Commissioner of Income Tax vs M. Balasubramaniam

Sethuraman, J.—These are two references at the instance of the Commissioner of Income Tax, Tamil Nadu, Madras, T.C. No. 170 of

1975 is made u/s 256(1) of the I.T. Act, 1961, referring the following questions:

Whether, on the facts and in the circumstances of the case, it has been rightly held that the income of Rs. 63,430 belonged to the joint Hindu

family and not to M. Balasubramaniam and not assessable in the hands of M. Balasubramaniam, in his individual capacity ?

T.C. No. 171 of 1975 is a reference u/s 27(1) of the W.T. Act, 1957, The following question is referred in it :

Whether, on the facts and in the circumstances of the case, it has been rightly held that the sum of Rs. 2,60,494 belonged to the HUF and,

therefore, not assessable in the hands of the assessee in his individual capacity ?

We shall first take up the Income Tax reference and then deal with the one under the W.T. Act. Meiyappa Chettiar of M/s. A.V.M. Studios has

four sons of whom the assessee is one. On 5th June, 1966, he issued a cheque for Rs. 10,000 in favour of the assessee and gave him also cash of

Rs. 100 expressing his intention that the benefit of the said sums should go to the assessee''s wife and children also as and when he got married and

that he should enjoy it as a Hindu joint family. These sums as well as the accretions thereto were to be subject to the incidence of joint family

property under the Hindu law. The assessee accepted the gift. He was a bachelor at the time. The assessee invested the sum of Rs. 10,000 in the

firm of M/s. A.V.M. Sons, Madras, in which he had 3/20ths share. Under the partnership deed of A.V.M. Sons, he had to contribute Rs. 15,000

as capital, and he took a loan of Rs. 5,000 from the said firm itself and deposited it along with the sum of Rs. 10,000 mentioned above as his

capital. Later on, from the accrued profits, he carried on a business in finance, and he became a partner in another firm known as M/s.

Emkeyesbee. He transferred two sums of Rs, 10,000 and Rs. 5,000 on 15th December, 1966, and 6th April, 1967, respectively, to an account

styled as "" HUF account"". He derived Rs. 63,430 as income from several sources as follows:

Rs.

Own business : Financing 19,644

Share income from A.V.M. Sons 29,941

Share income from M/s. Emkeyesbee provisionally taken 13,845

63,430

The assessee claimed before the ITO that this amount of Rs. 63,430 should be assessed in the hands of an HUF and not in his hands as an

individual. The ITO rejected this claim.

The assessee appealed to the AAC, who noticed that the assessee got married in May, 1970, and that he got a daughter in February, 1971.

The relevant previous year ended on 31st March, 1971 (assessment year 1971-72). The AAC considered the claim to the sum of Rs. 63,430

being assessable in the hands of an HUF. In the context of the above facts, he came to the conclusion that the assessment made on the assessee

including the said sum of Rs. 63,430 was quite correct. The assessee, thereafter, appealed to the Tribunal. The Tribunal took the view that as the

assessee had accepted the gift with the condition imposed by his father at the time of the gift, there was a legal obligation on the assessee''s part to

treat the property as joint family property, and that after the assessee got married and a child was born to him, a joint family came into existence. It

was, therefore, held that the income was liable to be assessed in the hands of the HUF and not in the hands of the individual.

In the W.T. assessment, the identical question relates to the wealth represented by the accretions to the original gifted amount of Rs. 10,100.

There also the WTO, and the AAC, on appeal, rejected the assessee''s claim for being assessed with reference to the said wealth in the status of

HUF"". The Tribunal considered the assessee''s appeal under the I.T. Act along with the appeal under the W.T. Act and applied the same

conclusion to both the appeals. The Commissioner, feeling aggrieved by the order of the Tribunal, has come forward with these references under

both the Acts.

In the present appeal, the learned counsel for the revenue contended that the income could be assessed only in the hands of the individual, as

there was no family in existence and that the present case was governed by the decision of the Privy Council in Kalyanji Vithaldas v. CIT [1973] 5

ITR 90. For the assessee, the contention was that in the present reference the only question was whether the individual, Balasubramaniam, could

be assessed with reference to the assets that accrued out of the sum of Rs. 10,100 gifted, subject to the condition of their having a joint family

character. It was pointed out that having regard to the terms of the gift, neither the income nor the assets could be assessed in the hands of the

assessee as an individual.

The status in which the assessee has been assessed under the I.T. Act as well as under the W.T. Act is "" individual"". The real question is

whether the individual or any HUF consisting of the assessee, his wife and his daughter, is liable to be assessed with reference to the assets and the

income.

