Law:

Section:

Section 64(2) of the Income-tax Act, 1961 - Transfer of assets - Throwing of self acquired property into HUF's hotchpot - Assessment year 1981-82 - Assessee impressed Rs. 30,000 out of his personal funds as property of HUF of which he was karta, and soon thereafter became a partner in two firms in his representative capacity as karta of his HUF, contributing Rs. 15,000 to each firm as share capital of HUF - Whether share of profits from firms was income derived directly or indirectly from converted property and assessable in his hands as individual - Held, no FACTS The assessee, an individual, was originally a partner in two firms V and Q in his individual capacity. On 20-8-1970 out of his separate and self-acquired funds he impressed a sum of Rs. 30,000 with the character of HUF property. He retired from the two partnership firms with effect from 1-10-1970 and on the same day he entered into these partnerships again in his capacity as karta of his HUF, contributing as share capital of the HUF a sum of Rs. 15,000 in each of these partnerships out of the aforesaid sum of Rs. 30,000. The Income-tax Department contended that the share of profits derived by the assessee from these two firms should be treated as his individual income under section 64(2)(b) but the Tribunal held mat section 64(2)(b) was not attracted in the case, and the share of profits from these two firms was not includible in the computation of the assessee's income. On reference: HELD There was no dispute that the capital contributed by the assessee to both the firms in his capacity as the karta of the HUF was converted property as per section 64(2). But the question was whether the income which the HUF had derived by way of share of profits of both these firms could be considered as income derived from the converted property under section 64(2)(b). Applying the ratio of the Supreme Court decision in the case of CIT v. Prem Bhai Parekh [1970] 77 ITR 27 , which was directly applicable to the case, the income arose because of membership of the firms and there was no nexus between the transfer of assets and the income in question. Hence, the income did not arise directly or indirectly from the…

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