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TMI Blog1981 (8) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... dulal Manilal. Manilal's wife Bai Chanchal was also a member of that HUF. A partition took place between Manilal and his son Chandulal on October 22, 1932. Thereafter, these two separated members carried on family business in partnership in the name and style of Manilal Shamaldas. On December 4, 1937, a son Arvind was born to Chandulal, and Arvind Chandulal is the assessee before us. Chandulal died on December 23, 1941. On March 26, 1942, a family arrangement document was executed and to this family arrangement the parties were Manilal, Bai Chanchal, the wife of Manilal, and Bai Mani, the widow of Chandulal, who was a party to the family arrangement for herself and as the natural guardian of minor Arvind. Manilal died on April 21, 1942, and Bai Chanchal, Manilal's widow, died on June 18, 1942. It is not in dispute that the assessee Arvind got married on February 8, 1960, and on September 12/13, 1961, one daughter was born to Arvind, Thereafter, two more daughters were born and on September 20, 1968, a son was born to Arvind. Thus, Arvind's son was born during the previous year relevant to the assessment year 1969-70. Under the family arrangement, all the properties belonging to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so held that there was nothing to show that the properties which the assessee acquired under the family arrangement were properties which had been acquired under the original partition. It also rejected the alternative contention that the property received by the assessee was ancestral property and, therefore, it became the property of the HUF in view of the finding that the property had been acquired under the family arrangement and there was nothing to show that the property had any ancestral nucleus. The Tribunal accepted the department's contention that the assessee was not entitled to the status of an HUF and it, therefore, allowed the appeal and set aside the order of the AAC and restored the order of the ITO. Thereafter, at the instance of the assessee, the question hereinabove set out has been referred to us for our opinion. In order to understand the rival contentions of the parties, it is necessary to appreciate the purpose of arriving at the family arrangement and the legal effect of such a family arrangement. In Halsbury's Laws of England, 4th Edn., Vol. 18 at. 135, para. 301 mentions: " A family arrangement is an agreement between members of the same family, intend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mulla's Hindu Law, it has been pointed out : " Family arrangement or family settlement as it is sometimes termed, generally meets with approval of the court and the court always leans in favour of a transaction relating to any such arrangement which ensures peace and goodwill among the family members. This does not rest on any special rule of Hindu law but flows from general principles and policy of law . ...... Though conflict of legal claims in praesenti or in futuro is generally regarded as a condition for the validity of a family arrangement it is not necessarily so. Even bona fide dispute, present or possible, which may not involve future claims will suffice. ... Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement ...... the transaction is not the creation of an interest. In such an arrangement, ordinarily, each party takes share or interest in the property by virtue of the independent title which is admitted to that extent by the other parties. But every party who takes benefit under it need not necessarily be shown to have, under the law, claim to a share in the property. All that is neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mily arrangement were properties of an HUF. The fourth submission of the learned Advocate-General was that a property, otherwise an HUF property, does not cease to be as such because it has been allotted under a family arrangement if the character of the property prior to the family arrangement was that of an HUF property. The fifth and the last submission of the learned Advocate-General was that if member of the HUF utilises the property of an HUF by pooling it with the property of others and in the process of pooling causes a detriment to the HUF, and, in exchange, that member gets some property, it is not open to him to say that the property which he gets from the pool is not an HUF property. In support of his general submissions regarding family arrangement and their effect, the learned Advocate-General has relied upon two decisions of the Supreme Court. The first decision is in Maturi Pullaiah v. Maturi Narasimham, AIR 1966 SC 1836. In para. 9 of the judgment at p. 1839 of the report, Subba Rao J., as he then was speaking for the Supreme Court, after citing the passage from Halbury's Laws of England which we have set out hereinabove, observed (p. 1839): " This passage indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld and the courts will find no difficulty in giving assent to the same, and it was pointed out that even if bona fide disputes, present or possible, which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable the family arrangement is final and binding on the parties to the settlement. In para. 24 at p. 817 of the report it has been pointed out that the Supreme Court has also clearly laid down that a family arrangement being binding on the parties to the arrangement clearly operates as an