Itc/7/2003 Of K.rama Venkata Subbaiah v. The Commissioner Of Income Tax

HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’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 REDDYANDHON’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 TaxAct, 1961 (for short, ‘the Act’) filed with a prayer to direct theHyderabad Bench of the Income Tax Tribunal (for short, ‘theTribunal’) to refer the following questions to this Court for answer: “1. Whether on the facts and in thecircumstances of the case, the Income-tax AppellateTribunal is justified in holding that the provisions ofsec/64(1)(iv) have application to the assesseeparticularly when the assessee is a HUF. 2. Whether on the facts and in the circumstances of the case, the Income-tax AppellateTribunal is justified in holding that the provisions ofsec.60 of the I.T.Act, 1961 apply to the facts of thecase. 3. Whether on the facts and in thecircumstances of the case, the Income-tax AppellateTribunal is justified in upholding the decision of theAssessing Officer that the profit derived by Smt.Subbaratnamma is assessable as the income of theassessee.” Briefly stated, the facts are that the petitioner is the Karthaof 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 declarationdated 15-04-1981, the petitioner stated that he gifted 50% of theshare in the firm M/s. Sri Mallikarjuna Textiles in favour of his wifeSubbaratnamma as stridhana property. To that extent, the profitswere excluded in the returns. Order of assessment was passedaccepting the same. However, the assessing officer reopened theproceedings in exercise of power under Section 147 of the Act andsought to ignore the so-called gift said to have been made by thepetitioner, in favour of his wife. Orders to that effect werepassed. Aggrieved by that, the petitioner filed an appeal beforethe Commissioner of Appeals. The appeal was allowed throughorder dated 24-03-1994. Assailing that, the Revenue filed ITTANos. 1089 and 1090/Hyd/994 before the Tribunal. The appealswere allowed through order dated 24-07-1997. Thereupon, the petitioner filed R.A Nos. 15 and16/Hyd/1997 under Section 256 (1) of the Act, with a prayer to refer the questions to this Court. That request was declined by theTribunal through order dated 27-12-2001. Hence, this ITC. Heard Sri A.V. Krishna Koundinya, learned Senior Counselfor the petitioner and Sri J.V. Prasad, learned counsel for therespondent. The petitioner no doubt is the Kartha of HUF and the HUF isa partner, in a firm. Declaration dated 10-04-1981 said to havebeen made by the petitioner in favour of his wife, gifting half of theholding in the firm is also not disputed. However, the controversyis 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 onlysome portion of profit, the income of the assessee remains, as itwas earlier. If on the other hand, the assessee has transferred thevery asset, which yielded income, correspondingly the income ofthe assessee stands reduced. Even the Tribunal did not have anyquarrel with this proposition. The petitioner no doubt is the Kartha of HUF and the HUF isa partner, in a firm. Declaration dated 10-04-1981 said to havebeen made by the petitioner in favour of his wife, gifting half of theholding in the firm is also not disputed. However, the controversyis 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 onlysome portion of profit, the income of the assessee remains, as itwas earlier. If on the other hand, the assessee has transferred thevery asset, which yielded income, correspondingly the income ofthe assessee stands reduced. Even the Tribunal did not have anyquarrel with this proposition. The HUF held a share in the firm and it was receiving itsshare of profits from the firm. That in turn was being treated asthe income of the HUF. Had it been a case where the HUFtransferred part of its share in the firm in favour of an outsider, itsincome, to that extent could have certainly been treated asreduced. The transfer is said to have been made by the petitionerin the form of a gift to none other than his wife. Incidentally, thedonee is very much part of the HUF, along with the children. Evenif 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 inthe firm, outside the purview of the HUF. When the entireshareholding in the firm is by the HUF, there was no occasion orbasis for further changing the extents among the personsconstituting HUF. It is a matter of common knowledge that in a HUF, nomember can claim any definite share in the assets, till the partitiontakes place. It is only on the partition being effected, thatrespective shares come to be allotted. As long as the HinduFamily remains joint, which in fact is a sine qua non for it to berecognised as HUF, the question of one member of the HUFclaiming any particular share in it, in contradistinction to undividedshare much less transferring it in favour of another does notarise. At any rate, once the assessee is a HUF and its incomefrom the partnership firm remained unaffected, no legalconsequences referable to the Act can be said to have flown fromthe declaration dated 15-04-1981 said to have been made by the petitioner. We do notfind any basis to accept the request of the petitioner. The ITC is accordingly dismissed. There shall be no orderas to costs. ___________________________ L. NARASIMHA REDDY, J ____________________________ 02-09-2014ksNote:LR copy to be marked. B/O ks CHALLA KODANDA RAM, J