Surjit Lal Chhabda Vs. Commissioner of
Income Tax, Bombay [1975] INSC 238 (6 October 1975)
CHANDRACHUD, Y.V.
CHANDRACHUD, Y.V.
SARKARIA, RANJIT SINGH GUPTA, A.C.
CITATION: 1976 AIR 109 1976 SCR (2) 164 1976
SCC (3) 142
ACT:
Income Tax Act, 1922-Section 2(9)-Hindu
Undivided Family as an assessee-coparcenary and Hindu Undivided Family-In the
absence of a nucleus whether H.U.F. can consist of one male member-Presumption
of Union of a Hindu family-Composition of H.U.F. whether relevant for
assessment in case where property belong to subsisting undivided family or in
case where property is thrown into common hotchpotch for the first time-Whether
assessment to be made depending on the nature and character of the property
under the personal law.
HEADNOTE:
The appellant Surjit Lal was the owner of an
immovable property called "Kathoke Lodge". He used to derive rent
income from the said property in addition to deriving income under other heads.
In 1956, he made a declaration throwing the said property into the family
hotchpotch. The family consisted of himself his wife and an unmarried daughter.
The appellant contended before the Income Tax
Officer that the rent income derived from the said property should be assessed
in the status of a Hindu Undivided Family. The Income Tax Officer held:
1. In the absence of a nucleus of joint
family property there was nothing with which the appellant could mingle his
separate property.
2. There could not be a Hindu Undivided
family without there being Undivided family property.
An appeal filed before the Appellate
Assistant Commissioner was dismissed but on the following grounds:
(1) After the declaration the appellant was
dealing with the income of the property in the same way as before and,
therefore, the declaration was not acted upon.
(2) Even assuming that the property was
thrown into the common stock and was therefore joint family property, the
income from that property could still be taxed in the appellant's hands as he
was the sole male member of the family.
The matter was further taken to the Income
Tax Appellate Tribunal by the appellant. The Tribunal accepted the declaration
as genuine and differed from the A.A.C. that it was not acted upon. The
Tribunal however, held that though the appellant had invested his separate
property with the character of joint family property, he being a sole surviving
coparcener continued to have the same absolute and unrestricted interest in the
property as before and, therefore, in law, the property had to be treated as
his separate property.
Thereafter the Tribunal referred the question
of law to the High Court. Before the High Court it was contended by the
appellant that it is open to a male member of a joint Hindu Family to convert
his self-acquire property into joint family property by throwing it into the
common hotchpotch, and that it was not necessary that there should be an
ancestral nucleus or that there should be more than one male in the joint
family. On the other hand, the department contended that it was contrary to the
basic concept of a Hindu undivided family that a single male along with females
could form a joint Hindu family and that it was necessary for the formation of
a joint Hindu family that there should be more than one male entitled to claim
partition of the joint family property.
165 The High Court did not go into the larger
question and assumed for the purpose of argument that there need not be more
than one male member for forming a joint Hindu family as a taxable unit. The
High Court held that since the assessee had no son, there was no undivided
family.
According to the High Court, the case of the
appellant fell within the ratio laid down by the Privy Council in Kalyanji's
case and that since under the personal law, the right to the income remained as
it was before the appellant made the declaration, the income from Kathoke Lodge
was liable to be assessed as the appellant's individual income.
Dismissing an appeal by Special Leave, ^
HELD:
(1) Even in the absence of an antecedent
history of jointness, the appellant could constitute a joint Hindu Family with
his wife and unmarried daughter. True that the appellant could not constitute a
coparcenary with his wife and unmarried daughter but under the Income Tax Act a
Hindu undivided family, not a coparcenary is taxable unit. A Hindu coparcenary
is a much narrower body than the joint family.
[170F, 171B] (2) The joint family with all
its incidents, is a creature of law and cannot be created by act of parties
except to the extent to which a stranger may be affiliated to the family by
adoption. The appellant, however, was not by contract seeking to introduce in
his family strangers not bound to the family by the tie of a sapinda ship. That
it does not take more than one male to form a joint Hindu family with females,
is well established. [172A & G] (3) The contention of the Department that
since prior to the declaration. the family hotchpotch in the instant case was
empty and there was nothing with which the property or its income could be
blended and therefore, the declaration is ineffective to convert that property
into joint family property was not raised before the Tribunal, and the same was
not pressed in the High Court. It was, therefore, not open to the department to
take before this Court a contention which in the first place does not arise out
of the reference and which the department's counsel in the High Court raised
but did not press.
[173G-H, 174A-C] (4) The cases of Kanji and
Sewdas in Kalyanji's case furnish a near parallel to the present case. Though the
property in their hands was assumed to be ancestral, income which Kanji and
Sewdas received from it was treated as their separate property, as neither of
them had a son who could take interest in the ancestral property by birth.
Applying that analogy, even if Kathoke lodge were to be an ancestral asset, its
income would still have to be treated as the appellant's separate property as
he had no son who could take interest in that property by birth. The ratio of
Kalyanji's case would, therefore, apply to the instant case.
The reason why the case of Kanji and Sewdas
furnished a close parallel is the very reason for which their cases were held
by this Court to be distinguishable from Lakshmi Narain's case. In Lakshmi
Narain's case the property was ancestral in the hands of the father, the son
had acquired an interest by birth therein there was a subsisting Hindu
Undivided family during the lifetime of the father and since that family did
not come to an end on the death of the father, the Bombay High Court rightly
held that the income continued to be the income of the joint family and was
liable to be taxed as such. The property of a joint family does not cease to
belong to the family merely because the family is represented by a single
coparcener who possesses rights which an owner of property may possess.
[176-D-G, 177A, 178, G-H, 179A] (5) There are
thus two classes of cases each requiring a different approach. In cases where
the property belongs to a subsisting undivided family the property does not
cease to have that character merely because the family is represented by a sole
surviving coparcener who possesses rights which an owner of property may
possess, or for that matter even if the family for the time being consists only
of widows of deceased coparceners. In cases where the property did not belong
to a subsisting undivided family, whether any property has acquired the 166
character of joint family property has acquired the character of joint family
property in the hands of an assessee depends on the composition of the family.
