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TMI Blog2004 (5) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... The State of Patiala was one of the groups of States known as the "Phulkian States", which were governed by certain rules and regulations for succession and maintenance. These were recorded in the Dastur-ul-Amal containing provisions regarding authority of the Ruler of the State, maintenance of Kanwars and others, etc. After the country got independence, the issue of Princely States and their relations with the Union Government arose. The Phulkian States entered into a covenant through their respective Rulers on May 5, 1948, for the purpose of securing the welfare of the people of their region by establishing a State comprising the territory of these States with a common executive, legislature and judiciary. Under this covenant, the Ruler of Patiala, the late Maharaja Yadvindra Singh, was given a privy purse of Rs. 17 lakhs per year. The white paper on the Indian States issued on July 5, 1948 by the Government of India, printed in the revised edition dated March 19, 1950 indicated the circumstances under which the privy purse had been sanctioned. During the financial year 1971-72, the late Maharaja Yadvindra Singh transferred agricultural lands of the value of Rs. 3,82,500 as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Privy Council in Shiba Prasad Singh v. Rani Prayag Kumari Debi, AIR 1932 PC 216, which was followed by the Supreme Court in State of U.P. v. Raj Kumar Rukmini Raman Brahma, AIR 1971 SC 1687. The Commissioner, therefore, held that the gift of a portion of the agricultural land out of the impartible estate belonging to the Hindu undivided family to Yuvraj Amarinder Singh, Yuvrani Preneet Kaur and Kanwarani Haripriya Kaur could not be considered as valid gifts in view of the law laid down by a Full Bench of this court in CGT v. Tej Nath [1972] 86 ITR 96. However, he did not accept the claim of the assessee that the privy purse also formed part of the ancestral impartible estate and, thus, the gifts made out of the same were also not liable to tax in view of the judgment of this court in Tej Nath's case [1972] 86 ITR 96 [FB]. He, therefore, held that the sum of Rs. 10 lakhs was liable to be assessed as gift under the Act. He, however, partially accepted the claim of the assessee under section 5(1)(xvi) of the Act to the extent of Rs. 4 lakhs and held that the balance amount of Rs. 6 lakhs was taxable gift. Both the assessee as well as the Revenue preferred appeals against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Phulkian States 'in order to establish and strengthen the tie and unity of the States in connection with establishments of mutual agreements'. It becomes clear from its careful reading that, though Patiala State, after it was carved out by its original Ruler, was governed by a ruling chief, yet such a chief's succession was on the basis of the rule of primogeniture (male) and after succession on the Gaddi of the State he had well-defined responsibilities towards the maintenance of Kanwars on scheduled rates and other relatives. On the other hand, it was made obligatory on the part of such relatives including Kanwars to treat the ruler as 'the sole authority of all the affairs of the State and its administration'. To our mind, the succession or assumption of ruling powers was, thus, not by valour or force of arms or anything else but by the position of birth of a male member into the joint family which controlled and thus governed the State of Patiala. Therefore, the privy purse which was payment as quid pro quo for surrender of ruling powers and dissolution of State and privileges by the Ruler, the assessee, became payable to him as per covenant dated May 5, 1948 read with Dastur-u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than the Rulers which cannot be considered at par with privy purses. 31. In so far as the agricultural lands are concerned, on the facts stated above, and in the light of Dastur-ul-Amal, there could not be any manner of doubt that the lands formed an impartible estate. This estate and privy purse amounts formed joint family property. In our opinion such an estate, even if there is neither a right to partition nor a right to restrain alienation is a joint family property. We have formed this opinion after carefully going through the case law cited from both the sides. We, therefore, conclude that the privy purse amounts received by the assessee and agricultural lands mentioned above were joint family properties. Having held so, we proceed to consider as to what follows from the action of the assessee taken during the accounting period relevant to the assessment year under appeal, with regard to above properties. 