HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.C No. 7 OF 2003 02-09-2014 BETWEEN K. Rama Venkata Subbaiah, Proddutur …Petitioner And The Commissioner of Income Tax, Vijayawada …..Respondent HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.C No. 7 OF 2003 ORDER: (per the Hon'ble Sri Justice L. Narasimha Reddy) This is a petition under Section 256 (2) of the Income Tax Act, 1961 (for short, ‘the Act’) filed with a prayer to direct the Hyderabad Bench of the Income Tax Tribunal (for short, ‘the Tribunal’) to refer the following questions to this Court for answer:
“1. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the provisions of sec/64(1)(iv) have application to the assessee particularly when the assessee is a HUF.
2. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the provisions of sec.60 of the I.T.Act, 1961 apply to the facts of the case.
3. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in upholding the decision of the Assessing Officer that the profit derived by Smt. Subbaratnamma is assessable as the income of the assessee.”
Briefly stated, the facts are that the petitioner is the Kartha of a Hindu Undivided Family (HUF) and is an assessee as HUF. That in turn is a partner in M/s. Sri Mallikarjuna Textiles, Proddatur. Through a declaration dated 15-04-1981, the petitioner stated that he gifted 50% of the share in the firm M/s. Sri Mallikarjuna Textiles in favour of his wife Subbaratnamma as stridhana property. To that extent, the profits were excluded in the returns. Order of assessment was passed accepting the same. However, the assessing officer reopened the proceedings in exercise of power under Section 147 of the Act and sought to ignore the so-called gift said to have been made by the petitioner, in favour of his wife. Orders to that effect were passed. Aggrieved by that, the petitioner filed an appeal before the Commissioner of Appeals. The appeal was allowed through order dated 24-03-1994. Assailing that, the Revenue filed ITTA Nos. 1089 and 1090/Hyd/994 before the Tribunal. The appeals were allowed through order dated 24-07-1997. Thereupon, the petitioner filed R.A Nos. 15 and 16/Hyd/1997 under Section 256 (1) of the Act, with a prayer to refer the questions to this Court. That request was declined by the Tribunal through order dated 27-12-2001. Hence, this ITC.
Heard Sri A.V. Krishna Koundinya, learned Senior Counsel for the petitioner and Sri J.V. Prasad, learned counsel for the respondent.
The petitioner no doubt is the Kartha of HUF and the HUF is a partner, in a firm. Declaration dated 10-04-1981 said to have been made by the petitioner in favour of his wife, gifting half of the holding in the firm is also not disputed. However, the controversy is about the legal consequences flowing therefrom.
The law maintains a clear distinction between two aspects, in this behalf. In case, what is transferred by an assessee is only some portion of profit, the income of the assessee remains, as it was earlier. If on the other hand, the assessee has transferred the very asset, which yielded income, correspondingly the income of the assessee stands reduced. Even the Tribunal did not have any quarrel with this proposition.
The HUF held a share in the firm and it was receiving its share of profits from the firm. That in turn was being treated as the income of the HUF. Had it been a case where the HUF transferred part of its share in the firm in favour of an outsider, its income, to that extent could have certainly been treated as reduced. The transfer is said to have been made by the petitioner in the form of a gift to none other than his wife. Incidentally, the donee is very much part of the HUF, along with the children. Even if the disposition through the declaration is treated as valid, it did not have the effect of taking any fraction of the share of the HUF in the firm, outside the purview of the HUF. When the entire shareholding in the firm is by the HUF, there was no occasion or basis for further changing the extents among the persons constituting HUF.
It is a matter of common knowledge that in a HUF, no member can claim any definite share in the assets, till the partition takes place. It is only on the partition being effected, that respective shares come to be allotted. As long as the Hindu Family remains joint, which in fact is a sine qua non for it to be recognised as HUF, the question of one member of the HUF claiming any particular share in it, in contradistinction to undivided share much less transferring it in favour of another does not arise. At any rate, once the assessee is a HUF and its income from the partnership firm remained unaffected, no legal consequences referable to the Act can be said to have flown from the declaration dated 15-04-1981 said to have been made by the petitioner. We do not find any basis to accept the request of the petitioner.
The ITC is accordingly dismissed. There shall be no order as to costs.
L. NARASIMHA REDDY, J CHALLA KODANDA RAM, J 02-09-2014 ks Note:
LR copy to be marked.
B/O ks