P.N.BHAGWATI, J. - (1.) THIS is a reference under S. 66(1) of the IT Act at the instance of the assessee. The assessee is one Ratilal Khushaldas Patel, who has been assessed as an individual. The assessment year with which we are concerned is the asst. year 1957 58 for which the corresponding previous year is the financial year ending 31st March, 1957. Prior to the 1st April, 1958, the assessee was a partner in the firm of M/s Yogendra (P.) and Co. The partnership consisted of the assessee and one other person with three minors admitted to the benefits of the partnership and it was constituted under a deed of partnership dated 8th April, 1954. The assessee had a five annas share in the partnership. This share was held by him as an individual, and up to and including the asst. year 1956 57, the assessee was assessed as an individual in respect of this five annas share. On 1st April, 1956, the assessee got the partnership to transfer a sum of Rs. 25,000 from the account of the assessee to the account of the HUF of the assessee. Entries in connection with the transfer were made in the books of account of the partnership on 1st April, 1956, and corresponding entries were also similarly made in the books of account of the assessee as an individual and in the books of account of the HUF of the assessee. The assessee also at the same time threw his five annas share in the partnership into the common hotchpot of the HUF and impressed the same with the character of joint family property. On 7th April, 1956, a new deed of partnership was made between the assessee and his other partner in which it was made clear that the assessee held five annas share in the partnership as representing the HUF as from 1st April, 1956, and that as from that date he was a partner in the partnership as representing the HUF. The assessee also made a declaration on
(2.) ND July, 1956, affirming that as from 1st April, 1956, the HUF was the absolute owner of the five annas share held by the assessee in the partnership as also of the amount of Rs. 25,000 transferred from the account of the assessee to the account of the HUF in the books of account of the partnership. In the course of the assessment of the assessee for the asst. year 1957 58, the ITO sought to include the five annas share standing in the name of the assessee in the partnership in his individual assessment. The assessee contended that the five annas share was held by him as representing the HUF as from 1st April, 1956, and that the income from the partnership in respect of the five annas share was, therefore, not liable to be included in his individual assessment but could be included only in the assessment of the HUF. The ITO took the view that the transfer of the five annas share by the assessee to the HUF was hit by S. 16(3) (b) and that the income arising from that share was, therefore, liable to be included in the individual assessment of the assessee. The ITO was also of the view that, in any event, S. 16(1) (c) applied, since the partnership was a partnership at will and the assessee had, therefore, a right to reassume power directly or indirectly over the income of the partnership and that the income arising from the five annas share was, therefore, includible in the individual assessment of the assessee under S. 16(1) (c). The ITO accordingly included the income arising from the five annas share in the partnership in the individual assessment of the assessee. The assessee, being aggrieved by the order of the ITO, carried the matter in appeal before the AAC. The AAC took an entirely erroneous view of the case and held that the assessee had ceased to be a partner and in his place introduced the HUF as a partner in the partnership for the purpose of diverting the legitimate income belonging to him and that the said alleged change of partner was a sham transaction and that the assessee had, therefore, in his view not ceased to be a partner in the partnership. The AAC thought that there was a change so far as the partner was concerned, namely, that the assessee had ceased to be a partner and that the HUF had become a partner in the place of the assessee, and this, in the opinion of the AAC, was a sham transaction which he was entitled to ignore and, in this view of the matter, he treated the income arising from the five annas share in the partnership as income belonging to the assessee as an individual. The AAC accordingly held that this income was rightly included in the assessable income of the assessee. The assessee thereupon preferred an appeal before the Tribunal. The Tribunal, it appears, completely overlooked the deed of partnership dated 7th April, 1956, and thought that the first declaration of the intention of the assessee to convert his five annas share in the partnership into joint family property was made on 2nd July, 1956, when he made the declaration of that date and that such declaration of intention could not be given a retrospective effect so as to convert the five annas share from his separate and self acquired property into joint family property w.e.f. 1st April, 1956, and that consequently he was a partner in his individual capacity on 1st April, 1956. The Tribunal took the view that if the assessee was a partner in the partnership in the individual capacity on 1st April, 1956, which was the commencement of the year of account, the income arising from the five annas share was liable to be regarded as the individual income of the assessee and could not be treated as the income of the HUF. The Tribunal accordingly confirmed, though on different grounds, the inclusion of the income arising from the five annas share in the partnership in the individual assessment of the assessee. The assessee thereupon applied to the Tribunal under S. 66(1) for referring to this Court the question of law arising out of the order of the Tribunal and, on such application, the Tribunal referred to us for our opinion the following question of law : "Whether the assessment of five annas share in the firm of Yogendra (P.) and Co., in the hands of the assessee, individual, for the previous year ended March 31, 1957, is valid ?" 