Madras High Court
Commissioner Of ... vs C.G. Venkatasubban on 30 April, 1998
Equivalent citations: [1999]240ITR674(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT N.V. Balasubramanian, J.
1. A familiar question of law on the interpretation of the deeds as to the status of the assessee, whether the assessee should be assessed in the status of individual or that of the Hindu undivided family under the provisions of the Income-tax Act, 1961, and of the Wealth-tax Act, 1957, arises in the above batch of tax cases.
2. The years of assessment under the Income-tax Act are 1974-75 to 1978-79 and under the Wealth-tax Act are 1971-72 to 1977-78.
3. The assessee's grandfather one C.V. Subramania Iyer had two sons, the assessee's father by name, C.G. Govinda Iyer, and his elder brother, G. S. Venkataraman Iyer. A family partition in the family of the grandfather of the assessee took place on June 22, 1933, and in the said registered partition, the assessee's father was allotted certain agricultural lands, a vacant site in Coimbatore and a property bearing Nos. 638 to 642, Rangai Gowder Street, Coimbatore, The assessee's father was not employed anywhere, but started a hotel prior to the family partition. In the course of time, the assessee's father, Govinda Iyer, purchased certain properties, like Devan-gapet building for Rs. 5,750 on November 23, 1934, a property in Raja Street, Coimbatore, for Rs. 4,500 and another property which is the subject-matter of the tax cases, situate in No. 7/7 Cross-cut Road, Coimbatore, for Rs. 10,500 on May 22, 1936. Besides the above properties, he also obtained certain other properties with which we are not concerned under a will executed by his father. The father of the assessee out of natural love and affection settled the property situate at No. 7/7, now called State Bank Road, Coimbatore, in favour of the assessee by a registered deed of settlement dated March 51, 1960, stating that the said property was his self-acquired property and he was in absolute possession and enjoyment of the said property from the date of purchase, that is, May 22, 1936. Under the terms of the settlement, the assessee was required to look after the needs of his father and was obliged to fulfil certain family obligations towards the sisters of the assessee and the daughter of his father's brother out of the income from the property. Under the terms of the settlement, the assessee was given a right to enjoy the income from the property subject to the prior charge created in favour of other persons mentioned in the deed of settlement and after the life time of the assessee the property was to go to his legal heirs who were given powers to enjoy the property absolutely with full, power of alienation. For the sake of convenience, the relevant clauses of the settlement deed are extracted hereunder :
"The property mentioned hereunder, is the self-acquired property by me, under the sale deed document No. 2056, dated May 22, 1936, and I have constructed the buildings thereon, and it being under my possession and absolute enjoyment. I wish to allot the property to my eldest son, C.G. Venkatasubban due to my love and affection towards him. I am having the desire to see that, my aforesaid son shall properly maintain the settlement made by me and I have made an arrangement towards my expenditure until my lifetime to my daughters and to the daughter of my father and considering all these facts subject to the following conditions, I hereby deliver possession and allot the property valued at Rs. 60,000 (rupees sixty thousand only) in favour of my son, C.G. Venkatasubban, and I deliver possession under his enjoyment from this day. My son has also given his consent that he would fulfil my desires. Hence, my son shall take over possession of the property mentioned hereunder and shall conduct himself as detailed hereunder :
(1) He shall pay a sum of Rs. 75 per month, to each of my daughters, 1. Saradambal, aged 17 years, 2. Gangabai aged 12 years, 3. Mangalambal aged 9 years, 4. Geetha aged 6 years, and 5 Krishnambal aged 3 years, without any default for every montb until their life time. The amount shall be paid to Karpagambal, the mother of the aforesaid minors, and shall obtain the receipt. The amount shall be paid to the major of their respective amount shall obtain the receipt directly from them. After the lifetime of each of them, the aforesaid rate of amount shall not be paid.
(2) A sum of Rs. 50 per month shall be paid to Sow. Parvathavardhini, wife of Jagadeeswara Aiyar, and the daughter of my elder brother, C.S. Venkataramana Iyer, until her lifetime without committing any default every month and shall obtain the receipt, (3) I shall be paid Rs. 150 per month towards my expenses until my lifetime and shall obtain a receipt.
(4) The undermentioned property shall be the charge for the proper maintenance of items Nos. 1 to 3.
(5) The undermentioned property subject to the aforesaid charge shall be enjoyed by my son, C.G. Venkatasubban, by paying the tax, etc., from this day onwards until his lifetime without subjecting the property to any kind to exchange and shall pay the respective amounts as mentioned in items Nos. 1 to 3 from the income of the aforesaid property and the remaining amount of income shall be utilised for executing the repair relating to the building and shall enjoy the balance amount. After the lifetime of the aforesaid person, his legal heirs shall enjoy the undermentioned property subject to the aforesaid charge and shall enjoy absolutely with the power to gift, exchange, sale, etc., from son to grandson heriditarily and shall live comfortably. Anyone purchasing the property from the legal heirs of my son and obtaining the right shall be bound by the aforesaid charges."