32. There is a clear-cut finding of fact given by the learned Commissioner of Income-tax (Appeals) that the sum of Rs. 10 lakhs put in two trusts came out of privy purse amounts received by the assessee. In this regard para. 8 of his impugned order gives necessary de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of gift in section 2(xii) of the Act. The hon'ble court further clarified that the partition in the family could not be considered to be disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property within the meaning of these words in section 2(xxiv) in the Act. In fact, the hon'ble court clarified that the partition was not a transaction entered into by the assessee with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person and, therefore, section 2(xxiv)(d) did not apply. 33. The hon'ble Supreme Court was considering these provisions on the following facts of that case: The assessee was the karta of a Hindu undivided family consisting of himself, his son and his six grandsons. There was a partition of the immovable properties of the family through a registered deed executed on January 17, 1958, and the moveable properties were divided on April 13, 1958, on which date the necessary entries in the account books were made. The total value of the properties so divided was Rs. 8,51,440, but under that partition, the assessee took properties worth only Rs. 1,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the performance of any official ceremonies: Provided that such gifts are in accordance with the practice, usage or tradition of the family to which the person making the gift belong. However, we do not find it necessary to go into the alternative contention of the assessee and the arguments of the parties from both the sides in view of the finding given by us that the agricultural lands as well as the privy purse amounts transferred in the manner described above belonged to the Hindu undivided family and constituted the joint family properties. 35. In deciding the issues before us as above, we have taken into consideration the submissions made by both the sides and relevant authorities cited. If we do not refer to or particularly mention any authority in the decision that we have arrived at, that does not mean that we have in any manner not considered it." Dr. N.L. Sharda, learned counsel for the Revenue, contended that the Tribunal was not justified in holding that the gifts made were in the nature of family arrangement of the joint family properties and, thus, did not involve any transfer or any element of gift. He first referred to the findings of the Tribunal about the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l with such property in whatever manner he liked since the members of such a family have neither the right to partition nor the right to restrain alienation by the head of the family. Thus, according to him, the law laid down by this court in Tej Nath's case [1972] 86 ITR 96 [FB] was not applicable as in that case this court was dealing with the case of an ordinary Hindu undivided family governed by the general law of Mitakshara in which the members have the right of partition and also the right to restrain alienation by the karta except for necessity. Mr. C. S. Aggarwal, learned senior advocate, appeared on behalf of the assessee and contended that no doubt the agricultural land out of which gifts had been made formed part of the impartible estate which had devolved on the late Maharaja Yadvindra Singh, the 9th Ruler of the State of Patiala, as per Dastur-ul-Amal but since the impartible estate was ancestral, it was the property of the Hindu undivided family as already held by this court in Raja Ragavendra Singh v. State of Punjab [1976] 102 ITR 40. In that case, this court has accepted the claim that the State of Patiala, being an ancestral impartible estate, was the property of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any enactment passed before the commencement of the Hindu Succession Act. Referring to the terms and conditions of the covenant which was entered into by the Rulers of Faridkot, Jind, Kapurthala, Malerkotla, Nabha, Pariala, Kalsia and Nalagarh with the Government of India (annexed as annexure B), he pointed out that article XIV only guarantees the succession to the Gaddi of each covenanting State, and to the personal rights, privileges and titles of the Rulers thereof: it does not recognise the rule of primogeniture for succession to all and every estate of the Rulers of the covenanting States. Thus, according to learned counsel, it cannot be said that the agricultural land in question had descended on the late Maharaja Yadvindra Singh by the terms of the said covenant so as to be saved by section 5(ii) of the Hindu Succession Act. For this purpose, he again relied on the judgment of the Gujarat High Court in Pratapsinhji N. Desai's case [1983] 139 ITR 77. He, therefore, contended that after the passage of the Hindu Succession Act, the agricultural land ceased to be an impartible estate and vested with the Hindu undivided family of Maharaja Yadvindra Singh, which was governed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing the property of the Hindu undivided family in appeal before the Commissioner of Gift-tax (Appeals). The claim made by the assessee has been dealt with by the Commissioner of Gift-tax (Appeals) in paras. 