Bombay High Court
Commissioner Of Income-Tax vs Mrs. J.R. Lalwani on 9 June, 1999
Equivalent citations: [1999]240ITR750(BOM)
Author: Ranjana Desai
Bench: Ranjana Desai
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion :
"Whether, on the facts and in the circumstances of the case, share income in the name of Smt. Jasotiben Ramchand Lalwani from Vapson Products was assessable in the status of individual or a Hindu undivided family ?"
2. This reference pertains to the assessment year 1978-79. As is evident from the question itself, the controversy is whether the assessee, Smt. Jasotiben Ramchand Lalwani, was assessable in the status of individual or a Hindu undivided family in respect of the share income from the registered firm, Vapson Products. The material facts giving" rise to this controversy are as follows :
3. The assessee is the widow of the late Ramchand H. Lalwani, who was a partner in the partnership firm, Vapson Products along with his two sons, Indru Ramchand Lalwani and Gul Ramchand Lalwani. Ramchand Lalwani died intestate on September 7, 1967. As per the new partnership deed dated September 8, 1967, the share of profits of the late Ramchand Lalwani till the date of his death along with the credit balance in his capital account was to be paid to his legal heirs. By the said partnership deed, the assessee, Smt. Jasotiben, widow of Shri Ramchand was also admitted as a partner in the said firm with effect from September 8, 1967. The balance of Rs. 42,080, standing to the credit of the late Ramchand Lalwani in the capital account at the time of his death was transferred to her account. After about one and half years of entering into partnership, on February 1, 1969, Smt. Jasotiben made a declaration that she was a partner in the said firm on behalf of the joint family comprising herself and her sons. On the basis of this declaration, she claimed that her share income from the said firm should be assessed in the hands of a Hindu undivided family comprising of herself and her two sons and not in her hands in her individual capacity. Though this claim was accepted by the Income-tax Officer in the original assessment, it was rejected in reassessment for the assessment years 1968-69 to 1974-75. On appeal by the assessee, the order of the Income-tax Officer rejecting the claim of the assessee for assessment of the share income from the firm in the hands of the Hindu undivided family was confirmed by the Appellate Assistant Commissioner of Income-tax and the Income-tax Appellate Tribunal (the "Tribunal"). The said order thus attained finality. However, in the appeal of the assessee in respect of the assessment year 1978-79, the Tribunal accepted the assessee's contention in view of the decision of the Special Bench of the Tribunal at Pune, in ITO v. Shri S. R. Kirloskar (HUF) [1984] 8 ITD 288, wherein, following the decisions of the Gujarat High Court in CWT v. Harshadlal Manilal [1974] 97 ITR 86 and CIT v. Dr. Babubhai Mansukhbhai [1977] 108 ITR 417, it was held that even after the coming into force of the Hindu Succession Act, 1956, in a case where a Hindu dies intestate leaving behind self-acquired and separate property, the character of such property inherited by his sons would be that of ancestral property and such property would be Hindu undivided family property. Hence, this reference at the instance of the Revenue.
4. We have heard Mr. B. V. Jhaveri, learned counsel for the assessee. We have also heard Mr. P. S. Jetley, learned counsel for the Revenue, who pointed out to us that the decisions of the Gujarat High Court in CWT v. Harshadlal Manilal [1974] 97 ITR 86 and CIT v. Dr. Babubhai Mansukhbhai [1977] 108 ITR 417, which were followed by the Special Bench of the Tribunal in ITO v. Shri S. R. Kirloskar (HVF) [1984] 8 ITD 288 (Pune), have since been reversed by the Supreme Court in CWT v. Chander Sen . It was contended that in view of the above decision of the Supreme Court, the amount standing to the credit of Shri Ramchand Lal-wani, who died intestate on September 7, 1967, devolved in equal shares on his two major sons and his widow, the assessee herein, in their individual capacity and not on any Hindu undivided family. This amount, according to him, cannot be treated as the property of the Hindu undivided family. Learned counsel further submits that Smt. Jasotiben joined as a partner of the newly constituted firm with effect from September 8, 1967, in her individual capacity and the amount standing to the credit of the deceased Ramchand Lalwani in his capital account in the firm was transferred to her account. According to him, the property which devolved on the heirs of Ramchand Lalwani never acquired the character of Hindu undivided family property.