4. On March 17, 1971, a family partition was effected between the asses-see's father, the assessee and his brother. The said partition was an unequal partition in the sense that the assessee was allotted properties valued at Rs. 57,345 while the property given to his brother was of the value of Rs. 3,71,983 and the property worth of Rs. 1,72,402 was retained by the father of the assessee. In the said deed of partition, a recital is found to the effect that since a property had been settled in favour of the assessee, probably referring to the earlier settlement deed dated March 31, 1960, and in view of the settlement, the assessee was allotted properties which were lesser in value than the value of the properties allotted in favour of the father and brother of the assessee.
5. The assessee up to the year 1973-74 returned the income from the property at No. 7/7, Cross-cut Road (now called State Bank Road), Coimbatore, for assessment as his individual income and that was accepted by the Income-tax Officer also. For the first time, for the assessment year 1974-75, the assessee returned income from that property for the assessment as joint family property on the ground that the property belonged not to his individual, but it was a joint family property of the joint family of which he was the karta and, therefore, the income of the property should be assessed in the hands of the joint family. The Income-tax Officer did not accept the claim of the assessee and held that the property was given under the settlement and the income from the property should be assessed in his individual capacity. The same reason was adopted by the Assessing Officer for other assessment years under the Income-tax Act as well as under the Wealth-tax Act.
6. The Appellate Assistant Commissioner, on appeal preferred by the assessee; came to the conclusion that the property was given not only to the benefit of the assessee, but also to other members of the family who are entitled to maintain the assessee's father as well as certain other relatives of the assessee and in the deed of partition also, the assessee was allotted a lesser share which indicated that the property was settled for the benefit of the joint family consisting of the assessee and his sons. He, therefore, came to the conclusion, on a reading of both the deeds together, the property belonged to the joint family of the assessee and not the assessee in his individual capacity.
7. The Revenue carried the matter in appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal concurred with the views of the Appellate Assistant Commissioner and came to the conclusion that the property was settled in favour of the assessee not for his exclusive benefit, but the settlement was for the benefit of the assessee as well as the members of the family and, therefore, the property must be deemed to be the property belonging to the joint family of which the assessee is the karta. The Tribunal also relied upon the deed of partition and held that in the partition of the entire joint family properties, what was given to the assessee was not a share which would have normally been allotted to him in a partition and the unequal partition shows the property in question was not intended for the exclusive benefit of the assessee. The terms of the settlement deed imposing restrictions against the enjoyment of the property as his own, according to the Tribunal, would show that the property was not the assessee's personal property, but belonged to the joint family of which the assessee is the karta.
8. On applications filed by the Revenue, the Tribunal has referred the following common questions of law for the assessment years under both the Income-tax Act and the Wealth-tax Act :
"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the property at No. 7/7, State Bank Road, Coimbatore, which was settled on the assessee by his father belonged to the Hindu undivided family headed by him and hence the income therefrom assessable under the Income-tax Act, 1961/Wealth-tax Act, 1957, cannot be included and assessed in the hands of the assessee as an individual ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in not considering several vital facts such as whether the assessee's father acquired the property out of his own earnings or out of the earnings of the joint family or from the blend of both, etc., while arriving at its decision ?"
9. The contention of learned senior counsel for the Revenue is that under the settlement deed, the property was settled in favour of the assessee with a right to enjoy the income and vested remainder vested with the sons and daughters of the assessee and the property that was settled under the deed of settlement was obtained by the assessee as his individual property. Learned senior counsel for the Revenue submitted that the conduct of the assessee also establishes that it was his individual property and by the deed of partition there was no intention to treat the individual property of the assessee as joint family property and the reasoning of the Appellate Tribunal is not sustainable in law in view of the clear terms of the deed of settlement as well as the deed of partition.
10. Mr. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the property was intended not for the exclusive benefit of the assessee, but for the family members of the assessee as a whole and various restrictions imposed in the deed of settlement as well as the clauses providing that the assessee should enjoy the property during his life time and after his life time, the property should go to the legal heirs of the assessee would show that the property was settled for the benefit of the family and, therefore, the income from the property should be assessed as that of the joint family property. He further submitted that the partition makes clear the original intention of the settlor and the fact that the assessee was allotted a lesser share in view of the settlement made earlier and the unequal partition clearly showed that the property in question was considered at the time of partition and both the settlement and the partition should be taken into consideration together and there is nothing to show that the property is not a joint family property.
