Kasturbhai Meyabhai (HUF) vs Commissioner of Income Tax

Mankad, J.—The Income Tax Appellate Tribunal has, at the instance of the assessee referred the following two questions for our opinion u/s 256(1) of the income tax Act, 1961: (1) Whether, on the facts of the case, the Appellate Tribunal was right in law in holding that (i) the self-acquired property of Mayabhai did not on the adoption by his widow of a son become the joint property of the Hindu family comprised of that widow and the adopted son, and (ii) that the income arising from that property was not assessable in the hands of the adopted son Shri Kasturbhai in the status of Manager of the said HUF, comprised by him, his adoptive mother and his wife?

(2) Whether, the Tribunal was justified in holding that the income from the house property known as Morris Garage was liable to be assessed in the hands of Kasturbhai Mayabhai by virtue of section 64(1)(iii) of the income tax Act, 1961?

Mr. J.M. Thakore, ld. Advocate General appearing for the assessee did not press question No. 2. As question No. 2 is not pressed, it need not be answered.

We will now turn to question No. 5. Relevant facts concerning this question are as follows. The assessee is an individual. The assessment years under reference are 1967-68 to 1970-71. The assessee is assessed to income tax from 1939-40 and it is not in dispute that upto the assessment year 1966-67, he was returning income from all his properties in his individual status. In other words, the income which he derived from the properties was shown as his individual income. In the assessment years under reference also, the assessee disclosed income from properties in his returns filed in the status of individual. However, he filed revised returns for these years on 14-12-1971. Two sets of revised returns were filed, one set was in the assessee''s individual status, while the second set was in the status of HUF. The assessee who was the son of Manibhai was adopted by his uncle Mayabhai in the year, 1919. Mayabhai and Manibhai had inherited properties from their father Nathubhai Lallubhai under a will dated 21-12-1900. Mayabhai inherited 7/16th share while Manibhai inherited 9/16th share in the properties of Nathubhaj. Both Mayabhai and Manibhai are dead and their properties are inherited by the assessee. The dispute in this reference is confined to the income derived from the properties inherited by the assessee from Mayabhai. It appears that Manibhai left a will under which he bequeathed l/3rd of his properties to the assessee absolutely and so far as 2/3rd of his properties were concerned, he gave life interest to his wife Chandibai. After the death of Manibhai, Chandibai released her life interest in 2/3rd properties left by her husband in favour of the assessee under the deeds of release dated 21-11-1953 24-7-1956 and 18-3-1957, and thus the entire 9/16th shares which Manibhai had inherited from his father came to be owned absolutely by the assessee. Mayabhai died intestate. His 7/16th share in the properties of Nathubhai was inherited by the assessee as his adopted son. According to the assessee, 7/16th share of Mayabhai in Nathubhai''s property belongs to his HUF consisting pf himself, his wife, his daughter and his widowed mother. So far as 9/16th share of Manibhai in Nathubhai''s property is concerned, the assessee''s case is that since he inherited the share under a will executed by Manibhai, it was his individual property. In other words, the assessee does not dispute that the income derived by him from the property which he inherited from Manibhai is his individual income. It was in these circumstances that-the assessee filed revised returns for the assessment years under reference as stated above.

The ITO by his assessment order dated 24-3-1972, held that all the properties which the assessee had inherited from his adoptive father Mayabhai and natural father Manibhai were properties belonging to the assessee''s HUF. He therefore, assessed the income derived from these properties in the hands of the assessee''s HUF, However, as a protective measure, he included the income derived from the properties inherited by the assessee from Manibhai (that is 9/16th share of Manibhai''s in Nathubhai''s property) in the assessee''s total income in his individual status The assessee carried the matter in appeal before the AAC. The AAC accepted the contention of the assessee and held that the income derived by the assessee from the properties which he had inherited from his adoptive father Mayabhai was income belonging to his HUF, while the income derived by him from the properties which he inherited from his natural father Manibhai was his individual income. In the view, which the AAC took, the income derived by the assessee from the properties inherited from Mayabhai that is 7/16th share in the properties originally belonging to Nathubhai, came to be assessed in the hands of his HUF. The revenue being aggrieved by the AAC''s order, holding the income derived by the assessee from the properties which be had inherited from his natural father Manibhai to be his individual income carried the matter in appeal before the income tax Appellate Tribunal (hereinafter referred to as the ''Tribunal''). Therefore, the question which was before the Tribunal was whether the income which the assessee derived from the properties which he had inherited from Manihhai belongs to the assessee''s HUF. There was no dispute so far as the income derived by the assessee from the properties inherited by him from Mayabhai was concerned.

