Commissioner of Income Tax vs Bhagat Singh

Ashok Bhan, J.—At the instance of the Commissioner of Income Tax (Central), Ludhiana, the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as "the Tribunal"), has referred the following two questions of law to this court for its opinion :

"1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessee reverted back to the status of a Hindu undivided family with the birth of a daughter after partial partition was effected on April 1, 1971, amongst coparceners including his wife, in respect of capital he got on partial partition ?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that income from dividends, interest from banks and annuity refunds belonged to the Hindu undivided family and could not be subjected to tax in the assessee''s hands as individual ?"

The facts relevant to the questions referred to us are :

The assessment year involved is 1977-78, the previous year of which ended on March 51, 1977. The assessee is assessed in the status of an individual. In the course of framing assessment of the assessee as an individual, the Income Tax Officer included the dividend income amounting to Rs. 52,000, interest from banks amounting to Rs. 4,903 and annuity refund of Rs. 1,546 in the hands of the assessee. These amounts were not offered for taxation in the hands of the assessee as an individual on the plea that there was a partial partition which had taken place in the family on April 1, 1971, in respect of the share of capital invested in the firm of Gurmukh Singh and Sons. Though the assessee in respect of the share income from the said firm was assessed as an individual, as the assessee was blessed with a daughter after partial partition, his status reverted back to that of the Hindu undivided family in respect of the funds received from partial partition on April 1, 1971. The assessee''s claim was that since his share of investment in the said firm came to him as a result of the partition of the Hindu undivided family property, the same was ancestral property in his hands after the birth of the daughter on November 23, 1971, and the amount belonged to his Hindu undivided family constituted of self and his daughter. It was on the strength of this contention that he claimed exclusion of dividend income, interest from banks and annuity refund from his individual assessment. The Income Tax Officer rejected this contention by observing that since his wife was already separated from the Hindu undivided family, the subsequent birth of a daughter to him would not get back to him the status of Hindu undivided family, as no Hindu undivided family qua this property was in existence at that time. The Income Tax Officer held that the said income did not belong to the Hindu undivided family but to the individual and included the same in the assessment of the assessee as an individual. An appeal carried by the assessee to the Commissioner of Income Tax (Appeals) did not meet with success. The assessee thereafter filed a further appeal before the Tribunal.

The Tribunal accepted the contention raised by the assessee and allowed the appeal. After noticing a number of judgments of various courts it was held that what was received by the assessee on partition was a part of joint Hindu family property and by the subsequent birth of a daughter to the assessee after partial partition the income received by the assessee in respect of dividend, interest from banks and annuity refund belonged to the Hindu undivided family which could not be taxed in the hands of the assessee as an individual.

On a petition filed by the Revenue, the two questions of law stated to be arising out of the order of the Tribunal, referred to above, have been referred to this court for its opinion.

The answer to question No. 2 would depend on the answer to question No. 1.

We have heard counsel for the parties. Question No. 1 :

The admitted facts are that Bhagat Singh constituted a Hindu undivided family with his wife, son and four daughters. Partial partition took place between Bhagat Singh, his wife and his children. There is no controversy that it was out of ancestral property that the partition was effected on April 1, 1971. This partition was duly recognised by the Department. On November 23, 1971, another daughter, Balwinder Kaur, was born to Bhagat Singh. On these admitted facts, the only question to be determined is as to whether Bhagat Singh in respect of the property acquired by him in partition would constitute a Hindu undivided family on the birth of a daughter qua the properties received on partition.

Article 212 of Hindu Law by Mulla which defines joint Hindu family reads as under :

"212. Joint Hindu family.--(1) A joint Hindu family consists of all persons lineally descended from a common ancestor, and includes their wives and unmarried daughter(s). A daughter ceases to be a member of her father''s family on marriage, and becomes a member of her husband''s family.

(2) The joint and undivided family is the normal condition of Hindu society. An undivided Hindu family is ordinarily joint not only in estate, but also in food and worship. The existence of joint estate is not an essential requisite to constitute a joint family and a family which does not own any property may nevertheless be joint.

Where there is joint estate, and the members of the family become separate in estate, the family ceases to be joint. Mere severance in food and worship does not operate as a separation,

(3) A joint or undivided Hindu family may consist of a single male member and widows of deceased male members. The property of a joint family does not cease to be joint family property belonging to any such family merely because the family is represented by a single male member (coparcener) who possesses rights which an absolute owner of property may possess. Thus, for instance, a joint Hindu family may consist of a male Hindu, his wife and his unmarried daughter. It may similarly consist of a male Hindu and the widow of his deceased brother. It may consist of a male Hindu and his wife. It may even consist of two female members. But there must be at least two members to constitute it. An unmarried male Hindu on partition does not by himself alone constitute a Hindu undivided family.

The basis of the rule that there need not be at least two male members to constitute a Hindu undivided family is that the joint family property does not cease to be such simply because of the "temporary reduction of the coparcenary unit to a single individual, the character of the property remains the same."

