Gujarat High Court
Commissioner Of Income Tax vs Balubhai Nanubhai (Huf) on 16 February, 1996
Equivalent citations: [1996]220ITR334(GUJ)
Author: S.K. Keshote
Bench: S.K. Keshote
JUDGMENT Rajesh Balia, J.
1. At the instance of CIT, Surat, the Tribunal, Ahmedabad 'B' Bench had referred the following question of law arising out of its appellate order dt. 20th April, 1982 in ITA No. 337/Ahd/81 for the asst. yr. 1974-75 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the share of Shri Nanubhai and Smt. Bai Mani in the property should be excluded for the purpose of computing the capital gains on the sale of the property ?"
2. We have heard the learned counsel for the Revenue. No one has appeared for the assessee in spite of service.
3. The dispute relates to the computation of income under the head capital gains in respect of sale of lands admeasuring 1200 sq. yards situated at Khetarpal Street, Malifalia, Surat for a sum of Rs. 74,000 during the previous year relevant to the asst. yr. 1974-75 in the hands of respondent assessee-HUF. The accounting period was stated to be ending on 31st March, 1974. The assessee named Balubhai Nanubhai has been assessed in the status of HUF in respect of entire capital gain arising out of the said transaction. Notice under s. 148 was issued to Balubhai in the status of HUF. In response to which it was stated that no HUF exist consisting of Balubhai Bhupendrakumar and Navinchandra for which notice had been issued. However, three persons filed voluntarily separate returns in their individual capacities. The ITOs had rejected the claim of the assessee that no HUF existed and assessed the income from capital gains in the status of HUF.
4. The facts which have been noticed by the CIT(A) and not in dispute, are that the property originally belonged to one Bhagabhai who died leaving behind three sons Nanubhai, Chunilal and Jinabhai. Chunilal died and his share in the property devolved by survivorship on Nanubhai and Jinabhai. Nanubhai died on 21st March, 1957, after Hindu Succession Act, 1956 came into force, leaving behind his three sons, widow Maniben and four daughters. After the death of Nanubhai, the partition of the entire property under the status of bigger HUF of Bhagabhai took place on 30th Sept., 1962 and the property was divided in two parts, one going to the line of Nanubhai and another to the line of Jinabhai. Thereafter there was no partition of the property amongst the members of HUF of which Nanubhai was Karta. Before the transfer of property in question daughters were given a fixed sum of money settling their claim to inheritance to share of Nanubhai in HUF properties.
5. The assessee's claim was founded on the ground that on the death of Nanubhai in 1957 when Hindu Succession Act, 1956 was in force and he left behind, female heirs of Class I specified under the Schedule, in terms of s. 6 of Hindu Succession Act the share of Nanubhai in HUF property devolved by succession on the heirs of Nanubhai and did not devolve by survivorship on the remaining coparceners. For that purpose, the estate of joint family was deemed partitioned and immediately before death of Nanubhai. As a result of such deemed partition each member got an indefeasible right to the share to which he was entitled. This indefeasible right to share resulted in disruption of HUF consisting of three sons of Nanubhai, though they continued to hold the share as Karta of HUF consisting of each brother and his family members. Hence, no assessment could be made in the hands of HUF. Alternatively, it was contended that in any case share of Nanubhai devolved and divided amongst the legal heirs vested in legal heirs in their individual capacity and in the same manner the share of widow Bai Mani who expired on 31st Aug., 1972 also devolved on the legal heirs. The whole property is not of HUF. On these grounds it was contended firstly, that no HUF continued to exist for the purpose of taxing the capital gains and alternatively it was urged that even if the HUF existed it had only 3/5th share in the property and remainder has gone out of the ownership of HUF, hence, capital gains only to the extent of 3/5th of the asset transferred was exigible to tax in the hands of HUF.
Portents of claim raised by the assessee on the basis of Magdum's case (infra) was that once in a case a male Hindu having an interest in joint family property dies intestate leaving behind a female heir or a male claiming through a female specified in Class I of Schedule, the HUF of which the deceased male was member is disrupted in its entirety each sharer, coparcener or female entitled to a share or partition, getting an indefeasible right in the joint property, though smaller HUF of respective coparceners getting a share may come into existence, as a consequence of disruption of principle of joint tenancy amongst existing coparceners resulting in destroying the basic characteristic of devaluation by survivorship.
