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TMI Blog1975 (10) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... of the joint Hindu family consisting of himself, his wife and one child. That child was an unmarried daughter. 2. In the assessment proceedings for 1957-58, the appellant contended that since he had abandoned all separate claims to Kathoke Lodge, the income which he received from that property should be assessed in the status of a Hindu undivided family. The income-tax authorities and the Income-tax Appellate Tribunal rejected that contention for varying reasons. The Income-tax Officer held that in the absence of a nucleus of joint family property, there was nothing with which the appellant could mingle his separate property and, secondly, that there could not be a Hindu undivided family without there being undivided family property. The appellant carried the matter in appeal to the Appellate Assistant Commissioner who differed from the Income-tax Officer on both the points but dismissed the appeal on two other grounds. The Appellate Assistant Commissioner held that even after the declaration, the appellant was dealing with the income of Kathoke Lodge in the same way as before which showed that the declaration was not acted upon and, secondly, that even assuming that the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation of a joint Hindu family that there should be more than one male capable of claiming partition of the joint family property. In the alternative, it was urged by the department that a single male could form a joint Hindu family along with a coparcener's widow who is capable of making an adoption to her deceased husband but not with his own wife and unmarried daughter. The argument that the existence of ancestral or joint family property was an essential prerequisite to throwing the self-acquired property into the common stock was raised but was not pressed in the High Court. 6. On these contentions, the real controversy before the High Court was whether a single male can form a joint Hindu family with his wife and unmarried daughter ; if yes, whether the karta of such a family can impress his self-acquired property with the character of joint family property by throwing it into the family hotchpot ; and, lastly, whether the income of such property can be assessed as the income of the joint family. The High Court did not enter into these questions and made its task simple by saying : Several authorities were referred to on either side in Support of their respective co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder his personal law the same as it was before he made the declaration, the question arises whether under the Income-tax Act it must be held to be the income of the karta of the Hindu undivided family. That is precisely the question which the Privy Council answered against the assessee in Kalyanji's case...... In our opinion, therefore, the assessee's case would fall squarely within the principle enunciated by their Lordships of the Privy Council in Kalyanji's case and upon that view the income in the hands of the assessee would be liable to be assessed as his individual income." The Privy Council decision on which the High Court relies is Kalyanji Vithaldas v. Commissioner of Income-tax. The judgment of the High Court is reported in [1970] 75 ITR 458. 7. Before examining the validity of the High Court's reliance on Kalyanji's case and the correctness of its conclusion that the instant case falls within the ratio of that decision, it is necessary to have regard to the principles of Hindu law governing joint families. The High Court did not examine those principles, calling them "larger questions", and preferred wholly to rely on, so to say, the magic touch of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hindu undivided family in the sense of who can be its members is just the same. 10. Section 2(9) of the Indian Income-tax Act, 1922, defines a "person" to include, inter alia, a "Hindu undivided family". Under sections 3 and 55 of that Act, a Hindu undivided family is a taxable unit for the purposes of income-tax and super-tax. The expression "Hindu undivided family" finds reference in these and other provisions of the Act but that expression is not defined in the Act. The reason of the omission evidently is that the expression has a well-known connotation under the Hindu law and being aware of it, the legislature did not want to define the expression separately in the Act. Therefore, the expression "Hindu undivided family" must be construed in the sense, in which it is understood under the Hindu law (Commissioner of Income-tax v. Gomedalli Lakshminarayan--See particularly the judgment of Rangnekar J. at page 244). 11. There is no substance in the contention of the respondent that in the absence of an antecedent history of jointness, the appellant cannot constitute a joint Hindu family with his wife and unmarried daughter. The lack of such history was never before pleaded and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gin by pasting over the wider phrase of the Act the words 'Hindu coparcenary' , all the more that it is not possible to say on the face of the Act that no female can be a member." 12A. Outside the limits of coparcenary, there is a fringe of persons, males and females, who constitute an undivided or joint family. There is no limit to the number of persons who can compose it nor to their remoteness from the common ancestor and to their relationship with one another. A joint Hindu family consists of persons lineally descended from a common ancestor and includes their wives and unmarried daughters. The daughter, on marriage, ceases to be a member of her father's family and becomes a member of her husband's family. The joint Hindu family is thus a larger body consisting of a group of persons who are united by the tie of sapindaship arising by birth, marriage or adoption." The fundamental principle of the Hindu joint family is the sapindaship. Without that it is impossible to form a joint Hindu family. With it as long as a family is living together, it is almost impossible not to form a joint Hindu family. It is the family relation, the