Smt. Parvathamma K.R. Nanjappa vs Commissioner of Income Tax

R. Ramkrishna, J.—The questions referred to us, as called for by this court u/s 256(2) of the Income Tax Act, 1961, read thus :

"(1) Whether, on the facts and in the circumstances of the case, the will left by the late Kambi Revappa, allotting his properties equally to his sons was in fact a scheme of partition ?

(2) Whether, on the facts and in the circumstances of the case, the properties comprised in the will dated September 12, 1948, executed by the late Kambi Revappa allotted to Sri K. R. Nanajappa were for and on behalf of the family consisting of himself his wife and children ?"

The applicant is the wife of late K. R. Nanjappa was one. Late Kambi Revappa had five sons, of whom the deceased, late K. R. Nanjappa was one. Late Kambi Revappa executed a will dated September 12, 1948, allotting his movable and immovable properties equally of his five sons. The testator died during September, 1948. At the time of the execution of the will Nanjappa was physically incapacitated due to an accident. The applicant of his wife and he had no children at that time. The return were being filed by the applicant as the legal guardian to her husband.

For the assessment years 1971-72 to 1976-77, the returns were filed in the status of an individual both for Income Tax as well as for the years. 1975-76 and 1976-77, it was claimed that the properties assessable really belonged to the Hindu undivided family of Nanjappa consisting of him self, his wife and two sons, as there was a partition of the joint family dated November 4, 1974. The Income Tax officer as well as the Wealth-tax officer have not accepted this claim and they also did not accept the validity of the partition of the joint family. Hence, the entire properties were assessed on Nanjappa as an individual.

Appeals were preferred before the Appellate Assistant Commissioner. The impugned order was passed in wealth-tax appeals and the same reasoning was adopted in the Income Tax appeals. It was urged before him that due to partition on November 4, 1974 the assessments for the period from 1971-72 to 1974-75 should not be made in the status of a Hindu undivided family as there was no joint family in existence but only the share of Nanjappa as a coparcener should have been brought to tax. The Appellate Assistant Commissioner has rejected this contention as the properties bequeathed by the will of Kambi Revappa had only one piece of ancestral property at Avenue Road and all other properties his self-acquired properties. Nanjappa got only the self-acquired properties and he had in children at the time of execution of the will through he was married. The testator made a stipulation that the properties of Nanjappa should be maintained by his three brothers and they should not be sold. Nanjappa all filed returns from 1950-51 onwards up to 1974-75 in the statues of individual. The income received from the properties was being assessed in that status only. For the assessment year 1966-67 for the first time, the status of Hindu undivided family was claimed and the Income Tax Officer has not accepted the same. Therefore, it is concluded that there was no joint family status. The rejection of joint family status for the assessment of the others were also taken into consideration where they claimed the status of individual. The materials contained in the partition deed were also not accepted as there was no express or implied of the testator to give the properties to the joint family of Nanjappa, but they came to him in the capacity as "individual" Nanjappa was not in a sound mental condition to throw his separate property into the hotchpot of the joint family. The act of blending is also absent. Hence, the properties bequeathed by Nanjappa had never been converted into joint family properties.

The same reasoning was followed in the wealth-tax appeals in W.T. Nos. 147 to 152 of 1977-78 Appeals were preferred before the Tribunal both in respect of wealth-tax as well as Income Tax assessments. The impugned order was made in the wealth-tax appeals by the Tribunal. The status of the assessee was held to be that of individual for the assessment years 1971-72 to 1976-77. It is further held that the appeal was filed only in respect of the assessment year 1971-72 tough the finding of the Appellate Assistant Commissioner relates to 1971-72 to 1976-77. Hence, it was held that for 1972-73 to 1976-77 the orders became final. In this anomalies position, the Tribunal was not in a position to disturb the orders made below.

