Patna High Court
Commissioner Of Income-Tax vs Maharaja Chintamani Saran Nath Sahdeo on 20 December, 1979
Equivalent citations: [1982]133ITR658(PATNA)
Author: Nagendra Prasad Singh
Bench: Nagendra Prasad Singh
JUDGMENT Nagendra Prasad Singh, J.
1. The Tribunal has referred to this court under Section 256(1) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act") the following questions of law arising out of the order of the Tribunal in respect of assessment years 1970-71 and 1971-72 :
"1. Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that the ad interim payments were not taxable in the hands of the assessee because they were not revenue receipts ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in determining the status of the assessee as Hindu undivided family ?
3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in excluding the income from salary earned as M.L.C. from the total income of the assessee ?"
2. The assessee succeeded late Maharaja Pratap 'Uday Nath Sahdeo of Chotanagpur, who was the holder of an impartible estate, on his death on 7th March, 1950. The late Maharaja was being assessed in the status of an individual. After the enforcement of the Hindu Succession Act, 1956, the assessee claimed to be assessed in the status of an HUF. According to the assessee, by the enforcement of the said Act, the rule of primogeniture, relating to succession to an impartible estate, had been rendered ineffective and was not saved by any provision of the said Act. The assessee, therefore, claimed the status of an HUF from the assessment year 1965-66 onwards. The ITO, however, rejected the assessee's claim and reiterated the status of individual for making the assessment on the assessee. The AAC, however, on appeal, accepted the assessee's claim to be assessed in the status of an HUF, from the year from which such claim had been made, namely, from the assessment years 1965-66 to 1969-70. There were appeals by the department before the Income-tax Appellate Tribunal against the orders of the AAC, which failed. The Tribunal also accepted the assessee's claim to be assessed in the status of an HUF after the change brought about by the enforcement of the Hindu Succession Act, 1956. For the assessment year in question, namely, for the assessment years 1970-71 and 1971-72, the assessee declared in the returns of income his status as an HUF, but since up to this time the Tribunal had not yet decided the departmental appeals against the assessment made for the assessment years 1965-66 to 1969-70, the ITO once again adopted the assessee's status to be that of an individual. On appeal, the AAC, relying upon his orders passed for the past assessment years 1965-66 to 1969-70, accepted the assessee's claim to be assessed in the status of an HUF for the assessment years in question. The department then preferred appeals to the Income-tax Appellate Tribunal. By this time, the Tribunal had disposed of the departmental appeals for the assessment years 1965-66 and 1966-67 and had accepted the assessee's plea of being assessed in the status of an HUF, particularly, in view of the changed circumstances, by the enforcement of the Hindu Succession Act. With regard to the income from house property, however, the Tribunal held that by virtue of the fiction created by the I.T. Act for treating the income from house property as the individual income of the holder of the estate, only that income according to the Tribunal, was assessable in the hands of the assessee in the status of an individual.
3. It is on these facts that question No. 2 has arisen and has been referred to this court for its opinion.
4. The facts relevant, regarding question No. 1, which arises only in respect of the assessment year 1970-71, are as under:
5. During the relevant assessment year 1970-71, the assessee received Rs. 29,922 as interim payment from the State Govt. of Bihar. The assessee indicated this receipt in Part IV of the return, claiming it as exempt from taxation, on the ground that it was a capital receipt. In support of such a claim,, the decision of the Supreme Court in the case of S. R. Y. Sivaram Prasad Bahadur v. CIT [1971] 82 ITR 527 had been cited. The ITO rejected the claim and assessed it as a revenue receipt. The assessee's appeal against such treatment of the said sum of Rs. 29,922 failed before the AAC. He held that the ad interim payment was not in the nature of compensation, because it was payable after the date of the vesting of the estate but before the payment of compensation under Sub-section (2) of Section 32 of the Bihar Land Reforms Act. On further appeal to the Income-tax Appellate Tribunal, the assessee's claim was accepted. The Tribunal, in accepting the assessee's plea for the said sum of Rs. 29,922, being a capital receipt, relied on the aforesaid decision of the Supreme Court in the case of S. R. Y. Sivaram Prasad Bahadur [1971] 82 ITR 527.
6. On these facts, question No. 1, aforesaid, has arisen for the assessment year 1970-71, which has been referred for the opinion of this court.