6. The ITO rejected the contention and taxed the entire capital gains arising out of the aforesaid transaction in the hands of the HUF. The assessee failed in appeal before the AAC. On further appeal, before the Tribunal, the Tribunal found that facts showed that the HUF continued even after the death of Nanubhai, at the most the shares of Nanubhai can be excluded from the joint property of the HUF and the shares of widow of Nanubhai who expired on 31st Aug., 1972. The other contentions were relating to the nature of the land and the cost of the land in question for the purpose of arriving at the computation of capital gains. These two issues are now the subject matter of this reference.
7. The Tribunal in excluding the share of Nanubhai and Smt. Maniben had relied on a decision of Supreme Court in Gurupad Khandappa Magdum vs. Hirabai Khandappa Magdum & Ors. (1981) 129 ITR 440 (SC) : AIR 1978 SC 1239 : TC 37R. 300.
8. The controversy had arisen in the wake of the provisions of Hindu Succession Act and its effect on the status of HUF. Learned counsel for the Revenue has contended that where the Hindu male who is a member of a coparcenary owning joint family property dies after the commencement of the Hindu Succession Act and he leaves behind a female heir specified in Class I of the Schedule or a male heir claiming through such female, then, interest of the deceased in the Mitakshara coparcenary property devolves by succession under the provisions of the Act and not by survivorship. For the purpose of s. 6, the share of the deceased coparcener is deemed to be that share in the property which would have been allotted to him, as if a partition of the property has taken place immediately before his death, irrespective of whether he was entitled to claim partition or not. He contends, therefore, that on the death of a male Hindu only his interest in the coparcenary passes on to his heirs by notionally determining his share in the coparcenary and only to that extent the property of HUF stands diminished. However, the remainder remains the joint Hindu family property, unless the female voluntarily claims a partition and the property is partitioned allotting a share to such female to the extent of her entitlement the property remains joint. He placed reliance on decision of the Supreme Court in the case of State of Maharashtra vs. Narayan Rao Sham Rao Deshmukh & Ors. (1987) 163 ITR 31 (SC). He further contends that as no partition was in fact claimed by Smt. Maniben her interest in the property continued to remain the property of HUF and cannot be excluded. However, he conceded that in view of the decision of the Supreme Court in CWT vs. Chander Sen (1986) 161 ITR 370 (SC), the share of the deceased coparcener in the property belonging to HUF which devolved on the heirs and vested in them in their capacity as individual, the same cannot be treated henceforth a part of the property belonging to HUF and to the extent capital gains relates to the share inherited by heirs the same cannot be said to be a capital gain accruing to HUF on transfer of the capital asset. However, the same cannot be said in respect of the share which can be deemed to have been allotted to family heir on the death of male predecessor until that share is separated actually by volition of parties and a finding to that effect is recorded under s. 171. In substance, he submitted that there was only a notional partition on the death of a male member of a coparcener for the purpose of determining the interest of deceased in the coparcenary property for the purpose of inheritance but the remainder continues to remain the part of common hotch potch as coparcenary properties of the remaining members of the coparcenary and subsequent death of Maniben did not alter that position unless she had claimed her share in her life time and the same was actually separated.
9. It is a reference at the instance of Revenue, the issue only relate to the exclusion of share of Shri Nanubhai and Smt. Maniben while computing the capital gains on the transfer of the plot in question, and there is no reference at the instance of assessee, challenging the finding about continuance of HUF after death of Nanubhai, for the present purposes we shall have to assume that on the death of Nanubhai notwithstanding operation of s. 6 of Hindu Succession Act and having its effect in bestowing 'indefeasible right' in the person entitled to share on partition to such share as per decision of Supreme Court in Magdum's case, (supra) the HUF consisting of three sons and widow continued to exist, therefore, we proceed on the basis that on the death of Nanubhai, his interest in the property of HUF passed by succession to his heirs and the family continued in the status of HUF. The property of HUF headed by Nanubhai was not subjected to actual physical partition. Smt. Maniben also died before claiming her interest.
The two questions which require consideration in the present context are about the interest of Nanubhai devolving by succession and interest of Maniben vis-a-vis property of HUF which did not become subject of actual physical partition on assumption that HUF in the context of HUF property did not stand disrupted as a result of death of a male coparcener.
In the face of facts of this case that no property, which was property of HUF headed by Nanubhai prior to death of Nanubhai has actually been partitioned, whether in respect of interest of deceased or the remainder it has to be accepted that entire property was bearing dual character one vesting in the heirs of Nanubhai as their separate property to the extent of deceased's share, and the remainder bearing a different character. This dual characteristic existed in respect of each parcel of the property.
