Orissa High Court
Commissioner Of Income-Tax vs Polaki Butchi Babu. on 25 April, 1988
Equivalent citations: (1988)74CTR(ORI)29, [1988]174ITR430(ORISSA)
JUDGMENT
AGRAWAL C.J. - This court has called for a statement of case on the following question of law from the Income-tax Appellate Tribunal, Cuttack Bench, on an application filed by the Commissioner of Income-tax under section 256(2) of the Income-tax Act (for short "the Act") :
"Whether on the facts and in the circumstances of the case, the Tribunal was justified in coming to the conclusion that the correct status of the assessee should be Hindu undivided family ?"
The assessment years involved in these two cases are 1974-75 and 1975-76. The facts may be briefly stated :
Polaki Butchi Babu and his father, Polaki Srirangam, were partners of the firm Polaki Srirangam and Sons at Berhampur and were being assessed as individuals. Srirangam died on December 22, 1968, when the firm was reconstituted, the partners being Polaki Butchi Babu and his two sons. The capital standing to the credit of Srirangam, on being inherited by Polaki Butchi Babu and his sons was credited to the account "Polaki Butchi Babu (HUF)" in the books of account of the firm. On March 31, 1972, the assessee (Polaki Butchi Babu) threw his individual capital also into the common hotchpot of the Hindu undivided family as mentioned above and pooled both the sums together. Out of that capital, a certain amount was set apart for the marriage expenses of the daughters and some gifts were also made in favour of his wife and a son given in adoption. The balance of the capital amounting to Rs. 3,82,824 was then equally divided amongst the members of his joint family. The firm was reconstituted with effect from April 1, 1972, there being five major partners and a minor (Sri P. Balaram) having been admitted to the benefits of the partnership.
A petition under section 171 of the Act was filed by the assessee on December 31, 1974, before the Income-tax Officer claiming partition of the joint capital as indicated above, and the Income-tax Officer., by his order dated December 31, 1974, allowed the claim for partial partition with effect from March 31, 1972. Undisputedly, this order has become final.
During the assessment proceedings in question, the assessee claimed that the status in which the share income from the firm in his hands could be assessed was "Hindu undivided family" inasmuch as he received the amounts invested by him in the firm on partition of the joint family properties. For this claim, he relied upon the order under section 171 of the Act, and as a result, section 64 of the Act could not apply and the share income of his minor son could not be included in his total income.
The Income-tax Officer did not accept this contention and assessed the assessee as an individual. The petitioner also could not succeed before the Appellate Assistant Commissioner who, on a reference to the case of CWT v. Chander Sen [1974] 96 ITR 634 (All), observed that on the death of Srirangam, the property passed to the assessee under section 8 of the Hindu Succession Act, 1956, to the exclusion of the other heirs. Referring to the case of Surjit Lal Chhabda v. CIT [1975] 101 ITR 776 (SC), he further held that the share income received by the assessee did remain as his individual income even though it might be derived from ancestral source. Not being satisfied, the petitioner took the matter before the Appellate Tribunal. The Tribunal, in disagreement with the views of the subordinate authorities and relying upon the case of N. V. Narendranath v. CWT [1969] 74 ITR 190 (SC), held that the income received by the assessee on the partition of the bigger Hindu undivided family was joint family property vis-a-vis his wife and minor daughters. The mere fact that it was assessed as individual property in the earlier years could not change its true nature in the eye of law. The Tribunal further held that a member of a Hindu undivided family was entitled to divert his self-acquired property into joint family property even unilaterally by proving his unequivocal intention, which, on the facts of the case, was established. Therefore, this case is entirely different from Surjit Lal Chhabdas case [1975] 101 ITR 776 (SC). Accordingly, the matter has been brought to this court.
Since the facts are not in dispute, learned standing counsel appearing for the Revenue attempted to adopt the line of reasoning appearing in the appellate order of the Appellate Assistant Commissioner. But it is difficult to accept the same.
The legal position which appears undisputed and has been summarised in article 227 of Mullas Hindu Law can be safely applied here. According to settled principles, a property which was originally the separate or self-acquired property of a coparcener may, by operation of the doctrine of blending, become joint family property, if it has been voluntarily thrown by him into the common hotchpot, relinquishing and waiving all his separate rights thereto. For applying the doctrine of blending, however, there are certain preconditions, namely :
(i) existence of a coparcenary;
(ii) existence of coparcenary property; and
(iii) existence of separate property of a coparcener.
A Hindu female, however, cannot be a coparcener and the doctrine of blending cannot apply to her. In spite of the 1956 Act, this principle stands well settled by a decision of the Supreme Court in the case of Smt. Pushpa Devi v. CIT [1977] 109 ITR 730. There is no doubt that a somewhat different view has been taken in Surjit Lal Chhabdas case [1975] 101 ITR 776 (SC) in regard to a joint family consisting of females and only one male member. In the commentary on income-tax law by Kanga and Palkhivala, the correctness of this view has been doubted. However, it is not necessary to enter into the niceties or complexities of the problem as the Tribunal seems to have taken a correct view that in view of the acceptance of the claim of the assessee regarding partition on accepting the principles of blending and existence of a Hindu undivided family, there was no escape for the Revenue except to treat the assessees status as Hindu undivided family inasmuch as the order under section 171 could be operative and enure for all subsequent years.
On behalf of the assessee, reliance was placed on the decisions in T. Ramdas M. Pai v. CIT (No. 1) [1978] 115 ITR 815 (Kar), Prem Kumar v. CIT [1980] 121 ITR 347 (All) and Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum [1981] 129 ITR 440 (SC).
T. Ramdas M. Pais case [1978] 115 ITR 815 is of the Karnataka High Court where the assessee had only his wife and a daughter and was being assessed as an individual. He purported to throw four items of his immovable properties and some shares in limited companies into the hotchpot of his Hindu undivided family with effect from March 4, 1969, and claimed the assessment treating him as the karta of the Hindu undivided family. The assessee, however, failed before all the authorities on the ground that in order to constitute a Hindu undivided family, there must be more than one coparcener and the family of the assessee did not own any joint family property on the relevant date. The High Court, however, held that it was not necessary that there must be more than one coparcener in the family and that existence of some joint family property belonging to the joint family was not necessary for impressing the acquired property of a coparcener with the character of the joint family property.
Prem Kumars case [1980] 121 ITR 347 is of the Allahabad High Court where it was held that once the sole surviving coparcener marries, a joint Hindu family comes into existence, for the wife along with the husband constitutes a joint Hindu family and there is no difference between a "joint Hindu family" and "Hindu undivided family". Reliance was placed upon the following observations of the Supreme Court in the case of C. Krishna Prasad v. CIT [1974] 97 ITR 493 (headnote) :
"Family always signifies a group. Plurality of persons is an essential attribute of a family. A single person, male or female, does not constitute a family. A family consisting of a single individual is a contradiction in terms. Section 2(31) of the Income-tax Act, 1961, treats a Hindu undivided family as an entity distinct and different from an individual. Assessment in the status of a Hindu undivided family can be made only when there are two or more members of the Hindu undivided family."
Gurupad Khandappa Magdums case [1981] 129 ITR 440 is of the Supreme Court. But there the issue appears to be quite different.
Be that as it may, on the discussions made and for the reasons given above, the answer to the question must be given in favour of the assessee and against the Revenue. I would accordingly hold that the Tribunal was justified in coming to the conclusion that the status of the assessee should be Hindu undivided family.
In the circumstances, I shall not make any order as to costs.
D. P. MOHAPATRA J. - I agree.