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TMI Blog1987 (8) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... du undivided family consisting of the assessee and his wife and whether it is excludible from the total income of the assessee (individual) for the assessment year 1977-78 ? " In R.C. No. 343 of 1982, the question referred for consideration of this court is : " Whether, on the facts and in the circumstances of the case, having regard to the provisions of section 4, sub-section (1A), clause (c), of the Wealth-tax Act, 1957, Rs. 1,88,862 which the assessee had got on partition with his son under the deed dated March 20, 1976, can be said to belong to the smaller Hindu undivided family consisting of himself and his wife? " Seth Tulsidas Bolumal, Vijayawada, was the karta of a joint Hindu family consisting of himself, his wife and a major son. He made a declaration on June 25, 1970, impressing some of his individual properties with the character of joint family properties. After conversion of the individual properties into joint family properties, the properties as well as the income arising therefrom were assessed in the hands of the Hindu joint family. On March 10, 1976, there was a declaration of partition of the properties of the joint family. On the date of partition, the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idual wealth-tax assessments was rejected. The assessee appealed against the assessments for income-tax as well as wealth-tax. The appeal in connection with the income-tax assessment for the year 1977-78 was filed before the Commissioner of Income-tax (Appeals), while the appeals in connection with the wealth-tax assessments for the assessment years 1976-77 and 1977-78 were filed before the Appellate Assistant Commissioner of Income-tax. The income-tax appeal was disposed of by the Commissioner of Income-tax (Appeals), on January 31, 1979, whereas the wealth-tax appeals were disposed of by the Appellate Assistant Commissioner on January 27, 1979. Curiously, the two appellate authorities came to contrary conclusions. The Commissioner of Income-tax (Appeals) held in connection with the income-tax assessment for the assessment year 1977-78 that the Income-tax Officer was correct in refusing to allow deduction of interest of Rs. 22,006. The Commissioner upheld the Income-tax Officer's view that the provisions of section 64(2) of the Income-tax Act are applicable and the income arising from the converted property which was allotted to the assessee on partition has to be deemed to be h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act. The Tribunal referred the matters accordingly to this court and the questions of law specified in para. 2, are referred for the consideration of this court. On the facts stated above, there is no dispute that after the assessee had impressed his individual properties with the character of joint family properties, the fictional provision contained in section 64(2) of the Income-tax Act and section 4(1A) of the Wealth-tax Act came into operation. There was also no dispute against the income-tax assessment and the wealth-tax assessments made till the date of partition of the converted asset on March 10, 1976. The income arising from the converted property as well as the property itself was assessed in the hands of the assessee individually on account of the deeming provisions contained in section 64(2) of the Income-tax Act and section 4(1A) of the Wealth-tax Act. The position, however, undergoes a change on the partition of the converted asset, as indicated in section 64(2)(c) of the Income-tax Act and section 4(1A)(c) of the Wealth-tax Act. These provisions authorise that after the partition of the converted asset, only the income arising to the spouse or minor child of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cener and the wife is entitled only to maintenance without a right to claim partition. This is because of the fact that the asset allotted to the karta on partition has an antecedent history of ancestry and was never the individual property of the karta. This legal position is fairly settled-vide decisions of the Supreme Court in Gowli Buddanna's case [1966] 60 ITR 293 and Narendranath's case [1969] 74 ITR 190. In both these cases, the Supreme Court held that the Hindu undivided family as an assessable entity need not consist of at least two male members. The Supreme Court carved out an exception to this principle in the case of Surjit Lal Chhabda [1975] 101 ITR 776. In that case, " Kathoke Lodge " which was the undivided property of the karta of the joint family was thrown into the family hotchpot by a declaration made by the karta on January 26, 1956. The family of the karta consisted of himself, his wife and an unmarried daughter. The Supreme Court held that after the karta impressed Kathoke Lodge with the character of joint family property, the lodge became the property of the joint family consisting of the karta, his wife and his unmarried daughter. The Supreme Court held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a son in the joint family who is entitled to claim a share on partition, the converted property retained the character of joint family property. If there is no son who can claim a share on partition, as it happened in the case of Kathoke Lodge, the property, though it may technically belong to the undivided Hindu family, would in reality belong to the sole surviving coparcener. In the present case, when the property was thrown into the family hotchpot by the assessee, there was a son and the property was rightly regarded as joint family property as the son was entitled to claim a share on partition. But once partition is effected and the claims of the son were discharged by allotting properties, the only family left is that of the karta and his wife without a son. Thus, after the partition of the converted asset, although technically it may be correct to say that the extent of the converted property which fell to the share of the assessee belonged to the joint family consisting of himself and his wife, still, in the absence of a son, it must be regarded as belonging to the assessee who is the sole surviving coparcener in the joint family consisting of himself and his wife. Bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held some separate properties. By a declaration dated June 25, 1970, he threw his separate properties into the family hotchpot impressing them with the character of joint family properties. Since the said conversion took place after December 31, 1969, the income derived from the converted properties should be deemed to have arisen to the assessee in his individual capacity, and not to the family, by virtue of clause (b) of sub-section (2) of section 64. Be that as it may, a partition took place between Seth Tulsidas Bolumal and his only major son on March 19, 1976. The value of the converted property on that date was Rs. 3,77,723. It was divided equally, with the result that the son got properties of the value of Rs. 1,88,861, while the assessee got properties of the value of Rs. 1,88,862. For the assessment year 1977-78, the assessee claimed that the income arising from the converted properties falling to his share should be treated as the income of the smaller joint family consisting of himself and his wife and cannot be treated as his individual income. This has been negatived by the Tribunal ultimately. The question is whether the Tribunal was correct in its view ? The matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r property. Explanation 2.-For the purposes of this section, 'income' includes loss." If, for a moment, we exclude section 64 from our consideration, the position would be that on partition between Seth Tulsidas Bolumal and his major son, the income from the properties which fell to the share of the assessee (father) would be taxable in the hands of the smaller joint family consisting of the assessee and his wife. The income would be treated as the income of the said smaller joint family. This is the decision of this court in Premchand v. CIT [1984] 148 ITR 440. Other High Courts too have taken the same view. The question is whether the provisions in section 64 make a difference to the above proposition ? It should be remembered that by virtue of clause (b) of sub-section (2) of section 64, even after conversion, the income derived from the converted property is liable to be deemed to arise to the individual who transferred the converted property to the family, and shall not be deemed to be the income of the joint family. It would be rather queer if, on partition, suddenly the income arising from the converted property falling to the share of the father, ceases to be his indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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