10. When a male Hindu dies having common interest in coparcenary, the first impact is that the interest of the deceased in coparcenary property devolves in succession and not by survivorship as per the characteristic of coparcenary property where there is a female heir or male heir claiming through a female heir specified in Class I of Schedule appended to Hindu Succession Act. As a consequence of this, the share of the deceased which devolves by succession on his heirs and vests in them ceases to be any more interest owned by coparcenary or the HUF property. As to the remainder, the question that may arise for consideration is whether as a result of a deemed partition for the purpose of determining the share of a deceased results in disruption of the HUF to which the deceased was a member and the coparcenaries having got their shares determined hold the property henceforth as the property allotted on partition for their smaller HUF. However, we are not called upon to decide this question in the present case inasmuch as the finding that capital gains arising out of transfer in question is liable to be assessed as capital gain of the HUF constituted of the brothers jointly, there being no actual partition of the properties is not challenged. In view of decision in Chander Sen's case (supra) the learned counsel for Revenue has also not pursued the challenge to exclusion of interest of deceased Nanubhai from the ownership of HUF in question but has confined his argument only in respect of share of Maniben which would have been allotted to her as a result of partition having taken place between herself and her husband during the life time of Nanubhai because the same she was entitled to claim. The Tribunal for giving this effect has relied on decision of the Supreme Court in Gurupad Khandappa Magdum case (supra). That was a case in which after the death of her husband, widow had filed a suit for recovery of her share both which devolved on her by succession under s. 6 as well as the share which should have been allotted to her on partition having been taken place immediately before the death of her husband. It was that claim which was granted by the Courts in her favour that she not only can claim the share which devolved on her by succession in respect of interest of the deceased, but by making such claim she can also claim her share in the property which in the case of partition having taken place between her husband and sons she was entitled to claim. As the claim was directly related to the result of the death of her husband, which resulted not only in opening of succession and in deemed partition, immediately before her death, which necessitated determining the share not only of the all the coparceners including the deceased but also of the female members who were entitled to a share in the partition in the HUF property. She was held entitled to claim that share as well. That was a deviation from customary Hindu Law inasmuch as under customary Hindu Law a clear distinction was maintained between right to a share on partition and right to claim partition of joint property. Latter was prerogative of only coparceners and those females, entitled to a share on partition were not entitled to claim partition.
11. The controversy was again raised before the Supreme Court in different context in Narayan Rao Sham Rao Deshmukh's case (supra). Though the question before their Lordships was whether on the death of a male Hindu a separate unit can be claimed by the wife in respect of agricultural lands left by the deceased. The Supreme Court drew distinction between the disruption of the family and claim to property. As the unit of assessment for determination of ceiling under the Maharashtra Agricultural Lands Ceiling and Holdings Act was family and family had to be given the meaning as defined in that Act, the Court held that notwithstanding the fact of succession, a widow does not cease to be member of the family and the family has to be taken as a unit as defined under the Maharashtra Agricultural Lands Ceiling and Holdings Act, notwithstanding the fact that the shares of the female members had become fixed but simultaneously the Court also held that notwithstanding the death of the male member the remaining members of the family continue to hold the properties together.
12. In this context it is to be seen that in the case of death of male member of HUF, the existing character of joint family property is split in two. One inherited by heirs. Obviously, that passes from the ownership of HUF and vests in heirs separately as individuals. The second is remainder in which members of the family have a share as per the principles of Hindu Law to which the persons are subjected to. Such remainder interest is divisible as per rules of partition as and when such division is claimed by any such person having right to claim partition.
13. It may be noticed that in the case of M. K. Balakrishna Menon vs. Asstt. CED-cum-ITO AIR 1971 SC 2392, the Supreme Court said, which was with reference to a legal fiction created under s. 7 in respect of 'Sthanam property' that the legal fiction could not be extended further so as to include an actual division or partition having been effected in the lifetime of the sthanamdar'. Therefore, the actual partition of the joint family property, when it takes place, will still be governed by the principles relating to partition, under the customary Hindu Law.
