Law:

Section:

Section 64(1)(i) of the income-tax act, 1961-Transfer of assets for benefit of spouse or minor child-Assessee is partner in firm in his individual capacity-Assessee impressed on 10-9-1969 his entire capital and other interest in the said firm with character of HUF-Whether share income subsequently accruing to assessee's wife from said firm assessable in his hands under section 64(1)(i)-Held, no Facts The assessee was a partner in a firm in his individual capacity. During the assessment year 1970-71, he had impressed his entire capital and other interest in the said firm with the character of HUF consisting of his wife and five sons. Thus, he ceased to be a partner in his individual capacity and simply represented the HUF from that year onwards. In respect of the share income from the firm, the 1TO took the status of the assessee as that of the individual and, in view of section 64(1)(i), the share income of the assessee and his wife in the former's hands. The AAC held that the assessee represented the HUF in the said firm and ordered the deletion of the share income which was assessed in his hands. Although the AAC accepted the status of HUF in that respect, he opined that the share of the assessee's wife was rightly clubbed in his hands under section 64(1). Before the Tribunal, the assessee contended that he was not partner in his individual capacity, and that any income accruing to his wife from the said firm could not, therefore, be assessed in his hands. The Tribunal held that, for invoking the provisions of section 64(1)(i ), both the individual as well as his spouse should be the partners of the firm. Since the assessee ceased to be the partner in his individual capacity (from the assessment year 1970-71) and was only representing his HUF thereafter, the income accruing to his wife therefrom could not be assessed in his hands. On reference, the Revenue contended (a) that, under the law of partnership, the HUF, as such, could not become a partner of the firm, (b) that the karta who wants to join the partnership firm as its member may do so after giving up his representative capacity, and (c) that any income accruing to such partner should be treated as…

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