7. The third question is common for both the assessment years 1970-71 and 1971-72. The facts in this respect are few :
8. The assessee, as a member of the Legislative Council, received a sum of Rs. 3,542 for the assessment year 1970-71 and Rs. 2,680 for the assessment year 1971-72 as remuneration. He did not include this income in the return of income of the HUF, on the ground that it was his individual income. Since the assessee was assessed by the ITO in the' status of an individual, the said amounts were included in his income for the respective assessment years. In view of the acceptance of the assessee's claim for being assessed in the status of an HUF by the AAC as also by the Tribunal, the said amounts remained excluded from being assessed in the hands of the assessee as an HUF. It is on these facts that question No. 3, aforesaid, has arisen and has been referred for the opinion of this court.
9. Before this court not much controvesy was raised by learned counsel for the department, so far as the third question is concerned regarding the salary earned by the assessee as a member of the Legislative Council. It was accepted that the income was the assessee's individual income, but then the argument was that since the entire income from the impartible estate was assessable in the assessee's hands in the status of an individual, the salary earned as a member of the Legislative Council must also get included in the same assessment.
10. Now with regard to the question of status, in which the assessment should be made, it was vehemently urged that the income from the assets possessed by the impartible estate was not the income of the HUF, but by virtue of the law of primogeniture governing the estate, the whole of the income arising from the estate belongs solely to the individual holder of the impartible estate. It was stressed that although the succession to such estate was governed by the law of survivorship, yet according to the custom of impartibility, only the eldest of the senior branch was entitled to hold the estate, without the others sharing it. Reference has been made to a decision of the Privy Council in the case of CIT v. Dewan Bahadur Dewan Krishna Kishore [1941] 9 ITR 695 (PC), in which the Board was required to consider the question as to whether the income of an impartible estate is the income of an HUF for the purpose of assessment under the provisions of the Indian I.T. Act, 1922. The Privy Council while upholding that the property was in the nature of a joint family property, held that the income derived was not the income of the joint family. Reference was also made to a decision of the Supreme Court in the case of Sri Rajah Velugoti Kumara Krishna, Yachendra Varu v. Sri Rajah Velugoti Sarvagna Kumara Krishna Yachendra Varu AIR 1970 SC 1795, in which also the question relating to the nature of the rights and incidents of the junior members of the family viz-a-viz the impartible estate was considered. The Supreme Court, while upholding that such an estate may be the joint family estate, rejected the contention that the property of an impartible estate was held in coparcenary as joint family property and further observed that the junior members had no present interest in the estate. Their Lordships clearly observed that (p. 1805) :
"The income of the impartible estate is the individual income of the holder of the estate and is not the income of the joint family."
11. On the basis of these decisions and on certain others declaring an identical view, it was urged that the status, in which the assessee could be assessed, could be only that of an individual and not that of an HUF. The Tribunal, according the learned counsel for the department, had, therefore, gone wrong in confirming the AAC's order, adopting the assessee's status, for the purpose of assessing it to income-tax, as an HUF.
12. On behalf of the assessee it was urged that by the coming into force of the Hindu Succession Act, 1956, it created a change in the law of suces-sion to an impartible estate. By virtue of Section 4 of the said Act, any custom or usage in force, laid by any text or in such other manner, ceased to have effect after the enforcement of the said Act, so that the right of the holder of an impartible estate over the income of the estate itself fell into jeopardy: It was in that context, it was urged, that the assessee having realised the implications of the said Act, declared his status for the purpose of the assessment to be that of an HUF with effect from the assessment year 1965-66. The assessee did so with full consciousness of all the implications of the situation changed by the enforcement of the Hindu Succession Act. He intentionally, therefore, impressed upon the income arising from the assets which belonged to the joint family with the character of income belonging to the HUF. The change in the character of the income arising from the assets of the impartible estate, as brought about by the assessee, having been accepted by the AAC and the Income-tax Appellate Tribunal after duly considering all the pros and cons of the matter, it was no more open to the department to change that character and assess the income arising from such assets as belonging individually to the assessee. In other words, according to the learned counsel for the assessee, notwithstanding the law relating to the character of the income arising from the assets of an impartible estate, since the assessee on his own understanding of the law had decided to treat the income as not arising to him individually, but over which all the joint family would have a right and such a position of the assessee being declared in unequivocal terms by the filing of the returns of income in the status of a Hindu joint family which declaration was accepted for the assessment years 1965-66 and also for later assessments, the status in which the assessee was to be assessed could not now be changed for the assessment years in question.
13. Learned counsel for the assessee, however, conceded that so far as the income from the house property was concerned, by virtue of the fiction created by Section 27 of the I.T. Act, 1961, that fiction held good but only in respect of the income from the house property. With regard to the income arising from other assets, the assessment could be made only in the status of an HUF.
