Commissioner of Income Tax/Wealth-tax vs M. Balasubramanian

Nainar Sundaram, J.

These references are directed to be posted before the Full Bench in view of the conflicting views prevailing between pronouncements of Division

Benches of this court. The question referred in Tax Case No. 579 of 1977, a case arising under the Income Tax Act, reads as follows :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income from the gifted properties arose to the

Hindu undivided family and it cannot be, therefore, clubbed with the assessee''s individual income ?

The question referred in Tax Case No. 1450 of 1977, a case arising under the Wealth-tax Act, 1957, runs as follows :

Whether, on the facts and in the circumstances of the case, it has been rightly held that the sum of Rs. 2,61,136 belonged to the Hindu undivided

family and, therefore, not assessable in the hands of the assessee in his individual capacity ?

The assessee''s father was one Meiyappa Chettiar. On June 5, 1966, the father issued a cheque for Rs. 10,000 in favour of the assessee, who

was one among his four sons, and gave him also cash of Rs. 100. Contemporaneously, the assessee''s father gave a letter the terms of which ran as

follows :

I am enclosing herewith my cheque for Rs. 10,000 drawn in your favour and cash of Rs. 100. It is my intention that the benefit of these sums

should go to your wife and children also as and when you get married and that you should all enjoy it as a Hindu joint family and these sums as well

as the accretions thereto should be subject to the incidence of the joint family property under the Hindu law.

I shall be glad to have your acceptance of this gift on the duplicate copy hereof.

The gift was accepted by the assessee. The assessee was a bachelor at the time of the gift. Subsequently, he married and during the relevant

assessment year, namely, 1972-73, he had a wife and a daughter. The Revenue wanted and wants to treat the assessee as an individual under the

Income Tax Act regarding the income from the sums gifted as well as under the Wealth-tax Act regarding the said sums and the accretions thereto.

The assessee claimed them as belonging to the Hindu undivided family and wanted assessment to be made only on that basis. The Income Tax

Appellate Tribunal has ultimately accepted the stand of the assessee. The questions have come to be referred to this court at the behest of the

Revenue.

Here, we are concerned with a person who had the benefit of a gift by his father out of his self-earnings. The terms of the gift are unambiguous.

It directs that the benefit of the sums gifted should go to the donee''s wife and children also as and when he gets married and they all should enjoy

the same as a Hindu joint family and these sums as well as the accretions thereto should be subject to the incidence of the joint family property

under the Hindu law. These are express provisions and no difficulty need be apparently experienced in the terms or expressions used in the letter of

gift that the interest which the assessee took in the sums will bear the character of a property belonging to a Hindu joint family.

Under the statutes concerned, the concept of a Hindu undivided family is different from the concept of a Hindu coparcenary in ordinary Hindu

law. A Hindu coparcenary is a much narrower body and it includes only these who have acquired by birth an interest in the joint or coparcenary

property and these are the sons, grandsons and great grandsons of the holder of the joint property for the time being, that is to say, the three

generations next to the holder in unbroken male descent. Under the statutes concerned that the assessee could constitute a Hindu undivided family

with his wife and daughter is not being disputed by the Revenue.

In Commissioner of Income Tax Vs. M. Balasubramaniam, , for the assessment year 1971-72, the case of the very same assessee, now

before us, came up for consideration before a Division Bench of this court and the tenor of the letter of gift was pressed forth by the assessee to

say that the assessment should be on the basis that the sums belong to a Hindu undivided family. The Division Bench did not countenance this plea

of the assessee, opining that where the property did not originally belong to the joint family and it is received by the assessee, the mere existence of

a wife and daughter would not justify the assessment of income in the status of a Hindu undivided family. In doing so, the Division Bench adverted

to the pronouncement of the Supreme Court in Surjit Lal Chhabda Vs. The Commissioner of Income Tax, Bombay, .

In contrast, we have the pronouncements of two Division Benches of this court which have gone by the primary rule of intention by the

donortestator. In Satyendra Kumar Vs. Commissioner of Income Tax, Madras, , there was a gift of funds by the mother to her son and the

intention was expressed that the funds should be used for the benefit of the entire family. The son, with the funds, acquired further properties and

they were the subject-matter of a division at a later point of time through arbitrators. The assessee, a grandson, was allotted certain properties by

the award of the arbitrators and he contended that the properties got by him under the award had to be treated as the properties of a Hindu

undivided family of which he was the karta. The Division Bench went by the primary rule of intention and they held that the properties should be

treated as those of a Hindu undivided family. In Commissioner of Income Tax Vs. Radhambal Ammal. (Legal Representative of Late Venugopal

Reddiar), , another Division Bench of this court dealt with the case of a will executed by the assessee''s adoptive father, bequeathing properties to

the assessee stating that the assessee will take the properties and hold the same for himself and for the benefit of the son to be born. From this, the

Division Bench opined that the intention of the testator was clear that he was not giving the properties absolutely to the assessee with full power of

alienation and even without any reference to the presumption arising from a gift by a parent to his son, which makes the properties in the hands of

the son ancestral, in the absence of any contrary intention expressed in the will by the testator, the testator in that case having made his intention

clear by saying that the assessee will take the properties and share the same along with his son to be born, the assessee could be assessed only in

his capacity as a Hindu undivided family and not as an individual even though there was no birth of a son as contemplated. That a donor or a

testator dealing with self-acquired property may, by evincing the appropriate intention, render the property gifted to assume the character of joint

family property or, as the case may be, separate property in the hands of the donee vis-a-vis his male issue is now a settled proposition in view of

the decision of the Supreme Court in C.N. Arunachala Mudaliar Vs. C.A. Muruganatha Mudaliar and Another, . The primary rule deducible from

the above pronouncement of the Supreme Court is one of intention and that could be applied even to a case of a Hindu undivided family under the

statutes concerned. If there are express provisions to the effect in the deed of gift or will that the son would take the property for the benefit of the

family, that is decisive.

The case in Surjit Lal Chhabda Vs. The Commissioner of Income Tax, Bombay, is clearly distinguishable on facts. That was a case where the

assessee had a wife and an unmarried daughter and he made a declaration that he had thrown the immovable property, which was his self-

acquisition, into the joint family hotchpot in order to impress that property with the character of joint family property and he further declared that he

would be holding the property as the karta of the joint Hindu family consisting of himself, his wife and his unmarried daughter. Dealing with the facts

of that case and expressing the view that until the birth of a son the personal law of the assessee governed, it was held that the income was

chargeable to Income Tax in the hands of the assessee as his individual income and not that of the family. To the facts of the present case, the

primary rule of intention of the donor should be applied, and if so done, in our view, the Tribunal did the right thing when it accepted the case of the

assessee. In the light of our above discussion, we approve the view taken in Satyendra Kumar Vs. Commissioner of Income Tax, Madras, and

Commissioner of Income Tax Vs. Radhambal Ammal. (Legal Representative of Late Venugopal Reddiar), and we are not able to approve the

view in the pronouncement in Commissioner of Income Tax Vs. M. Balasubramaniam, . The result is that the questions referred i both the tax

cases are answered against the Revenue and in favour of the assessee. We make no order as to costs.