5. We have carefully considered the above submission. It is true that the decisions of the Gujarat High Court cited above and the decision of the Special Bench of the Tribunal in ITO v. Shri S. R. Kirloskar (HUF) [1984] 8 ITD 288 (Pune) are no more good law after the decision of the Supreme Court in CWT v. Chander Sen . It is now well settled by the decision of the Supreme Court in CWT v. Chander Sen , that after the coming into force of the Hindu Succession Act, 1956, under Section 8 of that Act, the property which devolves on the heirs mentioned in Class I devolves on them in their individual capacity. It would not be a Hindu undivided family property in their hands. In view of the above legal position, it is clear that in the present case, on the death of Ramchand Lalwani intestate on September 7, 1967, the amount standing to his credit, devolved in equal shares on his sons and the widow in their individual capacity. It was their individual property and not the property of a Hindu undivided family comprising the sons and the widow of the deceased. Moreover, the amount left by him was not an asset of a Hindu undivided family. It was the self-acquired property of the deceased. It devolved on his three successors under Section 8 of the Hindu Succession Act, 1956, in their individual capacity. Two of the successors, who were his sons, were already partners in the firm in which the deceased was a partner. The widow was the mother of the remaining two partners. On his death, she was admitted to the partnership firm in her individual capacity. In this factual legal scenario, there is no basis or justification for the contention that a Hindu undivided family came into existence on the death of Ramchand Lalwani and his estate devolved on that Hindu undivided family and his wife joined the partnership firm as a partner not in her individual capacity but as a representative of the Hindu undivided family comprising her two sons and herself.
6. An identical controversy came up for consideration before this court in Income-tax Reference No. 395 of 1987--CIT v. S. R. Kirloskar (India). In that case, this court, summed up the legal position emerging from the decision of the Supreme Court in CWT v. Chander Sen , in the following words :
"The law is thus clear that after the coming into force of the Hindu Succession Act, 1956, when a son inherits the property of his father in the situation contemplated by Section 8 of that Act, he takes it in his individual capacity and not as kurta of his own Hindu undivided family. In other words, the properly devolves on him in his individual capacity."
7. In the present case, the Tribunal followed its Special Bench decision in ITO v. Shri S. R. Kirloskar (HUF) [1984] 8 ITD 288 (Pune) which was rendered on the basis of the Gujarat High Court decisions in CWY v. Harshad-lal Manilul [1974] 97 ITR 86 and CIT v. Dr. Babubhai Mansukhbhai [1977] 108 ITR 417. As earlier stated, the Gujarat High Court decisions cited above are no more good law after the decision of the Supreme Court in CWT v. Chander Sen [1986] 161 ITR 370. In view of the above, it is clear that the share income of Smt. Jasotiben from the firm was assessable in her individual capacity and not as a Hindu undivided family.
8. Mr. Jhaveri, learned counsel for the assessee, submits that even in view of the provisions of Section 8 of the Hindu Succession Act and the decision of'the Supreme Court in CWT v. Chander Sen , on the death of Ramchand Lalwani his property devolved on his two sons and the assessee, who was his widow, in their individual capacity, in view of the declaration made by her on February 1, 1969, that she was a partner in the firm on behalf of the Hindu undivided family consisting of herself and her sons, Indru and Gul, the share income from the said firm should be assessed in the hands of the Hindu undivided family and not in her individual capacity. According to learned counsel, the declaration in question should be treated as a declaration converting her separate property into joint family property which was permissible till January 1, 1970.
9. We have considered the above submission and perused the effect of the declaration dated February 1, 1969. The above declaration is merely a declaration by the assessee that she was a partner in the firm, Vapson Products, on behalf of the joint family consisting of herself and her sons, Indru and Gul. The question is whether this declaration can change her real status which, as stated above, was individual and not a Hindu undivided family. The answer, in our opinion, in no uncertain terms, is in the negative. The Income-tax Officer rightly rejected the claim of the assessee by reopening the assessments for the assessment years 1968-69 to 1974-75 which order of the Income-tax Officer was also confirmed by the Income-tax Appellate Tribunal. The order of the Tribunal was not challenged and thus that decision attained finality. Despite that, in the appeal of the assessee for the assessment year 1978-79, this issue was reargued by the assessee before the Tribunal relying on the decisions of the Gujarat High Court and Special Bench decision of the Tribunal cited above which, admittedly, are no more good law in view of the Supreme Court decision in CWT v. Chander Sen . The Tribunal accepted the contention of the assessee and decided, contrary to its own earlier decision in the very same assessee's case only in view of the above decisions. The latter decision of the Tribunal in the present case, obviously, is not correct.