14. Some of the salient features of the joint family and its properties can be noticed. A joint Hindu family consists of all male persons consisting of male descendants from common ancestor, their wives and unmarried daughters and is a normal condition of Hindu society. The existence of a joint estate is not an essential requisite. But where there is joint estate of Hindu family its ownership vest in coparcenary and held by Karta or manager of the HUF. A Hindu coparcenary is much narrower body than the joint family. It consists only of male members, descendants from common stock upto fourth degree. Generally speaking it includes only those persons who acquire interest in the property by birth. These persons are the sons, grandsons and great grand sons of the holder of the joint property for the time being. A female is not a coparcener, though in certain circumstances a female is entitled to get a share on partition, but she is not entitled to claim a partition by herself. The incidence of a joint family or coparcenary property is that in such property every coparcener has a joint interest and a joint possession. It devolves by survivorship, not by succession. In such property a male member will acquire an interest by birth. The property is not held by the coparceners as tenant in common but as joint tenants. The share which is allotted to a coparcener is ancestral property as regards his male issues. Until partition is effected the right to manage and transact the property vest in Karta. Property can be alienated by Karta alone. When property is alienated by Karta, it can be challenged, in certain circumstances, by other coparceners. But coparcener with whose consent property has been sold, or who have become party to sale, cannot challenge such alienation. Female members who otherwise have a right to maintenance have no such right to challenge the alienation of joint property.
15. There is a difference between entitlement to the share on partition and right to claim a partition while a coparcener is entitled to claim partition, and get his share separated, female entitled to share has no such right to claim partition under customary Hindu Law. This position can be said to have been altered as per decision of Supreme Court to the extent that in case a Hindu male having an interest in Hindu coparcenary dies intestate, leaving a female heir or male heir claiming through female heir, which brings in operation s. 6 of the Hindu Succession Act, and a partition of HUF property is deemed to have taken place immediately before the death of the person, in such event not only share which ought to be allotted to a female on actual partition has to be taken in account for the purpose of determining interest of deceased in the coparcenary property but such female heir entitled to a share on partition of HUF by coparceners also becomes entitled to claim such share by actual partition. This claim cannot be denied on the ground that she being a female is not entitled to claim partition and must await partition by coparceners. However, effect of legal fiction under s. 6 does not extend beyond it. It does not confer on female member a right to claim partition of coparcenary property except in the contingency envisaged under s. 6 of the Act namely on deemed partition on death of a male member. Nor does it affect the state of jointness of property except when actual physical partition of such property takes place. That in our opinion is the effect of reading of two decisions of Supreme Court in Gurupad Khandappa Magdum vs. Hirabai Khandappa Magdum & Ors. (supra) and State of Maharashtra vs. Narayan Rao Sham Rao Deshmukh & Ors. (supra).
16. So far as females are concerned as we have noticed are not coparceners. Therefore, females under the Hindu law are not entitled to claim a partition. But where partition takes place between her husband and the sons she is entitled to receive a share equal to that of a son. So also where a partition takes place between the sons of a widowed mother she is entitled to a share in the coparcenary property equal to a son. Likewise, a grandmother too is entitled to claim a share on partition taking place between her grandsons, there being no son, her son being not in existence takes place between her son and sons of a deceased son. But she is not entitled to take a share on partition when partition takes place between her living sons and their sons. But that share vests in her to form her estate only when actual partition takes place and her share is separated and allotted to her. Until such share is allotted to a female on partition, it remains an integral part of the joint property. In case a female dies before partition and actual allotment takes place, it remains available for division amongst the remaining members of the family. This is so even where entitled a female to share after filing a suit for partition. Reference in this connection may be made to Sheo Dyal Tewaree vs. Judoonath Tewaree (1868) SWR 61. The Court said -
"The text of the Mitakshara that has been referred to merely say 'of heirs dividing after the death of the father, let mother also take a share' or in other words the mother or grandmother as the case might be, is entitled to a share when sons or grandsons divided the family estate between themselves. But mother or the grandmother can never be recognised as owner of such a share until the decision has been actually made."
In Beti Kuar vs. Janki Kuar (1911) 33 All 118 the Allahabad High Court held -
"No doubt under the Mitakshara upon a partition being made by sons after the death of their father the mother is entitled to a share equal to that of a son. But we are of opinion that she would obtain such share only if an actual partition took place between the sons. The text of Yajnavalkya on this point is this : 'Of heirs dividing after death of the father, let the mother also take an equal share'...
This, in our opinion, implies an actual division of the family property, that is, a completed partition under which there is a division of interest as well as separate possession. We do not think that a mere severance of interest where no actual division of the property takes place confers on the mother a right to a share equal to that of each of her sons.... It is only when the sons actually divide the property and effect a complete partition that the mother can get a share. There is nothing in the Mitakshara from which we may infer that upon a mere severance of the joint status of a Hindu family a mother can claim a share."
Bombay High Court in Raoji Bhikaji Kandkar vs. Anant Laxman Kondkar AIR 1918 Bom 175 was dealing with a case where a Hindu died leaving a widow and two sons, one of whom also died later on. Suit for partition was filed by son of said deceased son for his share in the grandfather's estate. The trial Court held that widow was entitled to a third share in the estate left by grandfather and passed a preliminary decree. Widow died before final decree could be passed. The Court referring to above two cases held -
"The share which the widow would have taken if an actual partition had been effected was never severed from the estate of Bhikaji and consequently remains now an integral part of that estate available for division."
