Income Tax Appellate Tribunal - Madras
T.V. Balakrishnan vs Income-Tax Officer on 15 April, 1988
Equivalent citations: [1989]28ITD314(MAD)
ORDER
D.S. Meenakshisundaram, Judicial Member
1. The appellant is an advocate. These appeals relate to his income-tax assessments in the status of an individual for the three assessment years 1980-81, 1981-82 and 1982-83. The assessee follows the financial year ending on the 31st of March as his previous year.
2. The only point of dispute in all the three appeals is the inclusion of the income from properties at door Nos. 52 to 54 Mowbrays Road, Madras, which the appellant claims, belongs to his HUF, of which he is the karta, and not to him as an individual.
3. For the assessment year 1980-81, the assessee had declared his total income at Rs. 24,516 which consisted of the following two incomes :
Income from properties- Rs. 14,346
Income from profession-- Rs. 10,170
Rs. 24,516
The Income-tax Officer completed the assessment for this year on 30-10-1981 on a total income of Rs. 29,570 accepting the professional income returned by the appellant, but determining the income from property at Rs. 19,396 as against Rs. 14,346. The Income-tax Officer did not allow the assessee's claim for deduction of municipal taxes in full. The assessee preferred an appeal against this assessment order objecting to this disallowance originally. However, in the course of the appeal proceedings, the assessee raised additional grounds before the Appellate Asstt. Commissioner, contending that these properties belonged to his HUF and that therefore the income from properties should not be included in his individual assessment.
4. The Appellate Asstt. Commissioner after examining the assessee's contentions and the evidence produced by him in support thereof accepted the same and held that the properties belonged to the joint family and that therefore the income thereof was not includible in the individual assessment of the assessee. He therefore directed the Income-tax Officer to exclude the said income from property from the assessee's individual assessment. In support of his conclusion, the AAC relied on the decision of the Allahabad High Court in the case of Lal Bahadur v. Kanyalal ILK, 29 All. 244 and a passage from Mulla's Hindu Law, 13th Edition at page 254. He further accepted the assessee's claim for deduction of the municipal taxes as claimed by the assessee by following the decision of the Madras High Court in the case of CIT v. L. Kuppuswamy Chettiar [1981] 132 ITR 416. The AAC therefore allowed the assessee's appeal.
5. The revenue felt aggrieved by this order of the AAC and therefore took up the matter to the Tribunal. By their order dated 18-5-1985 in ITANo. 661 (Mds.)/84, the Appellate Tribunal, Madras Bench-A held as follows in para 8 of their order to restore the main issue to the Appellate Asstt. Commissioner :--
It has been contended on behalf of the revenue that the properties cannot be considered to belong to the HUF. This contention is sought to be supported by reliance on the decision of the Supreme Court in the case of M.P. Periakaruppan Chettiar (supra) and also on the facts that substantial funds for the construction of the properties have come from the earnings of the assessee as individual. We have earlier reproduced the letter of the assessee's father dated 3-3-1970. It has been stated in this letter that the funds provided by the father were intended by the father to be for the benefit of the assessee and his sons as members of a joint family. It is also stated in this letter that the monies advanced to the assessee by his father has been in lieu of assessee's share in the family properties. It appears from this narration that the monies received by the assessee might be out of the family funds of the father of the assessee, that is to say, that at the time the monies were advanced they belonged to the joint family of the assessee's father, assessee's brother and the assessee and not the separate property of the assessee's father. This inference is to some extent supported by the next succeeding sentence in the letter to the effect that a house was given to the assessee's brother against the monies given to the assessee. This point does not appear to have been examined by the lower authorities. We are also not able to conclude straightaway one way or other as in our opinion further facts are necessary for such a conclusion. We would, therefore, restore this question to the AAC to determine the nature of the property gifted to the assessee in the hands of his father. The appeal is restored to the AAC on this point. This disposes of the main issue raised by the revenue in this appeal.
The Tribunal, however, upheld the order of the Appellate Asstt. Commissioner on the question of the allowance of the municipal taxes and treated the department's appeal as partly allowed.
6. Pursuant to this order of the Tribunal, the Appellate Asstt. Commissioner again examined the issue raised by the appellant in the light of the directions of the Tribunal and the decision of the Supreme Court in the case of C.N. Arunachala Mudaliar v. C.A. Muruganatha Mudaliar [1954] 5 SCR 243. The AAC held in para 4 of his order that it appeared to him that the sum that was transferred by late Shri T.L. Venkatarama Iyer was not ancestral, nor it belonged to the HUF of late T.L. Venkatarama Iyer. He further held as follows in para 4 of his order :---
The making of gifts by late Shri T.L. Venkatarama Iyer and acceptance of that gifts by the appellant were by themselves acknowledged by them at the money and property belonged to late Shri T.L. Venkatarama Iyer absolutely and he was competent to effect to that gift. In this regard, there is not gainsaying in mentioning that under the Hindu Law late Shri T.L. Venkatarama Iyer as karta of his family could not at all had gifted immovable property of the family as done in the case of another brother of the appellant. The circumstances and the acceptance of the gifts by the appellant acknowledged the right and competence of late Shri T.L. Venkatarama Iyer to make the gift in turn implication of admitting that late Shri T.L. Venkatarama Iyer was the absolute owner of the property.