In the letter dated 5th June, 1966, written by the assessee''s father, A.V. Meiyappan, it is stated as follows:

I am enclosing herewith my cheque for Rs. 10,000 drawn in your favour and cash of Rs. 100. It is my intention that the benefit of these sums

should go to your wife and children also as and when you get married and that you should all enjoy it as a Hindu joint family and these sums as well

as the accretions thereto should be subject to the incidence of the joint family property under the Hindu law.

I shall be glad to have your acceptance of this gift on the duplicate copy hereof.

The assessee signed in the duplicate as requested under the following words:

Gift accepted "".

There is no dispute about the fact that the gifted amount belonged to A.V. Meiyappan as his self-acquired property. There was a controversy

on the question as to what kind of interest a son would take in the self-acquired property of the father, which he received by way of gift or

testamentary bequest from his father vis-a-vis his own male issue. Does it remain self-acquired property in his hands also untrammelled by the

rights of his sons and grandsons, or does it become ancestral property in his hands, though not obtained by descent, in which his male issues

become co-owners with him ? This question was answered in different ways by the different High Courts. The ''Calcutta High Court in Muddun

Gopal Thakoor v. Ram Buksh Pandey [1863] 6 WR 71 had taken the view that such property became ancestral property in the hands of his son,

as if he had inherited it from his father. The Madras High Court in Nagalingam Pillai v. Ramachandra Tevav ILR [1901] Mad 429 held that it was

undoubtedly open to the father to determine whether the property which he has bequeathed shall be ancestral or self-acquired property but unless

he expressed his intention that it should be taken as self-acquired, it should be held as ancestral. The Madras view was accepted by a Full Bench

of the Patna High Court in Bhatwat Shukul Vs. Mt. Kaparni, . The Bombay view was that such gifted property was the self-acquisition of the

donee, unless there was a clear expression of intention on the part of the donor to make it ancestral. Vide Jugmohandas v. Mangaldas ILR [1886]

Bom 528. That view was accepted by the Allahabad and the Lahore High Courts in Parsotam Rao Tantia v. Janki Bai ILR [1907] All 354 and

Amarnath v. Guran Ditta, Mal, AIR 1918 Lah 394. This conflict of judicial opinion was brought to the notice of the Privy Council in Lal Ram Singh

v. Deputy Commissioner of Partabgarh [1923] LR 50 IA 265. But the Judicial Committee left the question open, as it was not considered

necessary to decide it in that case.

The Supreme Court went into this conflict of judicial opinion in C.N. Arunachala Mudaliar Vs. C.A. Muruganatha Mudaliar and Another, . In

that case, a testator had 3 sons. After giving certain properties to his wife and other relations, he set out the remaining properties in Schs. A, B and

C of his will and directed that they should be taken by his three sons, respectively, and that the sons should enjoy the properties with absolute

rights and with powers of alienation such as gift, exchange, sale, etc., from son to grandson hereditarily. The Supreme Court held in the judgment

pronounced by Mukherjea J., as he then was, that there was no warrant for saying that according to the Mitakshara, an affectionate gift by the

father to the son constituted ipso facto ancestral property in the hands of the donee. At p. 254, their Lordships observed as follows :

As the law is accepted and well settled that a Mitakshara father has complete powers of disposition over his self-acquired property, it must follow

as a necessary consequence that the father is quite competent to provide expressly, when he makes a gift, either that the donee would take it

exclusively for himself or that the gift would be for the benefit of his branch of the family. If there are express provisions to that effect either in the

deed or gift or a will, no difficulty is likely to arise and the interest which the son would take in such property would depend upon the terms of the

grant. If, however, there are no clear words describing the kind of interest which the donee is to take, the question would be one of construction

and the court would have to collect the intention of the donor from the language of the document taken along with the surrounding circumstances in

accordance with the well-known canons of construction.

This principle has been applied by this court in Commissioner of Income Tax/ Wealth-Tax/ Gift-Tax Madras Vs. M.P.R. Periak Aruppan

Chettiar Commissioner Of Wealth-Tax, Madras V.M.RM. Ramaswami Chettiar, , which was affirmed by the Supreme Court in M.P. Peria

Karuppan Chettiar Vs. Commissioner of Income Tax, Wealth Tax, Gift Tax, Madras, and also by the decision in S. Parthasarathy v. CIT [1966]

61 ITR 474 affirmed by the Supreme Court in S. Parthasarathy Vs. Commissioner of Income Tax, Madras, ,

It is clear from these decisions that the donor or testator dealing with self-acquired property may, by evincing the appropriate intention, render

the property gifted to assume the character of a joint family property, or, as the case may be, a separate property in the hands of the donee vis-a-

vis his male issue. In the present case, therefore, no exception could be taken to the terms of the letter dated 5th June, 1966.