This position about the continued status of property being joint property of HUF, except to the extent it has devolved by succession, until the same is actually partitioned, cannot be presumed to have been altered on the premises of this case that the three brothers continued to hold property jointly and are liable to be assessed in the status of HUF.
17. There is yet another aspect of the matter. In the facts and circumstances of present case. The undisputed position that has emerged is that part of the joint family property which on deemed partition of the property under s. 6 can be said to be share of three brothers has been held to be continuing as HUF property. So far as vesting of indefeasible right to such share on deemed partition under s. 6 is concerned the Supreme Court had not made any such distinction between the rights of male or female participants on partition. If without actual physical partition such shares attributable to male is to be treated to be property of existing HUF, there is no reason to exclude such share attributable to female from the common hotch potch until actual partition takes place. Otherwise, the consequence will be wholly incongruous.
18. In this view of the position of a female member vis-a-vis her right to a share in the joint family property it must be held that unless such female member voluntarily lays a claim to allotment of share as a result of partition to herself and specific property is actually allotted to her notional share to which she can lay claim remains integral part of property of HUF capable of division. Right to manage and deal with joint family property also vest in Karta until partition takes place. Her notional interest cannot be excluded for computing capital gains arising out of sale of any part of the joint family property sold by coparceners, before its partition takes place.
19. So far as the exclusion of the share of Nanubhai is concerned, it must be held that once his interest in the coparcenary property by operation of law vested in his heirs which included male as well as females, to that extent the property did not remain the property of the HUF of which he was a member and it passed out of its common hotch potch. Under s. 45 what is taxable is transfer of capital asset by the owner of such asset. If the property owned by the transferor is in two different capacities, namely partly owned by the transferors as a body of coparceners as coparcenary property and part of it is owned by them as their individual property acquired through inheritance then the entire capital gains cannot be said to be arising to the HUF. Obviously, in such cases, where the cases are not governed by s. 171, the capital gains will have to be apportioned between the two different owners.
20. As we are concerned here with the assessments of HUF, any interest which has been transferred by the three brothers as belonging to them in their individual capacity as different from belonging to them jointly as coparceners, not merely as tenants in common but as joint tenants cannot be clubbed together. Therefore, in our opinion, the learned counsel for the Revenue has rightly conceded that the capital gains to the extent it is attributable to the interest of Nanubhai inherited by the heirs cessed to be part of the property of HUF which remained thereafter. The character of dual ownership was imposed on entire property. Unless actual partition takes place every asset or part of property belonging to HUF shall have this character. Therefore, when out of entire property one plot was sold, on such transfer while computing capital gains, the capital gains attributable to the extent of that interest which has devolved by succession partaking different character has to be excluded while computing the capital gains accrued to the HUF.
21. So far as the argument about the need for recording of finding of actual partition is concerned, it has indication to the provisions of s. 171 of the IT Act, which provide that where a Hindu family hitherto assessed as undivided shall be deemed for the purpose of this Act to continue to be an HUF until on a claim made by assessee a finding about partition has been recorded. The precondition for applicability of s. 171 is that an HUF ought to be an assessee as such and it is only if such an assessee in a subsequent period claims any partition, partial or complete, it cannot be recognised unless a finding to that effect has been recorded. However, from the facts of the present case we do not find anything on record suggesting that Shri Balubhai Nanubhai was already an assessee in the status of HUF consisting of five members stated in the order of the ITO, namely, the three brothers, father and mother. Therefore, in the absence of any such material to suggest that the assessee was already being assessed as HUF, the question cannot be examined whether in terms of s. 171, a finding as to partition was necessary to be recorded before the HUF could be held to have been disrupted. In the absence of a person being already assessed as HUF if a claim is laid for the first time that no HUF exist it had to be decided as per the existing law and the facts whether in fact any HUF vis-a-vis the property in question subsist or not. Moreover, that is not a question that arise out of the order of Tribunal. None of the authorities had rested its decision on the basis of s. 171, nor any such argument was raised before or decided by the Tribunal.
22. As a result of aforesaid discussion, our answer to question referred to us is that for the purpose of computing capital gain arising out of transfer of capital asset in question the value of share referable to interest of deceased Nanubhai devolving by succession on his heirs, has to be excluded. However, no exclusion of any share on account of death of Maniben can be made. No order as to costs.