1982 (11) TMI 63 - AT - Wealth-tax

Summary

Issues Involved:
1. Applicability of Section 25(2) of the Wealth-tax Act, 1957.
2. Devolution of interest in coparcenary property under Section 6 of the Hindu Succession Act, 1956.
3. Assessment of wealth in the context of Hindu Undivided Family (HUF).

Issue-wise Detailed Analysis:

1. Applicability of Section 25(2) of the Wealth-tax Act, 1957:

The Commissioner invoked Section 25(2) of the Wealth-tax Act, 1957, setting aside the assessment order for the assessment year 1975-76. The Commissioner believed that the order of the Wealth-tax Officer (WTO) was erroneous and prejudicial to the interest of revenue. The WTO had accepted the returns filed by Mayanna, assessing only half of the wealth in the case of the HUF. The Commissioner directed the WTO to re-do the assessment, including the entire wealth of the family. The Appellate Tribunal found that the Commissioner's invocation of Section 25(2) was incorrect, as the WTO's assessment was justified based on the devolution rules under the Hindu Succession Act.

2. Devolution of Interest in Coparcenary Property under Section 6 of the Hindu Succession Act, 1956:

The judgment extensively discusses Section 6 of the Hindu Succession Act, which deals with the devolution of interest in coparcenary property. The main part of Section 6 states that when a male Hindu dies, his interest in Mitakshara coparcenary property shall devolve by survivorship upon the surviving members of the coparcenary. However, the proviso to Section 6 applies if the deceased leaves behind a female relative specified in clause I of the Schedule or a male relative specified in that clause who claims through such female relative. In such cases, the interest of the deceased shall devolve by testamentary or intestate succession and not by survivorship. Explanation 1 to Section 6 introduces the concept of a notional partition immediately before the death of the deceased to determine his share in the property. The Tribunal concluded that the proviso to Section 6 applied in this case, as the deceased left behind his widow, Eeramma. Thus, the deceased's share devolved by intestate succession, and the share of the deceased that devolved on his heirs could not be included in the net wealth of the HUF.

3. Assessment of Wealth in the Context of Hindu Undivided Family (HUF):

The Tribunal referred to several judicial decisions to support its conclusion. In CIT v. Smt. Nagarathnamma, it was held that the HUF continues after the death of a male member, but the property of the HUF is diminished to the extent of the share of the deceased. Similarly, in CWT v. Kantilal Manilal, the Gujarat High Court held that the HUF continues with the surviving coparceners, but the share of the deceased coparcener devolves on the heirs by intestate succession and goes out of the HUF. The Supreme Court in Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum emphasized that the notional partition under Explanation 1 to Section 6 must be treated as a concrete reality. The Tribunal concluded that the WTO was justified in assessing only half of the wealth of the HUF, excluding the half share that devolved on the heirs of the deceased. The Commissioner's order to include the entire wealth of the family was incorrect.

Conclusion:

The Tribunal canceled the Commissioner's order dated 17-3-1981 and restored the assessment order of the WTO. The appeal was allowed, affirming that the share of the deceased which devolved on his heirs could not be included in the net wealth of the HUF.