R. Subramania Iyer vs The Commissioner of Income Tax

Rajagopala Ayyangar, J.—The question referred to us for decision u/s 66(1) of the income tax Act is:

In the absence of any other evidence, is the recital in the partnership deed of the 20th April 1947, in respect of the Central Commercial

Distributors 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 Ayyar, the Assessee, quarrelled with his lather and came out of the family

in or about April 1944. With some moneys 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 Ayyar and one M.S. Ramamoorthy Ayyar.

This was wound up on the 31st March 1947, and a new firm called the General Commercial Distributors came into being on and from the 1st

April 1947, with M.S. Ramamoorthy Ayyar and his son, one Sundaram Ayyar, holding a quarter share each and the Assessee Subramania Ayyar

and his wife, Lakshmi Ammal, holding the other one-fourth share each. Subramania Ayyar contributed a capital of Rs. 350 and his wife Rs. 600

while Ramamoorthy Ayyar and his son did not make any contribution of any capital. A partnership deed was entered into in respect of this firm on

the 20th April 1947, and this Subramania Ayyar, 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, the Assessee submitted two returns, one as an individual wherein he returned an 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 Ayyar, 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 and 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 and 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 a deed with this recital functioned, so that it is not merely a question of something being effected in

future, but a case where effect has been given to the intentions contained in the declaration. In the circumstances, the Assessee 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 or himself and his son. The answer to the reference, therefore, is that whether or not the moneys 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 an undivided Hindu family. The Assessee is entitled to his costs.