11. We have carefully considered the submissions of learned counsel. The recital in the settlement deed dated March 31, 1960, shows that the father of the assessee had acquired the property out of his own earnings and he was in possession and enjoyment of the property from the date of purchase, namely, May 22, 1936. The property was settled out of love and affection by the settlor in favour of the assessee and various restrictions were stipulated regarding the mode of enjoyment of the property by the assessee. The fact that several restrictions were imposed on the right to enjoy the income from the property and the property itself would clearly show that the property was the self-acquired property of the settlor and if it was a joint family property, there would not have been any settlement of the joint family property with restrictions and the right to enjoy the property. The deed of settlement further provides that the possession of the property was given in favour of the assessee and out of the income of the property, the assessee was required to maintain several persons including the settlor till his life time and the settlor had also created a charge over the property, for the various disbursements which the assessee was required to make under the deed of settlement and the charge created would bind the subsequent purchaser of the property, if it is sold by the sons of the assessee. The assessee was given under the deed of settlement only a right to enjoy the property after discharging the prior charge and after the life time of the assessee, his legal heirs should take the property, subject to the prior charge, absolutely with full powers of alienation. That apart, the assessee treated the property as his individual property from the date of settlement, that is, March 31, 1960, though the family partition took place on March 17, 1971. In our opinion, a reading of the settlement deed as a whole clearly shows that what was settled in favour of and taken by the assessee was his individual property.
12. The property in question was not the subject-matter of partition at the partition made on March 17, 1971. It is no doubt true that in the deed of partition, the total value of the properties allotted to the assessee was less than the value of the properties allotted in favour of the assessee's father and his brother. Though the reason for such an unequal partition, as stated in the deed of partition, was that a property was already settled in favour of the assessee, the deed of partition does not show that the property settled in favour of the assessee was thrown into the joint family hotchpot. It is well settled that there can be an unequal partition of the joint family properties. From the mere fact that there was an unequal partition, it cannot be predicated that the settled property was thrown into the joint family hotchpot and it became the joint family property. In other words, there was no unequivocal intention to treat the individual property of the assessee as a joint family property. Further, it would not have been -possible for the assessee to treat the settled property as joint family property as the vested remainder over the property vested in favour of the legal heirs of the assessee, and unless they also joined with the assessee and expressed their intention to convert the settled property into joint family property, it was not possible to convert the property settled in favour of the assessee and his legal heirs into joint family property. That apart, the settlement was made in the year 1960 and the partition was made in the year 1971 and it cannot be assumed that the property was given in the settlement in the year 1960 with an anticipation that the settlor will be allotted an unequal share in the family partition to be made subsequently and several years thereafter. Therefore, it cannot be assumed that the settlement was made in contemplation of the future partition and therefore we are of the view that the deed of partition would not have been in the contemplation of the parties on the preparation of the settlement deed and it cannot be assumed that the settlement deed was made keeping in view the partition to be effected subsequently in the year 1971. Even that apart, the assessee himself was treating the property as his individual property all along.
13. Now let us consider the various reasons given by the Appellate Tribunal to hold that the property was a joint family property. The first reason given by the Appellate Tribunal is that the property was given to the assessee and taken by the assessee not for his exclusive benefit with full right of ownership and enjoyment as well as power of disposition, but encumbered in several respects. The Tribunal, no doubt, was correct in holding .that the property was not given to the assessee for his exclusive use. Further, on the basis of the above proposition, the Tribunal held that only in case the assessee obtained the property for his exclusive benefit to the entire exclusion of others including the members of the family, the property can be said to have been received by him in his individual capacity. The above view of the Appellate Tribunal is not sustainable as a reading of the settlement deed shows that there were certain encumbrances over the properties in the sense that the assessee was required to pay out of the income of the settled property to some of his relatives and the property, after his life time, would go to his legal heirs with absolute power of alienation, yet the right that was conferred under the deed of settlement, namely, the right to enjoy the income from the property was his absolute right and in so far as that right is concerned, it was given to him absolutely and there are no restrictions on the right to enjoy the property or there are no words in the deed of settlement to show that the right that was conferred was in favour of the joint family. In other words, whatever property was given to him under the deed of settlement in favour of the assessee was given to him for the exclusive and individual benefit of the assessee and, therefore, the view of the Appellate Tribunal that because of the restrictions imposed on the mode of enjoyment, the property cannot be regarded as the individual property of the assessee is clearly erroneous. The Tribunal, in our view, erred in focussing its attention on the entire unit of the property and failed to notice that what was given under the settlement deed was only the right to enjoy the property and that right was given absolutely and there are no restrictions on the mode of enjoy-merit. It is well settled that property is a bundle of rights and the right given in favour of the assessee was given absolutely, subject to the prior charge created by the same encumberer.
