Kasturbhai Mayabhai vs Commissioner of Income Tax

This reference relates to the asst. yrs. 1972-73 to 1976-77. The facts leading to the present reference may be noticed.

By a common order passed in respect of all the assessments, the Tribunal has decided the appeals of the assessee by making reference to its earlier decision in ITA Nos. 1353 to 1355(Ahd) and No. 1512 (Ahd) for asst. yrs. 1967-68 to 1970-71 in respect of the same assessee. While the controversy has been mentioned in brief in the Tribunal''s order as well as in the orders of the AAC, the facts in the background of which the controversy has arisen has not been stated in the order of the Tribunal for the asst. yr. 1972-73 to 1977-78. However, the order of the Tribunal relying upon which the order in question has been made has also been made part of the statement of the case from which the following facts emerge. The assessee Kasturbhai Mayabhai is assessed to Income Tax. From asst. yrs. 1939-40 upto the asst. yr. 1965-66 he was returning income from all sources in the ''individual'' status and was so assessed. Initially returns for 1966-67 to 1970-71 were also filed in his individual status. However, revised returns for these years were filed on 14th Dec., 1970. Two sets of revised returns were filed. One set was in the individual status while the second set was in the status of HUF. The assessee was the natural born son of Manibhai and was adopted by his uncle Mayabhai in the year 1919. Manibhai and Mayabhai have inherited properties from their father Nathubhai Lalbhai. Manibhai and Mayabhai inherited the properties under a will dt. 21st Dec., 1900. Mayabhai inherited 7/16th share; while Manibhai inherited 9/16th share in the properties of said Nathubhai. The properties of both these brothers have been inherited by the assessee. The assessee claimed the status of HUF regarding the income derived from the properties which he inherited from his adoptive father Mayabhai; and claimed his status as ''individual'' in respect of income derived from the properties that came to him as successor of Manibhai or reversioner to Manibhai''s widow after her death. In respect of all these asst. yrs. 1966-67 to 1970-71 the ITO held that all the properties which the assessee had inherited from his adoptive father Mayabhai as well as Manibhai, the natural father, were properties belonging to the assessee''s HUF. He, therefore, assessed the income derived from these properties in the hands of assessee''s HUF. However, as a protective measure, he included the income derived from the properties inherited by the assessee from Manibhai (i.e. 9/16th share of Manibhai in Nathu Bhai''s property) in the assessee''s total income in his individual status. Aggrieved by that part of the order by which 9/16th share relating to the properties inherited from Manibhai were held to be HUF, the assessee carried the matter in appeal before the AAC. The AAC accepted the contention of the assessee and held that the income derived by the assessee from the properties which he inherited from his adoptive father Mayabhai was income belonging to the HUF; while the income derived by him from the properties which he inherited from his natural father Manibhai as his individual income.

The Revenue being aggrieved by the order of the AAC holding the income from the properties which he inherited from his natural father Manibhai to be his individual income carried the matter in appeal before the Tribunal, Ahmedabad. There was no appeal challenging the finding about the status of assessee as HUF in respect of income derived from the properties inherited from Mayabhai either by the assessee or by the Revenue. The Tribunal observing that all the properties which the assessee inherited from his adoptive father and natural father Manibhai belong to the assessee as an individual dismissed the appeal filed by the Revenue. The assessee applied for a reference as a result of which ITR No. 145/77 arising out of ITA Nos. 1353 to 1355 for asst. yrs. 1966-67 to 1970-71 came before this Court.

The Tribunal passed the order on 22nd Dec., 1975. After Tribunal''s aforesaid order, assessments for the years in question viz. 1972-73 to 1977-78 came to be passed on different dates which are Annexures H-1 to H-6 annexed in the statement of case. The assessments were made in the status of individual in respect of income derived by the assessee from the properties including the one inherited by him from his adoptive father Mayabhai which accounted for 7/16th of the entire income. The AAC confirmed those assessments following the aforesaid decision of the Tribunal. The Tribunal in its order stated that both the authorities have relied upon the decision dt. 22nd Dec., 1975 of the Tribunal for the asst. yrs. 1967-68 to 1970-71 in ITA Nos. 1353 to 1355 (asst. yr. 1972-73) which was against the assessee and saw no infirmity in the decision of the Tribunal.

On these facts, the following questions have been referred for the decision of this Court by Tribunal, Ahmedabad Bench-B in respect of all the assessment years.

"Whether, on the facts of the case, the Tribunal was right in law in holding that (i) the self-acquired property of Mayabhai did not on the adoption by his widow of a son become the joint property of the HUF comprised of that widow, the adoptee, i.e., the assessee, and his wife and (ii) the income arising from the property comprising seven annas share was not hence assessable in the hands of the aforementioned HUF ?

We find that before the Tribunal the Department was contending that the whole of the income was liable to be assessed in the hands of HUF, that is to say, so far as the income derived from the property inherited from Mayabhai was concerned, it was not the Revenue''s case that it is not income of HUF in the hands of the assessee and to that extent the AAC''s and ITO''s findings have been accepted by both the parties and there was no dispute between them. In para 19 of the order of the Tribunal it is stated as under :

"In these appeals of HUF we are only concerned with the objection of the Department to the deletion of 9 annas share of the income from the concerned properties on the ground that it belongs to the individual. Since the assessment of the income already made in the hands of the HUF does not form subject-matter of the appeal before us, we do not consider it either necessary or possible having regard to the scope and jurisdiction of the appeal before us, to give any direction or finding in regard to the same."

