Per Shri George Cheriyan, Vice-President - This appeal is by the revenue. This appeal relates to the assessment year 1980-81. The assessee is a registered firm. The previous year is from October, 1978 to 20-10-1979.

2. One Sri Chandmal Chunilal was a partner in the assessee-firm till he passed away on 7-5-1977. Thereafter we gathered at the hearing that the firm was reconstituted. It was not a case of dissolution of the firm and succession thereto by another firm. In the reconstituted firm Smt. Dhako Bai, wife of late Chandmal Chunilal, became a partner along with three sons S/Shri Rakeshchand, Kevalchand and Kiranraj. The amount standing to the credit of late Chandmal Chunilal, who was assessed as an individual, was credited in an account in the firm under the style ‘estate of late Chandmal Chunilal’. Sri Chandmal Chunilal left behind a married daughter Smt. Saroj, who did not join the reconstituted firm. To the account styled ‘estate of late Chandmal Chunilal’ interest was credited, A question arose as to whether four-fifth of the interest so credited (i.e., excluding what would have been the share of Smt. Saroj) required to be added in the hands of the firm by virtue of section 40(b) of the IT Act, 1961.

3. The contention of the assessee was that the provisions of section 40(b) would be applicable only when payments were made to partners directly and not to an Association of Persons (AOP), even if some of the partners happened to be the members of the said association. The ITO took the view that in respect of the estate left behind by Sri Chandmal Chunilal, there was no assessable entity of AOP. The ITO referred to section 8 of the Hindu Succession Act, 1958 and stated that what were received on the demise of Sri Chandmal Chunilal by the heirs were their separate property. The ITO also examined the issue whether the heirs would constitute a ‘body of individuals’ and after referring to the case law on the point, he held that they did not also constitute a body of individuals and the income from interest in the accounts styled ‘estate of late Chandmal Chunilal’ could not be construed to be that of a body of individuals. He eventually brought to tax four-fifth of the interest credited which came to Rs, 13,128 by applying the provisions of section 40(b).

4. The assessee appealed. The CIT(A) deleted the amount added stating as under:-

"Late Shri Chandmal left behind his widow, three sons and a daughter. Among them, only the sons and their mother were partners of the firm. The deceased did not execute a will in his lifetime. In terms of the Hindu Law, the widow as well as his children including the married daughter became legal heirs. Apart from the money deposited with the firm, late Chandmal had an immovable property. It is gathered that the legal heirs did not see eye to eye with each other on the distribution of the estate of Shri Chandmal and cases have been filed in the Court to settle their interest inter se. That is the reason why the amount left behind as capital in the firm had remained undistributed over the legal heirs. In short, the amount did not belong to the legal heirs till a distribution had taken place. Till then it belonged to an estate. The amount of interest paid by the firm was not to the partners. It was paid to the estate which consisted of not only the partners but the daughter of the deceased also. In this view therefore I hold that section 40(b) of the Act cannot apply. The appellant would succeed and get the inclusion of Rs. 13,128 deleted."

The revenue is in appeal before us.

5. The submission of the learned departmental representative was that the property left behind by Shri Chandmal Chunilal was his individual property. Immediately on his demise, in terms of section 8 of the Hindu Succession Act, 1958 read with section 19, each of the heirs had a definite share in the property and merely because the property was left undivided, the income credited to the account could not be held to be income, wh