The Appellate Asstt. Commissioner relied on the appellant's conduct for a number of years in declaring the income from these properties as belonging to him individually and that it was only in this assessment year and that too at the appellate stage, the assessee had come forward with a fresh claim that the properties actually belonged to the HUF of which he is the karta. The AAC further held that the appellant had. failed to prove that the property that was transferred to him or his brother was not the self-acquired property of his father. He referred to an affidavit filed by the appellant before him wherein the appellant had stated that circumstances showed that his father and grandfather who were well established in their lives, must have had some property which could be said to belong to the family, but then no specific asset had been mentioned and/or identified for the same. In the abovementioned circumstances, the AAC held that the nature of the property gifted to the assessee by his father was nothing but the self-acquired property of the father of the appellant, that the assets acquired out of the funds received from late Shri T.L. Venkatarama Iyer could not form the nucleus of the HUP of which the appellant was the karta and that the property in reference could not be considered to belong to the HUF as the same was not thrown into the hotchpot of the HUF. The AAC further held that the appellant's contention was also not that as he had all along been" disclosing the assets as belonging to him and for that purpose his affirmations in the returns of income of the respective assessment years were sufficient to show that the assessee never intended that the properties constructed in his name should be owned jointly by his family members. The AAC therefore disagreed with his predecessor on this point and rejected the appellant's contention a,nd dismissed the assessee's appeal.
7. For the next assessment year 1981-82, the appellant filed his return admitting a total income of Rs. 12,980. In this he did not include the income from properties for the reason, that the said income from properties belonged to his HUF. He pointed out that the assessee's father had provided funds for the construction of the property and that the said funds were being provided by him for the benefit of the joint family consisting of the assessee and his sons. The Income-tax Officer, however, did not accept this claim for the reason that the decision of the AAC for the year 1980-81 relied on by the appellant was not final, as the department had preferred an appeal to the Tribunal. He therefore included the income from properties in the hands of the appellant as an individual. For the next assessment year 1982-83 also the ITO included the income from properties in the hands of the appellant for the reasons stated by him in the assessment order for 1981-82.
8. The appellant preferred appeals objecting to these two assessments. The AAC dismissed these two appeals by following his order for the assessment year 1980-81 referred to above.
9. Aggrieved by these orders of the AAC, the appellant has come up on further appeal to the Tribunal.
10. Shri S.P. Subramaniam, the learned counsel for the appellant, submitted that the appellant was enrolled as an advocate in 1950 and became a junior of his father, who was then practising as an advocate. The appellant's father was appointed as a Judge of the Madras High Court in the later half of 1951. The learned counsel submitted that at the time of the elevation of the appellant's father to the Bench the appellant had put in a practice of 2 1/2 years only at the Bar. He next submitted that the appellant purchased a piece of land at No. 26, Mowbrays Road, Madras in 1954 for Rs. 10,000, for which the appellant had received five to six thousand rupees from his father. The learned counsel next referred to a letter written by the appellant's father on 14th December, 1957 from New Delhi when he was a Judge at the Supreme Court, which specifically referred to a sum of Rs. 2,000 sent by the father to the appellant by cheque. The learned counsel pointed out that this letter expressly referred to the completion of the upstairs of the building that had been put up by the appellant and also the advice of the appellant's father to the appellant to retain the tenant who was in occupation of the downstairs portion of the house. The learned counsel also submitted that the appellant had received a sum of Rs. 35,000 from his father for the construction of the house property on 11-12-1961, as could be seen from the appellant's letter dated 15-1-1983 addressed to the AAC, a copy of which was in the appellant's paper book. The learned counsel submitted that the above materials clearly established that the appellant had received nearly Rs. 43,000 from his father for the purpose of construction of the house property at No. 26, Mowbrays Road. The learned counsel clarified that this building now bears the new door No. 52, Mowbrays Road and that it was complete by 14-12-1957, as could be seen from the letter of the appellant's father. Shri S.P. Subramaniam next relied on a letter dated 3-3-1970 written by the appellant's father to the appellant just before he was to be admitted in a nursing home for an operation and pointed out that this letter made it abundantly clear that the monies given to the appellant by his father were to be taken by him for the benefit of himself and his sons as members of a joint Hindu family.
11. On the above materials, Shri S.P. Subramaniam, the learned counsel for the appellant, submitted that the properties in question were acquired and constructed by the appellant with the aid of HUP funds and that therefore they would constitute only HUF property in the hands of the appellant. The learned counsel developed his case by submitting that the appellant had constructed the properties in stages as could be seen from his letter dated 15-1-1983 addressed to the AAC, that the properties in question consisted of three door numbers, as set out below :
SI. No. Old door No. New door No.