A joint Hindu family can consist of a man, his wife and daughter but the mere
existence of a wife or daughter will not justify the assessment of income from
the joint family property in the status of the head as a manager of the joint
family.
Once it is realised that there are two
distinct classes of cases which require a different approach there would be no
difficulty in understanding the implications of the apparently conflicting
tests evolved as guides for deciding the two classes of cases. Kathoke Lodge
was not an asset of a pre-existing joint family. It became an item of joint
family property for the first time when the appellant threw what was his
separate property into the family hotchpotch.
The appellant had no son. His wife and
unmarried daughter were entitled to be maintained by him from out of the income
of Kathoke Lodge while it was his separate property. Their rights in that
property are not enlarged for the reason that the property was thrown into the
family hotchpotch. Not being co-parceners of the appellant, they have neither a
right by birth in the property nor the right to demand partition nor indeed the
right to restrain the appellant from alienating the property for any purpose
whatsoever. The property which the appellant has put into the common stock may
change its legal incidence on the birth of a son but until that event happens,
the property in the eyes of Hindu Law is really his. He can deal with it as a
full owner, unrestrained by considerations of legal necessity or benefit of the
estate. He may sell it mortgage it or make a gift of it. Even a son born or
adopted after the alienation shall have to take the family hotchpotch as he
finds it.
[180-G, H, 181 A-D, 182-E-H, 183A] (7) Since
the personal law of the appellant regards him as the owner of Kathoke lodge and
the income there from as his income even after the property was thrown into the
family hotchpotch, the income would be chargeable to income tax as his
individual income and not that of the family.
[183B-C]
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 1819- 1821 of 1970.
Appeals by Special Leave from the Judgment
and Order dated the 8/9th July 1969 of the High Court at Bombay in Income Tax
Reference No. 29 of 1963.
G.C. Sharma, O.P. Dua, Annoop Sharma and P.K.
Mukherjee for the Appellants.
S.T. Desai, P.L. Juneja and S.P. Nayar for
the Respondent.
The Judgment of the Court was delivered by
CHANDRACHUD, J.-The appellant, Surjit Lal Chhabda, had three sources of income.
He had a share in the profits of two partnership firms, he received interest
from Bank accounts and he received rent from an immovable property called
"Kathoke Lodge". These were his self-acquired properties and until
the assessment year 1956-57, he used to be assessed as an individual in respect
of the income thereof. On January 26, 1956 he made a sworn declaration before a
Presidency Magistrate in Bombay that he had thrown the property Kathoke Lodge
into the 'family hotchpots' in order to impress that property with the
character of joint family property and that he would be holding that property
as the Karta of the joint Hindu family consisting of himself, his wife and one
child. That child was an unmarried daughter.
In the assessment proceedings for 1957-58,
the appellant contended that since he had abandoned all separate claims to
Kathoke Lodge, 167 the income which he received from that property should be
assessed in the status of a Hindu Undivided Family. The income-tax authorities
and the Income-tax Appellate Tribunal rejected that contention for varying
reasons. The Income-tax Officer held that in the absence of a nucleus of joint
family property, there was nothing with which the appellant could mingle his
separate property and secondly, that there could not be a Hindu undivided
family without there being undivided family property. The appellant carried the
matter in appeal to the Appellant Assistant Commissioner who differed from the
Income-tax Officer on both the points but dismissed the appeal on two other
grounds. The A.A.C. held that even after the declaration, the appellant was
dealing with the income of Kathoke Lodge in the same way as before which showed
that the declaration was not acted upon and secondly, that even assuming that
the property was thrown into the common stock and was therefore joint family
property, the income from that property could still be taxed in the appellant's
hands as he was the sole male member of the family. The Tribunal accepted the
declaration as genuine and differed from the A.A.C.'s finding that it was not
acted upon. The appellant, according to the Tribunal, was the Karta of the
joint Hindu family and it was irrelevant as to how he dealt with the joint
family income. The Tribunal however held that the appellant had invested his
separate property with the character of joint family property, he being a sole
surviving coparcener continued to have the same absolute and unrestricted
interest in the property as before and therefore, in law, the property had to
be treated as his separate property.
The appellant moved the Tribunal for
referring five questions to the High Court while the respondent applied for the
reference of one other question. The Tribunal referred the following question
only for the opinion of the Bombay High Court under section 66(1) of the
Income-tax Act, 1922:
"Whether, on the facts and in the
circumstances of the case, the income from property known as 'Kathoke Lodge'
was to be assessed separately as the income of the Hindu undivided family of
which the assessee was karta?" In the High Court, it was contended on
behalf of the appellant that it is open to a male member of a joint Hindu
family to convert his self-acquired property into joint family property by
throwing it into the common hotchpot;
that for effectuating this purpose it is
neither necessary that there should be an ancestral or joint family nucleus nor
that there should be more than one male in the joint family; and since Kathoke
Lodge was impressed with the character of joint family property, its income
belonged to the joint Hindu family of which the appellant was the Karta, the
other members being his wife and unmarried daughter.
On the other hand, the Department contended
that it was contrary to the basic concept of a Hindu Undivided Family that a
single male along with females could form a joint Hindu family; that though a
joint Hindu family could include a wife and unmarried daughters, a 168 sole
male member could not constitute a joint Hindu family along with females; and
that it was necessary for the formation of a joint Hindu family that there
should be more than one male capable of claiming partition of the joint family
property. In the alternative, it was urged by the Department that a single male
could form a joint Hindu family along with a coparcener's widow who is capable
of making an adoption to her deceased husband but not with his own wife and
unmarried daughter. The argument that the existence of ancestral or joint
family property was an essential pre-requisite to throwing the self-acquired
property into the common stock was raised but was not pressed in the High
Court.
On these contentions, the real controversy
before the High Court was whether a single male can form a joint Hindu family
with his wife and unmarried daughter; if yes, whether the Karta of such a
family can impress his self-acquired property with the character of joint
family property by throwing it into the family hotchpot; and, lastly, whether
the income of such property can be assessed as the income of the joint family.
