AR.KR.V. Velayudhan Chettiar vs The Commissioner of Income Tax

Alfred Henry Lionel Leach, C.J.—This is a reference by the Income Tax Appellate Tribunal Calcutta Bench, u/s 66 of the Indian Income

Tax Act. The Tribunal has not accurately set out the facts, but these are not in dispute and they may be stated very shortly.

The assessee is joint with his three sons. In 1922, he started at Negamba in Ceylon a business in partnership with a stranger to the family. On

the 7th May, 1924, he embarked on a cloth business in Colombo. Here he had no partner. In the month of July, 1924, his father gave him a sum of

Rs. 25,000 and in the month of June of the following year a sum of Rs. 8, 221. The assessee was one of three brothers and each received the

same amount. In the statement of the case it is said that the gift to the assessee in June, 1925, was a sum of Rs. 24,665. This was the amount

which was divided by the father between his three sons. Another mistake in the statement of the facts made in the order of reference is that the

assessee commenced his business in Colombo after the death of his father. His father died in 1934.

On the 26th May, 1938, a deed of partnership was executed by the assessee and his two elder sons who were majors. The third son was a

minor but it Was provided that he was to be taken into the partnership on attaining majority. The father and the three sons were each to have a

one-third share in the profits.

For the years 1939-40 and 1940-1941 the assessee was assessed to Income Tax on the basis that he was the head of a joint Hindu family and

that the partnership business belonged to the family. The Income Tax authorities took the view that the money which the assessee had received

from his father in 1924 and 1925 constituted ancestral property in his hands and this opinion was accepted by the Appellate Tribunal. The

assessee then asked the Tribunal to make this reference. The application was opposed by the Commissioner of Income Tax, but the Tribunal

considered that a question of law did arise and has referred four questions. These read as follows:

(a) Whether on the facts and in the circumstances of the case the gifts of money made by Velayudhan Chettiar''s father must be taken in law as

impressed with the character of ancestral property in the hands of Velayudhan Chettiar.

(b) Whether on the facts and in the circumstances of the case the business carried on at Colombo in part with money gifted by Velayudhan

Chettiar''s father was a business of the Hindu undivided family of Velayudhan Chettiar and his sons, the income therefrom being assessable as the

income of the undivided family.

(c) Whether there were any materials to justify the finding that part of the capital for the partnership business at Nagambo started in 1922 by

Velayudhan Chettiar came from gifts made by Velayudhan Chettiar''s father and that the Negarrbo partnership was an adjunct or part of the sole

Colombo business, the two together forming one business.

(d) Whether the assessment made on the income of the sole business at Colombo and partnership business at Negambo was rightly made on the

applicant in the status as a Hindu undivided family or whether the applicant was liable to be assessed only in respect of his share of income under

the partnership deed dated 26th May, 1938.

The last three questions turn on the answer to be given to the first question.

There is ample authority of this Court in support of the decision of the Tribunal that the gift of the Rs. 25,000 in July, 1924, and that of the Rs.

8,221 in June, 1925, constituted ancestral property in the hands of the assessee. In Nagalingam Pillai Vs. Ramachandra Tevar, , it was held that

where a father gives his self-acquired property to his son he takes it as ancestral property unless it is apparent that he intended the gift to be merely

personal to his son. This case was decided by Shephard and Benson, JJ. In delivering the judgment of the Court, Shephard, J., said:

As the father is at liberty to make any disposition he pleases or to leave his self-acquired property to descend as ancestral property, so when

making any disposition in favour of his son, he is at liberty to preserve for the property the quality of ancestral property. Whether in any given case

the property was intended to pass to the son as ancestral property or as self-acquired property, must be a question of intention turning on the

construction of the instrument of gift. Following the principle laid down in (1874) L.R. 2 I.A. 7 (Privy Council) I think that if there are no words

indicating the contrary intention, the natural inference should be that the father intended his sons to take his property as their ancestral estate.

This decision has been accepted as good law by this Court in Rajarajeswara Dorai alias Muthuramalinga Dorai Avergal Rajah of Ramnad Vs. V.

Sundarapandiaswami Thevar, , Krishnaswami Naidu v. Seethalakshmi Animal ILR (1915) Mad. 1029, Indoji Jithaji v. Kothapalli Ramacharlu

(1919) 10 L.W. 498, Shyam Bhai v. Purushotham Das (1925) 21 L.W. 551, Janakirama Chetty v. Nagamony Mudajiar (1925) 50 M.L.J. 413:

I.L.R.49 Mad. 98, Visweswara Rao v. Varahanarasimham (1937) M.W.N. 296 and Ramachandra Iyer v Ranganayaki Ammal9.

Mr. T.R. Venkatarama Sastri, on behalf of the appellant, has suggested that we should refer to a Full Bench the question whether the law was

correctly stated in Nagalingam Pillai Vs. Ramachandra Tevar, , because some other High Courts have expressed a contrary opinion. We are not

prepared to adopt this course. The decision in Nagalingam Pillai Vs. Ramachandra Tevar, , has been followed in this Province for nearly forty

years and we do not consider it proper, especially in view of the many occasions on which it has been affirmed, to refer the matter to a Full Bench.

In Lal Ram Singh v. Deputy Commissioner of Partabgarh (1923) 47 M.L.J. 260 : 1923 L.R. 50 IndAp 265 : ILR 45 All. 596 the attention of the

Privy Council was drawn to the conflict of authority but their Lordships did not consider that that case called for its decision. They left the matter

open until a more fitting opportunity arose. So far as we are concerned, we are bound by Nagalingam Pillai Vs. Ramachandra Tevar, and as it has

not been overruled by the Privy Council we must follow it.

As the Tribunal was right in holding that the money which the assessee''s father gave to him must be regarded as ancestral property in his hands,

the first question must be answered in the affirmative.

learned Counsel are agreed that in this view there is no necessity for an answer to any of the remaining three questions.

The assessee must pay the Commissioner''s costs, Rs. 250. 23rd November, 1944.