1. 26 52
2. 26-A 53
3. 26-B 54
The learned counsel explained that the appellant constructed the property at No. 26, Mowbrays Road in part during 1955 to 1957, having purchased the land itself from his cousin some time in 1954 for Rs. 10,000. Thereafter he extended it by putting up additional constructions in 26 and 26-A, which were let out to tenants, as these constructions were put up in the form of small tenements over a period of ten years from 1954 or 1955. He completed construction of the third property bearing No. 26-B some time in 1967 or early 1968. This property bearing door No. 26-B is being used as his residence by the appellant from the date of completion of the construction. The learned counsel submitted that apart from receiving a sum of nearly Rs. 43,000 from his father for the purpose of constructing these properties, the appellant was also receiving rental income from these properties, which also belonged to his HUF, which he utilised for the purpose of putting up additional constructions from time to time, apart from utilising his own personal funds for the said purpose. The learned counsel therefore argued that all these constructions which were put up by the appellant with the aid and help of the funds received from his father would constitute HUF property in his hands on the authority of the decision of the Supreme Court in C.N. Arunachala Mudaliar's case (supra). He also contended that the. appellant along with his two sons, Ashok and Suresh, constituted a Hindu joint family governed by the Madras School of Mitakshara law, that whatever property that was acquired or constructed with the aid and help of HUF property would also partake of the nature of HUF property only in the hands of the appellant, even if the appellant had utilised a portion of his own funds while constructing the said properties. In fact, the utilisation of such individual funds along with the HUF funds would amount to blending of the individual funds of the appellant with his HUF properties with the intention of such blending on the part of the appellant. The learned counsel submitted that the blending of individual funds of the appellant in the HUF properties was proved by the very construction of the properties on land acquired with the help and aid of HUF funds as early as 1954. The learned counsel argued that these facts have not been correctly understood and appreciated in their proper perspective by the AAC when he rejected the appellant's claim that the properties in question did not belong to him in his individual capacity, but to his HUF and that therefore the income from these properties should be excluded from his individual hands. In this connection, Shri Subramaniam submitted that the earlier order of the AAC dated 22-12-1983 for the assessment year 1980-81 correctly understood the facts of the case and correctly applied the law bearing on the subject. He submitted that the present findings of the AAC in para 5 of his order were contrary to accepted principles of Hindu law and therefore deserved to be set aside. Shri Subramaniam argued that when the intention of the appellant's father, as made clear by his letter dated 3-3-1970, showed that the monies amounting to more than Rs. 80,000 were given by him to the appellant for the benefit of the appellant and his sons as members of a joint family, the said amount of Rs. 80,000 constituted the HUF nucleus, of which the appellant was the karta on the authority of the Supreme Court decision in C.N. Arunachala Mudaliar's case (supra). The properties acquired with the aid and help of those funds received from the father would constitute HUP property only in the hands of the appellant vis-a-vis his two sons and that the income from these properties should therefore be excluded from the individual hands of the appellant in these three years. The learned counsel submitted that the fact that the appellant had been returning the income from these properties in his individual hands in the earlier years, would not affect or alter the legal position in Hindu law and that it is always open to the appellant to place the correct position in Hindu law and claim the relief that was lawfully due to him. The learned counsel further argued that the appellant's claim of partition of the properties which was rejected in 1972-73 also would not affect the legal position. He further submitted that any amount of declarations made by the appellant in any sale deeds would not change or affect the HUF character of these properties. He therefore submitted that the AAC was not right in disagreeing with his predecessor and in rejecting the appellant's claim for exclusion of the property income from his individual hands. 12. Shri V.D. Gopal, the learned departmental representative submitted that from 1955 to 1981-82 the appellant had declared these properties as his individual properties, that it was only for the first time in the course of the appeal proceedings for 1980-81 the appellant took up the plea that the properties in question belonged to his HUF and that therefore the income therefrom should be excluded from his individual hands. In this connection, Shri Gopal pointed out that the appellant's claim for partition of his properties in the course of the proceedings for 1972-73 was not accepted by the Income-tax Officer and the appellant did not pursue the matter further, but accepted the said decision. He therefore submitted that the conduct of the appellant with the Income-tax Department and the outside world were in variance, as could be seen from the recitals in the various documents of sale executed by the appellant in the course of years, declaring the properties sold, by him as Ms self-acquired properties. In his connection Shri Gopal relied on the assessee's letter dated 6-11-1969 written by the assessee to the Income-tax Officer in the assessment year 1969-70 explaining the additional constructions put up by Mm in No. 26, Mowbrays Road, as well as his resources for putting up the said constructions. He pointed out that in his letter the assessee had not claimed that the properties in question were his HUF properties. He next referred to the copy of the sale deed dated 14-12-1967 for Rs. 90,000 executed by the appellant for the sale of a property bearing Door Nos. 19A and 19B, Seethamma Colony, wherein the appellant had described these properties sold, by him as Ms self-acquired and separate properties. The learned departmental representative further pointed out that the appellant had described the property at 49-B, Mowbrays Road, which he sold during the accounting year relevant for 1974-75 as his self-acquired property. On the above materials Shri Gopal argued that the conduct of the appellant showed, that he had been treating all these properties as his self-acquired properties only. It was also clear that Ms intention was to keep these properties only as his self-acquisitions, as could be seen from his declarations in the sale deeds executed by Mm in 1967 and 1973 or 1974. The learned departmental representative also referred us to the gifts made by the appellant in respect of two of these properties in favour of his four married daughters during the period 1-4-1981 to 31-3-1982 and further pointed out that the appellant had filed gift-tax returns for the assessment years 1981-82 and 1982-83. The learned departmental representative pointed out with reference to the recitals in the settlement deeds executed by the appellant that the appellant had described himself as the sole and absolute owner of these properties and not as the karta of his HUF. The learned departmental representative therefore submitted that the appellant has been taking inconsistent stands before the department and the outside world and that therefore his claim was rightly rejected by the AAC. On the question of blending of the individual properties with the HUF properties, the learned departmental representative relied on the Full Bench decision of the Madras High Court in CGT v. P. Rangasami Naidu [1970] 76 ITR 315 at 323 wherein it had been held that mere physical mixing of the separate properties with HUF properties would not decide the issue, but it would be decided only by the intention of the appellant blending his self-acquisitions with HUF properties. He therefore submitted that the orders of the AAC were right and that the same should be upheld.