The High Court did not enter into these questions and made its task simple by
saying:
"Several authorities were referred to on
either side in support of their respective contentions. We do not, however,
propose in deciding this reference to go into the larger question as to whether
the property of the assessee, which was originally self-acquired property,
assumed the character of a Hindu undivided family property, as to what are the
incidents of a Hindu undivided family property and under what circumstances can
separate property become Hindu undivided family property. Some of these
questions have been directly answered in the authorities which were cited
before us.
"The question referred is confined to
the 'income' from Kathoke Lodge. We would, therefore, without going into these
larger questions, prefer to rest our decision on the short point whether the
income from the property known as Kathoke Lodge after the declaration was the
income of a Hindu undivided family and in this respect whether the principle
laid down by the Privy Council in Kalyanji's case was correctly applied."
The High Court assumed for the purposes of argument that there need not be more
than one male member for forming a joint Hindu family as a taxable unit and
that a joint Hindu family could lawfully consist of a single male member, his
wife and unmarried daughter. On these assumptions the High Court concluded that
Kathoke Lodge, from the date of the declaration by which it was thrown into the
common stock, was the Property of the Hindu undivided family. It, however,
held:
"But the assessee has no son and
therefore no undivided family. His ownership of the property and its income in
fact remains the same as before. The fact of the existence of a wife or of a
wife and daughter would make no difference 169 to his ownership of that
property... His position as a member of the joint family after the declaration
would be the same as that of a sole surviving coparcener, but it is now settled
law that a person who for the time being is the sole surviving coparcener is
entitled to dispose of the coparcenary property as if it were his separate
property......That is the position which the assessee held so far as his
property is concerned. So far as the income is concerned, he has the complete
power of disposal over the income and, even assuming that he is the karta of a
joint Hindu family, there is no one who can question his spending, i.e.,
whether or not it is for legal necessity or other justifiable purpose. If then,
his right to the income remains under his personal law the same as it was
before he made the declaration, the question arises whether under the
Income-tax Act it must be held to be the income of the karta of the Hindu
undivided family. That is precisely the question which the Privy Council
answered against the assessee in Kalyanji's case.....In our opinion, therefore,
the assessee's case would fall squarely within the principle enunciated by
their Lord ships of the Privy Council in Kalyanji's case and upon that view the
income in the hands of the assessee would be liable to be assessed as his
individual income." The Privy Council decision on which the High Court
relies is Kalyanji Vithaldas v. Commissioner of Income-tax.(1) The judgment of
the High Court is reported in 75 I.T.R. 458.
Before examining the validity of the High
Court's reliance on Kalyanji's case and the correctness of its conclusion that
the instant case falls within the ratio of that decision, it is necessary to
have regard to the principles of Hindu Law governing joint families. The High
Court did not examine those principles, calling them "larger
questions", and preferred wholly to rely on, so to say, the magic touch of
Kalyanji's case. It assumed that a joint family may consist of a single male, a
wife and daughter which means that it assumed that the appellant was a member
of a joint Hindu family consisting of himself, his wife and daughter. However,
in the very next breath the High Court concluded: "But the assessee has no
son and therefore no undivided family." An examination of fundamentals
might have saved the High Court from the inconsistency that a single male can
constitute a "joint family" with his wife and daughter but if that
male has no son, there can be no "undivided family". In the first
place, joint family and undivided family are synonymous terms. Secondly, when
one says that a joint Hindu family consists of a single male, his wife and
daughter, one implies necessarily that there is no son. If there were a son,
there would be two males.
For our limited purpose, fundamentals do not
any more require a study of Sastric texts, digests and commentaries because
judicial decisions rendered over the last century and more have given a
legalistic form to what was in a large measure a mingling of religious and 170
moral edicts with rules of positive laws. Hindu law today, apart from the
piecemeal codification of some of its branches like the laws of marriage,
succession, minority, guardianship, adoption and maintenance is Judge-made law,
though that does not detract from the juristic weight of Smritis like the
Yajnavalkya Smriti nor from the profundity of Vijnaneshwara's Commentary on it,
the critique bearing the humble title of 'Mitakshara'.
The appellant is governed by the Mitakshara
school of Hindu law but that is not of any particular consequence for the
purposes of this appeal. The differences between the Mitakshara and Dayabhaga
schools on the birth-right of coparceners and the rules of inheritance have no
bearing on the issues arising in this appeal, particularly on the question
whether a single male can constitute a joint or undivided family with his wife
and unmarried daughter. A joint Hindu family under the Dayabhaga is, like a
Mitakshara family, normally joint in food, worship and estate. In both systems,
the property of joint family may consist of ancestral property, joint
acquisitions and of self acquisitions thrown into the common stock (1). In
fact, whatever be the school of Hindu law by which a person is governed, the
basic concept of Hindu undivided family in the sense of who can be its members
is just the same.
Section 2(9) of the Income-tax Act, 1922
defines a "person" to include inter alia a "Hindu undivided
family".
Under sections 3 and 55 of that Act, a Hindu
undivided family is a taxable unit for the purposes of income-tax and
super-tax. The expression 'Hindu undivided family' finds reference in these and
other provisions of the Act but that expression is not defined in the Act. The
reason of the omission evidently is that the expression has a well-known
connotation under the Hindu Law and being aware of it, the legislature did not
want to define the expression separately in the Act. Therefore, the expression
'Hindu undivided family must be construed in the sense in which it is under
stood under the Hindu law(1).
There is no substance in the contention of
the respondent that in the absence of an antecedent history of jointness,
appellant cannot constitute a joint Hindu family with his wife and unmarried
daughter. The lack of such history was never before pleaded and not only does
it find no support from the record but such an assumption ignores the plain
truth that the joint and undivided family is the normal condition of Hindu
society. The presumption therefore is that the members of a Hindu family are
living in a state of union, unless the contrary is established.(3) The strength
of the presumption may vary from case to case depending upon the degree of
relationship of the members and the farther one goes from the founder of the
family, the 171 weaker may be the presumption. But, generally speaking, the
normal state of every Hindu family is joint and in the absence of proof of
division, such is the legal presumption.
