2018 (10) TMI 507 - HC - Income Tax

Status of the erstwhile ruler - treatment of property in the hands of successors - late Sawai Man Singh, the ruler, was filing the return in his individual capacity - rule of lineal primogeniture - individual or joint family status - whether Sawai Man Singh filed his income tax returns in his capacity as sole and exclusive owner of impartible properties, or he did so, for and on behalf of his joint family? - theory of ownership - Individual or HUF Held that - There is no material on record to show that the Kachwaha clans (which the Jaipur royal house belonged to) was governed by the rule of lineal primogeniture, where the eldest male member of the family became the exclusive owner of all properties which were impartible. Nor was such special custom proved in relation to the Jaipur royal house. What could be and was established was that succession to the gaddi (the throne) was by lineal primogeniture. Consistent with the law declared by the Privy Council and the principles of those decisions, applied by the Supreme Court in several judgments, the only conclusion that could be drawn therefore, was that though succession to the gaddi was through lineal primogeniture at a time when the monarchy was absolute which meant that such practice overlaid the right of other members to claim a share in the HUF, upon accession of the princely state of Jaipur, only those properties and privileges which the late Sawai Man Singh retained to himself, were saved. No custom of law, of the kind visualized by Section 5 of the Hindu Succession Act, in relation to lineal primogeniture or impartible properties in relation to these assets were saved. All else became subject to laws of the country. Thus, the late Maharaja had to and did file tax returns, declaring his wealth and income, in accordance with the laws of the land. He was governed by the ordinary rules of inheritance applicable to members of HUF. From the materials on record, in these appeals, there is nothing to suggest that the succession to the estate of the ruler-or his family (other than succession to the gaddi) was governed by the principle of primogeniture. In these circumstances, the law on the subject is clear sans evidence of a preexistent custom with respect to primogeniture (as the overarching rule of succession, to the exclusion of all heirs) the general law of succession, i.e. the rules applicable to HUF, would apply. Regardless of what an assessee claims, if the correct position deducible from primary facts is otherwise, the AO has to adopt that correct position. Merely because the late assessee (Sawai Man Singh) repeatedly claimed individual status while filing his returns, the correct legal status was as an individual and not HUF. Therefore, in the opinion of this court, there was no legal impediment for the legal representatives of the assessee to claim that the succession was of the HUF, upon the death of Sawai Man Singh. - Decided against revenue

Summary

Issues Involved:
1. Whether the assessee was the holder of an impartible estate.
2. Whether the assessee was reduced to an ordinary citizen after the merger in 1949.
3. Whether filing returns as an individual could operate as Res judicata against claiming HUF status.
4. Whether the status of the assessee was that of a Hindu Undivided Family (HUF).

Issue-wise Detailed Analysis:

1. Whether the assessee was the holder of an impartible estate:
The Tribunal examined whether the properties held by the assessee were impartible estates. It was established that an impartible estate is typically ancestral and conferred by a ruler for meritorious services. The Tribunal noted that the Maharaja of Jaipur ruled as an absolute monarch, and no Indian laws applied to him before 1947. However, after the merger in 1949, the ruler became an ordinary citizen, and the properties were subject to Indian laws. The Tribunal concluded that the Maharaja did not hold an impartible estate but a kingdom, and after the merger, he was governed by Hindu law, constituting a HUF with his legal heirs.

2. Whether the assessee was reduced to an ordinary citizen after the merger in 1949:
The Tribunal held that after the merger, the assessee ceased to be an absolute ruler and was reduced to the position of an ordinary citizen. Consequently, he became amenable to all Indian laws, including the Indian Penal Code and taxation laws. The Tribunal found that the ruler, being a Hindu, was governed by Hindu law after the merger, and his properties were treated as HUF properties.

3. Whether filing returns as an individual could operate as Res judicata against claiming HUF status:
The Tribunal considered whether the late Sawai Man Singh's filing of returns as an individual up to the assessment year 1969-70 could prevent his legal heirs from claiming HUF status. It was held that an assessee might not be aware of his correct status in law, and upon knowing the correct status, he has the right to claim it. The Tribunal found that the late ruler's conduct of disposing of properties did not detract from claiming HUF status, as the properties' value was significant in the context of the vast estate of Jaipur.

4. Whether the status of the assessee was that of a HUF:
The Tribunal concluded that the status of the assessee was that of a HUF. It was noted that after the merger, the ruler's properties were ancestral and governed by Hindu law. The Tribunal emphasized that the properties were not impartible estates but part of the joint family property. The consensus of judicial opinion supported that the right of survivorship remained, and the properties retained their character as joint family property.

Analysis and Reasoning:
The court analyzed the historical and legal context, including the status of the ruler before and after the merger, the nature of impartible estates, and the application of Hindu law. It was established that the properties were not impartible estates but part of the joint family property governed by Hindu law. The court concluded that the correct status of the assessee was that of a HUF, and the legal representatives were entitled to claim HUF status for income tax purposes.

Conclusion:
The court answered the questions of law against the revenue, dismissing the revenue's appeals and allowing the appeals of the assesses. The court held that the properties were not impartible estates, and the assessee's status was that of a HUF, governed by Hindu law.