13. Shri Subramaniam, the learned counsel for the appellant, submitted in his reply that the recitals in the various documents of sale deeds or settlement deeds relied on by the learned departmental representative would in no way affect or alter the true HUF character of these properties which was established by the fact that more than Rs. 40,000 received by the appellant from his father had been utilised by the appellant for the purpose of acquisition of land and construction of these properties, besides utilising the rental income received by him from these properties over the years for the purpose of putting up further constructions. The intention of the appellant to blend his self-acquisitions represented by his professional earnings with his HUF properties received from his father would be clear from the construction of the various properties on HUF land without making any distinction between individual or HUF funds. Regarding the settlement deeds executed by the appellant in favour of his four daughters, the learned counsel placed before us a copy of the deed of confirmation dated 9-8-1985 executed by the appellant's two sons, Ashok and Suresh, and pointed out that the said settlements were made by the appellant as part of the family arrangements in favour of the daughters with the full concurrence of his sons and that no exception can be taken to the same. The learned counsel further submitted that the filing of the gift-tax returns by the appellant for the assessment years 1981-82 and 1982-83 also would not affect the appellant's present claim in these appeals, as in his gift-tax returns also the appellant had claimed that these properties belonged to his HUF and not to him as an individual.
14. We have carefully considered the submissions urged on both sides in the light of the materials placed before us.
15. The most important piece of evidence on which the appellant's case is based, is the letter dated 3-3-1970, written by the appellant's father to the appellant. For facility of reference, we set out the letter in its entirety :
T.L. Venkatarama Aiyar Retd. Supreme Court Judge "Sri Vidya Vilas"
81 Mowbray's Road, Alwarpet, Madras-18 Phone 71674 Dated: 3rd March, 1970.
To Mr. T.V. Balakrishnan, Advocate, 26 Mowbray's Road, Alwarpet, Madras-18, Dear Bala, I have from time to time advanced to you funds amounting to more than Rs. 80,000 for construction of the houses and marriage expenses of your daughter. All this has been in lieu of your share in the family properties. As against this, I am giving the residential house, (81, Mowbray's Road) to your elder brother Shri T.V, Srinivasan and his sons in lieu of his share. As I have told you, monies advanced by me, should be taken by you for the benefit of yourself and your sons as members of a joint family.
I desired to write this to you on the eve of my being admitted in Ranga Nursing Home for an operation of 5th of this month.
Yours affectionately, Sd.
16. This letter shows that the assessee had received funds amounting to more than Rs. 80,000 for construction of the houses and marriage expenses of his daughter from time to time. This is further clear from the letter dated 14th December, 1957 written by the appellant's father from New Delhi enclosing a cheque for Rs. 2,000 as desired by the appellant. This letter further shows that the construction of the house bearing Door No. 26 was completed by December 1957. We further find that the appellant had written a letter to the Income-tax Officer on 8-10-1965 in the course of his wealth-tax assessment proceedings for 1965-66 wherein he had stated that he had purchased a plot of land for Rs. 10,000 in 1954, out of which nearly five to six thousand rupees would have come from his father. In his letter dated 15-1-1983 addressed to the Appellate Asstt. Commissioner, the appellant has mentioned these facts in para 2 of his letter and further referred to the remittance of Rs. 35,000 received from his father on 11-12-1961 for the purpose of constructing a property on an unfinished construction in 71/9, Mowbrays Road, which he had purchased for Rs. 20,000 from one Mrs. S.G. Navnitammal on 9-9-1961 and on which property he had spent a further sum of Rs. 40,000. While explaining the source for this investment, the appellant had stated that he had borrowed Rs. 22,000 on 4-9-1961 and another sum of Rs. 11,000 on 19-9-1961 from one Shri S. Thyagarajaiyer, Advocate and that his father had remitted to him a sum of Rs. 35,000 on 11-12-1961. He further stated in this letter that he sold away this property as his father did not like the location and thereafter he purchased another property bearing No. 19A & B, Sitamma Colony, which also he sold away as there was a serious theft in the said house and his family members did not want to stay in the said house also thereafter. It is after selling away this property which he had purchased in Sitamma Colony that he ultimately constructed the new block No. 26-B with the sale proceeds. The appellant therefore explained that the amount of Rs. 35,000 received by him from his father was always available in one form or another for the acquisition and the construction of the various properties. Thus, it is clear from the materials placed before us that the appellant had received in all a sum of Rs. 40,000 to Rs. 43,000 for the construction of the house properties from 1954 to 1961, apart from other funds received from his father on the occasion of the marriage of his daughter.
