COMMISSIONER OF WEALTH TAX Vs. SWARAJ PAUL

JUDGEMENT

(1.) ON an application under s. 27(3) of the WT Act, 1957, the following questions have been directed to be referred to this Court :

(2.) THE facts, inter alia, are that the assessee is an HUF and the reference relates to the asst. yr. 1974-75 for which the relevant valuation date is 31st March, 1974. THE HUF was assessed to wealth-tax on net wealth of Rs. 50,60,006 on the relevant valuation date 31st March, 1973 for the asst. yr. 1973-74 as against the net wealth as per return of Rs. 11,56,320.

(3.) THE firm of M/s Aminchand Pyarelal underwent change in the constitution from 1st April, 1972 when Shri Swaraj Paul and Surrendra Paul retired and their minor sons and daughter were admitted to the benefits of the partnership. It was claimed that the new partners, i.e. minor children of Shri Swaraj Paul and Sri Surrendra Paul became partners in their individual capacity after a partial partition effected on 15th March, 1972 by the members of the HUF known as M/s Swaraj Paul and M/s Surrendra Paul. In other words, the claim was that w.e.f. 1st April, 1972 the bigger HUF of which Sri Swaraj Paul and Sri Surrendra Paul were members did not exist and in their places the minor children became partners. THE claim for partial partition was made in respect of S/shri Swaraj Paul and Surrendra Paul, their wives and minor sons while the minor daughter of S/shri Swaraj Paul and Surrendra Paul remained with the bigger HUF. However, the application moved under s. 171 of the IT Act, 1961 on behalf of the HUF, M/s Swaraj Paul and Surrendra Paul relating to the asst. yr. 1973-74 had not yet been disposed of by the ITO. In other words, the claim for partial partition had not been accepted and accordingly the capital standing in the names of HUFs known as S/shri Swaraj Paul and Surrendra Paul belonged to them and was to be considered as part of the wealth for the purpose of assessments of the respective HUF known as Swaraj Paul, HUF and Surrendra Paul, HUF. In this view of the matter the capital allocated to minor sons of the respective HUFs had to be considered as belonging to the HUF known as Swaraj Paul, HUF and Surrendra Paul, HUF. It was held by WTO while completing wealth-tax assessment proceedings of the minor sons and daughters of Shri Swaraj Paul and Shri Surrendra Paul that business carried on by M/s Aminchand Pyarelal was previously carried on by the bigger HUF of which Shri Swaraj Paul and Surrendra Paul were partners. Even though Shri Swaraj Paul and Surrendra Paul, according to them, were partners in M/s Aminchand Pyarelal as representatives of their respective HUFs since retired, the family capital was retained in the aforesaid firm's books free of interest. If the HUF had no interest in the firm of M/s Aminchand Pyarelal, there was no reason why such huge capital was left in the firm free of interest. THE capital in the firm M/s Aminchand Pyarelal was the only asset for the HUF of Shri Swaraj Paul and Shri Surendra Paul. Further all the minor children of the partners Shri Swaraj Paul and Shri Surrendra Paul were admitted to the benefits of partnership. It was, therefore, quite obvious that Shri Swaraj Paul and Shri Surrendra Paul retired by putting their minor sons and daughters in the firm of M/s Aminchand Pyarelal and, therefore, they were partners representing their respective HUFs, i.e., known as Swaraj Paul, HUFs and Surrendra Paul, HUF and not in their individual capacity. Accordingly, the interest of the minor sons and daughters of Shri Swaraj Paul and Shri Surrendra Paul have to be assessed in the hands of their respective HUF. As such interest of the minor sons and daughter of Shri Swaraj Paul and Surrendra Paul have been included in the hands of the respective HUFs of Shri Swaraj Paul and Shri Surrendra Paul.