1973 (11) TMI 14 - HC - Wealth-tax

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the self-acquired and personal assets left by the said Manilal Chhotalal, the deceased father of the respondent, were to be assessed in the hands of the Hindu undivided family represented by the respondent and not in his hands in his individual capacity ? - we answer the question referred to us in favour of the assessee and against the revenue and hold that the Tribunal was right in holding that the self-acquired personal assets left by Manilai Chhotalal, the father of the respondent-assessee, were to be assessed in the hands of the Hindu undivided family represented by the respondent and not in his hands in his individual capacity

Summary

Issues Involved:
1. Determination of the status of property received by the assessee upon the death of his father.
2. Whether the property should be assessed in the hands of the Hindu Undivided Family (HUF) or in the individual capacity of the assessee.

Issue-wise Detailed Analysis:

1. Determination of the Status of Property Received by the Assessee:
The primary issue revolves around the classification of the property inherited by the assessee from his father, Manilal, who passed away leaving behind self-acquired properties. The question is whether these properties should be considered as the individual property of the assessee or as the property of a Hindu Undivided Family (HUF).

The court examined the facts and legal precedents, particularly focusing on the nature of ancestral property under Hindu law. The property in question was self-acquired by Manilal and was inherited by the assessee upon Manilal's death. The court had to determine if this inheritance transforms the property into HUF property or if it remains the individual property of the assessee.

2. Assessment in the Hands of HUF or Individual Capacity:
The court analyzed whether the inherited property should be assessed as belonging to the HUF represented by the assessee or in his individual capacity. The Wealth-tax Officer initially assessed the property as individual property, but the Appellate Tribunal later held that it should be assessed as HUF property.

The court referred to several key judgments to resolve this issue:

- Kalyanji Vithaldas v. Commissioner of Income-tax: This case dealt with the nature of income from a partnership firm and whether it could be considered HUF income. The Privy Council's observations indicated that self-acquired property does not automatically become HUF property merely because the owner has a wife and daughters.

- Arunachala Mudaliar v. Muruganatha Mudaliar: The Supreme Court clarified that property inherited from a father becomes ancestral property in the hands of the son if it is inherited by virtue of being a descendant. This principle was crucial in determining the nature of the property in the present case.

- Gowli Buddanna v. Commissioner of Income-tax: The Supreme Court held that a single male member could represent an HUF, and property inherited by such a member retains its character as HUF property.

- N. V. Narendranath v. Commissioner of Wealth-tax: This case reinforced the principle that property inherited by a coparcener retains its character as HUF property, even if the family consists of a single male member and female members.

The court applied these principles to the present case, noting that the property inherited by the assessee from his father, Manilal, should be considered as HUF property. The presence of the assessee's wife, daughter, and mother, who have certain rights in the property, further supported this conclusion. Additionally, the potential birth or adoption of a son would reinforce the property's character as HUF property.

Conclusion:
The court concluded that the property inherited by the assessee from his father should be assessed as HUF property and not as individual property. The mode of transmission of the property, by succession, stamped it with the character of joint family property. Therefore, the Tribunal's decision was upheld, and the property was to be assessed in the hands of the Hindu undivided family represented by the assessee.

Judgment:
The court answered the question in favor of the assessee and against the revenue. The self-acquired personal assets left by Manilal Chhotalal were to be assessed in the hands of the Hindu undivided family represented by the respondent and not in his individual capacity. The Commissioner of Wealth Tax was directed to pay the costs of the reference to the respondent.