On merits, the Tribunal held that the property bequeathed was not held by Nanjappa as the karta of the family as he had no son born at that time and the intention of the testator was that, due to Najappa''s ill-health, the properties should not be sold and his three brother were to manage the Properties on behalf of Nanjappa. The applicant by making an application before the civil court, obtained a partition by consent. The Tribunal further held that in addition to the above circumstance, the assessments from the year 1950-51 and onwards having been made in individual capacity of Nanjappa, the same cannot be held as belonging to the Hindu undivided family. It was also held that only one property bearing Municipal No.309/312 situated at Avenue Road, which was allotted to share of the first son was the ancestral property of the testator. There was no material that the testator had blended his ancestral properties whit his self acquired properties to from the properties as that Hindu undivided family. The Tribunal further held that the assessee having declared the properties as his individual properties throughout and also having failed in his attempt during the 1966-67 assessment to prove that the properties are joint family properties and not having filed any appeal against that order and also having failed to prefer appeals rejecting his claim again for the assessment years 1972-73 to 1976-77, it rejected all the contentions revised by the assessee and maintained the orders passed by the Income Tax Officer and Appellate Assistant Commissioner.

Learned counsel, Sri K. B. Basavarajan, appearing for the assessee submitted that, tough the intention of the testator to be (sic) held as bequeathing property to Nanjappa in his individual capacity the authorities could not have refused to treat it as Hindu undivided family after the partition dated November 4, 1974. According to learned counsel, the will has become insignificant after the parties entered into the partition. Learned counsel has relied on a few decisions in support of his contention.

Mr. Chandra Kumar, learned counsel for the revenue, has submitted that the authorities below including the Tribunal after having discussed the case in all its facts, were unable to come to a conclusion to treat this property as that of a Hindu undivided family and those findings are in the nature of findings of fact; nothings is left to take a contrary view on the same materials without say significant change subsequently. It is the submission of learned counsel that the partition deed on which the applicant relied to treat the properties as those of a Hindu undivided family after November 4, 1974, having been rejected u/s 171 of the Act, the interpretation of clauses in the said partition deed does not arise for any consideration and hence the references are to be answered against the assessee and in favour of the Revenue.

Kambi Revappa died in September, 1948, and the will came into effect from that day. The testator bequeathed the property which was his self-acquired property with a direction that some of the properties should not be sold and the brothers should manage the same. After some years, the applicant as the wife of Nanjappa, moved the court for appointing her as his guardian and she was so appointed by an order of the court on April 16, 1965. Permission to partition to partition the properties between Nanjappa and his major sons and the other members of his family was granted in the year 1974 and, the approval of the court, a partition was effected on November 4, 1974. If we read the conditions imposed in the will executed by the father of the deceased, it was intended that the properties should be bequeathed to Nanjappa in his individual capacity and not to his branch of the family. Hence, the will cannot be construed as a partition deed and it was never intended to be so by the testator also.

In regard to the character of a property when it is received not by inheritance but by way of gift, testamentary or inter vivos, the Supreme Court in C.N. Arunachala Mudaliar Vs. C.A. Muruganatha Mudaliar and Another, which views, held that there should be no presumption one way or the other and the question was primarily one of intention of the donor to be gathered from the terms of the deed of gift or the will. If for instance, the deed of gift or the will recite that son should enjoy the property allied to him with absolute rights and which powers of alienation, there is no question that the done would take the property as his absolute property in which his sons would have no rite by birth whatsoever. In the above case, by reading the will as a whole the court held that the testator intended the legatees to take the properties in absolute right as their own. In other words, the testator did not intend that the properties should be taken by the sons as ancestral properties.

In Commissioner of Income Tax, Madras Vs. M.K. Stremann, Madras, , the assessee, after the death of his father, realised a sum of Rs. 26,600 from the properties inherited from his father and parched a house which was joint family property in his hands. He maintained only one set of accounts both for his business income and income from the joint family property. Up to 1952-53 he was assessed in the status of individual in respect of both the incomes. Sons were born in 1944-45. In 1952, a deed of partition of certain properties was executed between the assessee his two minor sons and minor daughter, the minors being represented by their mother. The deed recorded (headnote) :

"the assessee had been earning commission and acquiring properties and blending his money with the assets inherited from his father and treating the entire properties extant before and after the birth of the sons till this date as joint family property without making any discrimination or distinction......."

The question before the court was whether the transfer of assets by the assessee to the three minor children attached the provisions of section 16(3) (a) (iv) of the Indian Income Tax, 1922, which is equivalent to section 64 of the Income Tax Act, 1961. The Court held that there was blending of the self-acquired properties of the assessee with his ancestral property, tough it was in a Shri interval, and there was also an unequivocal declaration. Hence the properties dealt with at the partition had been impressed with the character of joint family properties at least on December 19, 1952, antecedent to the partition.