17. The letter dated 3-3-1970 written by the appellant's father, which we have quoted above, clearly establishes that the appellant's father intended to give these funds amounting to more than Rs. 80,000 to the appellant in lieu of the appellant's share in the family properties. As against this, the appellant's father gave his residential house at No. 81, Mowbrays Road to the appellant's elder brother T.V. Srinivasan, and his sons in lieu of his elder brother's share. Thus, it is apparent from a perusal of this letter that the appellant's father was making a division of his properties between his two sons, namely the appellant and his elder brother. Since he had already given cash amounting to more than Rs. 80,000 to the appellant, the appellant's father decided to give his residential house to the other son. This arrangement the appellant's father made just on the eve of his being admitted to a nursing home for an operation. The appellant's father has further stated in this letter that the monies given by him to the appellant should be taken by him for the benefit of himself and his sons as members of a joint family.
18. There are two ways of looking at this letter--(i) as a partition or division of his properties effected by the appellant's father between his two adult sons ; or (ii) in the alternative as "gifts" made by the appellant's father of his properties to his two sons.
19. We consider that it would be fair, just, legal and proper to hold on a fair and reasonable reading of this letter, that by this letter the appellant's father was making a division or partition of his properties between his two sons. As he had already given more than Rs. 80,000 in cash from time to time to the appellant, he gave his residential house to the elder son for his share. The amounts so received by the appellant would represent the share received by him in the partition or division effected by his father between the appellant and his elder brother, of his properties, as it is the undoubted right and privilege of a Hindu father governed by the Mitakshara law to effect a partition between himself and his sons, whether they are majors or minors without their consent. He may divide the properties physically or may only bring about a division in status. This division may be between himself and his sons or even between the sons inter se. The partition so made, however, must be fair and equal. This position is now well settled by the decision of the Madras High Court in M.S.M.M. Meyyappa Chettiar v. CIT [1950] 18 ITR 586.
20. If the amount of Rs. 8.0,000 received by the appellant from his father represents his share of the family properties received from his father in the partition effected by his father on 3-3-1970, then undoubtedly the properties acquired and constructed with the aid and help of such amount would constitute Hindu undivided family properties in the hands of the appellant and they cannot be regarded as the individual properties of the appellant. This position is also now equally well settled by the decision of the Supreme Court in N.V. Narendranath v. CWT [1969] 74 ITR 190. We have already referred to the facts which clearly established that nearly a sum of Rs. 40 to 43 thousand have been received by the appellant from 1954 to 1961 from his father for the purpose of acquiring the land and construction of the various properties in question from time to time. The said sum of more than Rs. 40,000 would constitute sufficient joint family nucleus in the hands of the appellant. When he acquired and constructed these house properties with the help of the said joint family nucleus, the said properties would belong only to his joint family consisting of the appellant, his wife and two sons and of which he is the karta. We find considerable force in the contention of the learned counsel for the appellant that the rental' income from these properties were also available with the appellant for being utilised by the appellant for the later constructions of the properties.
21. The second way of looking at the letter dated 3-3-1970 is that the appellant had received more than Rs. 80,000 as gifts from his father for the construction of the houses and marriage expenses of his daughter. Even if we so construe this letter the intention of the appellant's father in making the said gifts is very clear as expressed by him in his letter. He had intended that the monies given by him should be taken by the appellant for the benefit of himself and his sons as members of a joint family. It is therefore clear that the appellant had received these amounts from time to time from his father only for the benefit of his joint family and not as an individual for himself.
22. The appellant's case is directly covered by the ratio of the decision of the Madras High Court in CIT v. M. Balasubramaniam [1981] 132 ITR 529. In that case the assessee's father gave a gift of Rs. 10,100 out of his self-acquired property to the assessee expressing his intention that the benefit of the said sum should go to the assessee's wife and children also as and when he got married and lie should enjoy it as a joint family. This gift was made by the father in June 1966. The assessee invested this amount as a portion of his capital in a firm. The profits which accrued to his credit in the firm were invested in another firm as his capital. He transferred to the credit of a separate account styled as HUF account, a sum of Rs. 10,100 in December 1966 and another sum of Rs. 5,000 in April 1967. The assessee got married in May 1970 and he got a daughter in February 1971. For the accounting year ended 31-3-1971 relevant for the assessment year 1971-72 the assessee claimed that the income derived by him should be assessed in his hands as a HUF and not as an individual. The Tribunal held that as the assessee had accepted the gift with the condition imposed by his father at the time of making the gift, there was a legal obligation on the part of the assessee to treat the property as joint family property and after the assessee got married and got a child, a joint family came into existence and consequently it directed the assessment to be made in the assessee's hands as a HUF. In the corresponding wealth-tax assessment, the Tribunal upheld the assessee's claim to treat the wealth represented by the accretions to the originally gifted sum of Rs. 10,100 as the wealth of the HUF. On a reference, the Madras High Court held that the gift was made out of the self-acquired property of the father at a time when the assessee was not even married and that the legal incidence of the property might change on the birth of a son, but until that event happened the assessee would have to be assessed only as an individual for the purposes of wealth-tax and income-tax. After referring to the decision of the Supreme Court in C.N. Arunachala Mudaliar's case (supra) and the later Supreme Court decisions. Their Lordships held as follows at page 535 of the reports :--
It is clear from these decisions that the donor or testator dealing with self-acquired property may, by evincing the appropriate intention, render the property gifted to assume the character of a joint family property, or, as the case may be, a separate property in the hands of the donee vis-a-vis his male' issue. In the present case, therefore, no exception could be taken to the terms of the letter dated 5th June, 1966.