Thus, a man who separates from his father or
brothers may, nevertheless continue to be joint with the members of his own
branch. He becomes the head of a new joint family, if he has a family, and if
he obtains property on partition with his father and brothers, that property
becomes the ancestral property of his branch, qua him and his male issue.
It is true that the appellant cannot
constitute a coparcenary with his wife and unmarried daughter but under the
Income-tax Act a Hindu undivided family, not a coparcenary, is a taxable unit.
A Hindu coparcenary is a much narrower body than the joint family. It includes
only those persons who acquire by birth an interest in the joint or coparcenary
property and these are the sons, grandsons and great-grandsons of the holder of
the joint property for the time being, that is to say, the three generations
next to the holder in unbroken male descent. Since under the Mitakshara Law,
the right to joint family property by birth is vested in the male issue only,
females who come in only as heirs to obstructed heritage (sapratibandha days),
cannot be coparceners. But we are concerned under the Income-tax Act with the
question whether the appellant's wife and unmarried daughter can with him be
members of a Hindu undivided family and not of a coparcenary. In the words of
Sir George Rankin who delivered the opinion of the Judicial Committee in
Kalyanji's case :
"The phrase `Hindu undivided family' is
used in the statute with reference, not to one school only of Hindu law, but to
all schools; and their Lordships think it a mistake in method to begin by
pasting over the wider phrase of the Act the words `Hindu co- parcenary', all
the more that it is not possible to say on the face of the Act that no female
can be a member." (p. 95).
Outside the limits of coparcenary, there is a
fringe of persons, males and females, who constitute an undivided or joint
family. There is no limit to the number of persons who can compose it nor to
their remoteness from the common ancestor and to their relationship with one
another. A joint Hindu family consists of persons lineally descended from a common
ancestor and includes their wives and unmarried daughters. The daughter, on
marriage, ceases to be a member of her father's family and becomes a member of
her husband's family. The joint Hindu family is thus a larger body consisting
of a group of persons who are united by the tie of sapindaship arising by
birth, marriage or adoption. "The fundamental principle of the Hindu joint
family is the sapindaship. Without that it is impossible to form a joint Hindu
family. With it as long as a family is living together, it is almost impossible
not to form a joint Hindu family. It is the family relation, the sapinda
relation, which distinguishes the joint family, and is of its very
essence."(1) 172 The joint Hindu family, with all its incidents, is thus a
creature of law and cannot be created by act of parties, except to the extent
to which a stranger may be affiliated to the family by adoption. But the
absence of an antecedent history of jointness between the appellant and his
ancestors is no impediment to the appellant, his wife and unmarried daughter
forming a joint Hindu family. The appellant's wife became his sapinda on her
marriage with him. The daughter too, on her birth, became a sapinda and until
she leaves the family by marriage, the tie of sapindaship will bind her to the
family of her birth. As said by Golapchandra Sarkar Sastri in his "Hindu
Law" (Eighth Ed., p. 240), "Those that are called by nature to live
together, continue to do so" and form a joint Hindu family. The appellant is
not by contract seeking to introduce in his family strangers not bound to the
family by the tie of sapindaship. The wife and unmarried daughter are members
of his family. He is not by agreement making them so. And as a Hindu male, he
himself can be the stock of a fresh descent so as to be able to constitute an
undivided family with his wife and daughter.
That it does not take more than one male to
form a joint Hindu family with females is well-established. In Gowli Buddanna
v. Commissioner of Income-tax, Mysore, Bangalore(1), one Buddappa, his wife,
his two unmarried daughters and his adopted son Buddanna were members of a
Hindu undivided family. On Buddappa's death a question arose whether the
adopted son who was the sole surviving coparcener could form a joint Hindu
family with his mother and sisters and could accordingly be assessed in the
status of a manager of the Hindu undivided family. Speaking for the Court, Shah
J. observed :
"The plea that there must be at least
two male members to form a Hindu undivided family as a taxable entity also has
no force. The expression `Hindu undivided family' in the Income-tax Act is used
in the sense in which a Hindu joint family is understood under the personal law
of Hindus. Under the Hindu system of law a joint family may consist of a single
male member and widows of deceased male members, and apparently the Income-tax
Act does not indicate that a Hindu undivided family as an assessable entity
must consist of at least two male members." In N. V. Narendranath v.
Commissioner of Wealth-tax, Andhra Pradesh, Hyderabad(2), the appellant filed
returns for Wealth Tax in the status of a Hindu undivided family which at the
material time consisted of himself, his wife and two minor daughters. The claim
to be assessed in the status of a Hindu undivided family rested on the
circumstance that the wealth returned consisted of ancestral property received
or deemed to have been received by the appellant on partition with his father
and brothers. The High Court held that as the appellant's family did not have
any other male coparcener, the assets must 173 be held to belong to him as an
individual and not to the Hindu undivided family. That decision was set aside
by this Court on the ground that a joint Hindu family could consist under the
Hindu law of a single male member, his wife and daughters and that it was not
necessary that the assessable unit should consist of at least two male members.
In both of these cases, Gowli Buddanna's and
Narendranath's the assessee was a member of a pre-existing joint family and
had, in one case on the death of his father and in the other on partition,
become the sole surviving coparcener. But the decision in those cases did not
rest on the consideration that there was an antecedent history of jointness.
The alternative argument in Gowli Buddanna's case (p. 266) was an independent
argument uncorrelated to the pre-existence of a joint family. The passage which
we have extracted from the judgment of Shah J. in that case shows that the
decision of this Court did not proceed from any such consideration. The Court
held in terms categorical that the Hindu undivided family as an assessable
entity need not consist of at least two male members. The same is true of the
decision in Narendranath's case (see p. 886).
Thus the contention of the Department that in
the absence of a pre-existing joint family the appellant cannot constitute a
Hindu undivided family with his wife and unmarried daughter must fail. The view
of the High Court that the appellant has "no son and therefore no undivided
family" is plainly unsound and must also be rejected.
