A.V.N. Jagga Row vs Commissioner of Income Tax

K. Ramaswamy, J.—During the assessment year 1974-75 ending on March 31, 1974, the assessee received Rs. 15,000 towards his half share in the rent paid by M/s. Dolphin Hotels Ltd., for the period commencing from October 1, 1973, to March 31, 1974, and treated this income as joint family income. He claimed assessment on that basis. The Income Tax Officer disallowed the claim and treated this income as the individual income of the assessee and assessed it to tax accordingly. On appeal, the Appellate Assistant Commissioner and, on further appeal, the Income Tax Appellate Tribunal agreed with the conclusion reached by the Income Tax Officer. Thus, u/s 256(1) of the Income Tax Act (43 of 1961), for short, "the Act", the Tribunal, at the request of the assessee made the following reference for the opinion of this court :

"Whether, on the facts a in the circumstances of the case, and on a proper interpretation of the settlement deed dated July 16, 1971 (by mistake it was typed as January 20, 1977) executed by the assessee''s father, the Tribunal was correct in law in holding that the undivided half interest in the property known as ''Daba Gardens'' was settled upon the assessee in his individual capacity and not as representing the Hindu undivided family consisting of himself, his wife and his sons and the rental income of Rs. 15,000 received by the assessee, towards the undivided half interest in that property, was liable to be taxed in the hands of the assessee as an individual?"

The facts, not in dispute, are that one A. V. Bhanoji Rao of Visakhapatnam and the assessee constituted a Hindu undivided family. they partitioned their properties by a partition deed dated April 27, 1954. Among other properties, the property known as "Daba Gardens" consisting of 2.25 acres and the main building and the outhouse standing thereon fell to the share of Bhanoji Rao. He subsequently executed a settlement deed dated July 16, 1971, in which he settled the undivided half interest in his share obtained under the partition deed dated April 27, 1954, upon the assessee."Daba Garden" was leased out to M/s. Dolphin Hotels Ltd., on a monthly rent of Rs. 5,000 and during her relevant assessment year, as stated earlier, the assessee received Rs. 15,000 towards his half share from M/s. Dolphin Hotels Ltd. The claim of the assessee is that his father, Mr. Bhanoji Rao, intended to settle the property upon himself, his wife and his sons who constituted a Hindu undivided family and, therefore, the income derived therefrom should be treated as the income derived by the joint family and has to be assessed according. To buttress the said contention, the assessee filed the affidavit sworn to by his father, dated January 20, 1977, in which he stated :

"..... in effecting the said settlement, it was may intention that the said property should go to the family of A. V. N. Jaggarao, consisting of himself and his sons, A. V. Adeep Bhanojirao and A. V. Monish Samarendra Rao, and in the settlement deed, it was mentioned that the property should go to my son and by that I clearly meant that it should go not merely to my son but also to the members of his family".

The assessee also filed an account subsequently opened in the name of the Hindu undivided family and of the amount spent from the income towards the expense of the family and the maintenance of the children. The authorities below found that the subsequent affidavit and the treatment meted out by the assessee, cannot derogate from the recitals in the document. The clear recitals do indicate that the assessee got the property in his individual capacity as owner thereof. Therefore, the income derived must be treated as his income and his to be assessed accordingly.

Sri Ratnakar, learned counsel for the assessee, has strenuously contended that the strict rules of the Evidence Act do not apply to proceedings before the assessing authorities under the Act. Therefore, the substance of the transaction has to be looked into as corroborated from the surrounding conduct displayed by the assessee in receiving the property and treating it to be joint family property. So considered, it must be held that the property obtained by the assessee under the settlement deed dated July 16, 1971, must be treated as the property of the Hindu undivided family and, therefore, the income derived by liaison it out to M/s. Dolphin Hotels Ltd., mist be treated to be the income of the Hindu undivided family. We are unable to agree. It is true, the provisions of the Evidence act do not apply to the proceedings initiated under the Act as the Income Tax Office is not a court. But when we are called upon to consider the effect of a document, it is now well settled that when the terms of a contract, or of a grant, or of any other disposition of property have been reduced to the form of a document and when law required it to be reduced to the form of document, no evidence shall be given in proof of such contract, grant or other disposition of property or of such matter except the document itself or secondary evidence of its contents in cases in which secondary evidence is admissible. Where the terms of the contract or grant or any other disposition of the property or any matter, required by law to the reduced to the form of a document, have been proved according to section 91 of the Evidence Act, section 92 postulates the no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives in interest, for the purpose of contradicting, varying, addition to, or subtracting from its terms. Section 94 of the Evidence Act declares that when the language used in the document is plain in itself and when it applies accurately to existing facts, evidence may not be given to show that it was not meant to apply to such facts. The illustration to section 94 provides thus : "A sells to B, by deed, ''my estate at Rampur containing 100 bighas''. A has an estate of Rampur containing 100 bighas. Evidence may not be given of the fact that the estate mean to be sold was one situated at a different place and of a different size". The settlement deed to be effective, must be executed and registers and it was accordingly done. Though, as stated earlier, the provision of the Evidence Act do not apply, when the authorities are called upon to consider the effect of the terms of a document, the general principles embodied in sections 91, 92 and 94 of the Evidence Act can be applied on construing the effect of the document. Therefore, let us see whether the document which is the basis for the right of the assessee to receive e the amount throws any light and whether it should be treated as his absolute property or whether it was settled on the members of the Hindu undivided family of the assessee. The preamble to the deed of settlement reads thus :