The Supreme Court of India in Gowli Buddanna Vs. Commissioner of Income Tax, Mysore, Bangalore, held that the family consisting of a sole surviving coparcener and a female member which constituted the Hindu undivided family was assessable as a Hindu undivided family under the Income Tax Act, 1961. In that case, A, his wife, his two unmarried daughters and B, his adopted son, were members of a Hindu undivided family. A died. On these facts, their Lordships held that the property of the Hindu undivided family did not cease to belong to the family merely because the family was represented by a single coparcener, B, who possessed rights which an owner of property might possess, and the income received therefrom was taxable as income of the Hindu undivided family. It was also observed that there need not be more than one male member to form a Hindu undivided family as a taxable entity under the Income Tax Act. It was held (page 295) :

"The first contention is plainly unsustainable. u/s 3 of the Income Tax Act, 1961, not a Hindu coparcenary but a Hindu undivided family is one of the assessable entities. A Hindu joint family consists of all persons lineally descended from a common ancestor, and includes their wives and unmarried daughters, 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 of coparcenary property, these being the sons, grandsons and great-grandsons of the holder of the joint property for the time being. Therefore, there may be a joint Hindu family consisting of a single male member and widows of deceased coparceners. In Kalyanji Vithaldas v. CIT [1937] 5 ITR 90, delivering the judgment of the Judicial Committee, Sir George Rankin observed :

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 coparcenary", all the more that it is not possible to say on the face of the Act that no female can be a member.

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."

Similarly in N.V. Narendranath Vs. Commissioner of Wealth-tax, Andhra Pradesh, regarding the share of Hindu undivided family property received on partition by a coparcener having a wife, two minor daughters and no son, it was held that in the hands of the coparcener the property had to be assessed as a Hindu undivided family property and not his individual property for the purpose of wealth-tax. It was observed as under (headnote) ;

"There need not be at least two male members to form a Hindu undivided family as a taxable unit for the purpose of the Wealth-tax Act, 1957. The expression ''Hindu undivided family'' in the Act is used in the sense in which a Hindu joint family is understood in the personal laws of Hindus. Under the Hindu system of law, a joint family may consist of a single male member and his wife and daughters and there is nothing in the scheme of the Wealth-tax Act to suggest that a Hindu undivided family as an assessable unit must consist of at least two male members."

The Allahabad High Court in Prem Kumar Vs. Commissioner of Income Tax, , held that property falling to a single coparcener on a partition does not lose its character of joint family property solely for the reason that there is no other member, male or female, at a particular point of time. But once a sole surviving coparcener marries, a Hindu undivided family comes into existence, because the wife along with her husband would then constitute a joint Hindu family. Similar was the view expressed by the Madras High Court in S. Periannan Vs. Commissioner of Income Tax, . The Andhra Pradesh High Court in Ashok Kumar Ratanchand Vs. Commissioner of Income Tax, , held that the property which a coparcener receives on partition does not become for all time his individual and separate property. By a subsequent marriage, the property becomes Hindu undivided family property out of which he is obliged to maintain his wife and the wife is entitled to enforce this personal obligation by creating a charge on his property either acquired or ancestral. The status of the unit of assessment after marriage is necessarily that of a Hindu undivided family and the income from such property is assessable in that status and not that of an individual.

All persons lineally descended from a common ancestor including their wives and unmarried daughters constitute a Hindu undivided family which is the normal condition of Hindu society. There need not be at least two male members to constitute a Hindu undivided family. A Hindu undivided family can consist of a male Hindu, his wife and unmarried daughter. As against this the Hindu coparcenary is a much narrower body than the joint family. As per Article 213 of the Hindu Law by Mulla, it includes only those persons who acquire by birth an interest in the joint or coparcenary property. It includes the three generations next to the holder in unbroken male descent. The incidents of self-acquired property are different and distinct.

The property received by the assessee on partition did not cease to be joint Hindu family property only for the reason that there was no other member of the joint Hindu family at a given time. On the birth of a daughter, the Hindu undivided family came into existence because the daughter constituted a joint Hindu family with her father qua the ancestral property received by him on partition.

Respectfully following the view taken by the Supreme Court in Gowli Buddanna Vs. Commissioner of Income Tax, Mysore, Bangalore, and the subsequent judgments of the different High Courts, referred to above, we answer question No. 1 in the affirmative, that is, in favour of the assessee and against the Revenue. What was received by the assessee on partition was part of the ancestral property which did not cease to be the Hindu undivided family property and on the birth of a daughter subsequently, the assessee constituted a Hindu undivided family qua the property received in partition. Qua this property his status reverted back to that of the Hindu undivided family and the income received from this property could not be assessed in his hands as an individual but the same was to be assessed in the status of the Hindu undivided family consisting of himself and his daughter. In the light of the above observations, the assessee''s income from dividend, interest from banks and annuity refunds could not be subjected to tax as an individual in his hands. Question No. 2 is also answered in the affirmative, that is, in favour of the assessee and against the Revenue. No costs.