The Tribunal took the view to the effect that all the properties which the assessee inherited from his adoptive father Mayabhai and natural father Manibhai belong to the assessee as individual. In other words, none of the properties belong to the assessee''s HUF. However, since the question of income derived from properties inherited by the assessee from Mayabhai was not before the Tribunal, the Tribunal dismissed the revenue''s appeals, which, as pointed out above, were confined to the income derived by the assessee from the properties which he had inherited from his natural father Manibhai. It is in the background of the above facts that question No. 1 has been referred to us for our opinion.

Mr. B.R. Shah, ld. Counsel for the revenue raised a preliminary objection that since so far as the assessment years under reference are concerned, the assessee''s contentions are accepted, it is academic to decide whether the Tribunal was right in holding that the properties which the assessee inherited from his adoptive father Mayabhai were his individual properties. Mr. Shah pointed out that the question whether the income derived by the assessee from these properties belongs to him in his individual capacity, or whether they belong to HUF was finally concluded by the AAC so far as the assessment years under reference are concerned. This income was not the subject matter of dispute before the Tribunal. Therefore, it would be purely academic to decide whether or not this income belongs to the assessee in his individual capacity or his HUF. It was pointed out that the Tribunal itself has made it clear in paragraph 19 of its order that it is concerned with the objections of the revenue against inclusion of income derived from the properties inherited by him from his natural father Manibhai in his total income in his individual capacity. It was further made clear that so far as the income derived from the properties inherited by the assessee'' from his adoptive father Mayabhai was concerned, it was not the subject matter of appeal before the Tribunal. Under the circumstances, submitted Mr. Shah, it would be academic to answer question No. 1 which has been referred to us.

We find considerable force in the preliminary objection raised by Mr. Shah. In the appeals preferred by the revenue before it, the question which the Tribunal was called upon to adjudicate upon was whether the income derived by the assessee from the properties inherited by him from his natural father Manibhai, that is 9/16th share in the properties originally owned by Nathubhai, was the income belonging to his HUF. It was the revenue''s case that the properties which the assessee had inherited-both from his natural father and adoptive father-belong to his HUF and, therefore, the income derived from these properties was assessable in the hands of his HUF. The AAC held that the properties inherited by the assessee from his adoptive father Mayabhai (that is 7/16th share in the properties which originally belonged to Nathubhai) belong to the assessee''s HUF and consequently the income derived therefrom was assessable in the hands of the assessee''s HUF. The revenue was not aggrieved by this part of the decision of the AAC. As a result of the AAC''s order, the income derived from the properties inherited from Mayabhai was not included in the assessee''s total income in his individual status. It was only because the income derived from the properties inherited from Mahibhai was held to be individual income of the assessee that the revenue had gone in appeal before the Tribunal. It was while deciding the question whether or not the income derived from the properties inherited by the assessee from his natural father Manibhai was income of the assessee''s HUF, that incidentally the Tribunal observed that even the properties inherited by the assessee from his adoptive father Mayabhai did not belong to his HUF. The Tribunal was not called upon to decide whether or not the properties inherited by assessee from Mayabhai belong to his HUF since that question was concluded by the decision of the AAC. The observations made by the Tribunal with regard to these properties are clearly obiter having no direct bearing on the questions involved in the appeals before it. Under the circumstances, the question whether or not the Tribunal was right in holding that the properties inherited by the assessee from Mayabhai did not belong to his HUF is purely an academic one so far as the years under reference are concerned. This question has been answered in favour of the assessee by the AAC and the finding of the AAC has not been disturbed by the Tribunal in the appeals filed by the revenue. We do not consider it necessary to answer the question which is purely academic. It was, however, urged that while giving effect to the Tribunal''s order, the ITO has included the income derived from the properties inherited by the assessee from Mayabhai in the assessee''s total income in his individual status. There is no material to support this submission made on behalf of the assessee. But even if that be so, it is obviously a mistake. Such inclusion would be contrary to the decision of the AAC, which is not disturbed by the Tribunal in the appeals preferred by the revenue. It will be open to the assessee, if so advised, to apply for rectification of the assessment order, if any income which is not includible is included by the ITO while giving effect to the Tribunal''s order. However, so far as the present reference is concerned, we have no doubt to our mind that it is purely academic to decide question No. 1.

In the result, we decline to answer question No. 1, referred to us for our opinion. Reference stands disposed of accordingly with no order as to costs.