estoppel so as to preclude any of the parties who have taken advantage under the agreement from revoking or challenging the same. And in para. 19 at p. 815, it has been summarised as follows: " Thus it would appear from a review ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eading text on the subject is that of Brihaspati, which runs as follows: ' He who being once separated dwells again through affection with his father, brother or paternal uncle, is termed reunited. ' ' The conflict of opinion among the commentators has arisen from the fact that some commentators regard the list given in the above text as exhaustive, while others regard it as merely illustrative. " In para. 343 it has been pointed out that the effect of a reunion is to remit the reunited members to their former status as members of a joint Hindu family. Similarly in Raghavachariar's Book on Hindu Law, vol. 1, at p. 435, it has been pointed out : " If a joint family separates, the family or any member of it may agree to reunite as a joint Hindu family but such a reuniting is of very rare occurrence, and when it happens, it must be strictly proved as any other disputed fact requires to be proved just as there is a presumption of jointness until a partition is proved, so also, after a partition is established, there is a presumption against a reunion, and the burden is upon those alleging a reunion to establish, not only that the parties, already divided, lived or traded togeth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bombay High Court as far back as 1865 in the case of Vishvanath Gangadhar v. Krishnaji Ganesh [1866] 3 Bom HC AC 69. In that case, Couch C.J., observed at p. 75, after considering the text of Mitakshara and Vyavahara Mayukha: " It appears to us that the meaning of the passage from Brihaspati which is the foundation of the law is, that the reunion must be made by the parties, or some of them, who made the separation. If any of their descendants think fit to unite, they may do so; but such a union is not reunion in the sense of the Hindu law, and does not affect the inheritance." Thus, it is clear that if the descendants of Chandulal, namely, minor Arvind, acting through his natural guardian Bai Mani, and Manilal chose to reunite, it was open to them to do so but such a union was not a reunion in the sense of the Hindu law and would not affect the rights of inheritance from the point of view of the Hindu law of undivided Hindu family. Therefore, in the light of this decision of the Bombay High Court, it is clear that there was no reunion as a result of the family arrangement of March 26, 1942, in the sense that the status quo prior to the partition of October 22, 1932 was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara, I, vi. 7 appear to be sufficient warrant." It is clear, therefore, that according to the Supreme Court, on the view based on the passage from Mayne, a reunion can be valid even though the consent to the reunion on behalf of a minor who is a party to the reunion is given by the mother of the minor as his guardian. But even if a valid reunion could have taken place between Manilal and minor Arvind because of the consent to the reunion being given by Bai Mani as natural guardian of Arvind, yet, in view of the position in Mayukha as set out in Vishvanath Gangadhar's case 3 Bombay High Court Reports 69, it is clear that there could not have been a valid reunion as known to Hindu law so as to revive the HUF consisting of Manilal Shamaldas by this arrangement and since the descendant of Chandulal, that is, Arvind, could not arrive at the reunion in the sense of the Hindu law and, therefore, even if consent for reunion by Bai Mani on behalf of minor, Arvind, is valid consent, in the eye of the law as known to Vyavahara Mayukha which is prevailing in Gujarat, there was no reunion in the sense of Hindu law. Hence, the first contention urged on behalf of the assessee by the learned Advo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the original partition, but in the accumulations made with the help of that property. In the light of these circumstances, a partition may be reopened by an after-born or a validly adopted son to a deceased coparcener (who if existing at the time of the partition would have been entitled to share) by his widow after the partition. It has been pointed out by Mulla at p. 429, that a partition may be reopened, if any coparcener has obtained an unfair advantage in the division of the property by fraud upon the other co-parceners, or where, after a partition has been made, it is discovered that the property allotted to one of the coparceners did not belong to the family, but to a stranger, or that it was subject to a mortgage, the coparcener to whom such property has been allotted is entitled to compensation out of the shares of the other coparceners, and the partition may, if necessary, be reopened for readjustment of the shares. Therefore, it cannot be claimed in the instant case that there was, by the family arrangement of March 26, 1942, any readjustment of rights as between the separated coparceners, namely, Chandulal's branch and Manilal's branch, Manilal and Chandulal being pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty in the hands of Arvind and Bai Mani. He contended that this character of joint family property did not lose its character as such by reason of intervention of the family arrangement. It is contended in this connection that, at least sofar as Chandulal's branch was concerned, the