1981 (1) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Whether the house property at No. 5, Sunny Park, Calcutta, which was originally the self-acquired property of the assessee, became a Hindu Undivided Family (HUF) property.
2. Whether the income of the said property was liable to be included in the total income of the assessee.

Detailed Analysis:

Issue 1: Conversion of Self-Acquired Property to HUF Property
The primary question was whether the house property at No. 5, Sunny Park, Calcutta, which was originally the self-acquired property of the assessee, became a Hindu Undivided Family (HUF) property. The assessee, governed by the Dayabhaga school of Hindu law, declared on April 19, 1969, that he had transferred the property into the common hotchpot of the HUF consisting of himself, his wife, and his minor sons. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) held that under Dayabhaga law, the assessee could not throw his property into the HUF. However, the Income-tax Appellate Tribunal (ITAT) disagreed, stating that the property had indeed become HUF property based on the declaration and the conduct of the assessee.

Issue 2: Inclusion of Property Income in Assessee's Total Income
The second issue was whether the income from the property should be included in the total income of the assessee. The ITO and AAC included the income in the assessee's total income, arguing that the property remained self-acquired. The ITAT, however, held that since the property had been thrown into the HUF, its income could not be included in the assessee's total income.

Legal Principles and Precedents:
1. Dayabhaga Law and Joint Family: The court examined whether a Hindu governed by Dayabhaga law could blend his self-acquired property into HUF property. It referred to several judicial decisions, including Gouranga Sundar Mitra v. Mohendra Narayan Mitra and Hemchandra Ganguli v. Matilal Ganguli, which held that under Dayabhaga law, there could not be a joint family consisting of the father and sons during the father's lifetime. However, the court also noted that self-acquired property could become joint property if voluntarily thrown into the joint stock with the intention of abandoning all separate claims.

2. Coparcenary vs. Joint Family: The court distinguished between a coparcenary and a joint family, noting that a coparcenary is a narrower body than a joint family. Under Dayabhaga law, coparcenary rights do not arise until the father's death. However, a joint family can exist without coparcenary property and can include wives and unmarried daughters.

3. Doctrine of Blending: The court discussed the doctrine of blending, which allows a coparcener to throw his self-acquired property into the common stock, thereby converting it into joint family property. This doctrine was held to apply to Dayabhaga families as well, allowing self-acquired property to become joint family property through a clear and unequivocal declaration.

4. Relevant Case Law:
- Kalyanji Vithaldas v. CIT: The court held that income from self-acquired property not thrown into the common stock was assessable as individual income.
- N. V. Narendranath v. CWT: The Supreme Court held that joint family property could be assessed as HUF property even if it consisted of a single male member and his dependents.
- Surjit Lal Chhabda v. CIT: The Supreme Court reiterated that a joint Hindu family could exist without joint family property.
- Goli Eswariah v. CGT: The Supreme Court held that the act of throwing self-acquired property into the common stock was a unilateral act and did not amount to a transfer.

Conclusion:
The court concluded that the declaration by the assessee was valid and that the self-acquired property had indeed become HUF property. Consequently, the income from the said property could not be included in the total income of the assessee. The court answered the question in the affirmative, in favor of the assessee, and held that the income of the property at No. 5, Sunny Park, Calcutta, was not liable to be included in the total income of the assessee. The reference under section 256(2) of the I.T. Act, 1961, was disposed of accordingly, making it unnecessary to answer the question under section 256(1) of the Act.