Commissioner of Income Tax vs Smt. Shantaben Natwarlal Gandhi

Sugla, J.—The only question involved in this reference at the instance of the Revenue is:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in directing the Income Tax Officer to delete the share of profit of Smt. Shantaben and her two minor sons from the respective partnership firms of N. G. Paranjpe and Co., and Maganlal Pranlal and Sons from the assessment of the assessee-Hindu undivided family for the years under consideration ?"

Late Shri N. M. Gandhi died on May 22, 1962 leaving behind his widow, Smt. Shantaben, and two minor sons, Shri Girish and Atul, and one daughter, at the time of his death, he was a partner in two firms viz Maganlal Pranlal and Sons and N. G. Paranjpe and Co, in his individual capacity as per the deeds of partnership dated September 17, 1953 and October 8, 1959, respectively. According to the deed of dissolution dated August 3, 1962, in respect of the firm Maganlal Pranlal and Sons, the two minor sons of the deceased, Shri Gandhi, were admitted to the benefits of the partnership and the capital standing to the credit of the deceased as also the share of goodwill was transferred to the account of the minor sons in equal shares. According to the deed of dissolution dated August 12, 1962, in respect of N. G. Paranjpe and Co., Smt. Shantaben was taken as partner in place of her deceased husband and the capital standing to the credit of the deceased, Shri Gandhi, as well as his share in the said business was transferred to her account. Thus, while the two minor sons were admitted to the benefits of the partnership Maganlal Pranlal and Sons, with capital of their deceased father equally credited to them, Smt. Shantaben became a partner in the firm N. G. Paranjpe and Co., with the entire capital of her late husband credited to her account.

It is common ground that from the assessment year 1963-64 up to the minor sons S/Shri Girish and Atul, were assessed in their individual capacity in respect of the share of income and interest on capital they earned from the respective firms.

During the previous year relevant to the assessment year 1967-68 Smt. Shantaben, as guardian of her minor sons, amalgamated the amounts of Rs. 1,02,041 received by each minor on distribution of their father''s credit balance in the firm of Maganlal Pranlal and Sons at the time of his death the total of the two amounts, i.e., Rs. 2,04,082 was impressed with the character of joint Hindu family property. From the assessment year 1967-68 onwards she claimed that the income by way of interest earned on the aforesaid sum of Rs. 2,04,082 was taxable as the income of the Hindu undivided family of late Shri N. M. Gandhi through her as manager and the returns were filed accordingly.

The Income Tax Officer accepted the claim that there existed a Hindu undivided family of the widow and the two minor sons and a daughter of the deceased, N. M. Gandhi. He held that the Hindu undivided family existed not only with regard to the interest income on the aforesaid sum of Rs. 2,04,082 but also regarding all other income in the name of the widow and the two minor sons and also in respect of the interest or share of income from the two firms in which the deceased was a partner. In other words, the Income Tax Officer held that, after the death of late Shri N. M. Gandhi, his share of income in the two firms as well as the capital standing to his credit belonged to and continued to belong the Hindu undivided family comprising of the above four persons. The appeal filed by the assessee was dismissed by the Appellate Assistant Commissioner.

On further appeal, The Tribunal accepted the assessee''s contention that in view of section 8 of the Hindu Succession Act, 1956, the property left by the deceased was inherited by his heirs and legal representatives, the two minor sons and the widow as separate property and continued to be so. A Hindu undivided family came to be formed for the first time during the previous year for the assessment year 1967-68 when Smt. Shantaben, on behalf of her two minor sons, impressed the amount of Rs. 2,04,082 with the character of Hindu undivided family property. Accordingly, the Tribunal further held that the share income of the widow and the minor sons from their respective firms was not includible in the total income of the assessee Hindu undivided family.

It is submitted before us by Shri Jetley, learned counsel for the Department, that the deceased was survived by his widow two minor sons and a minor daughter, the estate left by him was not equally distributed amongst his legal heirs. Therefore, having regard the conduct of Smt. Shantaben in impressing the amount of Rs. 2,04,082 out of the amounts standing to the credit of the two minor sons in the firm of Maganlal Pranlal ano sons with the character of Hindu undivided family property it becomes evident that all the legal heirs of the deceased, Shri N. M. Gandhi, had formed a Hindu undivided family and continued as such. Accordingly the income attributable to the estate left by the deceased would continue to belong to the said Hindu undivided family. In this context, he placed reliance on a decision in the case of Y.L. Agarwalla and Others Vs. Commissioner of Income Tax, Central Calcutta, .

It was contended on behalf of the assessee that the decision relied upon is not applicable in this case inasmuch as the deceased in that case was a partner as karta of his Hindu undivided family, while in the instant case, the deceased was a partner in his individual capacity. Therefore, the provisions of section 8 of the Hindu Succession Act which were applicable in this case, were not applicable in that case. It was pointed out that the fact Smt. Shantaben and the two minor sons had distributed the estate of the deceased on his death in a particular manner and not equally was accepted by the Department as, for the assessment years 1963-64 up to 1966-67 they were all assessed individually in respect of their share of income from the respective firms.

It is an admitted fact that the deceased was a partner in the two firms in his individual capacity. It cannot, therefore, be a matter of debate or dispute that the provisions of section 8 of the Hindu Succession Act, 1956, were applicable. It may be that the estate was not divided exactly in the manner contemplated in section 8 of he Hindu Succession Act. Be that as it may, so far as the Department is concerned, unless the distribution is challenged by one or more of the affected heirs, the distribution will hold good in law. The fact that for the assessment years 1963-64 to 1966-67 the heirs were assessed in respect of the share income attributable to them from the two firms in their individual capacity goes to show that the Department had also accepted this position.

The only new thing that happened during the previous year for the assessment year 1967-68 was that Smt. Shantaben, on behalf of her two minor sons, impressed that portion of the capital of the deceased which had gone to their share originally at the time of the death with the character of Hindu undivided family property and claimed that the interest income attributable to the said amount was assessable as the income of the Hindu undivided family. We are unable to appreciate how, from this fact alone an inference can be drawn that the distribution of the estate on the death of late Shri N. M. Gandhi was fake or sham in entirety or that the heirs of late Shri, N. M. Gandhi constituted a Hindu undivided family after his death which Hindu undivided family continued as such all these years. This certainly cannot be inasmuch as the deceased was a partner in both these firm sin his own right as individual and not as karta of the Hindu undivided family. The provisions of section 8 of the Hindu Succession Act, Y.L. Agarwalla and Others Vs. Commissioner of Income Tax, Central Calcutta, the deceased as karta of the Hindu undivided family was a partner in the firm. The said judgment is, thus clearly distinguishable.

In the above view of the matter, the question is answered in the affirmative and against the Revenue. The assessee is entitled to her costs.