However, while giving final direction, the Tribunal observed that it is obvious that none of the properties acquired by the assessee could be said to be joint family property. In the case of properties acquired from his natural father by will, and from his natural mother by deed of release, they are certainly not ancestral property because he has gone out of family, and has been adopted by the widow of Mayabhai, the adoptive father. So far as the property inherited by him from the adoptive father is concerned hereto, though it could be regarded as ancestral property, it cannot become the property of the HUF consisting of himself, his wife and widowed mother because the property has never before constituted a joint family property, and in the absence of a son, it does not constitute a joint family property at the relevant time. The case of the assessee clearly falls, in our view, within the ratio of the decision of the Privy Council in Kalyanji Vithaldas vs. CIT (1937) 5 ITR 90 and also that of the Supreme Court in Surjit Lal Chhabda Vs. The Commissioner of Income Tax, Bombay, .

In these circumstances, when the ITR No. 145 of 1977 arising out of the aforesaid order came to be decided by this Court on 16th June, 1982, the Court after noticing the aforesaid facts categorically held as under :

"In the appeals preferred by the Revenue before it, the question which the Tribunal was called upon to adjudicate upon whether the income derived by the assessee from the properties inherited by him from his natural father Manibhai i.e. 9/16th share in the properties originally owned by Nathubhai was the income belonging to his HUF. It was the Revenue''s case that the properties which the assessee had inherited - both from his natural father and adoptive father - belong to his HUF and, therefore, the income derived from these properties was assessable in the hands of his HUF. The AAC held that the properties inherited by the assessee from his adoptive father Mayabhai (that is 7/16th share in the properties which originally belonged to Nathubhai) belong to the assessee''s HUF and consequently the income derived therefrom was assessable in the hands of the assessee''s HUF. The Revenue was not aggrieved by this part of the decision of the AAC. As a result of AAC''s order, the income derived from the properties inherited from Mayabhai was not included in the assessee''s total income in his individual status. It was only because the income derived from the properties inherited from Manibhai was held to be income of the assessee that the Revenue had gone in appeal before the Tribunal. It was while deciding the question whether or not the income derived from the properties inherited by the assessee from his natural father Manibhai was income of assessee''s HUF, that incidentally the Tribunal observed that even the properties inherited by the assessee from his adoptive father Mayabhai did not belong to his HUF. The Tribunal was not called upon to decide whether or not the properties inherited by the assessee from Mayabhai belong to his HUF since the question was concluded by the decision of the AAC. The observations made by the Tribunal with regard to these properties are clearly obiter having no direct bearing on the questions involved in the appeals before it. Under the circumstances, the question whether or not the Tribunal was right in holding that the properties inherited by the assessee from Mayabhai did not belong to his HUF is purely an academic one in so far as the years under reference are concerned. This question has been answered in favour of the assessee by the AAC and has not been disturbed by the Tribunal in the appeals filed by the Revenue."

Regarding the fate of the orders passed on the basis of the aforesaid decision dt. 22nd Dec., 1975, the Court observed as under :

".... it is obviously a mistake. Such inclusion would be contrary to the decision of the AAC, which is not disturbed by the Tribunal in the appeal preferred by the Revenue. It will be open to the assessee, if so advised, to apply for rectification of the assessment order, it any income which is not includible is included by the ITO while giving effect to the Tribunal''s order."

Exactly this has happened in the present case. The ITO while giving effect to the Tribunal''s order has included the income derived from the assets inherited by the assessee from Mayabhai as income of the individual solely on the basis that the Tribunal''s order related to asst. yrs. 1967-68 to 1970-71. As the decision of the Tribunal is also solely on the basis of its earlier order relating to asst. yrs. 1967-68 to 1970-71 which according to the decision of this Court, is confined only to the income derived from the properties inherited from Manibhai and his widow and the operative finding between the Revenue and the assessee is one arrived at by the AAC in relation to properties inherited from Mayabhai with which we are in full agreement, the Tribunal was not justified in confirming the inclusion of income derived from the properties inherited by the assessee from Mayabhai in the individual status of the assessee. If at all, on the basis of the earlier orders, the income relatable to or arising from the properties inherited from Mayabhai by the assessee could have been assessed in the status of HUF according to the decision of AAC. In this view of the matter, our answer to the question referred to us is that in the fact of the case the Tribunal was not right in holding that the properties of Mayabhai on being inherited by his adopted son did not become the joint property of HUF of mother and son and income arising from that property comprising seven annas share was not income of HUF but was assessable in the hands of the aforementioned HUF on the basis of Tribunal''s decision dt. 22nd Dec., 1975. We answer the question in the negative in favour of the assessee and against the Revenue.

Before parting we make it clear that since all the authorities have decided the question only on the basis of earlier decision of the Tribunal and not by deciding the issues on merit that aspect of the matter does not arise out of the order of the Tribunal for our consideration.