Commissioner of Income Tax vs A.M. Vaiyapuri Chettiar and Another

Thanikkachalam, J.—At the instance of the Department, the Tribunal referred the following common question both in the IT assessment as

well as in the GT assessment relating to the asst. yr. 1980-81, in the case of both the assessees under s. 256(1) of the IT Act, 1961, for our

opinion :

Whether, on the facts and in the circumstances of the case, there was a valid reunion of Vaiyapuri Chettiar and his son, Rajkumar, to constitute a

new HUF ?

There was originally a joint family consisting of two coparceners, Shri Vaiyapuri Chettiar and his only son, Shri V. Rajkumar. On 1st April,

1966, there was a partial partition of some of the movable properties of the family. On 7th Feb., 1967, there was a second partial partition of the

other movable properties. On 14th April, 1971, there was a total and complete partition of the immovable properties. This partition was accepted

by the ITO by an order passed under s. 171 of the IT Act, 1961, on 9th March, 1973. On 1st Oct., 1979, Vaiyapuri Chettiar and V. Rajkumar

executed an instrument called ""deed of declaration of reunion"" on a stamp paper of Rs. 50. This document recited the previous partitions in the

family and the desire and agreement of the parties for effecting a reunion so as to constitute a joint Hindu family of the parties and to constitute a

joint family fund by virtue of such reunion so as to form a nucleus thereof by bringing in any or some of the properties allotted on partition of the

erstwhile joint family and under this declaration the father and son brought a fixed deposit of Rs. 50,000 each kept with Rajkumar Chit Fund (P)

Ltd., as their contribution for the reunited joint family and declared their having reunited and the reunited joint family alone having the rights in

respect of those assets totalling Rs. 1,00,000. Consequently, there were three units, firstly, Shri Vaiyapuri Chettiar with the separated assets

claiming to be the Karta of a smaller HUF consisting of himself and his wife, secondly, Rajkumar with the separated assets claiming to be the Karta

of a smaller HUF consisting of himself and his wife and, thirdly, the joint family consisting of Vaiyapuri Chettiar, his son and their wives with this

asset of Rs. 1,00,000.

On these facts, the assessee contended that the interest arising from the sum of Rs. 10 lakhs (?) cannot be assessed in the hands of the two

smaller joint families which were being separately assessed on their own income on the ground that the interest accrued to the revived joint family

consisting of Vaiyapuri Chettiar and Rajkumar.

On the other hand, the Department contended that firstly, the reunion was a revival of the earlier divided family and should, therefore, restore

this position to a point of time before the partition by bringing back all the assets that had been divided. Secondly, the Department contended that

the document expressed an intention to form a new nucleus for creating a fresh HUF which was untenable because a joint family is a creature of

law and cannot be created by contract. Thirdly, the Department contended that the intention to reunite must be apparent from the motive behind it

and when there is no motive relevant for the reunion except for an irrelevant motive of reduction of tax, such a reunion cannot be recognised in law.

Lastly, it was contended that after the amendment of the IT Act by the introduction of sub-s. (9) to s. 171 it was not possible, as far as Income

Tax purposes were concerned, to effect a partial partition because the reunion with only some of the assets amounted to a full reunion and an

immediate subsequent partial partition which cannot be recognised since an assessee cannot be allowed to do indirectly what he could not have

done directly. Thus, according to the Revenue, the reunion set up by the assessees was invalid and cannot be recognised.

On the other hand, the assessees contended firstly that the characteristics of the reunion remain on the same footing as of a partition and since a

partial partition is recognised by law, a partial reunion is also recognisable especially when a reunion of only some of the members is already

recognised. Secondly, it was contended that the reunion is very much a contract to revive a joint family and such revival amounts to a creation of a

new joint family with a fresh nucleus. Thirdly, it was contended that when the parties have agreed that they will reunite, the fact that they get a tax

benefit cannot invalidate such a reunion. Lastly, it was submitted that the amendment recently introduced cannot affect the transaction when such a

transaction was valid in law.

The Tribunal, following the principles laid down by the Supreme Court in the case of Bhagwan Dayal Vs. Mst. Reoti Devi, held that by an

agreement, the parties can create a reunion with the property brought in as the joint family property. The Tribunal accepted that the reunion can be

created with limited items of properties and, according to the Tribunal, it is not necessary that all the properties belonging to the erstwhile HUF

should be brought into the reunited joint family for the purpose of making the reunion a valid one. The Tribunal also pointed out that when the

assessees were entitled to reunion as per their personal law, it cannot be said that it is a device to reduce the tax burden. Ultimately, the Tribunal

held that the assessment should be made by accepting the reunion in accordance with the decision rendered by the Karnataka High Court in

Paramanand L. Bajaj Vs. Commissioner of Income Tax, Karnataka-II, .