Accordingly, the question whether the income
of the Kathoke Lodge can be assessed in the hands of the appellant as a Karta
or manager of the joint family must be decided on the basis that the appellant,
his wife and unmarried daughter are members of a Hindu undivided family.
By the declaration of January 26, 1956, the
appellant threw Kathoke Lodge into the family hotchpot abandoning all separate
claims to that property. The genuineness of that declaration was accepted by
the Tribunal. The High Court too decided the reference on the footing that the
appellant had thrown the property into the common hotchpot and that `after the
declaration, the property .... would be property of a Hindu undivided family in
the hands of the assessee" (p. 471). Learned counsel for the Department
attempted to raise a new contention before us that there is no such thing under
the Hindu law as impressing separate property with the character of joint,
family property, that the only doctrine known in this behalf to Hindu law is
the doctrine of blending and since, prior to the declaration the family
hotchpot in the instant case was empty, there was nothing with which the
Kathoke Lodge or its income could be blended and therefore, the declaration is
ineffective to convert that property into joint family property. Learned
counsel for the appellant cited several decisions of the High Courts to
controvert the Department's contention. But apart from the merits of the point
we ruled that the contention was not open to the Department. The statement of
case framed by the Tribunal shows that such a contention was not raised before
the Tribunal. The Commissioner of Income-tax himself asked for the reference of
a question to the High 174 Court for its opinion. That question concerns the
point whether having regard to the conduct of the appellant his self-acquired
property could be said to be impressed with the character of joint family
property. The question did not cover the contention raised before us on behalf
of the Department. But above all, though an argument was raised in the High
Court on behalf of the Department that for the operation of the doctrine of
blending it was essential that there should exist not only a coparcenary but also
a coparcenary property, learned counsel who appeared for the Department in the
High Court "did not, after some discussion, press that there should
necessarily be coparcenary property." This was not a concession on a
question of law in the sense as to what the true legal position was. What the
Department's counsel stated in the High Court was that he did not want to press
the particular point. In our opinion, it is not open to the Department to take
before us a contention which in the first place does not arise out of the
reference and which the Department's counsel in the High Court raised but did
not press.
Having examined the true nature of an
undivided family under the Hindu law and in view of the findings of the
Tribunal and the High Court on the second aspect, two points emerge clear :
Firstly that the appellant constituted a Hindu undivided family with his wife
and unmarried daughter and secondly that Kathoke Lodge which was the
appellant's separate property was thrown by him in the family hotchpot.
It remains now to consider whether the income
of Kathoke Lodge must be assessed in the hands of the appellant as an
individual or whether it can be assessed in his status as manager of the Hindu
undivided family.
Since the conclusion reached by the High
Court that the income of Kathoke Lodge cannot be assessed in the appellant's
status as a manager of the Hindu undivided family is based wholly on the
decision in Kalyanji's case and since that decision also loomed large in the
arguments before us, it is necessary to examine it closely.
The relevant facts of that case are these :
One Sicka had two sons, Moolji and Purshottom. From his first wife, Moolji had
two sons, Kanji and Sewdas both of whom were married but neither of whom had a
son. From his second wife, Moolji had a son Mohan Das. Kanji had a wife and a
daughter while Sewdas had a wife but no issue. Moolji, Kanji and Sewdas
separated from one another in about 1919. In the same year Moolji made gifts of
capital to Kanji and Sewdas.
Moolji continued to live jointly with his
second wife and the son Mohan Das born of her. Purshottom had a wife, a son and
a daughter.
There was another family of which the head
was one Vithaldas. He had three sons, Kalyanji, Chaturbhuj and Champsi.
Kalyanji had a wife, three sons and a daughter while Chaturbhuj had a wife and
daughters.
Moolji and Purshottom, the two sons of Sicka,
who had already separated from each other started in 1912 a business called
Moolji Sicka and Company in partnership with Kalyanji, the son of Vithaldas.
175 The three partners employed their
self-acquired properties for the purpose of that business. In course of time,
Moolji's sons Kanji and Sewdas, and Vithaldas' sons Chaturbhuj and Champsi were
taken into the partnership with the result that by 1930 the partnership came to
consist of seven partners : Moolji, his sons Kanji and Sewdas; Moolji's brother
Purshottom; and Vithaldas's sons Kalyanji, Chaturbhuj and Champsi. The interest
of Kanji and Sewdas in the firm was a gift from their father Moolji and that of
Chaturbhuj a gift from his brother Kalyanji. Those of the partners whose
interest in the firm was separate property were not shown to have thrown that
property or the receipts therefrom into the common stock.
The Privy Council had six appeals before it
which were filed by the partners of the firm except Chapsi. The appeals related
to the assessment year 1931-32. The controversy was whether the partners should
each be assessed to super-tax upon his share of the profits as an individual or
whether the six shares should each be assessed as income of a Hindu undivided
family.
Three partners out of the six, namely,
Moolji, Purshotom and Kalyanji, were each members of a Hindu undivided family.
Each of these three partners had a son or sons from whom he was not divided.
But the income which these partners received from the firm was their separate
and self-acquired property. Since the income was not thrown into the common
stock, the Privy Council held that it could not be regarded as the income of the
respective joint families.
The fourth partner Chaturbhuj had no son. His
interest in the firm was obtained from his brother Kalyanji and therefore the
income which he received from his share in the profits of the firm was a
self-acquired and not ancestral property. The Privy Council observed that even
if Chaturbhuj were to have a son, that son would have taken by birth no
interest in the income which fell to Chaturbhuj's share and therefore the
income was assessable in the hands of Chaturbhuj as his separate income and not
that of the joint Hindu family.
According to the Privy Council, in none of
the cases of these four partners was the result affected by the fact that any
partner had a wife and a daughter or a wife and more than one daughter. If the
mere existence of a son did not make a father's self-acquired property joint
family property, it was untenable that the existence of a wife or a daughter
could do so.
In the case of the remaining two partners,
Kanji and Sewdas, their interest in the firm was obtained under a gift from
their father. The Privy Council assumed, without deciding the question, that
such an interest was ancestral property in the hands of the sons so that if
either Kanji or Sewdas had a son, the son would have taken interest in the
property by birth. But neither Kanji nor Sewdas had a son.
