Delhi High Court
H. P. Nanda & Sons [Huf] vs Income-Tax Officer. on 4 May, 1989
Equivalent citations: [1989]30ITD193(DELHI), (1989)35TTJ(DEL)148
ORDER
Per Mehra, Judicial Member - Appellant assessed by present appeal challenges order dated 3-2-1985, of the learned Commissioner of Income-tax [Appeals] New Delhi, passed on an appeal against the assessment order dated 31-12-1984, framed under section 143[3] of the Income-tax Act, 1961, for the assessment year 1982-83.
2. First issue raised by the appellant it against the confirmation of the disallowance of Rs. 78,167 [claimed as finance charges] being interest said to have been paid on money borrowed from banks. In the present case the assessed by status is HUF whose accounting period was the year ending 31-3-1982. assessed claimed an expenditure of Rs. 78,167 as finance charges, against the income earned from the sale of shares. Learned Income-tax Officer required the assessed to indicate the nature of those charges. Vide letter dated 19-11-1984 it was stated on behalf of the assessed that there was an over draft facility with Grindlays Bank and Mercantile Bank and the opening balance as on 1-4-1981 was Rs. 7,31,742 and that during the year under consideration there had been deposits, the source of which was stated to be sale of shares, unit and dividends. Withdrawals were on account of payment of advance tax stated to be for personal purpose to the extent of Rs. 1,55,135, out of the deposits made by the assessed in the current account earned by it as income. Some further queries were also raised by the learned Income-tax Officer. He, however, not believing the assesseds version made an addition of Rs. 78,167 with the following observations :-
"It may however, also be stated that the assessed had converted the investment into stock-in-trade. Only that part of conversion a could be taken as a business asset. The liability if any, payable, in respect of that investment cannot be taken a liability of the business. The assessed had not been maintaining any accounts and in its absence it is difficult to say that the liability continued to be of the business. On that account also the interest of Rs. 78,167 could not be allowed as a revenue expenditure."
3. The disallowance of finance charges was subsequently contested by the assessed. It was submitted before the learned Commissioner of Income-tax [Appeals] that the sum of Rs. 78,167 represented interest paid to banks namely Grindlays Bank and Mercantile Bank, on account of withdrawals. It was also contend that for the assessment year 1979-80 the assessing offer had considered 30 per cent as relating to non-business purposes. The submissions made before him and so also the fact placed on record and in facts placed on record and in fact agreeing with the reasoning of the Income-tax Officer, refused to interfere in this behalf, inter alia, with the following observations :-
"It will not out of place to mention that the appellant advanced a loan of Rs. 2,50,000 on 11-6-1981 to M/s Joint Investment Company Limited and it was admitted that on this sum interest was charged at 12 per cent only whereas interest was being paid to the bank on the overdraft at 14 per cent. Lastly, reliance was placed on behalf of the appellant on a decision of the Calcutta High Court in the case of Woolcombers of India Ltd. v. CIT [1982] 134 ITR 219. In that case the facts were that the assessed was having on overdraft account with the bank and entire profits of the relevant year were deposited in the overdraft account and the same far exceeded the advance-tax liability. Monies were withdrawn from the overdraft account both for business purposes and also for the payment of advance-tax and the court came to the conclusion that there was a presumption that advance-tax was paid out of profits and not out of overdraft account. In the circumstances, it was held that disallowance of interest on overdraft as being related to the payment of advance was not justified. The facts of the case under considerations are quite different and even so it is evident that the withdrawals made from the overdraft account have been utilised for other than the business purposes. In the circumstances, I hold that the appellant is not entitled to set off the payment of interest of Rs. 78,167 against it business income in dealing in shares."
4. Hence the present appeals by the assessed before us. On behalf of the appellant, Shri H. P. Agarwal, the learned authorised representative by and large repeated and reiterated all the submissions seen to have been made before the Revenue authorities. According to him no disallowance was required to be made and much less to be confirmed. Shri Agarwal also invited out attention to order of C-Bench of the Income-tax Appellate Tribunal, Delhi for the assessment year 1978-79 in the case of Mrs. Dolly Nanda [IT the Appeal No. 1034 [Delhi] of 1982]-of this very group - wherein also the Bench was required to decided a similar issue in the similar circumstances. According to the learned authorized representative the present issue is required to be decided in the manner the Bench did in that case.
5. On behalf of the Revenue the learned Senior Deptt. Representative, Shri Amitabh Kumar, placed reliance on the finding under challenged and contended further that no interference was warranted.
6. Rival submissions have been heard. It was nobodys case before us that the facts in the present case and in the case of Mrs. Dolly Nanda [supra] are not identical. After the perusal of the order in the case of Mrs. Dolly Nanda [supra], especially paragraph 7 it is seen that the issue was set aside to the file of the learned CIT [Appeals] for the determining the question of allow ability of interest once again in the light of the observations made by the Bench. We have gone through the relevant paragraphs in that order and the fin full agreement. In the given circumstances, we consider it proper to set aside this issue to the file of the learned Commissioner of Income-tax [Appeals] for the decision fresh keeping in view the observation of the Bench in the case of Mrs. Dolly Nanda [supra], of this group. We direct accordingly.