Before us, learned standing counsel for the Department, submitted as under :

The reunion was a revival of the earlier divided family and should, therefore, restore this position to a point of time before the partition by bringing

back all the assets that have been divided. The document expressed an intention to form a new nucleus for creating a fresh HUF which is untenable

because a joint family is a creature of law and cannot be created by contract. The intention to reunite must be apparent from the motive behind it

and when there is no motive relevant for the reunion except for an irrelevant motive of reduction of tax, such a reunion cannot be recognised in law.

After the amendment of the IT Act by the introduction of sub-s. (9) to s. 171 it was not possible as far as Income Tax purposes were concerned,

to effect a partial partition and it was argued that a reunion with only some of the assets amounted to a full reunion and an immediate subsequent

partial partition which cannot be recognised because an assessee cannot be allowed to do indirectly what he could not have done directly.

On the other hand, learned counsel appearing for the assessees submitted as under :

There is an unequivocal declaration of reunion evidenced by an agreement signed by the parties, who did constitute an HUF before partition. While

so, the authorities below could not come to a conclusion that there was no reunion just because some of the reunited coparceners had not thrown

their properties got from the partition into the family hotchpot, in view of the reservation to that effect contained in the agreement as that was not a

precondition for a reunion under the Hindu law. Even assuming that there was a clause giving option to the parties to bring the properties obtained

in the partition not in their entirety, even then, the reunion cannot be said to be an invalid one. In other words, though the parties can bring in a

portion of the property obtained in the prior partition into the reunited joint family, even then the validity of the reunion cannot be challenged. The

characteristics of the reunion remain on the same footing as of a partition and since a partial partition is recognised by law, a partial reunion is also

recognisable especially, when a reunion of some of the members is already recognised. When the parties have agreed that they will reunite the fact

that they would get tax concession cannot invalidate such a reunion. The amendment introduced to s. 171 cannot affect the transaction when such a

transaction was valid in law.

We have heard the rival submissions. The conditions precedent for a valid reunion under the Hindu law are :

There must have been a previous state of union, reunion is possible only among the persons who were, on an earlier date, members of an HUF;

There must have been a partition in fact;

The reunion must be effected by the parties or some of them who had made the partition; and

There must be a junction of the estate and the reunion of property because a reunion is not merely an agreement to live together as tenants-in-

common. Reunion is intended to bring about a fusion in the interest and in the estate among the divided members of an erstwhile HUF so as to

restore to them the status of an HUF once again and, therefore, reunion creates a right on all the reuniting coparceners in the joint family properties

which were the subject-matter of partition among them, to the extent they were not dissipated before the reunion.

The decision of our Court in Venkanna vs. Venkatanarayana AIR 1947 Mad 49, supports the submission of the assessee that an erstwhile

coparcener, who had spent away the property, could reunite without bringing back any property into the reunited family, but it does not lay down

that even if the erstwhile coparceners had in their possession, at the time of reunion, all or any portion of the property which they had got on

partition, they could reunite, keeping the property separately as their individual property. So also in the case of Manorama Bai Vs. Rama Bai and

Others, , our High Court pointed out that for a complete reunion the reuniting members should throw their properties into the common stock. But

there is no decision which holds that a reunion brought about expressly with agreement among the erstwhile coparceners is void unless all the

parties to the reunion throw the share of properties got at an earlier partition and remaining in their possession on the date of the reunion, into the

common hotchpot of the reunited family.

A similar question came up for consideration before the Karnataka High Court in the case of Paramanand L. Bajaj vs. CIT (supra), wherein

the Karnataka High Court held as under :

On a consideration of the basic texts on the point and the views of commentators expressed in Mitakashara and Smritichandrika, and the case-

law cited before us and having due regard to the real purpose and intent of the Hindu law governing HUF, it appears to us that a provision for

reunion has been provided for, for enabling the erstwhile members of an HUF, to come together and to form once again a joint family governed by

the Mitakshara law. The mutual love, affection arising from blood relationship and the desire to reunite proceeding therefrom, constitutes the very

foundation of a reunion. This is evident from the text of Brihaspati, in which even the relationship of persons who could reunite is specified though

some of the commentators have taken the view that it is only illustrative and not exhaustive and that reunion is possible even among persons not

specified in the text of Brihaspati. [See Viramitrodaya, translated by Gopalachandra Sarkar (1879) pages 204 and 205; Vivadachintamani,