HUF property belonging to that branch, was put into the common hotchpot but by being so put in common hotchpot or pool in the family arrangement, the property did not lose its character of HUF property and that position is binding on all the coparceners of the family. In this connection, the learned Advocate-General has relied upon several decisions. In Rani Mewa Kuwar v. Rani Hulas Kuwar [1874] LR 11A 157, the facts were these : The suit out of which the appeal went to Privy Council was brought by Rani Mewa Kuwar, the grand-daughter of Raja Ruttun Singh, against Rani Hulas Kuwar, the widow of Khyratee Lall, who was a grandson of the Rajah, to recover an 8 1/2 annas share of three houses and an Imambara situate in the city of Lucknow. Rani Mewa Kuwar claimed 41 annas in her own right, and 4 1/2 annas as the representative of her deceased sister, Chatur Kuwar. The property in dispute which was in Oudh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is part only of the evidence of the appellant to prove her title, and not all her case." Thus, in the case of a family arrangement, if there is a title to the particular property which is acknowledged and defined by the family arrangement, then the antecedent title will continue and the agreement in the case so acknowledged and defined what that title was. In Khunni Lal v. Gobind Krishna Narain [1911] LR 38 IA 87 ; ILR 33 All 356 (PC), when further litigation arose out of the same compromise of 1860 between Mewa Kuwar and her sister, Chattur Kuwar, on the one hand and Khyratee Lall on the other, it was held that the compromise based on the title of the parties existing antecedent thereto, and acknowledged and defined thereby. In this case of Khunni Lal v. Gobind Krishna Narain, the earlier decision in the case of Rani Mewa Kuwar's case [1874] LR I IA 157 was followed. At p. 102, their Lordships of the Privy Council observed (see pp. 366, 367 of ILR 33 (All): " Such were the relative positions of the parties in 1860, when the compromise was entered into. The heirs of Daulat had no existing enforceable right to the share of Ratan Singh, and the entire property was recorded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report, Bose J., speaking for the Supreme Court observed : " But if there was a family arrangement assented to by the daughters and later accepted and acted on by the sons when they attained majority, their claim to separate and independent absolute titles is understandable. It does not matter whether the claims were well founded in law because what we are considering at the moment is not the legal effect of the arrangement but whether there was one in fact. " Again, in para. 54 at p. 490, Bose J., observed: " It is well settled that a compromise or family arrangement is based on the assumption that there is an antecedent title of some sort in the parties and the agreement acknowledges and defines what that title is, each party relinquishing all claims to property other than that falling to his share and recognising the right of the others, as they had previously asserted it, to the portions allotted to them respectively. That explain why no conveyance is required in these cases to pass the title from the one in whom it resides to the person receiving it under the family arrangement. It is assumed that the title claimed by the person receiving the property under the arrangement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manilal and Chandulal, Chandulal got his share of the family property and particularly one-half share in the partnership which was continuation of the old family business, as ancestral property and HUF property. It is true that he was still a surviving coparcener at that time and, therefore, he had an absolute right to dispose of the property. At p. 301 of the report, the Supreme Court, quoting from the decision of the Privy Council in Attorney-General of Ceylon v. Ay. Arunachalam Chettiar (No. 2) [1958] 34 ITR (ED) 42 ; 3 EDC 825, it is stated (at 301-302): " ... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the observations of the Privy Council are that once there was a previous title or claim or antecedent title before the family arrangement, that title which the branch of Chandulal consisting of Bai Mani and Arvind had, would attach to the properties which they got under the family arrangement. That is the only meaning which can be given to the decisions of the Privy Council in Rani Mewa Kuwar v. Rani Hulas Kuwar [1874] LR IIA 157, and Khunni Lai v. Gobind Krishna Narain [1911] LR 38 IA 87. As has been pointed out by Bose J., in Sahu Madho Das v. Mukund Ram, AIR 1955 SC 48l, even if one set of members of the family abandons all claims in a property in dispute, and acknowledges that the sole and absolute title to all the properties resides in only one of their number (provided he or she has claimed the whole and made such an assertion of title), and are content to take such properties as are assigned to their shares as gifts pure and simple from him or her, or as conveyance for consideration, the consideration is present. These decisions of the Privy Council in Rani Mewa Kuwar v. Rani Hulas Kuwar [1874] LR IIA 157 and Khunni Lai v. Gobind Krishna Narain [1911] LR 38 IA 87, hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived at could be deducted from the assets in order to arrive at the net wealth. At p. 787 of the report, Untwalia J., speaking for the Supreme Court, observed: " ......the argument is not sound. Taking the totality