sapinda relation, which distingu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily as an assessable entity must consist of at least two male members." In N. V. Narendranath v. Commissioner of Wealth-tax, the appellant filed returns for wealth-tax in the status of a Hindu undivided family which at the material time consisted of himself, his wife and two minor daughters. The claim to be assessed in the status of a Hindu undivided family rested on the circumstance that the wealth returned consisted of ancestral property received or deemed to have been received by the appellant on partition with his father and brothers. The High Court held that as the appellant's family did not have any other male coparcener, the assets must be held to belong to him as an individual and not to the Hindu undivided family. That decision was set aside by this court on the ground that a joint Hindu family could consist under the Hindu law of a single male member, his wife and daughters and that it was not necessary that the assessable unit should consist of at least two male members. 15. In both of these cases, Gowli Buddanna's and Narendranath's, the assessee was a member of a pre-existing joint family and had, in one case on the death of his father and in the other on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the department's contention. But apart from the merits of the point we ruled that the contention was not open to the department. The statement of case framed by the Tribunal shows that such a contention was not raised before the Tribunal. The Commissioner of Income-tax himself asked for the reference of a question to the High Court for its opinion. That question concerns the point whether having regard to the conduct of the appellant his self-acquired property could be said to be impressed with the character of joint family property. The question did not cover the contention raised before us on behalf of the department. But above all, though an argument was raised in the High Court on behalf of the department that for the operation of the doctrine of blending it was essential that there should exist not only a coparcenary but also a coparcenary property, learned counsel who appeared for the department in the High Court "did not, after some discussion, press that there should necessarily be coparcenary property". This was not a concession on a question of law in the sense as to what the true legal position was. What the department's counsel stated in the High Court was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Sewdas, and Vithaldas's sons, Chaturbhuj and Champsi, were taken into the partnership with the result that by 1930 the partnership came to consist of seven partners, Moolji, his sons, Kanji and Sewdas, Moolji's brother, Purshottom, and Vilthaldas's sons, Kalyanji, Chaturbhuj and Champsi. The interest of Kanji and Sewdas in the firm was a gift from their father, Moolji, and that of Chaturbhuj a gift from his brother, Kalyanji. Those of the partners whose interest in the firm was separate property were not shown to have thrown that property or the receipts therefrom into the common stock. 23. The Privy Council had six appeals before it which were filed by the partners of the firm except Champsi. The appeals related to the assessment year 1931-32. The controversy was whether the partners should each be assessed to super-tax upon his share of the profits as an individual or whether the six shares should each be assessed as income of a Hindu undivided family. 24. Three partners out of the six, namely, Moolji, Purshottom and Kalyanji, were each members of a Hindu undivided family. Each of these three partners had a son or sons from whom he was not divided. But the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was irrelevant because his interest in the firm was his self-acquired or separate property in which the son could have taken no interest by birth. (iii) And in regard to Kanji and Sewdas, even if their interest in the firm was assumed to be ancestral property, the income which they received from the firm was their separate property as neither of them had a son who could take interest in the ancestral property by birth. 29. The appeals of the six partners before the Privy Council fall into two classes. Those of Moolji, Purshottom, Kalyanji and Chaturbhuj fall in one class while those of Kanji and Sewdas fall in another class. There is a point of distinction between the cases of the four partners failing within the first class on the one hand and that of the appellant on the other. But the point of distinction is not that Moolji, Purshottom and Kalyanji had a son or sons and the appellant has none, because though the three partners were heads of their respective joint families which included in every case a son or sons, the income which each received froth the firm was his separate and self-acquired property which was not thrown into the common stock. The mere existence of a son or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase and observed that : The Bombay High Court, on the other hand, in Lakshminarayan's case, having held that the assessee' his wife and mother were a Hindu undivided family, arrived too readily at the conclusion that the income was the income of the family." The decision of the Bombay High Court which the Privy Counsel had in mind is Commissioner of Income-tax v. Gomedalli Lakshminarayan. There is a fundamental distinction between Lakshminarayan's case and Kalyanji's case which, with respect, the Privy Council failed to notice. In Lakshminarayan's case, the joint Hindu family consisted of a father, his wife, their son and the son's wife. The property of the joint family was ancestral in the hands of the father and the son had acquired by birth an interest therein. (See the judgment of Rangnekar J. at page 369). There was a subsisting undivided family during the father's lifetime and that undivided family did not come to an end on the father's death. The same undivided family continued after the death of the father, with the son, his mother and his wife as its members. The effect of the father's death was merely this that the son, instead of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntinued to remain the income of the undivided family. This distinction which had a vital bearing on the issue falling to be determined was not given effect to by the judicial Committee in A. P. Swamy Gomedalli's case." In Narendranath's case too this court disapproved of the Privy Council decision in Lakshminarayan's case and pointed out that the Privy Council had failed to notice the distinction between the facts of Kalyanji's case and those of Lakshminarayan's case in observing that the Bombay High Court "arrived too readily at the conclusion that the income was the income of the family". 