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TMI Blog1984 (4) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... nder and the enactment of the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948, as made applicable to Andhra region and the notifications made in 1952 and 1955 thereunder requires consideration. 2. Regarding the effect of the Orissa and Madras Abolition Acts referred to, and the notifications thereunder, there is an earlier decision of the Cuttack Bench of the Tribunal in the common order dated 30-9-1975 in relation to income and wealth-tax appeals for certain earlier years in WT Appeal Nos. 80, 81 and 82 (Ctk.) of 1972-73 (relating to the assessment years 1967-68, 1968-69 and 1969-70) and IT Appeal Nos. 645, 646 and 647 (Ctk.) of 1974-75 (relating to the assessment years 1971-72, 1972-73 and 1973-74), respectively. The view taken eventually by the Cuttack Bench was that the repeal of the Madras Impartible Estates Act, 1904, was only partial and not total. 3. When the present appeals came before the regular Bench for hearing, the members constituting the Bench were of the view that the aforesaid decision required reconsideration. In such circumstances, the matters were directed to be placed before the President of the Tribunal with reference to the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to as ascertained at the hearing as ' Jeypore ') and the estates of Mudgal and Pachipenta in the State of Andhra Pradesh, all of which estates figure in the Schedule of the Madras Impartible Estates Act. The assessee succeeded to the aforesaid impartible estates on the death of his adoptive father. As already observed, estates in the State of Orissa were abolished by the notification dated 29-12-1952 promulgated under section 3 of the Orissa Estates Abolition Act and the estates in the State of Andhra Pradesh were abolished by notifications issued in 1952 and 1955 under the Madras Estates (Abolition and Conversion into Ryotwari) Act. On the abolition of the estates, the assessee was paid compensation, most of which was adjusted towards income-tax and wealth-tax dues payable by the assessee and was, thus, expended. After the abolition of the estates and on introducing ryotwari settlement in those estates, the assessee got patta of certain agricultural lands and topes and certain buildings which were prior to the abolition under personal cultivation and personal occupation, respectively. 5. It may be mentioned at this stage that during the minority of the assessee, his estate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hildren compromised the suit. In pursuance of the compromise decree dated 30-6-1973, the parties confirmed the partition deed of 10-6-1965 which was registered as document No. 1488 of 1965, the settlement made on the wife of the assessee which was registered as document No. 1486 of 1965, and the settlement made in favour of the daughter of the assessee which was registered as document No. 1487 of 1965. So also, the parties accepted the partition deed dated 22-9-1972 as rectified by the deed of 25-10-1972 with some slight variations. The compromise petition was accompanied by Schedules A to E-3. As per the compromise, which emerged from out of the compromise decree, the properties as per Schedule A to the compromise fell to the share of the assessee, Schedule B properties fell to the share of the first son, Schedule C properties fell to the share of the second son and Schedule D properties were allotted to the wife of the assessee. Schedule E-1 properties were set apart for the marriage expenses as also provision for dowry of the assessee's minor daughter, Vijayalaxmi. Schedule E-2 properties were set apart as endowed properties for purposes of seva puja of the family deities Shri M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the status of the assessee is individual and not HUF and so the Tribunal's decision did not prohibit inclusion of the income relating to the assets transferred in favour of the assessee's sons, wife, daughter and deities in the hands of the assessee under section 64 of the Act. 10. From the assessment year 1974-75, according to the assessee, he and other members of the family became liable to pay income-tax and wealth-tax individually. The assessee began filing one income-tax return and one wealth-tax return in his status as individual relating to properties which fell exclusively to his share in the partition evidenced by the compromise petition and another income-tax return and another wealth-tax return in the status of HUF relating to the properties kept in the common pool as per Schedules E-1 to E-3 of the compromise petition. The other members of the family, i.e., the assessee's wife and sons, filed their income-tax and wealth-tax returns in the status of individual separately. 11. For the assessment year 1974-75, the assessment was completed by the ITO before receiving the order of the Tribunal. Incomes derived by other members from the properties allotted to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the proposed revision. 15. After considering the objections raised by the assessee, the Commissioner ultimately came to the conclusion that the order dated 24-3-1979 passed by the ITO was erroneous and prejudicial to the interests of the revenue, He set out in his order the following conclusions : " 1. The assessee, Shri R.K. Deo, is the absolute owner of the properties comprised in the impartible estate as an individual. 