R.C. Malpani vs Commissioner of Income Tax

At the instance of this court, the Tribunal has referred the question for the opinion of this court.

For the assessment year 1970-71, the Assessing Officer completed the assessment of the assessee in the status of a Hindu undivided family. The assessment was completed u/s 143(3) of the Income Tax Act, 1961, and the return was filed showing an income of Rs. 17,000 on May 31, 1971. In the assessment order, the Income Tax Officer considered the income of the assessee from Hindusthan Saw Mill and from contract works. In respect of income from house property, the Income Tax Officer mentioned that the assessee had shown Rs. 9,500 as income from other sources. This related to the rent in respect of a hangar (godown) let out to the supply department. The income was computed at Rs. 14,583. There was another properly stated to be in the name of the wife of the karta, Smt. Ganga Devi. The Assessing Officer mentioned that the assessee-Hindu undivided family consisted of the karta, Smt. Ganga Devi Malpani, mother of the karta, and Smt. Ganga (sic) Devi Malpani, wife of the karta. There were also four minor sons and one minor daughter at the relevant time. The Income Tax Officer mentioned that the family inherited a plot of land located within the Jorhat Municipality, on which a three-storeyed building was constructed in 1967 and completed in 1969. He noted that the entire building together with the land was gifted by the karta and his mother, Smt. Ganga Devi, to the wife of the karta, Smt. Ganga Devi by a registered deed of gift on March 27, 1969. The value of the gifted property was shown as Rs. 1,000. However, the Assessing Officer found that the annual rent immediately after transfer was shown by the donee at Rs. 14,400. He pointed out that for the assessment years 1968-69 and 1969-70, Rs. 60,000 was added to the cost of construction as made by the assessee. The Income Tax Officer was of the opinion that the gift was prejudicial to the interest of the five minor children in the family and the father had no power to make a gift of ancestral immovable property to the wife to the prejudice of the minors. According to the Income Tax Officer, the gift was totally void.

The assessee preferred an appeal before the Appellate Assistant Commissioner of Income Tax, Jorhat Range, Jorhat. The Appellate Assistant Commissioner also dismissed the appeal. Being aggrieved the assessee preferred a second appeal before the Income Tax Tribunal. The Department also preferred an appeal on some other grounds. The Appellate Tribunal, after hearing both sides, held that the gift was void and the property continued to belong to the Hindu undivided family and the income was rightly included in the hands of the Hindu undivided family. Thereafter, the assessee filed an application for referring certain questions of law. However, the Appellate Tribunal refused to refer the questions u/s 256(1). Situated thus, the petitioner filed C. R. Nos. 15 to 20(M) of 1977 and 68(M) of 1977. This court, after hearing the parties, directed the Appellate Tribunal to submit a statement with the following question :

"Whether the Tribunal was right in holding that the gift of immovable property was void and the income therefrom was assessable in the hands of the assessee-Hindu undivided family ?"

Heard Dr. A.K. Saraf, learned counsel for the assessee, and Mr. D.K. Talukdar, learned standing counsel for the Income Tax Department.

According to Dr. Saraf, alienation of property belonging to the Hindu undivided family was not void and it might at best be voidable. However, Mr. Talukdar has not agreed to it.

Dr. Saraf has drawn our attention to a decision of the apex court in Raj Kumar Raghubanchmani Prasad Narain Singh Vs. Ambica Prasad Singh (Dead) by Lawyers and Others, The apex court, in the said case, observed thus (at page 777) :

"In any event an alienation by the manager of the joint Hindu family even without legal necessity is voidable and not void."

Dr. Saraf also has drawn our attention to a decision of this court in Commissioner of Income Tax Vs. Gangadhar Sikaria Family Trust and Kamakhya Rice Mill Trust, This court held that the parties were governed by the Mitakshara school of Hindu law. The karta of the family had settled in trust the Hindu undivided family property in which the minors had interest. Under the pure Hindu law, the natural guardian as the karta of the family had the unfettered right to alienate the joint family property for legal necessity and for the benefit of the estate or the family. Now the pure Hindu law has, in this context, been somewhat amended by the enactment of the Hindu Minority and Guardianship Act, 1956. Sub-section (2) of Section 8 provides that the natural guardian shall not, without the previous permission of the court, mortgage or charge, or transfer by sale, gift, exchange or otherwise, any part of the immovable property of the minor. Sub-section (3) of Section 8 provides that any disposal of immovable property by a natural guardian in contravention of Sub-section (1) or Sub-section (2) shall be voidable at the instance of the minor or any person claiming under him. This court further observed that if the karta alienated the property of a Hindu undivided family including the interest of the minor for the benefit of the estate or for legal necessity such alienation is valid. The court also held that even if the transfer was not for legal necessity or for the benefit of the estate, the transfer by the karta would be only voidable and not void ab initio. Therefore, the trust was valid and the settlement of the trust properties had been legally made.

From the ratio of the above decision, if the property is alienated by the karta without any legal necessity or for the benefit of the minors, it is only voidable and not void. In view of the above, we answer the reference in the negative, in favour of the assessee and against the Department. Therefore, any income derived from the properties so transferred was not assessable in the hands of the Hindu undivided family.