2. We may point out that the Tribunal in the statement of case submitted to this Court fairly admitted that there was the deed of partnership dated 7th April, 1956, and that the reference made to the deed of partnership in its order was to that deed of partnership, though it was observed by it in the order that it was "drawn up much later" which was obviously incorrect. The short question which, therefore, arises for consideration in this reference is whether the income arising from the five annas share standing in the name of the assessee in the partnership is the income of the assessee as an individual or the income of the HUF of the assessee. Now it is clear that a person can impress his self acquired or separate property in whole or in part with joint family character. He can throw it into the hotchpot or blend it with joint family property or by a declaration of clear intention convert it into joint family property. By a clear expression of intention he can alter the character of self acquired or separate property into joint family property. This proposition is well established and it is not necessary to cite any authority in support of it but if authority were needed, it is to be found in Duggirala Sadasiva Vittal vs. Bolla Rattain AIR 1958, AP 145 a case which was accepted as laying down the correct law on this point by this Court in Keshavlal Lallubhai Patel vs. CIT (1962) 44 ITR 266 (Guj). This being the position, what we have to consider is whether the five annas share which until 31st March, 1956, the assessee held as his separate property was impressed with the character of joint family property by any unequivocal declaration of intention on the part of the assessee. It is evident from the deed of partnership dated 7th April, 1956, and the declaration dated 2nd July, 1956, that such unequivocal declaration of intention was made by the assessee and the five annas share held by the assessee in the partnership was converted into joint family property from 1st April, 1956. It is no doubt true that even after 1st April, 1956, it was the assessee who continued to be a partner in the partnership so far as his other partner was concerned but the five annas share which he held thereafter was held by him as representing the HUF and the income arising from that share was the income of the HUF. The Tribunal was clearly in error in taking the view that the declaration dated 2nd July, 1956, was the first declaration of the intention on the part of the assessee to impress his five annas share with the character of joint family property and that it could not have retrospective effect so as to attribute the character of joint family property to the five annas share from 1st April, 1956. The Tribunal, as we have pointed out above, completely overlooked the deed of partnership dated 7th April, 1956, which clearly contained an unequivocal declaration of intention on the part of the assessee to treat the five annas share as joint family property from 1st April, 1956. We are, therefore, of the view that the five annas share in the partnership standing in the name of the assessee acquired the character of joint family property from 1st April, 1956, and that the income arising from the said five annas share was the income of the HUF and not the income of the assessee as an individual. We may also point out that even if the five annas share in the partnership standing in the name of the assessee were regarded as impressed with the character of joint family property from 7th April, 1956, or even from 2nd July, 1956, the position would be no different, for the income in respect of the said five annas share for the accounting year 1st April, 1956, to 31st March, 1957, accrued at the close of the year, that is, on 31st March, 1957, and on that date the said five annas share belonged to the HUF and the income arising from it was, therefore, the income of the HUF and not the personal income of the assessee (vide Bhogilal Laherchand vs. CIT (1955) 28 ITR 919 (Bom) and Ashokbhai Chimanbhai vs. CIT) (1962) 44 ITR 41 (Guj).
(3.) BUT the learned Advocate General contended that, even if the five annas share in the partnership was impressed by the assessee with the character of joint family property, it was still hit by S. 16(3) (b) and the income arising from the said five annas share was liable to be included in the individual assessment of the assessee. Sec. 16(3) (b) is in the following terms : "16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included......... (b) so much of the income of any person or association of persons as arises from assets transferred otherwise than for adequate consideration to the person or association by such individual for the benefit of his wife or a minor child or both." ;