COMMISSIONER OF INCOME-TAX Vs. RAM NARAIN

JUDGEMENT

(1.) THE assessees are Shri Ram Narain and his three sons, Sarvshri Puran Mal, Jage Ram and Chander Bhan. Shri Ram Narain had formed a joint Hindu family consisting of himself, his wife and the said three sons. Shri Ram Narain became a partner in the firm, M/s. Ram Narain Chander Bhan, Rohtak Mandi, having 1/4 th share in his capacity as a karta of his HUF. The assessment years under reference are 1967-68 and 1968-69. On 15th November, 1965, there was a partial partition in the family as a result of which 1/4 th share in the said firm was divided equally between five members of the family, each having 1/5 th share. A memorandum of partition was drawn up on 8th November, 1966, according to which the capital standing to the credit of the family in the books of the said firm was also divided into five shares and thenceforward the amounts which fell to the shares of the four members other than Shri Ram Narain were treated as loans from them. Shri Ram Narain made an application for recognition of this partition under Section 171 of the I. T. Act, 1961 (hereinafter referred to as "the Act") to the ITO. This application was made during the proceedings for the assessment year 1967-68. The ITO recognised the partial partition, vide his order dated 27th January, 1970, with effect from 8th November, 1966, when the capital was also divided.

(2.) THE assessees filed returns for the assessment years 1967-68 and 1968-69, showing income in respect of their 1/5th part of the 1/4th share from the firm of M/s. Ram Narain Chander Bhan. Each one of the assessees claim-med that he was liable to be assessed in his individual capacity only in respect of 1/5th share of the 1/4th share of income derived from the said firm. The ITO rejected the assessee's claim and assessed each one of them in the status of an association of persons in respect of entire 1/4th share of income from the firm.

(3.) THE assessee preferred appeals to the AAC. The assessees claimed that the partial partition in respect of the share income having been accepted by the ITO, and each one of the members of the HUF having become entitled to 1/5th part of 1/4th share in the firm, the income so derived could not be clubbed. The appeals of the assessees were accepted and it was held that by virtue of the partial partition the share every member of the family of Shri Ram Narain was determined and, therefore, the shares of all the members could not be clubbed in the hands of the assessee in the status of an association of persons.