1962 (12) TMI 61 - HC - Income Tax

Summary

Issues Involved:
1. Validity of trust deeds and settlement deed under Hindu Law.
2. Assessment of income from properties settled by the trust deeds.
3. Inclusion of income from properties inherited by Kannan Chetty.
4. Inclusion of income from properties conveyed to a foster-son.
5. Assessment of mesne profits.

Issue-wise Detailed Analysis:

1. Validity of Trust Deeds and Settlement Deed under Hindu Law:
The Tribunal addressed the validity of the trust deeds and settlement deed executed on July 31, 1956, by Kannan Chetty, his son Namberumal Chetty, and Kannan Chetty's wife, Alamelumangaithayarammal. The Tribunal concluded that these deeds were void and inoperative under Hindu Law. The reasoning was that the deeds attempted to alter the course of devolution of property, which is inherently illegal under Hindu Law. The Tribunal cited that a Hindu father has no right to deal with his sons' interest in the family properties in a manner that alters the ordinary devolution of properties. The deeds postponed the division of properties until the youngest child attained majority, which was against the minors' vested rights. Additionally, the deeds deprived the sons of their right to claim partition and altered the right of survivorship, which is a valuable right under Mitakshara Law. Consequently, the Tribunal held that the provisions of these deeds were void ab initio and destitute of all legal effect.

2. Assessment of Income from Properties Settled by the Trust Deeds:
The Tribunal held that the income from the properties covered by the first trust and the settlement deed should be taxable in the hands of the Hindu undivided family (HUF). The Tribunal reasoned that since the deeds were void, the properties continued to belong to the HUF, and thus, the income derived from these properties should be assessed as the income of the HUF. The Tribunal rejected the argument that the arrangement was beneficial to the minors and should be deemed valid until set aside by a competent court.

3. Inclusion of Income from Properties Inherited by Kannan Chetty:
The Tribunal upheld the inclusion of income from properties inherited by Kannan Chetty from his divided brother, Ethirajulu Chetty. The Tribunal found that these properties were thrown into the common stock of the HUF by Kannan Chetty with the intention of abandoning all his separate claims. Therefore, the income from these properties was correctly included in the assessment of the HUF.

4. Inclusion of Income from Properties Conveyed to a Foster-Son:
The Tribunal addressed the income from No. 8, Waddels Road, which was settled upon the children of Anandakrishna, the foster-son of Kannan Chetty, by the third trust. The Tribunal held that this deed was void as it was opposed to Hindu Law. Consequently, the income from this property was correctly included in the assessment of the HUF.

5. Assessment of Mesne Profits:
The Tribunal dealt with the assessment of a sum of Rs. 17,310 as mesne profits of No. 86, Nyniappa Naicken Street, which was covered by the settlement deed. The Tribunal found that this amount represented rent for the period from March 16, 1952, to the date of the decree. Therefore, it was not right to tax the entire amount in one year. The Tribunal directed the Income-tax Officer to apportion the amount among the various years to which the rents were relatable and assess the same in the respective years under section 34. The assessment for the year under appeal was reduced accordingly.

Judgment Summary:
The High Court addressed the question of whether the income from properties dealt with by the family under the trust deeds and settlement deed dated July 31, 1956, was assessable as the income of the joint family after the date of the said deeds. The Court held that the deeds were void and inoperative under Hindu Law, as they attempted to alter the course of devolution of property and deprived the minor sons of their vested rights. Consequently, the income from the properties covered by the deeds continued to be assessable as the income of the HUF. However, the Court also held that the income from properties inherited by Kannan Chetty and conveyed to the foster-son was correctly included in the assessment of the HUF. Finally, the Court directed the apportionment of mesne profits among the relevant years for accurate assessment. The question was answered partly in favor of the assessee and partly in favor of the department, with no order as to costs.