10. Learned counsel for the assessee, however, submits that we should consider the effect of the declaration made by the assessee on February 1, 1969, on the status of the assessee. According to him, by this declaration, the assessee has thrown her personal property into the joint family hotchpot and hence the share income of the firm would be income of the Hindu undivided family. In support of this contention, heavy reliance was placed on the decisions of the Supreme Court in Pushpa Devi v. CIT and CIT v. K. Satyendra Kumar . For proper understanding of the declaration, learned counsel also submitted a copy of the declaration of the assessee which is not annexed to the statement of the case. The declaration reads :
"I, Mrs. Jasoti R. Lalwani of Bombay, do hereby on solemn affirmation state that I am manager/karta of the joint family of my late husband, Shri R. H. Lalwani, consisting" of myself and my sons, Indru and Gul. I further state that I have entered into partnership for and on behalf of the said joint family (Hindu undivided family) and signed the deeds of agreement dated September 8, 1967, and January 11, 1968, of Vapson Products in my capacity of manager/karta of the said family. I declare that I am the partner in the said firm of Vapson Products for and on behalf of the said joint family and that all profits and losses, rights, claims, obligations, liabilities, etc., that accrue from and attach to the said partnership do belong fully and absolutely to the said joint family and that I have absolutely no individual interest whatsoever in the said partnership.
What is stated above is true to the best of my knowledge and belief."
11. We have carefully considered the above submission. We do not find from the statement of case or the declaration set out above that the asses-see, who was the absolute owner of l/3rd share of the said property received by her on the death of her husband, had blended her share with the joint family property. She merely declared that she was the karta of the joint family of her late husband consisting of herself and her sons and that she had entered into partnership for and on behalf of the said. Hindu undivided family and signed the deed of partnership in the capacity of the manager/karta of the joint family. On the other hand, it is clear from the above declaration that it is intended to declare the legal position in regard to the property which devolved on her and two major sons on the death of her husband. According to her, the property devolved on them not in their individual capacity but on the Hindu undivided family comprising three of them. As stated earlier, this is not the position in law. In view of the legal position on the point which is now well-settled by the decision of the Supreme Court in CWT v. Chander Sen , there can be no dispute about the fact that the property devolved in equal shares on the assessee and her two sons in their individual capacity. By virtue of the declaration of the assessee, the devolution cannot be regarded as devolution on a Hindu undivided family. The above declaration, in our opinion, is of no consequence in deciding whether the income of the firm of which the assessee was a partner was her individual income or income of the Hindu undivided family.