34. The appellant's counsel is thus right in his submission that the observations made by the Privy Council in Kalyanji's case as regards the correctness of the Bombay view in Lakshminarayan's case is not good law. In fact, the decision of the Privy Council, in appeal from the judgment of the Bombay High Court in, Lakshminarayan's case has itself been disapproved by this court. But that does not affect the correctness of the Privy Council decision in Kalyanji's case itself as regards the nature of the income received by the six partners from the firm. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of a joint family does not cease to belong to the family merely because the family is represented by a single coparcener who possesses rights which an owner of property may possess. The decision of the Privy Council in Attorney-General of Ceylon v. A. R. Arunachalam Chettiar, the decisions of this court in the cases of Gowli Buddanna and Narendranath and the decision of the Bombay High Court in Lakshminarayan's case fall within that class and are not to be confused with cases like the one on hand, which fall within the rule in Kalyanji's case. 36. In Arunachalam Chettiar's case a father and son constituted a joint Hindu family along with females including the widow of a pre-deceased son. On the death of the son in 1934, the father became the sole surviving coparcener. By a Ceylonese Ordinance, property passing on the death of a member of a Hindu undivided family was exempt from payment of estate duty. On the death of the father a question arose whether, in view of the Ordinance, his estate was liable to estate duty. The Privy Council held that the father was at his death a member of a Hindu undivided family, the same undivided family of which his son, when alive was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bservation of the judicial Committee that income from an ancestral source does not necessarily become the income of the undivided family consisting of a man, his wife and daughter, this court held ; Different considerations would be applicable, where property already impressed with the character of joint family property comes into the hands of a single coparcener. The question to be asked in such a case is whether the property retains the character of joint family property or whether it sheds the character of joint family property and becomes the absolute property of the single coparcener." In the result the court concluded that the case fell within the rule in Gowli Buddanna's case 38. There are thus two classes of cases, each requiring a different approach. In cases falling within the rule in Gowli Buddanna's case, the question to ask is whether property which belonged to a subsisting undivided family ceases to have, that character merely because the family is represented by a sole surviving coparcener who possesses rights which an owner of property may possess. For the matter of that, the same question has to be asked in cases where the family, for the time being, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty which a man has obtained from his father belongs to a Hindu undivided family by reason of having a wife and daughters." On the other hand, in Arunachalam's case, which falls within the rule in Gowli Buddanna's case, the Privy Council observed : "But though it may be correct to speak of him (the sole surviving coparcener) as the 'owner', yet it is still correct to describe that which he owns as the joint family property. For his ownership is such that upon the adoption of a son it assumes a different quality : it is such, too, that female members of the family (whose members may increase) have a right to maintenance out of it and in some circumstances to a charge for maintenance upon it. And these are incidents which arise, notwithstanding his so called ownership, just because the property has been and has not ceased to be joint family property.........it would not appear reasonable to impart to the legislature the intention to discriminate, so long as the family itself subsists, between property in the hands of a single coparcener and that in, the hands of two or more coparceners." Holding that it was an irrelevant consideration that a single coparcener could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hotchpot : the right of maintenance, neither more nor less. Thus, Kathoke Lodge may be usefully described as the property of the family after it was thrown into the common stock, but it does not follow that in the eye of Hindu law it belongs to the family, as it would have, if the property were to devolve on the appellant as a sole surviving coparcener. 42. The property which the appellant has put into the common stock may change its legal incidents on the birth of a son but until that event happens the property, in the eye of Hindu law, is really his. He can deal with it as a full owner, unrestrained by considerations of legal necessity or benefit of the estate. He may sell it, mortgage it or make a gift of it. Even a son born or adopted after the alienation shall have to take the family hotchpot as he finds it. A son born, begotten or adopted after the alienation has no right to challenge the alienation. 43. Since the personal law of the appellant regards him as the owner of Kathoke Lodge and the income therefrom as his income even after the property was thrown into the family hotchpot, the income would be chargeable to income-tax as his individual income and not that of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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