Again, after discussing the various decisions of the Supreme Court and of the Privy Council, their Lordships finally held at page 539 of the reports as follows :--
If in the present case the property had been obtained on partition, then as a result of the marriage and the subsequent birth of the daughter, it would have been possible to hold that the income belonged to the HUF or that the assets belonged to an HUF as in Narendranath's case [1969] 74 ITR 190 (SC). But that is not the position here. The property had been obtained only under a gift. The legal incidence of the property obtained may change on the birth of the son, but until that event happened, the assesses would have to be assessed only as an individual.
23. Respectfully following and applying the ratio of this decision, we would hold that the funds received by the appellant from his father from time to time for the construction of the properties were for the benefit of himself and his sons as members of a joint Hindu family. It therefore follows that the income from these properties should be held to belong to the HUF of the appellant and not to him as an individual.
24. We are unable to agree with the revenue that merely because the assessee had declared the income from these properties as his individual income in all the earlier years, it would stand in the way of the acceptance of the appellant's claim in these years. Similarly, the recitals in the various documents, such as the sale deeds relied on by the learned departmental representative, would also not stand in the way of the appellant's claim being accepted as to the true legal character of these properties as belonging to the HUP of the appellant and his sons would not be affected by any such declarations made by the appellant in the sale deeds. Finally, the revenue relied on the settlement deeds executed by the appellant in favour of his four married daughters in April 1981 to argue that the appellant could not have settled these properties in favour of his daughters, if these properties were his HUF properties. The learned counsel has placed before us the deed of confirmation dated 9-8-1985 executed by his two sons, to meet this argument of the department. In this, it has been stated by them as follows :
Whereas along with our father Sri T.V. Balakrishnan constitute members of Hindu undivided family, and whereas the properties bearing Door Nos. 52, 53 and 54 Mowbrays Road, Alwarpet, Madras-600018 had been acquired by our father Sri T.V. Balakrishnan, Advocate and partly with the funds provided by our grandfather Mr. T.L. Venkatarama Iyer, Retired Judge, Supreme Court of India and former Chairman, Law Commission ;
Whereas we have four sisters and whereas it is the desire of our father and mother that succession to the Estate of our father should be only according to Hindu Succession Act, 1956 giving equal rights to daughters and whereas our father and mother suggested arrangements should be made giving some properties to each of the daughters, representing their shares in the interest of the father in the family properties to avoid any possible misunderstandings either with regard to value or mode of partition and whereas we were willing parties to such an arrangement and whereas a contiguous superstructure with the land, in Door No. 53, separating 52 and 54, Mowbrays Road, had been settled on the daughters along with part of No. 52, Mowbrays Road, Alwarpet, Madras-600 018 by separate registered documents representing the family arrangements with our full concurrence and whereas our sisters have been fully provided, we hereby confirm and accept the settlement documents as a fair and equitable family arrangement in regard to the claims of our sisters.
From a perusal of the aforesaid recitals from the deed of confirmation, it is clear that these settlement deeds were executed by the Appellant in favour of his daughters with the full concurrence of his two sons as part of a family arrangement. There is no dispute before us that the settlement deeds executed by the appellant in favour of his four married daughters and the deed of confirmation executed by the two sons of the appellant on 9-8-1985, are all genuine documents and that they have been acted upon by all the parties. On the authority of the latest decision of the Madras High Court in the case of CIT v. R. Ponnammal [1987] 164 ITR 706, we have to accept all these documents, namely the settlement deeds and the deed of confirmation, as part of a valid family arrangement made by the assessee and his two sons out of their HUF properties in favour of the four married daughters of the family. Therefore, these settlement deeds or the recitals therein also would not stand in the way of the acceptance of the appellant's claim that the properties in question belonged to his HUF.
25. The only other contention that remains to be examined is the one relating to blending of the properties in the HUF hotchpot. In view of our conclusion reached above regarding the HUF nature of these properties on the facts of this case, this question becomes purely academic and it is not necessary to give any decision on the same. However, since arguments were advanced on this aspect of the case also by the learned counsel on both sides, we shall examine and dispose of the same for the sake of completeness.
