Commissioner of Income Tax vs L. Balasubramaniam and Another

Ramanujam, J.—At the instance of the Revenue, the following common question of law has been referred to this court by the Income Tax

Appellate Tribunal for its opinion :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee should be assessed in the status of a

Hindu undivided family in respect of the income derived from the properties got by him on partition between him and his two brothers and which

properties were originally purchased by the assessee''s grandfather in the joint names of the assessee and his brothers ?

The assessee in T.C. Nos. 506 to 508 of 1979 is one L. Balasubramaniam and the relevant assessment years are 1972-73 to 1974-75. The

assessee in T.C. Nos. 527 to 529 of 1979 is one L. Borai Gowder and the relevant assessment years 1972-73 to 1974-75. The assessees in the

above cases are brothers. The assessees'' grandfather, one Boraiah Gowder, had purchased from time to time agricultural lands in Konnamalai and

Sethiamangalam villages in the joint names of the above assessees and their brother, L. Shanmugam, between 1944 to 1949. As the three brothers

were minors at the time of such purchases, they were represented, respectively, by their their father, Lingappa Gowder, mother Rajammal and

Lingammal, wife of Muniappa Gowder, and the assessees'' father''s elder brother. The grandfather died in 1949. Properties were continued to be

purchased in favour of the said there minors until the year 1955. All these properties were subsequently divided between the three brothers under a

partition deed dated October 15, 1972, registered on January 30, 1973. The preamble to the partition deed mentions that ever since the date of

purchase, the three brothers were jointly enjoying the properties and that as per the decision of the panchayatdars in 1969, the properties had been

partitioned and are being enjoyed separately since 1969.

With regard to the income from the properties allotted to Balasubramaniam in the above partition, he claimed that he should be assessed for the

assessment years 1972-73 to 1974-75 in the status of a HUF consisting of himself, his wife, Susheela, and two minor daughters, Usha and

Sujatha, on the ground that the properties purchased by his grandfather in the joint names of himself and his two brothers and later on partitioned

are ancestral in character. The ITO, however, took the view that there is no indication in the documents of purchase whether the assessees''

grandfather at the time of purchase intended to treat the properties as the separate properties of his minor grandsons or as ancestral properties in

their hands and that, therefore, the properties purchased in the joint names of the three grandsons will have to be construed as their own individual

properties and, as such, the income therefrom should be assessed in the status of an individual.

Similarly, the other assessee, L. Borai Gowder, one of the three brothers, claimed before the ITO, for the same assessment years that he should

be assessed in the status of a joint family consisting of himself, his wife, Kamalammal, minor daughters, Santhanalakshmi and Chitra, and minor son

Balajee, on the same ground that the properties purchased by his grandfather in the joint names of his grandsons and subsequently partitioned are

ancestral in character. The ITO rejected this claim also and proceeded top assess the income from the properties obtained by him on partition in

his individual capacity holding that the purchase documents do not indicate that the grandfather intended to treat the properties as ancestral

properties in the hands of the grandsons and that, therefore, the properties will have to be construed as their own individual properties and as such

that income should be assessed in the status of an individual. The ITO relied on the decision of the Supreme Court in Surjit Lal Chhabda Vs. The

Commissioner of Income Tax, Bombay, , in support of his conclusion.

Aggrieved by the orders of the ITO for the three assessment years 1972-73 to 1974-75, both the brothers, Balasubramaniam and Borai

Gowder, appealed to the AAC who disagreed with the ITO and held that them should be assessed only in the status of a HUF as the properties in

question were at no time the self-acquired properties of the assessees, and as the assessees were members of a pre-existing joint family and on

partition each of the assessees has become a sole coparcener, the income has to be assessed treating the sole coparcener as a HUF consisting of

himself, his wife and children, According to the AAC, the decision of the Supreme Court in Surjit Lal Chhabda Vs. The Commissioner of Income

Tax, Bombay, will not be applicable to these cases but, on the other hand, the decisions of the Supreme Court in Gowli Buddanna Vs.

Commissioner of Income Tax, Mysore, Bangalore, and N.V. Narendranath Vs. Commissioner of Wealth-tax, Andhra Pradesh, will apply to them.