In Kalyanji Vithaldas v. CIT [1937] 5 ITR 90, the case concerned the assessment of six partners of a firm, which consisted of the decendants

of two branches, one from Moolji and the other from Kanji, In the case of four of the partners of the firm constituted by these six individuals, the

question that is now before us did not arise, as the income which those partners derived from the firm was their separate and self-acquired

property. In the case of the remaining two partners, Kanji and Sewdas, whose 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 an 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. In this connection, their Lordships referred to the decision

in Lal Ram Singh v. Deputy Commissioner, Partabgarh [1923] LR 50 IA 265, in which the conflict in the decisions of the respective High Courts

were noticed, but left there. 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 son and the daughter might be entitled to be maintained out of the separate

as well as the joint family property; but that the mere existence of a wife or daughter did not make an ancestral property joint. At pp. 95 and 96,

the Privy Council observed as follows :

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 therefrom 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.

The present case would be identical with that of Kanji dealt with above as in both eases there is only a male Hindu with a wife and daughter,

and if this decision of the Privy Council were to hold the field, then no further discussion would be necessary, and the income would have to be

assessed in the hands of the individual, Balasubramaniam, and the same position would have to hold good even with reference to the W.T.

assessment.

There was, however, a criticism of this decision in two decisions of the Supreme Court. The first decision is Gowli Buddanna Vs.

Commissioner of Income Tax, Mysore, Bangalore, . In that case, one Buddappa, his wife, his two unmarried daughters along with his adopted son

by name Buddappa constituted an HUF. Buddappa died on July 9, 1952, and the adopted son became the karta of his family. The question that

came to be considered was whether the sole surviving coparcener of an HUF along with his widowed mother and sisters could constitute an HUF

within the meaning of the I.T. Act. In considering this question, the Supreme Court noticed another decision of the Privy Council in CIT v. A.P.

Swamy Gomedalli [1937] 5 ITR 416. In the last-mentioned case, the joint family consisted of a father, a son and their respective wives. The father

died and the question was whether the income received by the son should be regarded as individual income or the income of an HUF. The

Bombay High Court held in The Commissioner of Income Tax Vs. Gomedalli Lakshminarayan, that the expression ""Hindu undivided family"" as

used in the I.T. Act included the families consisting of sole surviving male member and female members entitled to maintenance, and the income of

the assessee should, therefore, be treated as the income of an HUF. The Privy Council in CIT v. A. P. Swamy Gomedalli [1937] 5 ITR 416,

followed its decision in Kalyanji Vithaldas case [1937] 5 ITR 90 in which it was held that the Bombay High Court had in The Commissioner of

Income Tax Vs. Gomedalli Lakshminarayan, arrived too readily at the conclusion that the income was the income of the family after having held

that the assessee, his wife and mother were an HUF.

The Supreme Court in Gowli Buddanna Vs. Commissioner of Income Tax, Mysore, Bangalore, pointed out the distinction between Kalyanji

Vithaldas'' case [1937] 5 ITR 90 and The Commissioner of Income Tax Vs. Gomedalli Lakshminarayan, . In Kalyanji Vithaldas'' case the income

was from an ancestral source. But the fact that the two partners, Kanji and Sewdas, had a wife or daughter did not render that as income derived

from an ancestral source or as income of the undivided family of the partner, his wife and daughter. In The Commissioner of Income Tax Vs.

Gomedalli Lakshminarayan, (reversed by the Privy Council in Gomedalli''s case [1937] 5 ITR 416 the property from which the income accrued

already belonged to an HUF, 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, (in their Lordships''

view) had a vital bearing on the issue was not given effect to by the Judicial Committee in CIT v. A. P. Swamy Gomedalli [1937] 5 ITR 416 . The

same criticism was also reiterated in N.V. Narendranath Vs. Commissioner of Wealth-tax, Andhra Pradesh, .

The only distinction between Gowli Buddanna Vs. Commissioner of Income Tax, Mysore, Bangalore, and N.V. Narendranath Vs.

Commissioner of Wealth-tax, Andhra Pradesh, is that in the case of Narendranath there was a partition in the HUF which consisted of

Narendranath and his wife. After the partition, Narendranath, his wife and his minor daughters received the assets. The question was whether the

family consisting of Narendranath, his wife and his minor daughters was to be assessed as an HUF for the purpose of wealth-tax or whether the

assets were liable to be assessed in the hands of Narendranath as an individual. It was held that as far as the assets received on partition are

concerned, the assets had an ancestral character and would have to be assessed in the hands of the joint family consisting of Narendranath, his

wife and two daughters. At p. 198 it was observed as follows :

Our conclusion is that when a coparcener having a wife and two minor daughters and no son receives his share of the joint family properties on

partition, such property in the hands of the coparcener belongs to the Hindu undivided family of himself, his wife and minor daughters and cannot

be assessed as his individual property.