26. The learned counsel on both sides had referred us to the Full Bench decision of the Madras High Court in P. Rangasami Naidu's case (supra). In fact, the learned departmental representative, Shri V.D. Gopal, submitted that this is a classic judgment on the doctrine of blending of individual property with the HUF property, and we respectfully agree with this submission of Shri Gopal. That was a case which arose under the Gift-tax Act, 1958, where the assessee, who was a retired District and Sessions Judge, made a declaration in the form of an affidavit on 21-5-1958, impressing Ms self-acquired properties with the character of HUF property by throwing them into the joint family hotchpot and the department sought to levy gift-tax by treating the said act of declaration of the assessee as amounting to a gift. The Full Bench rejected the revenue's, contentions that there was a gift made by the assessee in the said case. His Lordship Mr. Justice Natesan, who delivered the judgment of the Full Bench after quoting from the two Supreme Court decisions in Mallesappa Bandeppa Desai v. Desai Mallappa AIR 1961 SC 1268 and G. Narayana Raju v. G. Chamamju AIR 1968 SC 1276 referred to the decision of the Madras High Court in R. Subramania Iyer v. CIT [1955] 28 ITR 352 and held as follows at page 324 of the reports :
Reference may also be made to Subramania Iyer v. Commissioner of Income-tax, wherein this court observed :
The assessee and his son undoubtedly constitute members of a joint Hindu family. They might have started with no ancestral nucleus or other joint family property but there was nothing to prevent the assessee from impressing upon any self-acquired property belonging to him the character of joint family property. No formalities are necessary in order to bring this about and the only question is one of intention on the part of the owner of the separate property to abandon his separate rights and invest it with the character of joint family property.
These principles were applied by the Andhra Pradesh High Court in Sadasiva Vittal v. Rattalu AIR 1958 AP 145. Decisions thus establish that the two essential requisites for the conversions are : (1) the existence of a coparcenary, and (2) the deliberate intention formed by the coparcener owning separate property to treat the same as joint family property. This intention may manifest itself in any form, such as by a statement in a deposition, an affidavit, execution of a document as a declaratory deed, or by course of conduct. What transforms the separate property into joint family property is not the outward act or the conduct or the public declaration of the coparcener owning the separate property, but his intention to so treat it--the intention of the coparcener who owns the separate property to waive and surrender his special rights in the property as separate property. The outward acts are merely evidence of the intention and by themselves they do not change the character of the property. As pointed out in Mayne's Hindu Law, 11th edition, at page 349, separate property does not cease to be as such and become joint family property by any physical act, but the acquirer's own volition and intention to surrender his exclusive right. In bringing about the metamorphosis in the character of the property with all its incidents under the personal law, the acceptance or consent of the other members of the joint family to it has no place. They cannot resist the blending by a coparcener of his separate property with the joint family property.
Again at the top of page 335, his Lordship quoted the following passage from the Supreme Court decision in C.N. Arunachala Mudaliar's case (supra) at 498 and 499 :--
A Mitakshara father can make a partition of both the ancestral and self-acquired property in his hands any time he likes even without the concurrence of his sons ; but if he chooses to make a partition, he has got to make it in accordance with the directions laid down in the law. Even the extent of inequality, which is permissible as between the eldest and the younger sons, is indicated in the text. Nothing depends upon his own favour or discretion. When, however, he makes a gift, which is only an act of bounty, he is unfettered in the exercise of his discretion by any rule or dictate of law.
Their Lordships draw a significant distinction between a gift by the father as an act of bounty, and a partition by him of his separate property among his sons, when Hindu law governs.
Thereafter his Lordship referred to a passage from Mulla's Hindu Law (13th edition, page 247) and held as follows at pages 335 to 337 of the reports :
According to Mitakshara, the right of one person in and to the property of another is daya. It is of two kinds : apratibandha and sapratibandha. In the former case one person acquires rights in another's property even while the other is alive by reason of relationship. In the latter case the existence of the owner is an obstruction. In Lakshminarasamma v. Rama Brahman AIR 1950 Mad. 680, 687 referring to the true character of the interest which the son had in his father's self-acquired property, Rajamannar, CJ. observed :
According to the Mitakshara, the son has a right by birth in every kind of property. This must always be borne in mind. Mr Mayne evidently overlooked this in his argument in Jagampet case : Venkayamma v. Venkatarananayamma 1902 ILR 25 Mad. 678, 688 (PC), when he cited the instance of sons taking the self-acquired property of the father as an instance of obstructed heritage (In Jagampet case, Lord Lindley, in delivering the judgment, apparently found the instance not satisfactory, for his Lordship observed : "But it may be that where sons succeed the inheritance as to them is unobstructed"). The description is extremely misleading, because it is neither heritage nor is it obstructed. The misconceptions prevailing in this branch of the Hindu law are mostly due to the mistake of equating the right by birth (Jenmanaiva swatwa) with equal ownership (sadrisam swamyam). Though it is true that the son has a right by birth in all kinds of property belong to the father, the amplitude of his ownership differs according to the nature of the property ....
In property variedly described as paithamaha, pithamahopatha, kramagatha, all the epithets connoting the same species of property, the son has an equal right with the father. In property described as swarjitha or swaymopatha, the son's ownership is dormant and subordinate to the father's. But it is certainly not notional. It is as real as the right of junior members to an impartible estate, which is the property of the joint family (Shiba Prasad Singh v. Rani Prayag Kumari pebi AIR 1932 PC 216 though the father in the one case and the holder for the time being in the other case have absolute power of disposition and though there is no right of partition.
Earlier, the eminent Chief Justice pointed out that the acquisition of a right by birth by a son, son's son and son's son's son in the property of the father, grandfather and great-grandfather could not correctly be described as inheritance. In the case of inheritance, properly speaking, if there happened to be two or more co-heirs, the share is ascertained and defined at the time of the death of the propositus. In Venkateswara Pattar v. K. Mankayammal AIR 1935 Mad. 775, 778 referring to the succession of the son, the widow and other heirs and reunited parcener, Varadachariar, J. observed :
It is obvious that the principles of succession are different as amongst these three groups. In the first, it is by survivorship (even in respect of the father's self-acquired property, according to the scheme of the Mitakshara).
