M.C. Agarwal, J. - (1.) THESE three references under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), pertain to the assessment year 1975-76 and have been made by the Income-tax Appellate Tribunal, Delhi Bench "E".
(2.) THERE was a Hindu undivided family known as Sushil Kumar and Sons (HUF). THERE was also a partnership firm named Sushil Kumar and Sons in which the karta of the aforesaid Hindu undivided family was, along with his wife, a partner representing the Hindu undivided family. During the course of the assessment for the assessment year 1975-76 of the Hindu undivided family a claim under Section 171 of the Act was made that on October 1, 1973, there was a partial partition in respect of a sum of Rs. 1,00,000 out of the capital of the Hindu undivided family invested in the said firm and a memorandum dated October 2, 1973, was executed. The sum of Rs. 1,00,000 was partitioned as under : "1. Rs. 20,000 to Sandeep Kumar and Prabha Rani. 2. Rs. 20,000 to Sushil Kumar and Manish Kumar. 3. Rs. 20,000 to Km. Vanita. 4. Rs. 20,000 to Km. Anuradha. 5. Rs. 20,000 to Km. Nellu." Sandeep Kumar and Manish Kumar were the minor sons of the karta, Sushil Kumar, and Vanita, Anuradha and Nellu were his daughters. Necessary entries relating to the partition were made in the books of account of the Hindu undivided family as well as those of the partnership firm. The Income-tax Officer passed an order under Section 171 holding the partition not to be legal. This was upheld by the Appellate Assistant Commissioner and then by the Tribunal. The Income-tax Appellate Tribunal took the view that since there was only one adult male member, namely, Sushil Kumar, in the family, he cannot effect a valid partition. For this, reliance was placed on a judgment of the Madhya Pradesh High Court in CIT v. Seth Gopaldas (HUF) [1979] 116 ITR 577. The Tribunal also took the view that the share of the Hindu undivided family in the partnership business not being identifiable was incapable of partition. For this, reliance was placed in Addanki Narayanappa v. Bhaskara Krishnappa [1966] AIR 1966 SC 1300. On these facts, the Appellate Tribunal, at the instance of the assessee has referred the following questions for the opinion of this court : "1. Whether, on the facts and circumstances of the case, the Tribunal was, in law, justified in dealing with the issue as to recording under Section 171(5) of finding of partial partition without first having determined as to whether in respect of the income from the asset purported to be partitioned, the assessee used to be assessed or not earlier in the status of Hindu undivided family ? 2. Whether, on the facts and circumstances of the case, the Tribunal was justified in law in holding that the partial partition in question was under Hindu law not valid ? 3. Whether, on the facts and circumstances of the case, the Tribunal was justified in law in holding that the partial partition in question was bad in law even independently of requirement of Hindu law as to there being minimum two adult co-partners ?" In Income-tax Reference No. 158 of 1983, the reference has been made at the instance of the aforesaid Hindu undivided family. The grievance of the Hindu undivided family arises from the quantum assessment order in which the interest paid to the aforesaid five persons/group of persons was included in the income of the Hindu undivided family as the same was disallowed in the case of the firm under Section 40(b) of the Act "and was included in the share income of the firm. The following question has been referred for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in upholding the inclusion of interest income received by the various members of the Hindu undivided family from the firm, Sushil Kumar and Sons, towards the total income of the assessee-Hindu undivided family ?"
(3.) IN INcome-tax Reference No. 247 of 1983, the reference has been made at the instance of the partnership firm. IN consequence of the aforesaid partition, sums of Rs. 20,000 each were credited in the names of the aforesaid five persons/group of persons and a sum of Rs. 1,00,000 was debited to the capital account of the said Hindu undivided family. INterest was paid on the sum of Rs. 20,000 each aforesaid which because of the order under Section 171 rejecting the partition was disallowed and added back in terms of section 40(b) and was allocated to the share of the Hindu undivided family. The following question has been referred by the Tribunal for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the INcome-tax Appellate Tribunal was justified in holding that the interest paid by the assessee-firm to the various members of the Hindu undivided family of Sushil Kumar and Sons has to be disallowed as per provisions of section 40(b) of the INcome-tax Act, 1961 ?" We have heard Sri Rakesh Kumar Agarwal and Sri Pramod Kumar Jain, learned counsel for the assessee, and Sri Shekhar Srivastava, learned standing counsel for the respondent.;