The Revenue took the matter in appeal to the Income Tax Appellate Tribunal contending that as the sale deeds in the names of the assessees

and their brother did not indicate that the assessees'' grandfather had at the time of the purchases intended that the grandsons should take the

properties as ancestral properties and as the recitals in the sale deeds are to the effect that the transfees will have a right of alienation, the

grandfather should be taken to have intended that the grandsons should take the properties as their absolute properties, and that, therefore, the

view taken by the ITO that the assessment should be in the status of an individual should be taken to be correct. The Tribunal, however, did not

agree with the said contention of the Revenue but held that under the Hindu law the presumption is that the assessee and him two brothers with

their father constituted a joint family, that the properties were jointly acquired in the names of the assessee and his two brothers when they were

minors and that there are no express words in the sale deeds indicading an intention that the properties purchased in the names of the minors

should be held them as their self-acquired properties or that they exclusively belonged to them with absolute rights of ownership in the properties.

On the other hand, the recitals in the purchase documents indicate that the properties are to be enjoyed from sons to grandson hereditarily, thereby

implying that the properties are to be enjoyed by the minors as joint family properties. Moreover, according to the Tribunal, the preamble in the

partition deed shows that there was blending and the properties have been impressed with the character of joint family properties and it is only on

that basis they were partitioned among the assessee and his two brothers. Lastly, the filling of the return in respect of the HUF for the assessment

year 1971-72 shows that the properties have been impressed with the character of joint family properties and the assessee is entitled to the status

of a HUF in respect of the income from the partitioned properties. Accordingly, the Tribunal upheld the finding of the AAC and dismissed the

departmental appeals. Aggrieved by the decision of the Tribunal, the Revenue has come before us by way of these references.

Before we proceed to deal with the question of law referred to us, we have to refer to two factors which have been overlooked by the

authorities below including the Tribunal. The authorities below have proceeded on the basis that all the properties have been purchased by the

assessees'' grandfather in the names of his three minor grandsons between the years 1944 and 1955, ignoring the position that the grandfather died

in the year 1949 and as such the acquisitions after his death in 1949 till 1955 could not have been by the grandfather. Another factual position

which has been overlooked by the authorities below is that in the case of the assessee, Balasubramaniam, he claims to be the karta of a joint family

of himself, his wife and two daughters and in the case of Borai Gowder, he claims to be the karta of a joint family of himself, his wife, son and two

daughters. In view of the existence of a minor son in the case of Borai Gowder which is not the case in the case of the assessee, Balasubramaniam,

the question naturally arises whether there is change in the legal incidence.

As already stated, the view taken by the Tribunal is that the normal status of every Hindu family is joint and every such family is joint in food,

worship and estate. On the basis of the said presumption, the assessee and his two brothers with their father should be taken to constitute am joint

Hindu family. Thus far, the view of the Tribunal cannot be taken exception to. The Tribunal then proceeds to say that as there is no intention in the

various sale deeds that the properties purchased by the assessees'' grandfather jointly in the names of the assessees and their brother are to be held

by them as their self-acquired properties and as the other recitals in the sale deeds indicate that the properties are to be enjoyed from son to

grandson hereditarily, thereby implying that the properties are to be enjoyed by the minors as joint family properties and as the preamble to the

partition deed shoes that the properties have been impressed with the character of joint family properties before the partition took place between

the three brothers and as, in any event, the filing of a return by the assessee in the status of a HUF for the assessment year 1971-72 shows that the

properties had been impressed with the character of joint family properties, the assessee has to be assessed in the status of a HUF. The Tribunal

also agreed with the AAC that the decision in Surjit Lal Chhabda Vs. The Commissioner of Income Tax, Bombay, will not apply to the facts of

this case and the decision of the Supreme Court in Gowli Buddanna Vs. Commissioner of Income Tax, Mysore, Bangalore, and N.V.

Narendranath Vs. Commissioner of Wealth-tax, Andhra Pradesh, will apply to them.

