- (1.) THE assessee is a Hindu undivided family (HUF) and the relevant assessment year is 1991 -92. The assessee derived income from contract business. For the asst. yr. 1991 -92, the assessee declared its total income as Rs. 1,19,338. In the accounting year, relevant to the assessment year, the Karta of the HUF has sublet its contract to individual though the person is same but in dual capacity. The AO has added the income which has been shown as income from subletting a contract in his individual capacity. In appeal, that addition has been deleted by the CIT(A) holding that even after subletting of the contract by the HUF to individual, the net result of income is not affected as whatever the individual has advanced the money to HUF to carry out the contract work that was used and if the interest of that amount as loan which has been advanced to assessee is taken into account that is more than the profit shown in the hands of individual by Karta of HUF. Therefore, the addition of Rs. 69,589 has been deleted in appeal by the CIT(A). The Department filed appeal before the Tribunal and the Tribunal has added back that addition on the ground that HUF is not a juristic person.
(2.) HEARD learned counsel for the parties. While deleting the addition of profit in the hands of HUF, the CIT(A) has considered the matter in para 11 of its order. For ready reference, para 11 of the order of the CIT(A) reads thus : 11. I have considered the facts of the case. The statute recognize the dual capacity as an HUF and individual being two separate tax entity for the taxation purpose. The funds of the individual have been utilized for the purpose of execution of the contract. The profit is not more than the amount of interest, if it was treated as borrowing and not a subletting of the contract. In view of this fact the AO was not justified in treating the entire profit in the hands of the appellant -HUF. He is directed to exclude the amount of profit assessed in the hands of the individual. The appellant gets relief of Rs. 69,589.
(3.) IT is surprising that at the Tribunal level, a view has been taken that HUF cannot be a juristic person. The question is not that HUF is a juristic person or not. The IT Act itself provides that HUF is an assessee. In that case the same person has dual capacity. He can enter into an agreement in different capacities i.e., as Karta of HUF and as an individual. Thus, a Karta can be assessed in the individual capacity also for the income earned in his individual capacity.;