2. The members of the family possessing impartible estate have no right of partition and the present holder of the property has also no right to partition away the properties as it goes against the very nature of impartibility. 3. The so-called partition deed dated 22-9-1972 cannot be taken as evidencing any partition since there are no family properties which are capable of being partitioned. The properties comprising in the impartible estate are the individual properties of the assessee in respect of which his wife and minor sons have no right of partition. 4. The allotment of properties to the assessee's wife and his minor sons through the so-called partition deed amounted to ' transfer ' within the meaning of section 64 of the Income-tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Pittapur case [1899] 26 Ind App 83 (PC). The right of maintenance and the right of survivorship, however, still remain and is by reference to these rights that the property, though impartible has, in the eye of law, to be regarded as joint family property . . ." It was also submitted that the Privy Council decision in CIT v. Dewan Bahadur Dewan Krishna Kishore [1941] 9 ITR 695 also showed that as regards income from house property even in the case of an impartible estate, it was chargeable in the hands of the HUF and to get over this decision the fiction in section 27(ii) was introduced. According to the assessee, in view of the position in law aforesaid, the stand of the revenue that certain observations in the judgment of the Andhra Pradesh High Court in the case of P.V.G. Raju v. CWT [1970] 78 ITR 601 helped its case was untenable. It was finally contended that the view that the assets belonging to the impartible estate were the separate and individual assets of the holder of the estate was not justified. The Commissioner of Income-tax (Appeals) with reference to the aforesaid contentions observed : " . . . In my view the contention of the appellant is forceful. The provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of Smt. Rama Kumari Devi, Shri Bibhuti Bhushan Deo and Shri Shakti Vikram Deo in the total income of the appellant cannot be upheld. Turning to the inclusion of the Hindu undivided family income, it appears to me that the treatment of the income as belonging to the Hindu undivided family is not in accordance with law. It is clear enough from a perusal of the partition deed dated 22nd September 1972, that the family disrupted from that date as can be seen from the following narration : ' That with effect from the date of execution of this deed the joint family consisting of myself, my wife and my children is disrupted and each of the sharers shall be the absolute owner of the property allotted to him or her and shall hold and enjoy the property so allotted and free from all claims and demands of the others thereto or concerning therewith.' When this was pointed out to the appellant's representative, he has filed a petition dated 4th March, 1981, admitting that in respect of the properties held jointly the appellant and his sons were only co-sharers and, consequently, they were holding the properties as tenants-in-common and not as Hindu undivided family. It has, accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully operative and they did not offend section 4(1)(i) and (ii) of the 1957 Act and as such the value of the properties which fell to the share of the sons as per the partition deeds dated 10-6-1965 and 22-9-1972 as well as the settled properties on the wife by the deed dated 10-6-1965 could not be included in his wealth. This contention was rejected by the WTO who held that the assessee was an individual all along holding the impartible estate and, therefore, the partitions or transfers of property effected could not be recognised in the eye of law. According to the WTO, such transfers, even if they were to be accepted, were hit by the provisions of section 4(1)(a) of the 1957 Act corresponding to section 64 of the Act and the value of the properties transferred to the wife, minor sons, minor daughter and family deities would have to be assessed in the hands of the assessee as individual. Therefore, the WTO proceeded to aggregate the value of all the properties ignoring the partitions and settlements effected in 1965 and 1972. Accordingly, against returned wealth of Rs. 4,73,240 as per the revised return, the assessment was completed on a net wealth of Rs. 67,38,400 by the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was that some, at least, of the properties comprised in the estate would have acquired the character of impartibility as a result of custom, having regard to the doctrine of incorporation as explained by the Supreme Court in Pushpavati Vijayaram v. P. Vishweswar AIR 1964 SC 118, as against an impartible estate which may have been created by a Government grant statutorily, i.e., an estate granted by the crown subject to descent by primogeniture. When property in an estate has become impartible as a result of custom by incorporation, he submitted, the Abolition Acts could not do away with the impartible nature of such property for such property had not acquired the impartible nature under a statute which was the subject of repeal. For such a distinction, he relied on the judgment of the Andhra Pradesh High Court in the case of P.V.G. Raju. He