1973 (12) TMI 9 - HC - Income Tax

Assessee was to acquire property absolutely on the death of his ancestor, according to a trust created by the latter - There was also a provision in the will giving share of commission to the assessee absolutely - In addition, the assessee also received income from ancestral property - Whether the income derived from the property received by Gordhandas under the trust settlement, and/or share income of the managing agency received by him under clause 12 of the will is assessable, in the hands of the Hindu undivided family consisting of Gordhandas and his son as coparceners - whether by his subsequent conduct the assessee had treated these properties as Hindu undivided family properties. - mere fact that the assessee had not kept separate accounts in respect of his income from these two types of properties cannot, in my opinion, be enough or equivalent to having thrown them into the common stock or of having blended them - income from the property received under the trust settlement and share of commission received according to the will are assessable as the assessee s individual income

Issues Involved:
1. Status of property received by Gordhandas under the trust settlement and the will.
2. Whether the income from these properties should be assessed as part of the Hindu undivided family (HUF) income.
3. The application of the doctrine of blending to the properties in question.

Detailed Analysis:

1. Status of Property Received by Gordhandas:
The primary issue was whether the property received by Gordhandas under the trust settlement dated 25th February 1927 and the will dated 23rd February 1930 should be considered his separate property or ancestral property.

The court examined the trust deed, which clearly stated that the property was to be transferred to the settlor's sons as tenants-in-common for their "own absolute use and benefit." This language indicated that the property was intended to be separate and not ancestral.

Regarding the will, clause 12 did not contain similar explicit language. However, the court noted that the testator had been distributing the commission from the mills among his sons during his lifetime, suggesting an intention for them to continue receiving it as separate income.

Thus, the court concluded that both the assets from the trust deed and the will were separate properties of Gordhandas, distinct from the ancestral shares inherited from his father.

2. Assessment of Income:
The next issue was whether the income from these properties should be assessed as part of the HUF income. Gordhandas initially filed returns in the status of an individual but later revised them to reflect separate statuses for different income sources. The Income-tax Officer combined all incomes under the HUF status, claiming Gordhandas had blended the properties into the common stock.

The Appellate Assistant Commissioner disagreed, directing that the income from the properties received under the trust and will should be excluded from the HUF income. The Tribunal upheld this decision, finding no evidence of deliberate blending by Gordhandas.

3. Doctrine of Blending:
The doctrine of blending was examined to determine if Gordhandas had intentionally treated the separate properties as HUF properties. The court referred to Mulla's Hindu Law, which states that a clear intention to abandon separate claims must be established for blending to occur. Mere failure to keep separate accounts or allowing family members to use the property does not constitute blending.

The departmental representative pointed to the lack of separate accounts and the use of a common bank account as evidence of blending. However, the court found these factors insufficient to prove deliberate blending, citing precedents from the Madras and Gujarat High Courts.

Conclusion:
The court held that the properties received by Gordhandas under the trust deed and the will were his separate properties. There was no clear intention to blend these properties into the HUF. Consequently, the income from these properties should not be assessed as part of the HUF income.

Judgment:
The question referred to the court was answered in the negative, in favor of the assessee. The Commissioner was directed to pay the costs of the reference to the assessee.

Question answered in the negative.

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