12. We have perused the decision of the Supreme Court in Pushpa Devi v. CIT on which heavy reliance is placed by counsel for the assessee. We fail to understand how the said decision helps the assessee in any manner. In that case, the assessee, a female member of the Hindu undivided family, had made a sworn declaration declaring unequivocally her intention to treat "both her capital and share" in the firm, which was her absolute property, as joint family property of the Hindu undivided family and stating that she had abandoned for ever her separate interest and ownership over the capital and the share in the profits of the firm in favour of the family to be wholly and exclusively enjoyed and possessed by it. The question was whether the profits of the share in the firm was her individual income or the income of the Hindu undivided family. On a reference, the Delhi High Court held that the income was the income of the assesses. The High Court arrived at this decision on the ground that the right of blending can be exercised only by the coparcener and since the assessee, though a member of the joint family, was not a coparcener. She could not throw her separate property into the joint family stock. The assessee appealed to the Supreme Court. The Supreme Court found that there was a gift by the assessee in favour of the family which the latter had accepted. The Supreme Court affirmed the decision of the High Court and held that the right to blend was limited to coparceners and the female member of the joint family could not blend her separate property, even if she was the absolute owner thereof, to the joint family property and that, therefore, the income from the share of the firm was not assessable in the hands of the Hindu undivided family on the basis that the assessee had blended the property with the joint family property. It was further held that to blend is to share along with others and not to surrender one's interest in favour of others. It was further held that the expression "blending" is inapposite in the case of a Hindu female who puts her separate property, be it her absolute property or limited estate, in the joint family stock. It was observed (page 738) ;
"The theory of blending under the Hindu law involves the process of a wider sharing of one's own properties by permitting the members of one's joint family the privilege of common ownership and common enjoyment of such properties. But while introducing new shares in one's exclusive property, one does not by the process of blending efface oneself by renouncing one's own interest in favour of others. To blend is to share along with others and not to surrender one's interest in favour of others to the exclusion of oneself. If a Hindu female, who is a member of an undivided family, impresses her absolute, exclusive property with the character of joint family property, she creates new claimants to her property to the exclusion of herself because, not being a coparcener, she has no right to demand a share in the joint family property by asking for a partition. She has no right of survivorship and is entitled only to be maintained out of the joint family property. Her right to demand a share in the joint family property is contingent, inter alia, on a partition taking place between her husband and his sons (see Mulla's Hindu Law, 14th edition, page 403, para. 315). Under Section 3(2) and (3) of the Hindu Women's Rights to Property Act, 1937, her right to demand a partition in the joint family property of the Mitakshara joint family accrued on the death of her husband. Thus, the expression 'blending' is inapposite in the case of a Hindu female who puts her separate property, be it her absolute property or limited estate, in the joint family stock."
13. It was further observed (page 738) :
"It is well settled that a Hindu coparcenary is a much narrower body than the joint family and it includes only those persons who acquire by birth an interest in the joint or coparcenary property. These are the three generations next to the holder in unbroken male descent (see Mulla's Hindu Law, 14th edition, page 262, para. 213). A Hindu female, therefore, is not a coparcener. Even the right to reunite is limited under the Hindu law to males (Mulla, page 450, para. 342). It does not, therefore, militate against the fundamental notions governing a Hindu joint family that a female member of the joint family cannot blend her separate property even if she is an absolute owner thereof, with the joint family property."
14. Applying the above decision of the Supreme Court to the facts of the present case, it is clear that the income of the assessee, Jasotiben, from the firm, Vapson Products, was assessable in her hands in her individual capacity and not in the hands of the Hindu undivided famity on the basis of her declaration. In fact, by the declaration dated February 1, 1969, the assessee neither purported to blend her separate property and her share in the firm, which was her absolute property as a joint family property nor gifted the same in favour of the Hindu undivided family. By the declaration, the assessee merely purported to declare that she was a partner in the firm as she was the manager/karta of the joint family. This declaration, in our opinion, is absolutely irrelevant. Moreover, even assuming that the declaration is a gift of her share in the firm to the Hindu undivided family, there is nothing to show that on that day any Hindu undivided family did, in fact, exist or and even if it was so existing, the gift was accepted by it.
15. We have also perused the decision of the Supreme Court in CIT v. K. Satyendra Kumar . In that case, the controversy was whether the fund received by the assessee as a gift from his mother with a clear indication that the fund so gifted were to be utilised only for the benefit of the family was liable to be assessed in the status of the Hindu undivided family. The admitted position in that case was that while making the gift the mother of the assessee clearly indicated that the funds were to be utilised only for the benefit of the family. It is in that context that the Supreme Court refused to interfere with the decision of the High Court that the assessee was taxable in the status of the Hindu undivided family. Evidently, the above decision of the Supreme Court has no application to the facts and circumstances of the present case. In view of the above, we are of the clear opinion that the Tribunal was not right in holding, that the share income received by the assessee, Jasotiben, from the firm, Vapson Products, was assessable in the status of Hindu undivided family. In the facts and circumstances of the case, it is clear beyond all doubt that the income was assessable in the hands of the assessee in her individual capacity. The question is, therefore, answered in the above terms in favour of the Revenue and against the assessee.
16. Reference stands disposed of accordingly with no order as to costs.