7. Other two ground are in the following manner :-
2. "That on the facts, circumstances and legal position of the case the learned CIT [Appeals] is not justified in holding that the gifts made by the appellant to the grand children of the karta throat his daughters are invalid to the extent of Rs. 25,000 in law."
3. "That the learned CIT [Appeals] has further erred in directing the Income-tax Officer to add back to the income of the appellant the income attributable to the sum of Rs. 25,000."
8. assessed was said to have made a gift of Rs. 35,000 out of HUF funds to the following persons :-
Rs.
1. Master Kunal Srivastava 5,000
2. Master Yatin Srivastava 5,000
3. Master Sanjay Sakhuja 5,000
4. Miss Latika Sakhuja 5,000
5. Miss Deepika Sakhuja 5,000
6. Miss Nitasha Nanda 5,000
7. Master Nikhil Nanda 5,000 35,000
9. The gifts were said to have been made on 9th December, 1980. According to the learned Income-tax Officer Srivastavas and Sakhujas were not the members of the assessed HUF, to which Shri H. P. Nanda was the karta. The position with regard of Miss Nitasha and Master Nikhil was also said to be nuclear whether those were members of the HUF. The assessed was required to explain as top whether the gifts were made for the purpose estate or legal necessities and whether donees were the members of the assessed HUF. It was submitted on behalf of the assessed that the gifts were within the reasonable limits and thus were not taxable. The learned Income-tax Officer made mention of Article 225 of the Hindu Law by the learned author Mulla and after discussing certain other rulings, held that the gifts made by the assessed wave void and thus an inclusion of Rs. 5,250 was made on account of interest on the amount of Rs. 35,000 at 15 per cent, in the following manner :-
"If any gift is made of movable property to a stringed which is not in the interest of the estate of the HUF of for legal necessity of for pious purposes such gift is void. The donee in each case was not member of the HUF and was stringed to it. The gift thus made to each of them is void.
Thus a gift made to the stranger which is not for the benefit of estate or legal necessity is void a initio. The donees have earned interest on the amount of Rs. 35,000 and I hold that the Income belongs to the assessed @ 15 per cent. It comes to Rs. 5,250."
10. This issue was also contested by the assessed and the sub missioner made before the learned Income-tax Officer were repeated. The learned CIT [Appeals], however, accepted the gift to two donees i.e., Miss Nitasha Nanda and Master Nikhil Nanda to the extent of Rs. 10,000 and in fact directed the learned Income-tax Officer to add to the income of the HUF, the income on the balance sum of Rs. 25,000, with the following observations :-
"Therefore, it was held that the gifts made to the relations of the karta were also void. Further, it was held that if the gifts were void, it was the assessed which retained the title to the properties gifts always and the income from those properties gifted must have been regarded in law as accruing or deemed to be accruing to the assessed. If the other view was taken that even if the gifts were void, the income there from would not be regarded as the income of the assessed, then it would amount to allowing the assessed to take advantage of its own wrong and avoid it liability to pay income-tax. According, the income from properties gifted was held to be taxable as income of the assessed HUF. Now the only pointed which reminisced for determination is whether for the donees can be considered as being stranger to the HUF. Five of the donees to whom gifts of Rs. 5,000 each was made are the grand children of the karta of the HUF through his daughters. It is well accepted principle of Hindu law that after a daughters is married she ceases to be a member of her fathers joint family. In the circumstances, I hold that the five grandchildren through the daughters of the karta of the HUF are to be considered as strangers to the HUF. In the cited above, it was held that the even the mother of the karta of the HUF was a stranger to the HUF. The remaining two gifts of Rs. 5,000 each were made to the grandchildren of the karta of the HUF through his son. They can not be regarded as strangers to the HUF and since the amount of gifts is reasonable, I hold that the same have to be treated as valid. In the circumstances, the assessing officer is directed to add back to the income of the HUF the income on the sum of Rs. 25,000 gifted to the grandchildren of the karta through his daughters."
11. Hence the present grounds by the assessed before us. Shri H. P. Agarwal repeated the arguments made before the lower authorities and also place reliance on the ratios of the following cases :-
[a] in the case of CIT v. Daljit Singh [1981] 131 ITR 719 [Punj. & Har.]; and [b] in the case of CIT v. Motilal Ramswaroop [1970] 76 ITR 43 [Raj.].
According to Shri Agarwal, the learned Commissioner of Income-tax [Appeals] was not justified to allow only partial relief and that in fact entire gift should been accepted and nothing on account of the subject matter of gift should have been included or confirmed.
12. On behalf of the revenue, the learned senior Deptt. Representative supported the fining under challenge and further placed reliance on the ratio in the case of Gangadhar Narsingdas Agarwal, HUF v. CIT [1986] 162 ITR 320 [Bom]. According to Shri Amitabh Kumar, no interference was called for.