of the facts as found by the Tribunal and mentioned in the impugned judgment of the High Court, it was a case of family settlement or family arrangement which is binding on the parties concerned. The assessee agreed to purchase peace for the family and to pay to her son the amount which: fell short of Rs. 50,00,000 if her elder son did not pay any portion thereof. It is well established that such a consideration is a good consideration which brings about an enforceable agreement between the parties. Section 25 of the Contract Act does not hit this. " In our opinion, the decision in CWT v. H. H. Vijayaba [1979] 117 ITR 784 (SC), merely recognises the general law regarding family arrangements but it does, not say that family arrangements must be arrived at only for the purpose of preservation of peace in the family. In our opinion, this decision in [1979] 117 ITR 784 (SC), does not in any way go contrary to the conclusion which is arrived at by us in the light of the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of her share on such share is doubtful AND WHEREAS with a view to end the possibility of disputes arising between the parties all parties herein as members of one family are desirous of making proper arrangements ...... .." and that the arrangement was arrived at to save and preserve the family honour and property and " to save the properties from ruinous litigation ". Now, it is difficult to accept the contention that there was a partition between Bai Mani and Arvind by the assertion on the part of Bai Mani that she was entitled to one-half share in the properties of Chandulal and there was some doubt regarding the claim of her interest in such share. Now it must not be forgotten that in 1941 when Chandulal died, the provisions of the Hindu Women's Right to Property Act, 1937, were in force. Under s. 3, sub-s. (2) of that Act: " When a Hindu governed by any school of Hindu law other than the Dayabhaga School or by customary law dies having at the time of his death an interest in a Hindu joint family property, his widow shall, subject to the provisions of sub-section (3), have in the property the same interest as he himself had. Under sub-s. (3) of s. 3: " Any interest devolvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecome entitled to one-half share of the property of Chandulal and a doubt about the quality of her interest in such share, it has been recited that with a view to end the possibility of disputes arising between the parties, all the parties as members of one family were desirous of making proper arrangements regarding the estate belonging to and/or standing in the name of or being otherwise in the possession of any of the parties to the arrangement or of the deceased Chandulal, the parties to save and preserve family honour and property and to save the property from ruinous litigation have agreed for the aforesaid purpose to bring into hotchpot the entire movable and immovable properties either belonging to or standing in the name of or being anywise in the possession of either the said deceased Chandulal or of any of the parties to the arrangement to the extent of their interest therein and whereas the parties to the arrangement were anxious to safeguard the estate after making adequate provisions for certain other family members and for the parties' own decent living according to the family status and condition and whereas Bai Chandulal and Bai Mani were willing to forgo their str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest to reside in the house or to get the income thereof and after the death of Shanta the property was to go over absolutely to her sons, failing sons to the issues of such sons, and failing both to the daughters of Shanta, failing daughters their (daughters') children and failing them, to Arvind or his descendants in the male or female line. If it was not possible to transfer the said house to Shanta, an amount of Rs. 15,000 was to be set apart for the purpose of a house for her on the same terms and conditions as stated above. Clause 9 also deals with specific disposal in favour of Devi, daughter of Shanta. Under cl. 10, a sum of Rs. 5,001 was to be set apart for Madhusudan Manilal Shah, son of the sister of the party of first part. Under cl. 11, an amount of Rs. 75,000 was to be set apart and deposited in the name of Bai Chanchal, the wife of Manilal, and she was to be entitled to the income thereof during her lifetime. On the death of Bai Chanchal the said amount of Rs. 75,000 with the accumulated income thereof, was to belong absolutely to Arvind subject to the provisions of cl. 21A of the family arrangement, A sum of: Rs. 25,000 was to be paid and was to belong to Chanchal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt ownership Manilal and minor Arvind, to be utilised for their enjoyment and benefit in equal shares. The corpus I of the said property on the death of Manilal was to form part of the residue and was to be disposed of under cls. 20, 21 and 21A. Clause 20 provides that the residue of the estate after making provision for the aforesaid payments and deposits was to be kept apart and deposited in the name of or held for and on behalf of the minor Arvind and income thereof was to be utilised for his maintenance, education, marriage and other personal benefit. Clause 21 provided as under: " The said Arvind is the absolute owner of the whole of the remainder of the estate after defraying the aforesaid payment and disbursement subject to the proviso contained