3 to 7 as under: "3. During the course of these appeal proceedings before me, the main ground on which the claim for exemption of these gifts was based was that the appellant was the erstwhile Ruler of Patiala State and all the properties inherited by him as Ruler of Patiala State formed an impartible estate which was created by voluntary agreement styled as 'Dastur-ul-Amal' by the Rulers of the States of Patiala, Nabha and Jind jointly known as 'Phulkian State' on October 13, 1860. In this document, viz., Dastur-ul-Amal, it is provided that the authority in respect of all the matters relating to the affairs of the States and its maintenance would vest in the ruling chief and all members, Zildar and subordinates would be under his power and authority and that the maintenance allowance of the Kanwars and other relations of the family of the ruling chief would be fixed according to the norms stated in that document. In this regard reliance was placed on the Punjab High Court's d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in effect the impartible estate in the case of the Ruler of Patiala which was the privy purse, the Gaddi and the rights, titles and privileges of the Ruler and members of his family while all other private property of the Ruler ceased to have the character of impartible estate, as in other cases. 5. Now, all the impartible estates even prior to the enforcement of the Hindu Succession Act, 1956, were, whether excepted therefrom or not, always having the status of Hindu undivided family and hence it was vehemently pleaded by the Authorised Representative that any gifts made by the karta being the appellant out of such Hindu undivided family property would be void and not merely voidable and, therefore, it will be no gift within the meaning of the Gift-tax Act liable to gift-tax as held by the Punjab High Court in the case of CGT v. Tej Nath [1972] 86 ITR 96 [FB]. Thus, according to the Authorised Representative there was no justification from this point of view to impose any gift-tax on the aforesaid gifts made by the appellant. 6. I have carefully considered the aforesaid stand taken by Authorised Representative before me in these appeal proceedings but I am afraid I cannot fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivided family-with himself as karta and, therefore, the giving of a portion of such properties to others being the gifting of the agricultural land to Yuvraj Amrinder Singh and Yuvrani Parneet Kaur and Kanwarani Haripriya Kaur cannot be considered as gifts within the meaning of the Gift-tax Act relying on the Punjab High Court's decision at CGT v. Tej Nath [1972] 86 ITR 96 [FB] referred to above. Hence, in so far as the so-called gifting of these agricultural lands are concerned, no gift-tax would be imposable thereon. 7. In this connection, one of the arguments put forth by the Gift-tax Officer during the course of proceedings before me was that impartible estates cannot be created by an agreement and further that the appellant had himself been showing all these properties in his wealth-tax assessment in the individual status. But in this regard the Authorised Representative pointed out, and rightly so, that admittedly the properties in question were inherited by the appellant from his forefathers and the same became impartible on account of the 'Dastur-ul-Amal', being the convention of the Phulkian States entered into on October 13, 1860, which had now the force of custom and us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -66 onwards. It has nowhere been pleaded that the impartible estate had ceased to exist on the coming into force of the Hindu Succession Act as it was not saved by section 5(ii) of the Act. Had that been the case, the simple claim would have been that, with the coming into force of the Hindu Succession Act, the impartible estate had ceased to exist and had assumed the character of property of an ordinary joint family governed by the general law of Mitakshara. There could be no occasion to invoke section 4(6) of the Wealth-tax Act, 1957, which applies to subsisting impartible estates only. On the contrary, a reading of para. 4 above shows that it is the assessee's own case that the impartible estate of Maharaja of Patiala was saved under section 5 of the Hindu Succession Act. It is further clear from para. 6 above that the Commissioner of Gift-tax (Appeals) has accepted the claim of the assessee that the impartible estate belonged to the Hindu undivided family, on the basis of the law laid down in Shiba Prasad Singh v. Rani Prayag Kumari Debi, AIR 1932 PC 216 and Raj Kumar Rukmini Raman Brahma's case, AIR 1971 SC 1687 and has clearly held that this is a case of a joint family proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singh, AIR 1921 PC 62; Komammal v. Annadana