Gaekwad''s Oriental Series, volume XCIX pages 288 and 289]. But even so, there is no controversy that a reunion is possible only among

persons who were, on an earlier date, members of an HUF. Reunion, therefore, is a reversal of the process of partition. Therefore, it is reasonable

to take the view that reunion is not merely an agreement to live together as tenants-in-common, but is intended to bring about a fusion in the interest

and estate among the divided members of an erstwhile HUF so as to restore to them the status of an HUF once again and, therefore, a reunion

creates a right in all the reuniting coparceners in the joint family properties, which were the subject-matter of a partition, among them to the extent

they were not dissipated away before the date of reunion. That this would be the legal consequence of a genuine reunion is forcefully brought out

by the text of Brihaspati, which provides ''where coparceners have again reunited through affection, they shall mutually participate in each other''s

properties''. Mitakshara states that mixing up of divided properties is the effect of a reunion. Therefore, it follows, no coparcener, who is a party to

a reunion and who admits the reunion, shall be heard to contend that the property, which he had got at an earlier partition, and is still with him, has

not become the property of the reconstituted HUF. But there can be no doubt that a reunion, when disputed, must be proved as any disputed

question of fact and the circumstance that all the reuniting members have not brought back their properties to form the common stock, may support

the plea taken by any concerned party that there was no reunion. However, if reunion is admitted by all the parties to the reunion or it is proved,

the share of the properties of the reunited members got at an earlier partition and in their possession at the time of the reunion becomes the

properties of the joint family, notwithstanding the fact that some of them have failed to throw those properties into the common hotchpot, whether

with or without the knowledge or consent of each other. It is a different aspect if reunion itself is not admitted by the persons who are parties to a

reunion and it is not proved by the party pleading reunion, in which event there would be no reunion at all.

The Supreme Court, in the case of Bhagwan Dayal vs. Mst. Reoti Devi (supra), held that a reunion is a matter of contract and there should

necessarily be a junction of the estate to validate the reunion. The contract of reunion would merely establish a joint status and the junction of

estates that is bringing back all the properties once divided and made available for being brought back would only be a necessary consequence

whether the parties intended it or not. therefore, the junction of estates being a legal implication of the agreement to reunite, the coparceners

reuniting cannot avoid that consequence by contracting out of that implication as such a condition enabling the coparceners to keep out any of the

properties would be void. In such an event, the coparceners having unequivocally declared their intention to reunite, the properties once divided

automatically become the property of the reunited family. In such a case, we have to consider whether the reunion is limited to any particular

property. In the present case, a deed of declaration dt. 1st Oct., 1979, recited the previous partitions in the family and the desire and agreement of

the parties for effecting a reunion so as to constitute a joint Hindu family of the parties and to constitute a joint family fund by virtue of such a

reunion so as to form a nucleus thereof by bringing in any or some of the properties allotted on partition of the erstwhile joint family and under the

declaration the father and son brought a fixed deposit of Rs. 50,000 each, kept with Rajkumar Chit Fund (P) Ltd., as their contribution for the

reunited joint family and declared their having reunited and the reunited joint family alone having the rights in respect of those deposits totalling Rs.

1,00,000. In such a case, the entire property of the erstwhile HUF was not brought into the reunited joint family, as per the decisions cited supra,

and unless the entire properties of the erstwhile joint family were brought into the reunited joint family, the reunion is not valid and any clause

restricting from bringing the entire properties belonging to the erstwhile joint family will be considered to be invalid. Therefore, in the present case,

a clause contained in the declaration of reunion giving option to whatever property they like to bring in, in the reunited joint family would be

declared as illegal and unsustainable. But what remains to be considered is whether in spite of such a clause contained in the deed of reunion,

whether such a deed would be valid. The Karnataka High Court in the abovesaid decision pointed out that barring that clause, the reunion will be

valid. Thus considering the facts arising in this case, in the light of judicial pronouncements cited supra, we hold that the Tribunal was correct in

coming to the conclusion that the reunion effected by the assessee under the deed of reunion dt. 1st Oct., 1979, is valid. However, the clause

giving option to the parties to bring in whatever assets they would like to bring in into the reunited joint family is deleted. The entire properties of

the erstwhile joint family prior to the partition would be the properties of the reunited joint family. In such a case, the ITO may have the option to

assess the income arising from the entire properties belonging to the erstwhile joint family prior to partition in the hands of the reunited HUF.

In that view of the matter, we uphold the order passed by the Tribunal and, accordingly, we answer the question in the affirmative and against

the Department. No costs. Counsel''s fee is fixed at Rs. 1,000.