13. Submissions made on behalf of the contesting parties have been heard and considered. As mentioned earlier the assessed made a gift of Rs. 35,000 to 7 donees mentioned hereinabove. Two of the donees i.e., Miss Nitasha Nana and Master Nikhil Nanda are the children of the kartas son. The balance 5 donees are the children of the kartas daughters. Thus, there are two categories of the donees. The learned Commissioner of Income-tax [Appeals] since has accepted the gifts to the children of the kartas sons, we leave this issue here itself as this issue is not before us since the relief was allowed by the learned first appellate authority. However, the gifts made to the 5 children of the kartas daughters were found void by the learned Income-tax Officer and thus was interest added and for the same reasons confirmed also by the learned Commissioner of Income-tax [Appeals]. Now the issue before us for consideration and determination is as to whether the gifts made to the 5 children of the kartas daughters are void or valid. The assessed being HUF is government by the Hindu law. On behalf of the Revenue mentioned was made of Article 217 of the principles of Hindu Law by Mulla. According to the said Article no female could be a coparcener under the Mitakshara law. The type of situation discussed and described in the said Article is not relevant for the controversy in hand. Thus, lay reference to the said Article in our view is of no relevance or consequence because we are not concerned with the issue of the females being or not being coparceners. In fact for determination of the present controversy, Article 225 of the Principles of Hindu Law is relevant. According to the said Article "although sons acquire by birth right equal to those of a father in ancestral property both movable and immovable the father has the power of making within reasonable limits gifts of ancestral movable property without the consent of his sons for the purpose of performing indispensable acts of duty, and for purposes prescribed by texts of law, as gifts through affection, support of the family, relief from distress and so, forth." Thus, a gift for affection might be made to a wife, to a daughter and even to a son. However, the condition for the gift to be valid is that the same must be of the property within the reasonable limits. It is thus seen that Article 225 of the principles of Hindu Law clearly provides that karta of a family could make, within reasonable limits the gifts of ancestral movable property to wife and daughters etc. In the case before us the gifts are made by the karta to the children of the kartas daughters. Taking into consideration affectionate relation between the karta and his daughters children it is possible to infer that the gifts made were through affection. It is also possible to infer that such gifts could also be indispensable acts of duty as the karta was obliged to make such gifts on certain occasions. Thus, there appears to be no bar against making small gifts out of the ancestral movable property to the children of daughters. This appears to be the clear intention of Articles 225. It is further seen that the gift were within reasonable limits as the assessed wealth for the year under consideration, of the assessed, was of the order of Rs. 31,33,972. In fact the total sum of gifts, of Rs. 25,000 hardly constitutes 1 per cent of the total wealth. In the light of the above discussion, it is clear that the karta had the authority to make such gifts and such gifts further being within reasonable limits, there was no justification to treat then as void and further to add anything on account of interest on the subject matter of gifts. For such a conclusion, we derive support from the ratio in the case Motilal Ramswaroop [supra]. In the said case karta of HUF gifted an amount of Rs. 4,00,000 to 7 undivided members of the family. The learned Income-tax Officer did not accept the gift on the ground that the karta was not competent to make gifts of a substantially large amounts and thus assessed the total income of assessed including therein the interest on the said sum of Rs. 4,00,000. The Tribunal directed that the interest be deleted from the assessment on the ground that under the law gift made by karta of HUF were not void and on reference it was held that "the interest accruing on the gifted amounts did not accrue to the assessed family for Income-tax purposes on either view, whether of the Gifts of Rs. 4,00,000 was void or voidable. The entire sum of Rs. 4,00,000 had passed into the hands of other persons and they were daring income from the amounts and not the assessed. The Income-tax Act taxes the person whose income it is and not the person who may per chance have title of the property through which income has been earned." The above ratio clearly establishes that gift in the case before us was not invalid and interest thereon could not be taxed in the assesseds hands.
14. assessed also gets support from the case of Daljit Singh [supra]. According to the ratio in the said case, karta had power to give gifts within reasonable limits out of love and affection.
15. On behalf of the revenue the reliance was placed on the ratio in the case Gangadhar Narsingdas Agarwal [HUF] [supra]. Even according to the ratio in the said case the karta could make gift even if ancestral immovable property, within the reasonable limits for pious purposes. According to Hindu notion giving gifts to daughter or her children is, in a way pious purpose. Similarly reasonable gifts of movable property for pious purposes were held to be in order in that case. These are the observations in the said case. This is seen that even in the case relied upon by the Revenue there is no total bar for making risible gifts of movable property for pious purposes.
16. In the light of the preceding discussion, we are satisfied that the gift made to the children of the kartas daughter could not be considered void and thus, nothing could be includible in the hands of the assessed on account of interest on the gifted amount. We hold accordingly.
17. Still another ground was against the levy of interest under section 215 of the Act. This ground is rejected, as not pressed.
18. In the result, the appeal is allowed to the above extent.