Kanji's family consisted of himself, his wife
and daughter while Sewdas's family consisted of himself and his wife. The Privy
Council held that the wife and daughter may be entitled to be maintained out of
a person's separate as well as joint family property but the mere existence of
a wife or daughter did not make ancestral property joint.
176 The crucial facts in Kalyanji's case on
which the ultimate decision rested are these : (i) In regard to three partners,
Moolji, Purshottom and Kalyanji, though each of them was the head of his joint
family which included in every case a son or sons, the income which each
received from the firm was his separate and self-acquired property which was
not thrown into the common stock. (ii) In regard to Chaturbhuj, though he had
no son, that fact was irrelevant because his interest in the firm was his self-
acquired or separate property in which the son could have taken no interest by
birth. (iii) And in regard to Kanji and Sewdas, even if their interest in the
firm was assumed to be ancestral property, the income which they received from
the firm was their separate property as neither of them had a son who could
take interest in the ancestral property by birth.
The appeals of the six partners before the
Privy Council fall into two classes. Those of Moolji, Purshottom, Kalyanji and
Chaturbhuj fall in one class while those of Kanji and Sewdas fall in another
class. There is a point of distinction between the cases of the four partners
falling within the first class on one hand and that of the appellant on the
other. But the point of distinction is not that Moolji, Purshottom and Kalyanji
had a son or sons and the appellant has none, because though the three partners
were heads of their respective joint families which included in every case a
son or sons, the income which each received from the firm was his separate and
self-acquired property which was not thrown into the common stock. The mere
existence of a son or sons in a joint Hindu family does not make the father's
separate or self-acquired property joint family property. Though Chaturbhuj had
no son that fact would not by itself bring his case on par with the appellant's
because Chaturbhuj's interest in the firm was his separate property which also
was not thrown in the common stock. If the mere fact that Moolji, Purshottom
and Kalyanji had each a son or sons did not make their separate property joint
family property, the mere existence of a wife or daughter could not bring about
that result in Chaturbhuj's case.
As contrasted with the cases of these four
partners, Kathoke Lodge which was once the separate property of the appellant
was thrown by him in the common stock, which raises the question whether that
circumstance is sufficient to justify the assessment of the income from that
property in the appellant's status as the manager of the joint family. On this
point the cases of Kanji and Sewdas furnish a near parallel. They did not have
to throw their interest in the firm in the common stock because that interest
was, on assumption, their ancestral property. But even though the property was
ancestral, the income which they received from it was treated as their separate
property as neither of them had a son who could take interest in the ancestral
property by birth. Applying that analogy, even if Kathoke Lodge were to be an
ancestral asset, its income would still have to be treated as the appellant's
separate property as he has no son who could take interest in that property by
birth. On this reasoning, the effect of the appellant throwing Kathoke Lodge
into the family hotchpot could not be more telling than if that property was
his ancestral property.
177 But then it is urged by the learned
counsel for the appellant that the Privy Council was in error in its decision
on the nature of income received by Kanji and Sewdas from what was assumed to
be ancestral property and therefore the decision on that aspect of the matter
ought not to be followed in determining the true nature of the income received
by the appellant from Kathoke Lodge. This submission is founded on the
disapproval by this Court of certain observations made by the Privy Council in
Kalyanji's case.
The Privy Council, in its judgment in
Kalyanji's case, referred in passing to "Laxminarayan's case" and
observed that "The Bombay High Court on the other hand, in
Lakshminarayan's case having held that the assessee his wife and mother were a
Hindi undivided family, arrived too readily at the conclusion that the income
was the income of the family". The decision of the Bombay High Court which
the Privy Council had in mind is Commissioner of Income-tax, Bombay v.
Gomedalli Lakshminarayan (3 I.T.R. 367). There is a fundamental distinction
between Lakshminarayan's case and Kalyanji's case which, with respect the Privy
Council failed to notice. In Lakshminarayan's case the joint Hindu family
consisted of a father, his wife, their son and the son's wife. The property of
the joint family was ancestral in the hands of the father and the son's had
acquired by birth an interest therein. (See the Judgment of Rangnekar J. at p. 369).
There was a subsisting undivided family during the father's life-time and that
undivided family did not come to an end on the father's death. The same
undivided family continued after the death of the father, with the son, his
mother and his wife as its members. The effect of the father's death was merely
this that the son, instead of the father, became the manager of the joint
family. The income from ancestral property was the income of the joint family
during the father's life-time and after his death it continued to be the income
of the self-same joint family.
The only change that had come about was that
one link in the chain was snapped by death. But the death of a member of a
joint Hindu family does not ordinarily disrupt the joint family. The Bombay
High Court therefore held that the income of the ancestral property should be
assessed in the son's status as a manager of the undivided family and not in
his individual capacity. When Lakshminarayan's case came up before the Privy
Council in appeal(1), it regarded itself as bound by the interpretation put in
Kalyanji's case on the expression "Hindu undivided family" as
employed in section 55 of the Indian Income-tax Act and observed that the facts
of the case were not materially different from the facts of Kalyanji's case.
The Privy Council therefore answered the question by holding that "the
income received by right of survivorship by the sole surviving male member of a
Hindu undivided family can be taxed in the hands of such male member as his own
individual income for the purposes of assessment to super-tax under Sec. 55 of
the Indian Income Tax Act, 1922".
The decision of the Privy Council in
Lakshminarayan's case and the observations made by it in Kalyanji's case
regarding the view taken 178 by the Bombay High Court in Lakshminarayan's case
were expressly disapproved by this Court at least in two cases.
