of the assessee Nanalal Bhatt consisting of himself and his wife filed a return showing the income 1/3rd share of 14/64 of the share in Cork Industries. In the individual assessment completed on 30th March, 1973 the return was accepted. So was the assessment of the Hindu Undivided Family completed on 31st March, 1973 for the asst. yr. 1971-72. Subsequently, the ITO received an audit objection on 27th July, 1975 pointing out that s. 64 (2) applied to the property thrown into common hotch pot and so income had escaped assessment. Taking action under s. 147 (b) the ITO sought to include 14/64 share of profit in cork Industries in the hands of the assessee individual. This was done for the asst. yrs. 1971-72 to 1974-75. On appeal, the AAC rejected the assessee's claim that the reassessment proceedings were ab initio illegal. He held the blending of the share of interest of the assessee, Shri N.L. Batt in the firm of Cork Industries with that of the Hindu Undivided Family consisting of himself, his wife and two major sons, valid. Between 2nd April, 1970 and 16th April, 1970 the entire i....
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.... partnership the partner may have a positive capital or a negative capital. His capital at any time represents a particular proportion of the net assets of the firm. The net assets of the firm clearly constitute positive capital and property in his hands. Merely because in arriving at this figure of net assets there may be liabilities to be deducted from the gross assets it does not make this asset liability to the family into whose hotch pot this is thrown. If the net interest of a partner in the firm is a negative figure on his liabilities exceeding assets, it may perhaps not be possible to throw at that particular time the individual interest in the firm into the common hotch pot or the joint family. Even this is not absolutely an unambiguous proposition since it is possible that running of the business may in the future result in a positive asset. So long as the share in a firm is treated as property no decision has been brought to our notice against throwing this interest regarded as a property into the common hotch pot of a joint family. When on the date of such throwing the assessee has got a positive capital in the firm on his assets exceeding the liabilities, we do not see....
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....decision in Surjitlal Chabda vs. CIT (1) to justify the inclusion of not only 1/3rd of 14/64 shares but the entire share in the hands of the individual assessee. In the first place it is pointed out that a share in a firm cannot be divided in a partial or full partition. Secondly, applying the ratio in Surjit Lal Chabda's (1) case the personal law of the assessee applied and he being the sole surviving coparcener the entire property is assessable in the hands of the individual. 7. The position of a Hindu Undivided Family a partner in a firm and how and whether it can be partitioned partially or fully is explained in Charandas Bharidas vs. CIT (4). At page 208 of the report the following obtains: "In our opinion here there are three different branches of law to notice. There is the law of partnership, which takes no account of a HUF. There is also the Hindu law, which permits a partition of the family and also a partial partition binding upon the family. There is a then the income tax law, under which a particular income may be treated as the income of the HUF or as the income of the separated members enjoying separate shares by partition. The fact of a partition in the Hindu ....
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....itlal chabda's (1) case their Lordships of the Supreme Court considered at length the question of the status in which the property thrown into the common hotch pot separately by members of the family is to be assessed. The assessee an individual having wife and an unmarried daughter made a declaration that he had thrown certain immovable property, his self acquired property into the common hotch pot. The question was whether the income received by the assessee thereafter from that property should be assessed to income tax in the status of a HUF or included in his individual income. Referring at length to the decided cases particularly the decision of the Privy Council in Kalyaniji Vithaldos vs. CIT (5) and CIT vs. A.P. Swamy Commedalli (6)and the decisions of the Supreme Court their Lordships held that assessee with his wife and unmarried daughter formed a joint family. At page 783 of the report the following obtains: "The joint Hindu family, with all its incidents is thus a creature of law and cannot be created by act of parties, to the accept to extent to which a stranger may be affiliated to the family by adoption. But the absence of an antecedent history of jointness between....
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....UF of the assessee individual and his two sons till 16th April, 1970. The property thus partitioned on 16th April, 1970 was joint family property though the joint in the present case subsisted only between 2nd April, 1970 and 16th April, 1970. Here the question is as referred to in Narendra Nath vs. CIT(9). "Where the property already impressed with the character of joint family property comes into the hands of the assessee as a single coparcener and the question required to be considered whether it has retained the character of joint family property in the hands of the assessee or is converted into absolute property of the assessee." The clear answer is the same in Gowli Buddanna's(8) case and Narendranath's(2) case. The share property coming to the assessee comes to the joint family consisting of himself and his wife. Without anything being there to convert it into absolute property of the sale coparcener. We have no hesitation therefore in holding that the very decision in Surjittlal's(1) case on which the Revenue has laid stress supports the assessee completely. The income after 16th April, 1970 is clearly to be assessed in the hands of the HUF consisting of the assessee ....
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.... deemed to arise to the spouse or the minor son from assets transferred indirectly by the individual to the spouse or minor son and the provisions of sub-s (1) shall so far as may be, apply accordingly. Expln. (2) interest of the individual in the property of the family and interest of the spouse or any minor son of the individual in the property of the family, mean respectively, the proportion in which the individual or, as the case may be, the spouse or minor son would be entitled to share the property of the family of these had been a total partition in the family as on the last day of the previous year of the family relevant to the assessment year for which the individual is to be assessed u/s (2)." The share to be included is on the basis of a total partition on the last day of the previous year. The HUF of Nanalal Bhatt and his two sons were actually partially partitioned on 16th Feb., 1970. The last day of the previous year of the family has therefore, to be found as a matter of fact. It is not known whether this family had other income. Expln.-2 specifically refers to 'total partition of the assets on the last day of the previous year." A mere partial partition of the....