went on to state that in the aforesaid judgment, the Andhra Pradesh High Court had held that the Prince of Wales Market and certain items of jewellery retained their character of impartibility even after coming into force of the Madras Estates (Abolition and Conversion into Ryotwari) Act. An estate which had acquired impartibility by custom, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate as the assessee had still certain properties left with him, untouched by the Estates Abolition Act which continued to maintain its character as an impartible estate and which was augmented by the lands and buildings settled on the assessee under the Estates Abolition Act. We find that the repeal of the Impartible Estates Act was limited repeal and the Act continues to apply in respect of the properties left with the assessee. It has also been held by the Madras High Court in the case of Shri Revu Janardhan Krishna Ranga Rao Bahadur v. State of Madras AIR 1953 Mad. 185 as well as in the recent decision of the Rajasthan High Court in the case of Thakur Bhairon Singh 1975 Tax LR 672 that conversion of the property did not alter or change the nature of the property and even after abolition the compensation received by the holder would continue to be part of the impartible estate. We are therefore of the opinion that this contention of the assessee must be rejected." Section 66(i) of the Madras Estates (Abolition and Conversion into Ryotwari) Act, as applied to Andhra Pradesh, reads as under : " 66. With effect on and from the notified date---- (i) The Madras Impartible Estat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vest in them, free of all encumbrances ; and the Madras Revenue Recovery Act, 1864, the Madras Irrigation Cess Act, 1886 and all other enactments applicable to ryotwari areas shall apply to the estate ;". It is clear that the erstwhile estates stood transferred to the Government free of all encumbrances. Under section 3(c) of the said Act, all rights and interests created in or over the estate before the notified date by the principal or any other landholder, as against the Government, ceased. Under the provisions of section 3(d) the Government was to take possession except that a person who was entitled to ryotwari patta was not to be physically dispossessed and under section 3(e), the principal or any other landholder and any other person whose rights stood transferred to the Government was entitled to only compensation from the Government. The effect of abolition of estates is, thus, resumption of the whole estate and regrant by the Government of such of the lands and buildings over which the landholder has a rightful claim. Impartibility of the estate, thus came to an end with the abolition of the estate in the present case because it has not been shown that any items of prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On execution, the deed becomes evidence of a pre-existing fact, i.e., of throwing the self-acquired property into the hotchpotch. The words ' till this date ' are significant and must be given effect to. The High Court, in our opinion, was right in observing that ' the partition proceeded on the basis that the self-acquired properties were made available for partition along with the only item of joint family property. That itself constituted proof that antecedent to the partition, however short the interval, there was blending of the self-acquired properties of the assessee with his ancestral joint family property '. We agree with the High Court that ' whether the averment in relation to the past was supported by other evidence or not, it certainly was unequivocal that the properties dealt with at the partition were treated by the volition of the assessee as the properties available for partition between the members of the joint family. It was certainly an unequivocal declaration that all the properties dealt with under that partition had been impressed with the character of joint family properties, properties belonging to the joint family of the assessee and his son. The genuinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fictions under section 4(6) of the 1957 Act (which fiction operates for all purposes under that Act) and section 27(ii) of the Act (which fiction applies only for the purposes of sections 22 to 26 of that Act) also do not operate. 27. We, therefore, consider that the Commissioner was not justified in holding in his order under section 263 of the Act for the assessment year 1976-77 that the assessee was the absolute owner of the properties comprised in the erstwhile impartible estate after the Madras and Orissa Abolition Acts came into force. In view of this finding, the members of the family have the rights which we have adumbrated earlier. The partitions and settlements are all valid and the allotment of properties did not amount to transfer within the meaning of section 64(2) of the Act or section 4(1A) of the 1957 Act. We are, therefore, of the view that the order of the Commissioner under section 263 for the assessment year 1976-77 cannot stand. The said order is set aside and the order of the ITO stands restored. The appeal of the assessee for the said year is, accordingly, allowed. 28. In paragraph 2, we had set out the questions on which it was considered that the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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