14. The second reason that is given by the Appellate Tribunal is that the property under the settlement was given not only for the assessee's benefit, but also for the benefit of the members of the family and the property must be taken as a property of the joint family. We are unable to agree. There was a specific direction as regards the mode of enjoyment of the income from the property and the assessee was given the right to enjoy the property by giving him income and from the income he was required to discharge certain obligations from and out of the income of the property to some of his relatives and so, it cannot be stated that the property as one unit was given to the members of the joint family. It is clear from the settlement deed that, the desire of the settlor was to settle the property in favour of the assessee and it is not stated that he would take the property as head of his family. Further, it is well known that in case where the property belongs to the joint family, the right of the members would be fluctuating by the birth and death of the members of the family and the fact that specified shares were given not only to the sisters of the assessee, but also to the sister of the assessee's father and that a portion of the right to enjoy the income was retained by the settlor, indicate that the property was not given in favour of the joint family. The mere fact that the property was to be enjoyed by the heirs of the assessee absolutely with all "Puthira Pavuthira Parambariyam" would not show that the property was given in favour of the joint family. The use of the expression the sons of the assessee should enjoy the properties with "Puthira Pavuthira Parambariyam" indicate that the property was heritable and alienable. There is nothing in the deed to show that the;property was settled in favour of the assessee as his joint family property. . ,
15. The Supreme Court in the case of C.N. Arunachala Mudaliar v. Muruganatha Mudaliar (C. A), , laid down the following test to ascertain when the property settled can be regarded as a joint family gift (page 500) :
"As the law is accepted and well settled that a Mitakshara father has complete powers of disposition over his self-acquired property, it must follow as a necessary consequence that the father is quite competent to provide expressly, when he makes a gift, either that the donee would take it exclusively for himself, or that the gift would be for the benefit of his branch of the family. If there are express provisions to that effect either in the deed of gift or a will, no difficulty is likely to arise and the interest which the son would take in such property would depend upon the terms of the grant. If, however, there are no clear words describing the kind of interest which the donee is to take, the question would be one of construction and the court would have to collect the intention of the donor from the language of the document taken along with the surrounding circumstances in accordance with the well-known canons of construction. Stress would certainly have to be laid on the substance of the disposition and not on its mere form.
The material question which the court would have to decide in such cases is whether taking the document and all the relevant facts into consideration, it could be said that the donor intended to confer a bounty upon his son exclusively for his benefit and capable of being dealt with by him at his pleasure or that the apparent gift was an integral part of a scheme for partition and what was given to the son was really the share of the property which would normally be allotted to him and his branch of the family on partition. In other words, the question would be whether the grantor really wanted to make a gift of his properties or to partition the same. As it is open to the father to make a gift or partition of his properties as he himself chooses, there is, strictly speaking, no presumption that he intended either the one or the other."
16. Applying the tests laid down by the Supreme Court, it is clear from the language of the document, that the father-settlor intended to confer a bounty upon the assessee and it was not given to him as a share in the properties which would have been normally allotted to him on partition. We have seen that the property was the absolute property of the donor and had the partition taken place, this property would not have figured in the partition effected between the members of the family. It is well settled that the father had full power of disposition over the property. On the facts of the case, it is clear the deed of settlement was effected well prior to the deed of partition and, therefore, it cannot be said that the property was settled in favour of the assessee in lieu of the property that would have been allotted to him in the partition. In other words, the deed of settlement and the partition are two separate and independent transactions and it cannot be said that the property settled was a joint family property in the hands of the assessee.
17. The next reason that is given by the Appellate Tribunal is that in the deed of partition dated March 17, 1971, there is a recital that a lesser share was allotted to the assessee because a property was given to the assessee under the settlement in the year 1960. We have already dealt with the matter in detail and the recital cannot be construed to indicate the intention of the assessee to convert his individual property into the joint family property and we have held that the deed of partition subsequently effected cannot also be considered as an integral part of the settlement.
18. Learned counsel for the assessee submitted that the assessee had expressed his intention by filing a return of income to treat the property as joint family property. We are, however, unable to accept the contention of learned counsel for the assessee. We find that no such argument was advanced by the assessee before the Appellate Tribunal and the contention raised by the assessee before the Income-tax Appellate Tribunal was rejected and we have already held that the vested remainder was with the heirs of the assessee and the assessee had a right to enjoy the income from the property and there was no intention to treat the property that was settled on him as his joint family property.
19. In our opinion, the Tribunal has come to an erroneous conclusion in holding that the property settled in favour of the assessee should be treated as belonging to the Hindu undivided family of which the assessee is the karta. We therefore hold that the income from the asset as well as the asset belonged to the assessee in his individual capacity and the property and its income should be assessed in the hands of the assessee individually and the view of the Appellate Tribunal that it belonged to the joint family is erroneous in law.
20. Accordingly, we answer both the questions of law referred both under the Income-tax Act and the Wealth-tax Act in the negative and in favour of the Revenue. In the circumstances of the case, there will be no order as to costs.