The case was held to fall within the rule in Gowli Buddanna Vs. Commissioner of Income Tax, Mysore, Bangalore, .

Apparently because of these criticisms, the learned editor of Mulla''s Principles of Hindu Law, 14th; Edn., had jettisoned the case of Kalyanji

Vithaldas [1937] 5 ITR 90 from the latest edition. That the case of Kalyanji Vithaldas was not dissented from by the Supreme Court

notwithstanding the criticism as regards the way in which the decision of the Bombay High Court in The Commissioner of Income Tax Vs.

Gomedalli Lakshminarayan, had been dealt with in CIT v. A. P. Swamy Gomedalli [1937] 5 ITR 416 is clear from the latest decision of the

Supreme Court in Surjit Lal Chhabda Vs. The Commissioner of Income Tax, Bombay, .

In that case the assessee had a wife and an unmarried daughter. He made a declaration that he had thrown the immovable property known as

Kathoke Lodge"", which was his self-acquired property, into the joint family hotchpot in order to impress that property with the character of joint

family property. He declared also that he would be holding the property as karta of the joint family consisting of himself, his wife and his unmarried

daughter. The question was whether the income received from this property should be assessed to Income Tax in the status of an HUF, After

elaborately discussing the case of Kalyanji Vithaldas [1937] 5 ITR 90 and the other decisions of the Privy Council and of the Supreme Court, it

was. pointed out that there were thus two classes of cases, each requiring a different approach. In cases falling within the rule in Gowli Buddanna

Vs. Commissioner of Income Tax, Mysore, Bangalore, , the question was whether the property which belonged (already) to a subsisting undivided

family ceased to have that character merely because the family was represented by a sole surviving coparcener, who possessed rights which a sole

owner of property might possess. Even where the family consisted of widows of deceased coparceners as in Commissioner of Income Tax,

Madras Vs. Rm. Ar. Ar. Veerappa Cheitiar, , so long as the property, which was originally of the joint Hindu family, remained in the hands of the

widows as the members of the family and was not divided amongst them, the property would be joint family property. With reference to the other

class of cases, Kalyanji Vithaldas'' case [1937] 5 ITR 90 can be taken as illustrative and in such a case the question is whether the property, which

did not belong to a subsisting undivided family, has truly acquired the character of a joint family property in the hands of the assessee. With

reference to this class of cases, it was pointed out that the composition of the family was 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 would not justify the assessment of income in the status of

the joint family.

The sole surviving coparcener''s cases are to be found in Gowli Buddanna Vs. Commissioner of Income Tax, Mysore, Bangalore, , Attorney-

General of Ceylon v. AR. Arunachalam Chettiar [1958] 34 ITR (ED) 42 , The Commissioner of Income Tax Vs. Gomedalli Lakshminarayan, and

Commissioner of Income Tax, Madras Vs. Rm. Ar. Ar. Veerappa Cheitiar, . The case of a family, after a division, has also been brought within

this category in N.V. Narendranath Vs. Commissioner of Wealth-tax, Andhra Pradesh, . The other type of cases is represented by Kalyanji

Vithaldas'' case [1937] 5 ITR 90 and Surjit Lal Chhabda Vs. The Commissioner of Income Tax, Bombay, . The latter category of cases are thus

where the property not originally joint is received by the assessee. In these latter category of cases, the question to be asked is whether the

property has acquired the joint family character in the hands of the assessee. It is in such class of cases that the composition of the donor''s family is

a matter of great relevance, and the mere existence of a wife and daughter would not justify the assessment of income in the status of an HUF.

In the present case at the time when the property was given, there was no joint family, as the assessee was not even married. Where on the

partition of an HUF a bachelor got certain properties, the Supreme Court in C. Krishna Prasad Vs. Commissioner of Income Tax , Bangalore,

held that ""family"" always signified a group, and that plurality of persons was an essential attribute of a family, that a single person, male or female,

did not constitute a family, and that a family consisting of a single individual was a contradiction in terms. It was pointed out that the assessment in

the status of an HUF could be made only when there were two or more members of the HUF. If in the present case the property had been

obtained on partition, then as a result of the marriage and the subsequent birth of the daughter, it would have been possible to hold that the income

belonged to the HUF or that the assets belonged to an HUF as in N.V. Narendranath Vs. Commissioner of Wealth-tax, Andhra Pradesh, . But

that is not the position here. The property had been obtained only under a gift. The legal incidence of the property obtained may change on the

birth of the son, but until that event happened, the assessee would have to be assessed only as an individual.

The result is that the question referred in T.C. No. 470 of 1975 is answered in the negative and in favour of the revenue. Similarly, the question

referred in T.C. No. 171 of 1975 is also answered in the negative and in favour of the revenue. The revenue will be entitled to its costs. Counsel''s

fee Rs. 500 one set.