Jadaya Gounder, AIR 1928 PC 68; Shiba Prasad Singh v. Rani Prayag Kumari Debi, AIR 1932 PC 216 and Collector of Gorakhpur v. Ram Sunder Mal, AIR 1934 PC 157..." The Privy Council in Shiba Prasad Singh's case, AIR 1932 PC 216, has highlighted this distinction as under: "Impartiability is essentially a creature of custom. In the case of ordinary joint family property, the members of the family have: (1) the right of partition; (2) the right to restrain alienations by the head of the family except for necessity; (3) the right of maintenance; and (4) the right of survivorship. The first of these rights cannot exist in the case of an impartible estate, though ancestral, from the very nature of the estate. The second is incompatible with the custom of impartibility as laid down in Sartaj Kuari's case [1888] ILR 10 All 272 and Rama Krishna v. Venkata Kumari [1899] 22 Mad 383, and so also the third as held in Gangadhara Rama Rao v. Raja of Pittapur, AIR 1918 PC 81. To this extent, the general law of the Mitakshara has been superseded by custom, and the impartible estate, though ancestral, is clothed with the incidents of self-acquired and separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 IA 51 (PC). In this case, a deed of gift had been made by the karta in favour of one of his Ranis. The older Rani as guardian of her son filed a suit for setting aside the deed on the ground that the holder of an ancestral impartible estate could not alienate any property when there was no purpose of necessity. The High Court of the North-Western Provinces, affirming the judgment of the Subordinate Judge, held that he could not. They examined the case law on the subject and drew the deduction that, inasmuch as the right of single enjoyment was not incompatible with a restriction on alienation, and as such restriction was part of the general law of the joint family. In particular they said: "It must be conceded that the complete rights of ordinary coparcenership in the other members of the family, to the extent of joint enjoyment and the capacity to demand partition, are merged in, or perhaps to use a more correct term, subordinate to the title of the individual member to the incumbency of the estate, but the contingency of survivorship remains along with the right to maintenance in a sufficiently substantial form to preserve for them a kind of dormant ownership." The Board reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so been definitely and emphatically reaffirmed..." The view taken in Sartaj Kuari's case [1887-88] 15 IA 51 (PC) and in Ram Sunder Mal's case AIR 1934 PC 157 stands approved by the Supreme Court in Raj Kumar Rukmini Raman Brahma's case, AIR 1971 SC 1687. Reference may also be made to article 588 of Mulla's Hindu Law, wherein it has been clearly mentioned "that the holder of an impartible estate has power to alienate the estate, though ancestral, by gift or by will, unless the power of alienation is excluded by special family custom or by the nature of the tenure". From the above discussion, it is clear that the holder of an ancestral impartible estate has an absolute power to dispose of the same even though it vests in the joint Hindu family because none of the members have the right either to claim partition or to restrain him from alienating the property. The other members of such a family have no proprietary rights in such an estate and cannot claim joint ownership in the same. In Tej Nath's case [1972] 86 ITR 96 (P & H), the Full Bench was considering the right of a karta to transfer coparcenary property by gifts under the general law of Mitakshara. However, the case of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nued to be so until the provisions of the Hindu Succession Act came into play on the death of Guru Amarjit Singh. This plea was negatived by this court and it was held that since the impartible estate was not saved under the provisions of section 5(ii) of the Hindu Succession Act, the impartible estate ceased to exist immediately on the coming into force of the Hindu Succession Act and was vested with the character of coparcenary property of a normal Hindu undivided family governed by Mitakshara law. However, the position is converse in the present case. Here, it is the assessee's own case that the impartible estate was saved under section 5(ii) of the Hindu Succession Act and, thus, it was assessable in the hands of the Maharaja Yadvindra Singh as an individual as per the provisions of section 4(6) of the Wealth-tax Act, 1957. Thus, the decision of this court in Guru Amarjit Singh's case [2002] 254 ITR 510 is not applicable to the present case. Thus, in view of the law laid down in Sartaj Kuari's case [1887-88] 15 IA 51 (PC), which has, thereafter, been affirmed in Ram Sunder Mal's case, AIR 1934 PC 157 and Raj Kumar Rukmini Raman Brahma's case, AIR 1971 SC 1687, the finding of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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