Since the question of blending is absent in the present case, this decision is not helpful to the assessee.

In S.M. Ananda Rao and Others Vs. Commissioner of Income Tax and Others, , a decision of this court, the question was, when the father effects partitions of his joint family property and also him self-acquired property by throwing into the hotchpot, in the hands of the beneficiaries, the said property becomes Hindu undivided family property for himself and for his family members. The facts are that, by virtue of settlement deed date March 30, 1952, a Hindu father settled certain self-acquired properties on his sons. The sons were assessed as "individuals" both to wealth-tax and Income Tax in respect of the properties settled on them as well as on the income therefrom till the assessment year 1963-64, in which year the sons claimed their status as that of Hindu undivided family in respect of these properties. Reliance was placed on the recitals in the settlement deed and also declaration''s produced before the assessing authority by the father and sons to the effect that the properties were to be enjoyed by the sons as joint family properties. This Contention of the sons was rejected by the Income Tax Officer and also by the Commissioner before whom revisions were filed.

When this questions came up before this court, Venkataswami J., following the decision in C.N. Arunachala Mudaliar Vs. C.A. Muruganatha Mudaliar and Another, , referred to above, held that, on a consideration of the recitals in the settlement deed and the surrounding circumstances, the father had thrown all his self-acquired properties into the hotchpot and thus impressed upon them the character of joint family properties and, thereafter, preceded to divide the same among his sons with the obvious intention of effecting a division both in estate and in status from one another. The shares acquired by the sons under the settlement deed were joint family properties wherein the sons and grandsons acquired a right by birth.

The decision in Commissioner of Income Tax/Wealth-Tax, Madras-I Vs. A.R. Sahasranamam., cited by the learned counsel for the assessee, is not applicable to the facts and circumstances of this case. In this case, the assessee executed a will in which he treated a huge property belonging to him as joint family property and made a disposition stating that he had no separate interest in the property except as that of a Hindu undivided family. On the question whether the house property was the individual property of the assessee or the property of the joint family, for the purpose of Income Tax and wealth-tax, the Tribunal held that the property was to be treated as joint family property and excluded the same from his individual assessment. This fact has been upheld by the Madras High Court as the assessee made his intention to treat his separate property as joint family property clear and unequivocal by means of a declaration in the will even though the will may have come into force when the assessment was made.

The decision in Commissioner of Income Tax Vs. Radhambal Ammal. (Legal Representative of Late Venugopal Reddiar), , of the Madras High Court, relied on by the assessee, is also not of any help to the assessee''s case as the facts and circumstance of this case are quite different. The assessee in the above case treated his properties up to the assessment years 1966-67 in the status of individual. For the subsequent assessment year, he claimed that they should be assessed in the status of Hindu undivided family. He had obtained the properties under a will by his adoptive father. The facts were that the assessee was adopted by one Venugopal Radar as his son. He had made a will during 1932, in which he settled certain properties absolutely on his wife and some other properties by way of a settlement for charitable purposes and appointed the assessee as a residual heir for the rest of the properties. In the will, the testator has stated that if another son was born to him before his death, the assessee and the other son were to share the properties jointly. In the will it was mentioned that most of the properties were self-acquired. No son was in fact born to the testator or before his death. The claim was rejected by the Income Tax Officer but upheld by the Appellate Assistant Commissioner and confirmed on appeal by the Tribunal Since the power of alienation was not given to the assessee as a condition was imposed, the court held that the properties obtained by the assessee should be treated only as joint family properties and not as his individual properties.

In the instant case the property in question was never treated as that of a Hindu undivided family and in view of Nanjappa''s mental condition, blending by him was impossible, Even during the subsequent years as well as proves year the assessment was in the status of individual. In these circumstances, the assessee was rightly held to be assessable in individual status. Interestingly, a further fact is to be noted; under the will, Nanjappa had only a limited interest which itself is indicated of it not being a coparcenary interest.

In view of the discussion made above we answer both the questions in the negative and against the assessee.