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TMI Blog1960 (8) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... ur Muthiah Mudali Street, a few insurance policies and income-tax refunds due. These were subsequently realised by the assessee; the property was sold in 1945 for ₹ 23,000. ₹ 3,000 was realised on the insurance policies and ₹ 600 collected as income-tax refund. With these proceeds in his hands, he purchased a house at No. 3, Varadarajulu Naidu Street, in December, 1945. 4. The assessee was appointed as the agent by the aforesaid foreign company from July 1, 1937, on the retirement of the father aforesaid. The circumstances under which this appointment was made were explained by the assessee to the Income-tax Officer that the appointment was personal which he obtained in his individual capacity in a manner quite unrelated to the agency of the father. The Income- tax Officer accepted this position and assessed him for the assessment years from 1938-39 onwards in the status of an "individual". A copy of the assessment order for 1938-89 is annexed hereunto as annexure "A" and forms part of the case. 5. The eldest son, Selvakumar, was born on August 11, 1944. The other son, Rajkumar, was born on September 3, 1955. 6. The assessee maintained only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancestral and, accordingly, all the assets in question belonged only to the Hindu undivided family consisting of himself and his minor children and that the deed, annexure "B" aforesaid, was a proper partition thereof and that the assessment required to be modified accordingly. The Appellate Assistant Commissioner, however, held that the agency business aforesaid belonged only to the assessee in his individual capacity and that the income therefrom had accrued to him in his individual capacity, the savings from which had resulted in the assets that formed the subject-matter of the partition deed, annexure "B" aforesaid, the partition deed was consequently a document that could not be acted upon and, therefore, deserved to be ignored for income-tax purposes. For the purpose of this decision, he relied upon the Income-tax Officer's order for the assessment year 1938-39, annexure "A" aforesaid. He accordingly did not find it necessary to deal with the application of section 16(3)(a)(iv). A copy of paragraphs 4 and 5 of his order containing his reasons and decision is annexed hereunto as annexure "D" and forms part of the case. 10. An appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RAJAGOPALAN, J.- Kulandavelu Mudaliar, the father of the assessee, was an agent of Mullar and Phipps (India) Ltd. and he handled the sale of their pharmaceutical preparations. He gave up that agency, and on July 1, 1937, the petitioner was appointed the company's agent. Kulandavelu died on July 27, 1938. The assessee, the only son of Kulandavelu, inherited from his father a house in Ayalur Muthiah Mudali Street, a sum of ₹ 3,000, realised on insurance policies, and ₹ 600 refunded by the Income-tax Department. The cash went into his banking account. On the death of Kulandavelu, the assessee was the sole male member of his family. In the assessment year 1938-39 the assessee's claim was upheld, that his appointment as the agent of the company did not constitute any succession to any business of Kulandavelu and that the agency and the business that ensued constituted the separate acquisition of the assessee, independent of his father. The agency proved lucrative, and the assessee acquired properties, movable and immovable. His first son was born on August 11, 1944, and the second on September 3, 1945. Together they constituted a joint family. The only piece of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claimed that the entire income of the properties dealt with in the partition deed belonged to the joint family of himself and his sons up to December 19, 1952, and that, thereafter, he was liable to be assessed only on the income from the property that came to his share under the deed of partition. The Income-tax Officer held that the only piece of joint family property was the house in Varadarajulu Naidu Street. The Income- tax Officer assessed the assessee in his status as an individual, as he had all along been assessed from 1938-39. The income from the house in Varadarajulu Naidu Street, which was treated as ancestral joint family property in the hands of the assessee, was excluded. On the rest of the income, the income from the business and the income from all the properties shown in annexure "B", the assessee was assessed. The Income-tax Officer was of the view, that there was no proof of any merger of the self-acquired properties of the assessee with the ancestral joint family property. The Income-tax Officer also took the view, that under the deed of partition there was really a transfer of the assets of the assessee to his minor children, and that the income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee minor children in the business of the assessee, was wrong. The business as such, as we have pointed out, was not partitioned, and it continued to be the property, the self-acquired property, of the assessee. At the instance of the assessee the Tribunal referred the following three questions to this court under section 66(1) of the Act: "(1) Whether there was material for the Tribunal to reach the conclusion that the various assets in question belonged only to the assessee in his individual capacity till December 19, 1952? (2) If the answer to the first question is in the affirmative whether the deed, annexure "B" aforesaid, amounted to a transfer of assets to three minor children aforesaid so as to attract the provisions of section 16(3)(a)(iv) of the Income-tax Act? (3) If the answer to the first question is in the negative, the Income-tax Officer having rejected the claim of partition under section 25A and the assessee not having independently appealed against such decision, whether the assessee is entitled in law to any modification of the assessment other than the status alone?" We have referred to the recital in the deed of partition, annexure &q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee's claim, that the income from all the properties including the agency should be treated up to December 19, 1952, as the income of the joint family of the assessee and his sons. That constitutes the real answer to question 1, though in form we answer the question in the affirmative and against the assessee. Question 2.