On a due consideration of the matter, we are not in a position to appreciate the reasoning of the Tribunal. In the earlier part of its judgment, the

Tribunal rightly proceeded on the basis that the assessee and his two brothers along with their father constituted a Hindu joint family. But the

assessee''s case is that the property purchased under the various sale deeds belong not to the bigger joint family of themselves and their father but

that they belong to the HUF of himself, his wife and children. Admittedly, the properties purchased in the name of the three brothers made been

divided only between the three brothers and their father was not a party to the partition deed. This conduct of dividing properties as between the

three brothers clearly indicates that the property was never considered as the property of the bigger joint family of the three brothers and their

father. If the contention of the assessees raised before the AAC and before the Tribunal that the properties were thrown into the common stock by

blending and that they have been impressed with the character of joint family properties before partition between the three brothers, then the

properties will have to be treated as the joint family properties of the three brothers and their father. We do not see how when their father is alive,

the three brothers can partition the properties as between themselves without reference to the father, if the properties are impressed with the

character of joint family by the conduct of the three brothers. Therefore, the conduct of the three brothers dividing the properties amongst

themselves without reference to the father would indicator that the properties acquired by them were only in the nature of self-acquired properties

and they are not either ancestral or of the joint family. As pointed out by the Supreme Court in Goli Eswariah Vs. Commissioner of Gift Tax,

Andhra Pradesh, , the existence of a coparcenary is absolutely necessary before a coparcener can throw into the common stock his self-acquired

properties and the separate property of a member of a joint Hindu family may be impressed with the character of joint family property, if it is

voluntarily thrown by him into the common stock with the intention of abandoning his separate claim therein and the separate property of a Hindu

ceases to be separate property and acquires the characteristics of joint family or ancestral property not by any physical mixing with his joint family

or his ancestral property but by his own volition and intention by his waiving and surrendering his separate rights in it as separate property. In this

case, the fact that the three brothers divided the properties as between themselves without reference to the father all of whom constituted a HUF

clearly leads to the inference that the three brothers have not renounced their individual right in the property and had not treated the properties

purchased as that of the family. Merely because the properties have been purchased by the grandfather in the name of his there grandsons, the

property cannot automatically become the ancestral property of the property of the joint family consisting of the three brothers and their father. It is

not as case of inheritance from the grandfather in which case alone the property inherited will become ancestral property. Here the consideration

for the purchase in favour of the grandsons came from the grandfather. The mere fact that the source was from the grandfather does not make the

property purchased ancestral in any manner. Thus, till the date of partition, the property purchased had not become the property of the joint family

of the three brothers and their father but had continued to be their separate properties. If the three brothers treated the properties acquired

between the years 1944 - 1955 as joint family properties by renouncing their individual right and making them the joint family properties either by

blending or by throwing into the common hotchpot and thereafter they have been subjected to a partition between all the members of the joint

family including the father, then, it may be possible to say that the property allotted to each of the three brothers is ancestral in character or that it

continues to have the character of joint family as between each of the brothers and their children. But that is not the case here. Here it is not the

case of the assessees at any stage that the properties purchased in their favour became the properties of the bigger joint family of themselves and

their father in which case alone the property allotted on a partition of that family can be taken to be ancestral. Once it is conceded that at the time

of the purchase, the three brothers and their father constituted a joint family, then, so long as the joint family continued, the three, brothers cannot

claim to be separate and independent units representing their respective joint family. As pointed out by Mayne in his Treatise on Hindu Law and

Usage, 11th edition, paragraph 281A, so long as a family remains an undivided family, two or more members of it, whether they be members of

different branches or of one and the same branch of the family, can have no legal existence as a separate independent unit. It is true no doubt that

all the members of a branch, or of a sub-branch, can from a distinct and separate corporate unit within the larger corporate family, and hold

property as such, and such property will be joint family property of the members of the branch inter se which will be separate property of that

branch in relation to the larger family. But, here, at the time of acquisition of property there was no sub-branch, unless the assessees in this case

establish that the properties acquired in their names were either ancestral or have become joint family property, the same cannot be claimed to

belong to the joint family of which each of the assessees is karta. It is no doubt true, a property many be joint family property without having been