In our view, it is this birthright imperfect and subordinate to the special power and predominant interest of the father that comes into play and makes the interest of the son real and interest in praesenti, when the father chooses to waive his rights. At his pleasure and without reference to his son if the father abandons or determines once for all not to exercise his independent power over the property, the son's interest therein becomes real and full-fledged coparcenary right. There is no vesting of rights here by the father on the son, but what is dormant springs to life but irrevocably at the pleasure of the father, what Narayana Pai, J. in Laxmibai Narayana Rao Nerlekar v. CGT [1967] 65 ITR 19 referred to as pitru prasada. Prom the nature of things, all that happens when separate property is converted into the property of joint family is a mental resolution by the father to the effect, a resolve not to exercise his special rights over the property. There is only self-abnegation or denial to himself of his powers. There is no passing of property from the father to the son in this process to make it a transfer of property by the father, however widely the word 'transfer' is used. In the acquisition of full coparcenary rights by the son, what is nascent becomes active under the doctrines of Hindu law. True, the father's intention has to manifest itself. But, as it is the intention that matters, no formality is required and the mode in which the intention is manifested cannot alter the true nature of the process. The blending by a coparcener of his separate property may manifest itself 'either by bringing his self-acquired property into the joint family account or by bringing joint family property into his separate account'--Rajanikanta Pal v. Jagamohan Pal AIR 1923 PC 57. In the latter case, the manifested act is a disposition from the family to the individual; but the result is the same. The change can be brought about by the father without any negotiation, consent, co-operation or bilateral dealings with other members of the family. The discussion, leads us to the conclusion that when a Mitakshara father determines upon treating his self-acquired property as the property of the family in whatever form he manifests the intention, there is no transfer or disposition of the property under the main part of the definition of 'transfer of property' in Section 2(xxiv) of the Act.
Finally, his Lordship answered the question referred in favour of the assessees in the said case.
27. As a matter of fact, the conflict of decisions among the various High Courts, on the issue under the Gift-tax Act, was finally resolved by the Supreme Court in Goli Eswariah v. CGT [1970] 76 ITR 675. At pages 678 and 679 of the Reports, the Supreme Court held as follows :
To pronounce on the question of law presented for our decision, we must first examine what is the true scope of the doctrine of throwing into the 'common stock' or 'common hotchpot'. It must be remembered that a Hindu family is not a creature of a contract. As observed by this court in Mallesappa Bandeppa Desai v. Desai Mallappa [1961] 3 SCR 779, the doctrine of throwing into the common stock inevitably postulates that the owner of separate property is a coparcener who has an interest in the coparcenary property and desires to blend his separate property with the coparcenary property. The existence of a coparcenary is absolutely necessary before a coparcener can throw into the common stock his self-acquired properties. The separate property of a member of a joint Hindu family may be impressed with the character of joint family property if it is voluntarily thrown by him into the common stock with the intention of abandoning his separate claim therein. The separate property of a Hindu ceases to be separate property and acquires the characteristics of joint family or ancestral property not by any physical mixing with his joint family or his ancestral property but by his own volition and intention by his waiving and surrendering his separate rights in it as separate property. The act by which the coparcener throws his separate property in the common stock is a unilateral act. There is no question of either the family rejecting or accepting it. By his individual volition he renounces his individual right in that property and treats it as a property of the family. No longer he declares his intention to treat his self-acquired property as that of the joint family property, the property assumes the character of joint family property. The doctrine of throwing into the common stock is a doctrine peculiar to the Mitakshara school of Hindu law. When a coparcener throws his separate property into the common stock, he makes no gift under Chapter VII of the Transfer of Property Act. In such a case there is no donor or donee. Further, no question of acceptance of the property thrown into the common stock arises.
28. When we examine the facts of the present case in the light of the passages quoted from the decision of the Supreme Court in Goli Eswariah's case (supra) and from the Full Bench decision of the Madras High Court in P. Rangasami Naidu's case (supra), there can hardly be any dispute that the appellant's case is squarely covered by the ratio of these two decisions. There can be no dispute that the assessee, his wife sons and daughters constituted a HUF governed by Mitakshara law, we have already found earlier as a fact that the assessee had received more than Rs. 80,000 in cash from time to time from his father, out of which more than Rs. 40,000 had been invested by the assessee in the acquisition and construction of the house properties and that the said amount received by the assessee constituted the joint family nucleus in the assessee's hands, whether he received it as for his share in the division made by his father on 3-3-1970 or as a "gift" from his father on that date as contended by the revenue. The investment; of further amounts by the assessee of his personal earnings from his profession as a lawyer into the construction of houses would amount to blending of his separate funds by throwing them into the common hotchpot or by impressing them with the character of HUF property.
29. We therefore accept the contentions of the learned counsel for the appellant and hold that the properties in question belonged to the appellant's HUF consisting of himself as the karta and his two sons and that the income from the properties should be excluded from his individual hands for purposes of assessment in all the three years.
30. In the result, the appeals are allowed.