COMMISSIONER OF INCOME TAX Vs. KESHAVLAL PRABHUDAS SHAH

JUDGEMENT

(1.) The Income-tax Appellate Tribunal has at the instance of the Commissioner of Income-tax Gujarat-I Ahmedabad referred the following question under section 256(1) of the Income-tax Act 1961 (hereinafter referred to as the Act) for our opinion :- Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in holding that an Individuals interest in a partnership firm and his right to share profit/losses in the firm could be validly thrown into the hotchpot of the H.U.F. of which the said Individual was the Karta?

(2.) Assessee Keshavlal Prabhudas Shah had two sources of income. He had a share in partnership firms including a partnership firm running in the name and style of M/s. Bharat Oil Mill (hereinafter referred to as the firm). He had also a property from which he derived income. The assessee held shares in Narhari Marine Insurance Company Limited (hereinafter referred to as the Company); but there is nothing on record to indicate that the assessee derived any income by way of dividends from his snares in the said Company. The above properties were self-acquired properties of the assessee and until the Assessment Year 1971-72 the assessee was assessed as an individual in respect of the income therefrom. The year of account of the assessee was Samvat Year. On October 17 1970 i.e. about 13 days before the end of Samvat Year 2026 which ended on October 30 1970 the assessee made a declaration before the Taluka Magistrate Bulsar throwing his share in the partnership firm of M/s. Bharat Oil Mill including capital investment of Rs. 48 483 in the said firm and the shares held by him in the Company in the hotchpot of the Hindu Undivided Family consisting of himself his wife his two sons and three grand sons. In other words he impressed his share in the firm and the shares in the Company with the character of Hindu Undivided Family (herein after referred to as H.U.F.) property. In his declaration the assessee stated I hereby impress my right title and interest on the aforesaid partnership property and the shares and on my income thereof with the character of Joint Hindu Undivided Family with the intention that the said property shall hereafter belong to the aforesaid Joint Hindu Undivided Family. Further I state that thereafter I have no individual interest of any kind whatsoever on the aforesaid property save as a Karta of the H.U.F.

(3.) In the course of the assessment proceedings for the Assessment Years 1971-72 and 1972-73 relevant previous years being Samvat Years 2026 and 2027 respectively the assessee claimed that in view of the declaration made by him as stated above the share income from the firm was not includible in his total income inasmuch as this income belonged to his H.U.F. the income-tax Officer accepted the declaration made by the assessee before the Taluka Magistrate to be genuine and acted upon it. In other words he accepted the contention of the assessee that the share income from the firm belonged to his H.U.F. He however include three fifths of the assessees and one fifth share of the assessees wife i.e. in all two fifths share of she income derived from the firm in the total income of the assessee under section 64(2) of the Act. He did not include three fifths of the assessees include three fifths of the assessees total income on the ground that this share income was impressed with the character of H.U.F. property by the assessees declaration referred to above. As a result of the finding recorded by the Income tax Officer Rs. 2 836 and Rs. 400/- out of the income derived from the firm were included in the assessees total income for the Assess ment Years 1971-72 and 1972 respectively.