Ram Manohar & Sons HUF, consisting of Karta Ram Manohar, his wife, two sons and daughter, is running Ragistan Departmental Stores. Both the sons, who are having professional/technical qualifications as a Chartered Ac

Taxability of income of firm in the hands of HUF The facts of the case are similar to that of the case of CIT vs. Charan Dass Khanna & Sons (1980) 123 ITR 194 , where the Delhi High Court observed that if the investment made by the HUF in the business started by the coparceners plays a minor role and it is primarily the personal efforts, specialized skill and enterprise of the individual coparceners which resulted in setting up of a new business and earning of good profits, then it may not essentially be said that the income belongs to the HUF. The Supreme Court has also supported this view in the case of K S Subbiah Pillaiv. CIT (1999) 237 ITR 11 and held that where the remuneration and commission earned by the Karta were on account of the personal qualifications and expertise and not on account of the investment of the family funds, such income cannot be treated as income of the HUF. In the given case, profits of motor garage were earned primarily because of the specialized skills acquired by both the partners in their respective fields and was used in the business of motor garage. The initial capital taken from the HUF as interest free loan, of course, has its role but it is nevertheless a minor one as the business was conducted by both the brothers by putting their efforts and specialized skill. Therefore, the income from the business set up by the brothers is assessable in the hands of the partnership firm and in their individual hands and not as the income of the HUF. The proposition of the Assessing Officer to tax the profits of the business of motor garage earned by the two sons in the hands of the HUF is not valid.