14. Before dealing with the question relating to the nature of the ad interim payment, which question arises only for the assessment year 1970-71, I would like to first deal with the two questions, namely, the question relating to the status for the purpose of assessment and the question relating to the salary earned as the member of the Legislative Council, in respect of which the arguments and counter arguments made by the department and the assessee have been stated above.
15. As stated, the assessee succeeded as the holder of the impartible estate on the death of the last holder on the 7th March, 1950. The previous holder was being assessed in the status of an individual and the assessee also continued to be assessed in that status until he raised a claim for the assessment years 1965-66 onwards to be assessed in the status of an HUF. The change in the attitude of the assessee, as the assessee himself put it before the ITO, was because of the change brought about by the Hindu Succession Act, 1956. May be that, notwithstanding the enforcement of the said Act, the assessee having been vested with the property of an impartible estate, he could not be divested of it by the passing of the said Act, the incidents attaching to an impartible estate would continue to be enjoyed by him. As has been urged by the learned counsel for the department by citing several case law that the holder of an impartible estate holds all of it for himself to the exclusion of all the junior members of his family. The income arises exclusively to the individual holder of the impartible estate over which the joint family has no claim. The assessee, however, has clearly indicated by his claim before the ITO and also by the unequivocal declarations made by him in the returns of income for the assessment years 1965-66 onwards that now he did not consider himself to be the individual owner of the income arising from the impartible estate. Such a declaration in the returns of income for the assessment years 1965-66 onwards and for the assessment years in question, were duly considered by the AAC and the Income-tax Appellate Tribunal and after such due consideration, the two authorities accepted the assessee's plea that the statuts of HUF as claimed by the assessees having been clearly and unequivocally declared by him, was fit to be accepted. The question with regard to the status, in which the assessee should be assessed, therefore, cannot be decided now on the basis of the decisions of the various courts of this country as also of the Privy Council, holding that the income of the impartible estate is the individual income of the holder thereof. It does, not remain any more a question which has to be decided on the basis of the law applicable to an impartible estate and the nature of income arising therefrom, but it becomes a mixed question of fact and law, namely, where the assessee having unequivocally declared his intention and impressed upon his individual income the character of joint family income, as to whether or not such declaration was acceptable. It cannot be gainsaid that under the Hindu law a person can impress his individual income with the character of joint family income after making a declaration in unequivocal terms about his intention to do so. There is a series of case law accepting the view that an income arising to an individual can be impressed with the character of joint family income, if such individual makes a declaration of the clear intention of converting his own income into" an income of the joint family. One of such decisions is of the Gujarat High Court in the case of Ratilal Khushaldas Patel v. CIT [1965] 55 ITR 517, the leading judgment being that of P. N. Bhagwati J. as he then was, to which J. M. Shelat C.J., as he then was, agreed.
16. In the instant case, admittedly, when the assessee first made a declaration of his intention to impress his individual income with the character of joint family income by returning such income for the assessment year 1965-66 and the following assessment years, as arising to the HUF, the matter was considered by the AAC as also by the Appellate Tribunal, both of which after due deliberation on the question accepted the assessee's claim. Such being the position, it was now no more open for the department to change it, without any fresh material to make the assessment of the income as arising to the assessee in his individual capacity and not as a member of the Hindu joint family. I will accordingly answer question No. 2, aforesaid in the affirmative, that is to say, the Tribunal was correct in determining the status of the assessee as an HUF for assessing the income arising from the impartible estate. So far as the income from the house property is concerned, that has to be assessed in the status of an individual by virtue of the fiction created by the I.T. Act, 1961 under Section 27 thereof.
17. It follows as a natural corollary that the income from salary earned as a member of the Legislative Council being his individual income, cannot be assessed along with the income from the income of the Hindu joint family. Such an income has, therefore, to be excluded from the assessment in question. Question No. 3 is, therefore, also answered in the affirmative.
