1967 (3) TMI 9 - SC - Income Tax

Interest on securities assessable u/s. 8 of the IT Act are exempt from tax in the assessee s hands in view of the Notification No. 878F dated March 21, 1922 - department appeal dismissed

Summary

Issues:
1. Whether a Hindu undivided family is entitled to exemption from taxation on interest income from Government securities under a specific notification.
2. Interpretation of the notification regarding exemption for "Ruling Chiefs and Princes of India" in the context of the present case.
3. Determining ownership of Government securities in the context of Hindu law and its impact on tax exemption eligibility.

Analysis:
1. The Supreme Court considered whether a Hindu undivided family could claim exemption from taxation on interest income from Government securities under a notification issued under section 60 of the Income-tax Act, 1922. The case involved the late Raja of Bhor's estate passing to his three sons, who formed a Hindu undivided family. The eldest son, now the Raja of Bhor, filed returns claiming exemption based on the notification. The Central Government's notification exempted "interest on Government securities held by Ruling Chiefs and Princes of India as their private property." The Income-tax Officer initially rejected the claim, leading to appeals and subsequent judicial review.

2. The Appellate Assistant Commissioner and the Appellate Tribunal supported the assessee's claim, interpreting that the securities were held on behalf of the Ruling Chief or Princes of Indian States, thus making them eligible for the exemption. The High Court of Bombay also ruled in favor of the assessee, upholding the tax exemption on the interest income from the Government securities. The High Court's decision was based on the interpretation of the notification and its applicability to the present case involving the Hindu undivided family of the Raja of Bhor.

3. The Supreme Court addressed arguments challenging the ownership of the Government securities, asserting that the Hindu undivided family's status as a separate unit of assessment under the Income-tax Act did not determine ownership under Hindu law. The court delved into Hindu law principles, emphasizing the unity of ownership in a Mitakshara coparcenary. It highlighted that until partition, all coparceners have rights over the entire coparcenary property, leading to the conclusion that the property was held by the assessee on behalf of the Raja of Bhor and his brothers. Consequently, the Supreme Court affirmed the High Court's decision, dismissing the appeals and upholding the tax exemption for the interest income from the Government securities held by the Hindu undivided family.