INCOME TAX OFFICER Vs. CHAMAN PRAKASH AND SONS
LAWS(IT)-1989-7-13
INCOME TAX APPELLATE TRIBUNAL
Decided on July 24,1989

Appellant
VERSUS
Respondents

JUDGEMENT

S. Grover, Judicial Member - (1.)THIS Special Betach has been constituted under Section 255(3) of the Income-tax Act, 1961 to consider the following reproduced question in all the three cases: -
Whether the share of profit from the firm received by the assessee belongs to him in his individual capacity or it belongs to the HUF of which he is the karta?

(2.)To understand and adjudicate the question, related facts which are more or less common to all the cases must be stated and which are that the, three respondent-HUFs along with several other persons were partners in the firm M/s. Indian Handicrafts Emporium, Con. Place, New Delhi (hereinafter referred to as IHE) through their kartas, namely, S/'Shri Chaman Prakash, Satya Prakash and Om Prakash. In the cases of Chaman Prakash & Sons and Om Prakash & Sons, HUFs, partial partitions took place on 21st of March, 1973 and memoranda recorded on the same day. In the former case HUF constituted of Chaman Prakash. his wife Smt. Buiila Devi, two minor .sons, Master Anil Aggarwal and Sunil Aggarwal and minor daughter Kin. Ritu Aggarwal. In the partial partition out of the total investment of Rs. 68,676.19 in the firm IHE a sum of Rs. 10,000 was set apart for the marriage of minor daughter, Km. Ritu and the entire balance investment of Rs. 58,676.19 was allocated between the other members as follows: -
JUDGEMENT_2320_TLIT0_19890.htm

In the entries made in the books of the IHE investment was recorded as divided between the said four persons as also Ritu Aggarwal for her marriage inasmuch as the necessary credit entries were made in their accounts. It was further stated in the memorandum that the parties had acknowledged that they had acquired full rights over their allotted shares of HUF investment in the said concern. Balance sheets were drawn both in the Individual case and in the HUF books on 21-3-1973. The credits in the family members accounts by these entries were transferred to the individual account of Chaman Prakash and the investment of Rs. 1,20,103.07 (working given at page 8) was credited in his Individual account. On 31st March, 1973 in the IHE books the necessary corresponding entries were made and the entire investment of Rs. 1.20,103.07 was shown as his individual investment and the arrangements to give interest to the members was his individual responsibility and no concern of the firm as such.

In the case of Satya Prakash & Sons, the partial partition of the HUF with regard to total investment in the IHE took place on 30th of November, 1974 and the memorandum also executed on the same day. The allocation of the HUF funds in this case were between Shri Satya Prakash, Mrs. Nisha Gupta, his wife and their minor son Shri Arun Gupta and total investment amounting to Rs. 80,613.16 was divided in equal shares of Rs. 26,871.05 each and whereas the amount allotted to Shri Satya Prakash in his Individual capacity was credited to his Individual capital account in the firm, the amounts allotted to the wife and minor son were credited in the firm's books as loans. This is clearly projected from the photo copies of cash book submitted to us at page 3 of the paper book.

(3.)SIMULTANEOUSLY book entries were also made in the books of the family and the sum that fell to the share of wife and minor son were treated and credited as loans to Satya Prakash (Individual) and these were interest bearings. Necessary corresponding entries were made in the IHE books on 31-3-1975. The HUF of Satya Prakash & Sons filed its return of income for 1975-76 asst. year on 30-7-1975 in which it had been categorically stated that share income from IHE did not belong to it, but to Shri Satya Prakash (Individual). That total investment of the Hindu Joint Family as such was allotted and partitioned between the members and HUF ceased to be a partner is clearly projected from the recital in the memorandum which we like to notice in this order as follows: -
NOW THIS MEMORANDUM WTTNESSETH AS UNDER: -

1. That investment of the Joint Hindu Family in M/s. Indian Handicraft Emporium of which Shri Satya Prakash is the karta has been partitioned between Shri Satya Parkash and his minor son Master Ashu and Shrimati Nisha Aggarwal being members of the Joint Hindu Family.

2. That the aforesaid asset has been divided equally as per personal books of the Joint Hindu Family.

3. That with effect from today, that is, the 30th day of November, 1974, the investment in M/s. Indian Handicraft Emporium no more belongs to the Joint Hindu Family of which Shri Satya Prakash is the karta and the future accretions thereto as well as losses, if any, incurred shall not belong to the Joint Hindu Family.



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