Commissioner of Income Tax vs R.D. Gandhi

Smt. Sujata Manohar, J.—This IT reference relates to the asst. yrs. 1972-73 and 1973-74. The assessee, who is a Hindu individual, was a partner in the firm of M/s. Rasiklal D. Gandhi & Co. in his individual capacity, holding 25% share in the partnership. On 28th December, 1970 the assessee made a declaration that as on 2nd November, 1970 he had thrown into the common pool of this HUF consisting of himself, his wife and his four sons, a sum of Rs. 1,60,000 out of his capital in the firm of M/s. Rasiklal D. Gandhi & Co., as also his share in the partnership. It was also declared that this amount of Rs. 1,60,000 as also his share in the partnership business was his self acquired property. This was accepted by the ITO. We are not going into the exact findings of the ITO. The CIT, however, passed an order under s. 263 of the IT Act, holding that since a share in the partnership was likely to place some liability on the joint family, such an asset cannot be impressed with the character of joint family property. He, therefore, held the declaration as invalid. The assessee appealed against the order of CIT to the Tribunal. The Tribunal held that the interest of a partner in a partnership is an asset and there is nothing to prevent a coparcener from impressing such an asset with the character of joint family property.

From this finding, the following question has been referred to us under s. 256(1) of the IT Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the impressing of the assessee''s individual interest in the firm of M/s. Rasiklal D. Gandhi & Co. with the character of HUF was valid and in consequently, restoring the ITO''s assessment orders for the asst. yrs. 1972-73 and 1973-74 ?"

The narrow question is whether the share of the assessee in the partnership is an asset which can be impressed with the character of joint family property. The entire finding of the Commissioner has proceeded on the basis that the transfer of a partner''s interest to the Hindu joint family may saddle the Hindu joint family with liability and, hence, a share in the partnership cannot be so transferred. Sec. 29 of the Partnership Act, however, provides that only certain limited rights are given to a transferee in such a situation. This section is attracted if a partner assigns his share to an outsider without the consent of his partners during the existence of the partnership. In this situation, no immediate rights accrue to the assignee as against the other partners except that the assignee can ask for the share of profit of the firm coming to the transferor which may, from time to time, become payable to him in accordance with the agreement and practice of the partnership.

In view of this position in law, in our view, the Tribunal was right in holding that the share in the partnership was an asset which could be thrown into common stock of joint family property. The question, therefore, is answered in the affirmative and in favour of the assessee.

No order as to costs.