ancestral. Where the members as a joint family acquire property by or with the assistance of joint funds or by their joint exertion or in joint business

or by a gift or grant made to them as a joint family, such property is the coparcenary property of the persons who have acquired it, whether it is an

increment to the ancestral property or whether it has arisen without any nucleus of the ancestral property. In this case, the property came to be

acquired in the name of the three brothers by the monies provided by the grandfather. Therefore, it cannot be said that the properties have been

given either to the joint family of the three brothers and their father or that the properties are acquired by the members of the family by common

exertion or with the aid of common funds. Therefore it is clear that the properties could not have become the properties of the larger joint Hindu

family of the three brothers and their father. If as contended by the assessees and as held by the Tribunal, the property purchased had been

blended with and thrown into the common stock by the three brothers, then the property would have been divided between all the coparcenrs

including the father. In this case, the partition has taken place without reference to the father and that means that the three brothers intended to treat

the property separately without blending it with the properties of the joint family consisting of themselves and their father. Therefore, the properties

right through continued to be the separate properties of the three brothers and they have been divided by the three brothers only on that basis.

Hence, the properties allotted to the three brothers on partition as between themselves without reference to the father can never be treated as

having the ancestral character or of joint family character in their hands.

Then the question is whether the facts in this case attract the application of the decision of the Supreme Court in Surjit Lal Chhabda Vs. The

Commissioner of Income Tax, Bombay, , as contended by the Revenue, even if the properties are taken to belong to their joint families. In that

case, the assessee had a wife and an unmarried daughter. On January 26, 1956, the assessee made a declaration that he had thrown the

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

the character of joint family property and that he would be holding that property as the karta of the joint Hindu family consisting of himself, his wife

and his unmarried daughter. The question was whether the income received by the assessee thereafter from the property should be assessed to

Income Tax in the status of a HUF. The Supreme Court held that the assessee, his wife and unmarried daughter were no doubt members of a

HUF but until the birth of a son, the personal law of the assessee regarded him as the owner of the ""Kathoke Lodge"", and the income therefrom as

his income even after the property was thrown into the family hotchpot, and, therefore, the income was chargeable to Income Tax in the hands of

the assessee as his individual income and not that of the family. Thus, though the Supreme Court held that the assessee, his wife and unmarried

daughter may be members of a HUF, since the karta of that family is only sole surviving coparcener, the income of the properties belonging to the

family has to be assessed only in the hands of the karta in his individual capacity and not in the status of a HUF. In that case, though the Supreme

Court held that there could be a HUF with only one male member, the income from the properties which had been admittedly thrown into the

hotchpot was held assessable only in the hands of the sole co-parcener in his individual capacity and not in the status of a HUF. The said decision

of the Supreme Court appears to apply to the case of Balasubramaniam, the assessee in T.C. Nos. 506 to 508 of 1979, for, his undivided family

consists of only himself, his wife and two unmarried daughters and so long as there is no other male member, the assessment has to be made only

on the assessee in his individual capacity, though he is a karta of the said HUF. But that decision may not apply to the assessee in T.C. No. 527 to

529 of 1979 as admittedly his undivided family consists of himself, his wife, a son and two minor daughters. However, having regard to the fact

that we have earlier held that the properties got by the three brothers on partition were only their separate self-acquired properties, unless there is a

subsequent throwing into the hotchpot of their families, the properties cannot be taken to be either ancestral or belonging to the joint family.

Therefore, the income from the properties has to be assessed in the hands of the karta in his individual capacity.