In Gowli Buddanna's case(1), after discussing
the decisions in Kalyanji's case and Lakshminarayan's case this Court observed
:
"It may however be recalled that in
Kalyanji Vithaldas's case income assessed to tax belonged separately to four
out of six partners; of the remaining two it was from an ancestral source but
the fact that each such partner had a wife or daughter did not make that income
from an ancestral source income of the undivided family of the partner, his
wife and daughter. In Gomedalli Lakshminarayan's case the property from which
income accrued belonged to a Hindu undivided family and the effect of the death
of the father who was a manager was merely to invest the rights of a manager
upon the son. The income from the property was and continued to remain the
income of the undivided family. This distinction which had a vital bearing on
the issue falling to be determined was not given effect to by the Judicial
Committee in A. P. Swamy Gomedalli's case." In Narendranath's(2) case too
this Court disapproved of the Privy Council decision in Lakshminarayan's case
and pointed out that the Privy Council had failed to notice the distinction
between the facts of Kalyanji's case and those of Lakshminarayan's case in
observing that the Bombay High Court "arrived too readily at the conclusion
that the income was the income of the family".
The appellant's counsel is thus right in his
submission that the observations made by the Privy Council in Kalyanji's case
as regards the correctness of the Bombay view in Lakshminarayan's case is not
good law. In fact, the decision of the Privy Council in appeal from the
judgment of the Bombay High Court in Lakshminarayan's case has itself been
disapproved by this Court. But that does not affect the correctness of the
Privy Council decision in Kalyanji's case itself as regards the nature of the
income received by the six partners from the firm. That part of the judgment in
Kalyanji's case has never been doubted and is open to no exception. For the
matter of that, the error of the Privy Council's decision in Lakshminarayan's
case consisted in overlooking the factual distinction between that case and
Kalyanji's case, as a result of which the ratio of Kalyanji's case came to be
wrongly applied to Lakshminarayan's case.
The ratio of Kalyanji's case would therefore
apply to the instant case, the parallel being furnished by the cases of Kanji
and Sewdas. But a word of explanation is necessary in the interests of clarity.
The reason why the cases of Kanji and Sewdas furnish a close parallel is the
very reason for which their cases were held by this Court to be distinguishable
from Lakshminarayan's case. In Lakshminarayan's case the property was ancestral
in the hands of the father, the son had acquired an interest by birth therein,
there was a subsisting Hindu un- 179 divided family during the life-time of the
father and since that family did not come to an end on the death of the father,
the Bombay High Court had rightly held that the income continued to be income
of the joint family and was liable to super-tax as such income. In regard to
Moolji, Purshottom, Kalyanji and Chaturbhuj no such question arose as their
interest in the firm was their separate property which was not thrown into the
common stock. As regards Kanji and Sewdas, they were divided from their father Moolji
at least since 1919 in which year Moolji made gifts of capital to them. Kanji
joined the firm in 1919 and Sewdas in 1930.
The assessment year in reference to which the
dispute arose was 1931-32. Thus the gifted property of which the income was to
be charged to super-tax was not the ancestral or joint family property of a
subsisting Hindu undivided family consisting of Moolji, Kanji and Sewdas. Were
it so, the case would have fallen within the ratio of the judgment of the
Bombay High Court in Lakshminarayan's case. As in the cases of Kanji and
Sewdas, so here, the property of which the income is to be brought to tax was
not the joint family property of a subsisting Hindu undivided family which had
devolved on a sole surviving coparcener. In that latter class of cases the view
has been consistently taken, except for the decision of the Privy Council in
Lakshminarayan's case, that property of a joint family does not cease to belong
to the family merely because the family is represented by a single coparcener
who possesses rights which an owner of property may possess. The decision of
the Privy Council in Attorney General of Ceylon v. A. R.
Arunachalam Chettiar and Others(1), the
decisions of this Court in the cases of Gowli Buddanna and Narendranath and the
decision of the Bombay High Court in Lakshminarayan's case fall within that
class and are not to be confused with cases like the one on hand, which fall
within the rule in Kalyanji's case.
In Arunachalam Chettiar's case, a father and
son constituted a joint Hindu family along with females including the widow of
a pre-deceased son. On the death of the son in 1934 the father became the sole
surviving coparcener. By a Ceylonese Ordinance, property passing on the death
of a member of a Hindu undivided family was exempt from payment of Estate Duty.
On the death of the father a question arose whether, in view of the ordinance,
his estate was liable to Estate Duty. The Privy Council held that the father
was at his death a member of a Hindu undivided family, the same undivided
family of which his son, when alive was a member, and of which the continuity
was preserved after the father's death by adoptions made by the widows who were
members of the family. In Gowli Buddanna's case, there was a subsisting Hindu undivided
family between a father, his wife, two unmarried daughters and an adopted son.
In respect of the income from dealings of the family, the father was assessed
during his life-time in the status of a manager of the Hindu undivided family.
After the death of the father the adopted son contended that he should be
assessed as an individual. This contention was rejected uniformly at all
stages. After examining various authorities including Kalyanji's case,
Lakshminaryan's case and Arunachalam's case, this Court held that property
which belongs to a Hindu undivided family does not cease to belong 180 to it
because of the temporary reduction of the coparcenary unit to a single
individual, who possesses rights which an owner of property may possess. A
similar view was taken by this Court in Narendranath's case which raised a
question under the Wealth Tax Act. Narendranath's family consisted, at the
material time, of his wife and two minor daughters.
Since the wealth returned consisted of
ancestral property received by him on partition with his father and brothers,
it was held by this Court that his status was that of a Hindu undivided family
and not that of an individual.
While dealing with the question whether the
assets which came to Narendranath's share on partition ceased to bear the
character of joint family properties and became his individual property, this
Court observed :
"In this connection, a distinction must
be drawn between two classes of cases where an assessee is sought to be
assessed in respect of ancestral property held by him : (1) where property not
originally joint is received by the assessee and the question has to be asked
whether it has acquired the character of a joint family property in the hands
of the assessee and (2) where the property already impressed with the character
of joint family property comes into the hands of the assessee as a single
coparcener and the question required to be considered is whether it has
retained the character of joint family property in the hands of the assessee or
is converted into absolute property of the assessee." After referring to
Kalyanji's case and noticing the observation of the Judicial Committee that
income from an ancestral source does not necessarily become the income of the
undivided family consisting of a man, his wife and daughter, this Court held :
"Different considerations would be
applicable, where property already impressed with the character of joint family
property comes into the hands of a single coparcener. The question to be asked
in such a case is whether the property retains the character of joint family
property or whether it sheds the character of joint family property and becomes
the absolute property of the single coparcener." In the result the Court
concluded that the case fell within the rule in Gowli Buddanna's case.