18. The next question which remains to be considered is as to what is the nature of the interim payments made to the assessee under the provisions of the Bihar Land Reforms Act; whether capital or revenue. On behalf of the department, it was urged that an interim payment made under Section 33 of that Act is in the nature of an interest paid to the ex-intermediary pending finalisation and payment of compensation payable to such intermediary. In support of this contention, reliance was placed on the judgment of the Supreme Court in the case of Raja Rameshwara Rao v. CIT [1963] 49 ITR (SC) 144. There, payments had been made by way of interim maintenance allowance to a jagirdar, whose jagir had been abolished under the enactment. On construing the different provisions of that enactment, it was Veld, "the maintenance allowances were in nature of income and as such taxable". In that connection, apart from other special features of that statute it was specifically pointed out that the nomenclature of the payment was mentioned as "Maintenance allowance" which peculiarly suited to the payments in the nature of income. In my opinion, the provisions of the Bihar Land Reforms Act, which I shall indicate immediately, are different and very similar to the provisions of the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948, which came up for consideration before the Supreme Court in the case of S. R. Y. Sivaram Prasad Bahadur v. CIT [1971] 82 ITR 527. There the Supreme Court had to consider as to what was the nature of the interim payment made under the provisions of that Act. In that connection, reference was made to Sub-section (2) of Section 50 of the Act, which is as follows :
"After the notified date and until the compensation is finally determined and deposited in pursuance of this Act, interim payments shall be made by the Government every fasli year prior to the fasli year in which the said deposit is made, to the principal landholder and to the other persons referred to in Section 44, Sub-section (1), as follows......"
19. It was held that the payment under the aforesaid Sub-section (2) had been made to the assessee as compensation because he had been deprived of the income that he would have got from the lands in question. In this connection, it was observed (p. 532) :
"The quantum of interim payments payable to the former holders of those estates was determined by taking into consideration the income that the former owners would have received had they continued to be the owners of those estates. This, prima facie, shows that the Government was compensating the former holders for taking away their income producing assets. The interim payments did not appear to have any relationship with the compensation ultimately payable. On the other hand, it takes note of the loss of income incurred by the former owners due to the abolition of the estates. The contention that it was in lieu of interest on the compensation payable overlooks the fact that the liability of the Government to pay the compensation excepting to the extent provided in Section 54A arose only after the compensation payable was finally determined under Section 39."
20. The case of Raja Rameshwara Rao [1963] 49 ITR (SC) 144 was distinguished saying that there the question was in respect of payment of interim maintenance allowance and that was why it was held that it was a revenue receipt.
21. The relevant portion of Section 33 of the Bihar Land Reforms Act is Jis follows:
"33. Making ad interim payments to proprietor, etc.--(1) After the date of vesting and before the date of payment of compensation under Sub-section (2) of Section 32 or of the amount assessed as a perpetual annuity under Clause (3) of Section 24 ad interim payments shall be made six-monthly to the outgoing intermediary or, as the case may be, six-monthly or quarterly as the Collector may in each case after taking into consideration the amount of annuity payable decide, to the trastee, whose intermediary interest has vested in the State under the provisions of this Act in accordance with the following table, namely....
(2) where any ad interim payment has been made to any outgoing intermediary under this section, any such payment in excess of 2 1/2 per centum per annum of the amount of compensation payable under Section 32 shall be deducted from such compensation :......"
22. From the provisions contained in Chap. V, it will appear that after a vesting of the estate under the provisions of that Act compensation is to be determined. Chapter VI with the heading "payment of compensation" on the relevant date contained Sections 32 and 33, one dealing with the final compensation and the other in respect of interim payment pending finalisation of compensation. Sub-section (2) of Section 33 clearly says that any payment made under that section in excess of 21/2 per cent. of the compensation shall be deducted. From this as well as from the other provisions, referred to above, it is apparent that what is the exact amount of compensation payable to the ex-intermediary is not known and has to be ascertained, and till that is done, interim payments are to be made in view of Section 33. This, in my view, can never be in the nature of the payment of an interest. The provisions of this section are very similar; to Section 50(2) of the Madras Act, referred to above. As was pointed out by the Supreme Court in the case of S. R. Y. Sivaram Prasad Bahadur [1971] 82 ITR 527, merely because the payments are called interim payments that by itself will not be of much significance, because the Act does not contemplate of, payment of any interest. In my opinion, if the framers of the Act wanted to pay interest under Section 33 over the amount of compensation payable, there was no difficulty on their part in saying so in clear words. In my view, it is compensation for recurring loss caused to the owner because of the taking away of the income producing assets without payment of compensation, which is to cease after the payment of the final compensation. Reliance was also placed on behalf of the department on the judgment of the Supreme Court in the case of Chandroji Rao v. CIT [1970] 77 ITR 743. It was a clear case of payment of interest over the compensation payable by the Government to the jagirdar. That case has no bearing on the point in issue.
23. In my opinion, therefore, the answers to all the questions are in the affirmative and against the department. In the circumstances, the parties will bear their own costs.
Sinha, J.
24. I agree.