The AAC and the Tribunal had chosen to apply the decisions of the Supreme Court in Gowli Buddanna Vs. Commissioner of Income Tax,

Mysore, Bangalore, and N.V. Narendranath Vs. Commissioner of Wealth-tax, Andhra Pradesh, . But a close reading of those decisions will show

that the facts in those cases were entirely different. In Gowli Buddanna Vs. Commissioner of Income Tax, Mysore, Bangalore, . one Buddappa,

his wife, his two unmarried daughters and his unmarried son, Buddanna, were members of a HUF. Buddappa died and after his death the question

arose whether the income of the properties held by Buddanna as the sole surviving coparcener was assessable as the individual income of

Buddanna or as the income of the HUF. It was held by the Supreme Court that since the property which came into the hands of Buddanna as the

sole surviving coparcener was originally joint family property, it did not cease to belong to their joint family and income from it was assessable in

the hands of Buddanna as income of the HUF. In N.V. Narendranath Vs. Commissioner of Wealth-tax, Andhra Pradesh, , a coparcener having a

wife and two minor daughters and no son received his share of the joint family properties on partition. The said property in the hands of the

coparcener was held to belong to the HUF of himself, his wife and minor daughters and that the income therefrom was held not assessable in his

individual capacity for the purpose of wealth-tax. It is thus seen that in both the cases, the property originally belonged to the joint family and as a

result of reduction in the number of coparceners, the property came into the possession of a sole surviving coparcener having a wife and minor

daughters. Since the property devolved on the sole surviving coparcener from the joint family either by partition or by reduction in the number of

coparcener, it was held that the property belongs to them HUF and not to the karta in his individual capacity. But in this case, the property, the

income of which is sought to be assessed, has been held to be separate and not ancestral and, therefore, the assessment has to be made only in the

name of the assessee in his individual capacity and not in the status of a HUF.

The matter has been recently considered by a Division Bench of this court in CIT v. Balasubramaniam [1981] 122 ITR 529. In that case, there

was a gift of self-acquired property of the father to his unmarried son who held it for the benefit of his son''s family after marriage. After the said

gift, the assessee married and begot a daughter. The question arose whether the income from the gifted property and the accretion thereto is to be

assessed in the name of the son in the status of an individual both for Income Tax and wealth-tax purposes or he should be assessed in the status of

HUF. This court pointed out that in determining whether the property belongs to the HUF or is individual property, there are two classes of cases,

each requiring a different approach, that in cases falling within the rule of Gowli Buddanna Vs. Commissioner of Income Tax, Mysore, Bangalore, ,

the question would be 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, that in the other class of cases falling within the rule laid down in Kalyanji Vithaldas''

case [1937] 5 ITR 90, the question would be 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, the composition of the family is 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 a joint family. Ultimately, the court held that as the gift made by the father to his unmarried son was

of his self-acquired property and not ancestral or joint family character in his hands, it has to be assessed in the son''s hands only in the individual

capacity till a son is born when the legal incidence of the property might change. The said decision also squarely applies to the facts of this case.

We have to, therefore, hold that the assessment in the case of both the assessees cannot be in the status of an undivided family but in their

individual capacity.

The learned counsel for the Revenue then contends that even if the decision in Surjit Lal Chhabda Vs. The Commissioner of Income Tax,

Bombay, , does not apply to the assessee, Bora Gowder, as he had a son, the throwing into the common hotchpot as found by the Tribunal being

subsequent to December, 1969, the amendment to s. 64 of the I.T. Act comes into operation. Section 64(2) states that in the case of an individual

being a member of a HUF any separate property of the individual has at any time after December 31, 1969, been converted by the individual into

property belonging to the family through the act of impressing such separate property with the joint family character or throwing into the common

stock of the family, then not withstanding anything contained in any other provisions of the Act or in any other law for the time being in force, for

the computation of the total income of the individual under the Act for any assessment year commencing on or after first of April, 1971, the income

derived from the converted property or any part thereof so far as it is attributable to his interest shall be deemed to derive to the individual and not

to the family. This provision will apply to these cases as the assessment years are 1972-73 to 1974-75. The Tribunal has not, however, considered

this aspect of the case. Therefore, even if the property is taken to have been thrown into the common stock as found by the Tribunal, it was only

from January 31, 1973, when the properties were partitioned between the three brothers. Therefore, it comes within the mischief of s. 64(2) and

the income derived from the property which is said to have been thrown into the common stock has to be assessed only in the individual capacity

of the assessee and not in the capacity of a joint Hindu family.

Thus, in any view of the matter, we have to disagree with the conclusion arrived at by the Tribunal. We, therefore, answer the question referred

to us in the negative and in favour of the Revenue. No costs.