R. Subramania Iyer vs The Commissioner of Income Tax, Madras

Rajagopala Ayyangar, J.—The question referred to us for decision u/s 66(1) at Income Tax Act is:

In the absence of any other evidence, is the recital in the partnership deed of 20-4-1947 in? respect of the General Commercial Distributor

enough for drawing the inference that the moneys invested by the assessee in the business carried ""on by him, came out of funds belonging to the

undivided family consisting of the assessee and his minor son.

The facts giving rise to the reference may be shortly stated. Subramania Iyer, the assessee, quarrelled with his father and came out of the family in

or about April 1944. With some money given to him by his father after the separation, and by his mother, he started a concern called the General

Commercial Corporation in September 1944. The partners in this concern were Subramania Aiyar and one M.S. Ritmamoorthy Aiyar. This was

wound up on 31-3-1947 and and a new firm called the General Commercial Distributors came into being on and from 1-4-1947 with M.S.

Ramamoorthy Aiyar and his son, one Sundaram Aiyar, holding a quarter share each a nd the assessee Subramania Aiyar and his wife Lakshmi

Ammal holding the other one-fourth share each.

Subramania Aiyar contributed a capital of Rs. 350 and his wife Rs. 600 while Ramamoorthy Aiyar and his son did not make any contribution of

capital. A partnership deed was entered into in respect of this firm on 20-4-1947 and this Subramania Aiyar, the assessee, was described as

representing his undivided family hereinafter called the party of the second part"". It might be mentioned that the undivided family at this date

consisted only of the assessee and a minor son who was born in; April 1944.

For the assessment year 1948-49 assessee submitted two returns, one as an individual wherein he returned aft income of Rs. 50 being sitting fee,

received as a Director, and another return as the manager of the joint family and in this capacity he returned the fourth share of the income which

he got from the General Commercial Distributors. The Income Tax Officer refused to accept these returns and treated the income returned as the

manager of the undivided Hindu family as part of the income of Subramania Aiyar, the individual assessee.

The assessee was called on to explain how he treated himself as the manager of an undivided Hindu family in entering into this business. His

explanation consisted of two parts. The first was that the sum of Rs. 350 which had been contributed by him as his share capital for the General

Commercial Distributors was ancestral property which had been obtained by him from his father.

The second was that the declaration contained in the recital in the partnership deed of April 1947, in which he had described himself as the

manager of the joint undivided Hindu family, was sufficient to impress upon the business the character of a joint family business, such that its

income would become the income of a Hindu undivided family. The Income Tax Officer did not accept the case put forward by the assessee as

regards the source from which the Rs. 350 had been obtained by him and he was of the opinion that this sum represented at the best a portion of

the gifts from the assessee''s father and mother which would be self-acquired property in his hands.

Dealing with the effect of the declaration contained in the recital in the partnership deed of April 1947, the. Income Tax Officer held that this was

not sufficient to constitute, the business as one belonging to an undivided Hindu family. The assessee. filed an appeal to the Appellate Assistant

Commissioner who rejected the appeal and this was confirmed by the Tribunal on further appeal.

In our opinion it is not open to the assessee to canvass the correctness of the finding reached by the Income Tax authorities and the Tribunal as

regards the source from which the assessee was able to secure the Rs. 350 and whether his case that this represented his ancestral property has

been proved. This, however, leaves for consideration the other point which is raised by the declaration embodied in the partnership deed. Under

the Hindu law, there is no necessity for joint family property to exist in order that there may be a joint family.

The assessee and his son undoubtedly constitute members of a joint Hindu family. They might have started with no ancestral nucleus or other joint

family property but there was nothing to prevent the assessee from impressing upon any self-acquired property belonging to him the character of

joint family property. No formalities are necessary in order to bring this about and the only question is one of intention on the part of the owner of

the separate property to abandon his separate rights and invest it with the character of joint family property.

Where an inference of this, sort is sought to be deduced from the conduct of the parties, there might be room for ambiguity and for difference of

opinion. Where, however, it is the declaration of the owner of the separate property that is the evidence before the Court or the Tribunal, the

inference that the character of joint family property is impressed upon the separate property follows, unless the words are incapable of that

construction or if it represents merely a future intention not yet given effect to.

In the present case the declaration is unambiguous in its terms & is to the effect that the assessee was entering into the partnership as the manager

of the undivided Hindu family. The Tribunal makes a passing reference to this recital and states that the undivided Hindu family referred to in the

declaration or recital might indicate the joint family consisting of the assessee, his father and brothers. This is really a contradiction of the fact

narrated by the Tribunal earlier, where they have pointed out that the assessee had quarrelled with his father and separated from him and had come

out of the family.

In the circumstances the reference to the undivided Hindu family in the deed of partnership must obviously refer only to the assessee & his minor

son. The Tribunal did not anywhere point out what more was necessary besides the declaration in order to impress upon the assessee''s share of

the business the character of joint family property. It is also in evidence that the partnership ""which was brought into existence by deed with this

recital functioned, so that it is not merely a question of something being effected ''in futuro'', but a case where effect has been given to the intentions

contained in the declaration. In the circumstances the assesses must be held to have established that the profits derived by him from the General

Commercial Distributors were received by him as the manager of the undivided Hindu family consisting of himself and his son. The answer to the

reference therefore is that whether, or not the money invested by the assessee in the business came out of the funds belonging to the undivided

Hindu family consisting of the assessee and his minor son, the recital in the deed of partnership together with the fact that the partnership has

functioned is sufficient to lead to the inference that the share of the profits was received by the assessee as the manager of a undivided Hindu

family. The assessee is entitled to his costs. Counsel''s fees Rs. 250.

C.MP. No. 8322 of 1952:-- Since R.C. No. 29 of 1952 has been disposed of to-day in favour of the assessee, counsel for the petitioner

represents no further question need be referred at this stage. C.M.P. No. 8322 of 1952 is dismissed. No costs.