--The transaction evidenced by annexure "B", the document dated December 19, 1952, was in form and substance a partition between the assessee and his two minor sons, with a provision for the daughter as well as for her maintenance, education and marriage. All the properties dealt with at that partition--the agency itself was excluded. but the ancestral immovable property was included--were expressly treated as the properties which belonged to the coparcenary, which consisted of the father and his two sons. A partition of joint family property itself does not constitute a transfer of assets, direct or indirect, within the scope of section 16(3)(a)(iv) of the Act. A partition is based on the antecedent rights of the separating members of the family in the properties of that family. We have emphasised the feature of the transaction, that the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mily property. Where an inference of this sort is sought to be deduced from the conduct of the parties, there might be room for ambiguity and for difference of opinion. Where, however, it is the declaration of the owner of the separate property that is the evidence before the court or the Tribunal, the inference that the character of joint family property is impressed upon the separate property follows, unless the words are incapable of that construction or if it represents merely a future intention not yet given effect to." These principles were quoted with approval and applied by a Division Bench of the Andhra Pradesh High Court in Sadasiva Vittal v. Rattalu. The Tribunal, it should be observed, was of the view that the recital in the deed of partition "did not constitute an unequivocal declaration of the admitted individual investing his self-acquired properties with the character of joint family property." 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arated members as tenants-in-common. Subsequent partition between the divided members of the family does not amount either to a transfer of assets from that body of the tenants-in-common to each of such tenants-in-common. We, therefore, come back to the question, "was there a transfer to the coparcenary from the coparcener, that is, in this case was there a transfer from the assessee of his self-acquired properties to the coparcenary of which he was the karta?" Severance in status with the resulting change in the nature of the ownership of the property is one of the incidents of a coparcenary. The property held by the coparcenary vests in the separated members as tenants-in-common after the severance in status. That result can be brought about by the unilateral exercise of the volition of the separating member or members of the family. At that point of time the property, which had up to then been impressed with the character of joint family or coparcenary property, becomes impressed with the character of property held in severalty by the tenants-in-common. The change does not itself constitute a transfer. Nor even does it result from any transfer of assets. Similarly, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties into the hotchpot for purposes of partition, there is an element of transfer within the meaning of section 16(3)(a)(iv). The learned counsel referred to the observations of Manohar Lall, J., in Sardar Indra Singh v. Commissioner of Incometax [1943] 11 I.T.R. 16 at page 33: "The property of an individual cannot become the property of a joint Hindu family by mere expression of intention unless the property is transferred to the joint Hindu family by some means recognised by law, for instance if it is movable property then it should be handed over to the joint family and its subsequent possession or enjoyment should be shown to be on behalf of the joint Hindu family, or if it is immovable then it must be transferred by a registered document if its value is more than ₹ 100." The observations of Manohar Lall, J., were similar to those of Srinivasa Ayyangar, J., in Thyalambal v. Krishna Pattar 32 I.C. 955 at page 960: "Whether a member of a joint Hindu family who owns immovable property as his self-acquisition can convert it into joint family property without an instrument in writing registered in the Provinces where the Transfer of Property Act is in for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6(3)(a)(iv) of the Income-tax Act. The result is that after December 19, 1952, the income from the properties allotted to the minor children including the daughter belonged only to them, and it was not the income of the assessee. The transaction by which that property became the property of the minors, evidenced by the deed of partition, annexure "B", did not amount to a transfer of assets to any of the minor children within the meaning of section 16(3)(a)(iv). The assessee was, therefore, entitled to exclude with effect from December 19, 1952, the income from the properties allotted to the minors under annexure "B" from his assessable income. We answer the second question in the negative and in favour of the assessee. The third question does not really call for an answer, because that in no way affects the tax liability of the assessee in the assessment year 1953-54. It was true that the assessee's attempt to have the income assessed up to December 19, 1952, as income of the joint family failed. So did the attempt to secure a declaration under section 25A that the joint family had ceased to exist, and that all the properties had been divided. The correct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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