"whereas the settlor out of natural love and affection which he bears to the settle (assessee) is desirous of making a proviso to the settled by settling absolutely upon the settled a specified half share in the said property more fully described....."

Clause (1) reads :

"The settlor in consideration of his natural love and affection which he bears to the settle both hereby settle absolutely upon the settle the land and portion of the building......"

Clause (2) further says :

"The settlor has this day delivered possession of ''B'' scheduled property to the settle shall henceforth possess and enjoy the same absolutely".

A reading of these clauses clearly indicates that Mr. Bhanoji Rao, father of the assessee, under the settlement deed dated July 16, 1971, settled his undivided half share on the assessee - in the Dada Gardens with absolute right, title and interest and from that date, the assessee is entitled to enjoy his undivided half share in the Dada Gardens in his own right as true owner.

In Commissioner of Income Tax, Hyderabad Vs. Motors and General Stores (P.) Ltd., , the contention raised on behalf of the assessee was that in revenue mattes it was the substance of the transaction which must be looked into and not the form in which the parties have chosen to clothe the transaction. It was contended in that case that the substance of the sale of a cinema theatre was for consideration of a specified sum and the payment was to be made by transfer of shares. Therefore, the intention of the assessee was to sell the cinema theatre along with its equipment for a consideration of Rs. 1,20,000 and the substance of the transaction has to be looked into. While repelling that contention, Ramaswami J., speaking for the court, held thus (at page 699) :

"..... there is no suggestion on behalf of the appellant of bad faith on the part of the assessee-company nor is it alleged that the particular form of the transaction was adopted as a cloak to conceal a different transaction. It is not disputed that the document in question was intended to be acted upon and there is no suggestion of mala fides or that the document was never intended to have any legal effect. In the absence of any suggestion of bad faith or fraud, the true principle is that the taxing statute have to be applied in accordance with the legal rights of the parties to the transaction. When the transaction is embodied in a document, the liability to tax depends upon the meaning and content of the language used in accordance with the ordinary rules of construction. In Bank of Chettinad Ltd. v. CIT [1940] 8 ITR 522 , it was pointed out by the Judicial Committed that the doctrine that in revenue cases the ''substance of the matter'' may be regarded as distinguish from the strict legal position is erroneous".

It is now a well settled of law that in revenue matters, when the authorities are called upon to construe the terms of a contractor of a grant or any disposition of property, the parties cannot be permitted to resale from the terms of the contract and introduce oral evidence in derogation of the terms thereof. Where the words in a disposition or contract or grant are free from ambiguity, it is always to be construed according to the strict, plain an common meaning of the words themselves. Evidence de hors the instrument for the purpose of explanation it according to the surmised or suppose intention of the parties to the instrument is inadmissible or impermissible to be brought on record. Extrinsic evidence is inadmissible to vary the meaning of the words used in a document., The intention of the parties to a document must be gathered from the terms thereof and the surrounding circumstances attending the execution of the document, but the subsequent conduct of the parties cannot be permitted to show that the intention was different. Thus construed, we hold that the assessee has obtained absolute disposition of the undivided half share of the property in Daba Gardens and he receive rents during the relevant years from the said property in his individual capacity and not as karta of the Hindu undivided family. Neither the affidavit of the father nor the subsequent treatment meted out to the rent receive is relevant and they cannot be looked into. Therefore, the assessee is liable to include the amount of Rs. 15,000 received from M/s. Dolphin Hotels Ltd. as his individual income and the same is exigible to tax in that character but not as karta of a Hindu undivided family. The question is according answered in favour of the Revenue and against the assessee.