in clause 21A hereof, but the possession thereof shall not be handed over to him until he attains the age of 21. Clause 21 A was as under: " PROVIDED THAT in the event of the said Arvind dying without leaving any children or descendants male or female however remote, if alive, and failing widow, or after her death, life estate shall be given to Bai Mani mother of minor Arvind in all the estate given to Arvind absolutely and after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en prior to the entering into the family arrangement, at least in the light of cl. 21 A, Arvind got no right as the head of the HUF or as male coparcener of the HUF consisting of himself and Bai Mani and, therefore, in view of the clear position of the family arrangement, no property coming to Arvind under the family arrangement came to him as joint family property. In our opinion, the proper way of construing cl. 21A is to look upon it as vesting the properties in Arvind subject to the defeasance clause that in the event of Arvind dying without leaving any children, male or female, the property given to him under the family arrangement under the different clauses was to go according to the provisions of cl. 21A. In view of these provisions of cl. 21A, a further restriction must be read on Arvind's power of disposition of the property, both testamentary and inter vivos, and if inter vivos powers of disposition of Arvind were to be recognised in these properties, then cl. 21A cannot operate at all and therefore, by necessary implication, the family arrangement must be read as giving to Arvind a right of enjoyment of these properties of which he was said to be absolute owner under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [1948] 16 ITR 35. In that case the Privy Council observed at p. 40 of the report: Whatever the view of a Hindu joint family and its property might have been at the early stages of its development, their Lordships think that it is now firmly established that an individual coparcener, while remaining joint, can possess, enjoy and utilise, in any way he likes, property which was his individual property, not acquired with the aid of or with any detriment to the joint family property. It follows from this that to be able to utilise this property at his will, he must be accorded the freedom to enter into contractual relations with others, including his family, so long as it is represented in such transactions by a definite personality like its manager. In such a case he retains his share and interests in the property of the family, while he simultaneously enjoys the benefit of his separate property and the fruits of its investment. To be able to do this, it is not necessary for him to separate himself from his family. Again, at p. 41 it was observed: ".. ...... it is now established by several rulings, including one of this Board(see Sundar Singh Majithia v. CIT[1942] 10 ITR 457 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing detriment to the HUF property was taken up at any earlier stage and he relied upon the interpretation of cl. 22 of the family arrangement and contended that the rights to the old estate were indistinct and there was no quid Pro quo so far as the old property was concerned. In our opinion, the fifth contention urged by the learned Advocate-General is another aspect of the same plea that property in the hands of Arvind was joint family property and not his individual property and it is only by way of presenting another aspect of the case that the fifth contention has been urged by the learned Advocate-General and, therefore, it was possible to urge that all the property which Arvind Chandulal got under the family arrangement was joint family property. In Raghavachariar on Hindu Law, 7th Edn., Vol. 1 at p. 276, it has been stated: " If a member of a family takes aid of any portion of the joint or ancestral property, in acquiring fresh properties, however small that aid may be, the property so acquired assumes the character of joint family property and cannot be claimed by the acquirer as his self-acquisition. The extent of his contribution or that of the family fund is immaterial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the family acquires in it a right by birth which cannot be defeated by individual alienation or disposition of any kind except under certain peculiar circumstances. This is equally true of joint family property. Where a sufficient nucleus in the possession of the members of a joint family has come to them from a paternal ancestor, the presumption is that the whole property is ancestral and any member alleging that it is not, will have to prove his self-acquisition. Where property is admitted or proved to have been joint family property, it is subject to exactly the same legal incidents as the ancestral joint family property, but differs radically in origin and essential characteristics from the joint property of the English law. The fundamental principle of the Hindu joint family is the tie of sapindaship without which it is impossible to have a joint Hindu family, while such relationship is unnecessary in the case of a joint tenancy in English laws." Raghavachariar pointed out in para. 243 at p. 255: " Coparcenary property means and includes: (1) ancestral property, (2) acquisitions made by the coparceners with the help of ancestral property, (3) joint acquisitions of the cop ..... X X X X Extracts X X X X X X X X Extracts X X X X
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