There are thus two classes of cases, each
requiring a different approach. In cases falling within the rule in Gowli
Buddanna's case, the question to ask is whether property which belonged to a
subsisting undivided family ceases to have that character merely because the
family is represented by a sole surviving coparcener who possesses rights which
an owner of property may possess. For the matter of that, the same question has
to be asked in cases where the family, for the time being, consists of widows
of deceased coparceners as in Commissioner of Income-tax, Madras v. Rm. Ar. Ar.
Veerappa Chettiar(1), so long as the property which was originally of the joint
Hindu family 181 remains in the hands of the widows of the members of the
family and is not divided amongst them. In cases falling within the rule in
Kalyanji's case, the question to ask is whether property which did not belong
to a subsisting undivided family has truly acquired the character of joint
family property in the hands of the assessee. In this class of cases, the
composition of the family is a matter of great relevance for, though a joint
Hindu family may consist of a man, his wife and daughter, the mere existence of
a wife and daughter will not justify the assessment of income from the joint
family property in the status of the head as a manager of the joint family. The
appellant's case falls within the rule in Kalyanji's case since the property,
before it came into his hands, was not impressed with the character of joint
family property. It is of great relevance that he has no son and his joint
family consists, for the time being, of himself, his wife and daughter.
Once it is realised that there are two
distinct classes of cases which require a different approach, there would be no
difficulty in understanding the implications of the apparently conflicting
tests evolved as guides for deciding the two classes of cases. In Kalyanji's
case the Privy Council observed:
"In an extra legal sense, and even for
some purposes of legal theory, ancestral property may perhaps be described, and
usefully described, as family property; but it does not follow that in the eye
of the Hindu law it belongs save in certain circumstances, to the family as
distinct from the individual. By reason of its origin a man's property may be
liable to be divested wholly or in part on the happening of a particular event,
or may be answerable for particular obligations, or may pass at his death in a
particular way; but if, in spite of all such facts, his personal law regards
him as the owner, the property as his property and the income there from as his
income, it is chargeable to income-tax as his, i.e., as the income of an
individual. In their Lordships' view it would not be in consonance with
ordinary notions or with a correct interpretation of the law of the Mitakshara,
to hold that property which a man has obtained from his father belongs to a
Hindu undivided family by reason of having a wife and daughters." On the
other hand, in Arunachalam's case which falls within the rule in Gowli
Buddanna's case, the Privy Council observed:
"But though it may be correct to speak
of him (the sole surviving coparcener) as the 'owner', yet it is still correct
to describe that which he owns as the joint family property. For his ownership
is such that upon the adoption of a son it assumes a different quality: it is
such too, that female members of the family (whose members may increase) have a
right to maintenance out of it and in some circumstances to a charge for
maintenance upon it. And these are incidents which arise, notwithstanding his
so-called ownership, just because the property has been and has not ceased to
be 182 joint family property.... it would not appear reasonable to impart to
the legislature the intention to discriminate, so long as the family itself
subsists, between property in the hands of a single coparcener and that in the
hands of two or more coparceners." Holding that it was an irrelevant
consideration that a single coparcener could alienate the property in a manner
not open to one of several coparceners, the Privy Council said:
"Let it be assumed that his power of
alienation is unassailable: that means no more than that he has in the
circumstances the power to alienate joint family property. That is what it is
until he alienates it, and, if he does not alienate it, that is what it
remains. The fatal flaw in the argument of the appellant appeared to be that,
having labelled the surviving coparcener 'owner', he then attributed to his
ownership such a congeries of rights that the property could no longer be
called 'joint family property'. The family, a body fluctuating in numbers and
comprised of male and female members, may equally well be said to be owners of
the property, but owners whose ownership is qualified by the powers of the
coparceners. There is in fact nothing to be gained by the use of the word
'owner' in this connection. It is only by analysing the nature of the rights of
the members of the undivided family, both those in being and those yet to be
born, that it can be determined whether the family property can properly be
described as 'joint property' of the undivided family." These two sets of
tests, both evolved by the Privy Council govern two distinct sets of cases and there
is no inconsistency between the two tests. The test evolved in Kalyanji's case,
not in Arunachalam's or Gowli Buddanna's case, has to be applied to the instant
case.
Kathoke Lodge was not an asset of a
pre-existing joint family of which the appellant was a member. It became an
item of joint family property for the first time when the appellant threw what
was his separate property into the family hotchpot. The appellant has no son.
His wife and unmarried daughter were entitled to be maintained by him from out
of the income of Kathoke Lodge while it was his separate property. Their rights
in that property are not enlarged for the reason that the property was thrown
into the family hotchpot. Not being coparceners of the appellant, they have
neither a right by birth in the property nor the right to demand its partition
nor indeed the right to restrain the appellant from alienating the property for
any purpose whatsoever. Their prior right to be maintained out of the income of
Kathoke Lodge remains what it was even after the property was thrown into the
family hotchpot: the right of maintenance, neither more nor less. Thus, Kathoke
Lodge may be usefully described as the property of the family after it was
thrown into the common stock but it does not follow that in the eye of Hindu
Law it belongs to the family, as it would have, if the property were to devolve
on the appellant as a sole surviving coparcener.
183 The property which the appellant has put
into the common stock may change its legal incidents on the birth of a son but
until that event happens the property, in the eye of Hindu Law, is really his.
He can deal with it as a full owner, unrestrained by considerations of legal
necessity or benefit of the estate. He may sell it, mortgage it or make a gift
of it. Even a son born or adopted after the alienation shall have to take the
family hotchpot as he finds it. A son born, begotten or adopted after the
alienation has no right to challenge the alienation.
Since the personal law of the appellant
regards him as the owner of Kathoke Lodge and the income there from as his
income even after the property was thrown into the family hotchpot, the income
would be chargeable to income-tax as his individual income and not that of the
family.
For these reasons, we dismiss the appeal but
there will be no order as to costs.
P.H.P. Appeal dismissed.
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