COMMISSIONER OF INCOME TAX Vs. GRANDHI NARAYANA RAO

JUDGEMENT

(1.) THIS reference arising under the IT Act (hereinafter referred to as the " Act ") is made by the Tribunal at the instance of the CIT. It relates to the asst. year 1977 -78. The following three questions are referred for the consideration of this Court :

(2.) THE assessee was holding a share in a partnership firm known as Grandhi Butchi Raju and Co., Tuni. By a declaration dated February 12, 1977, 1/4th of the share held by the assessee in the aforesaid partnership firm was gifted in favour of Venkatalakshmi. The declaration states that the gift was made to cover the marriage and educational expenses of the donee. It is also stated that the gift of 1/4th share extends to the corpus of the share also. There is a categorical declaration that to the extent of the share gifted in favour of Venkatalakshmi, the assessee ceased to be the owner of the share. Before we conclude the reference to the declaration, we have to point out one significant averment in the declaration to the effect that Grandhi Narayana Rao who made the gift was assessed to income -tax in the status of an individual. In the declaration, he stated that he was wrongly assessed in the status of an individual and the correct status was that of a joint family consisting of himself, his wife and daughter. It is stated in the declaration that be had developed the present estate with the nucleus of gifts given by his father, Sri Buchiraju, to the family. The declaration of gift, therefore, proceeds on the basis that the share in the partnership firm belonged to the joint family and it was the joint family which gifted a moiety of that share to the daughter of the Karta. That is how the foundation for the gift was laid.

(3.) IN connection with the income -tax assessment for the year 1977 -78, the assessee claimed that the income corresponding to the moiety of share gifted in favour of Venkatalakshmi should be excluded from the assessment of the assessee. A perusal of the assessment order would show that the ITO went into the question regarding the status and was satisfied with the averments contained in the declaration of gift that the correct status of the assessee was that of an HUF. This was so, because the ITO describes the assessee as an " HUF (non -specified) ". It is not, therefore, necessary to go into the question whether the gift is referable to the individual as it is admitted on all sides that the gift is made by the joint family in favour of Venkatalakshmi. The ITO rejected the assessee's request without much discussion, but by referring to the decision of the Supreme Court in K. A. Ramachar vs. CIT (1961) 42 ITR 25 (SC).