SACHCHIDANAND JHA, J. :
These references under s. 256(1) of the IT Act, 1961, are at the instance of the Revenue. The reference in Tax Cases Nos. 61 and 62 of 1983 in which the assessees are full brothers and members of the bigger HUF is in the same terms. Tax Case No. 9 of 1982, is a different case altogether. But although the reference is not in the same terms and the facts, naturally, also are not exactly the same, the controversy is one and the same in these cases. They have, as such, been heard together and are disposed of by this common judgment.
2. In Tax Case No. 9 of 1982, the material facts are as follows. The assessees family consisted of himself, i.e., Radhe Shyam Prasad Agarwal, wife, two sons (including a minor son) and three daughters (including one minor and one married daughter). The assessee used to file returns in the status of an HUF and was being assessed to Income Tax as such. On the last date of the previous year relevant to the asst. yr. 1976-77, partial partition in the family took place. The capital standing in the name of the HUF was partitioned amongst the members of the family, namely the assessee, his two sons, Suresh Prasad Agarwal and Ganesh Prasad Agarwal, and wife, Smt. Sita Devi Agarwal. The assessee claimed that he should be assessed in the status of the HUF because even after partition he had a legal obligation to maintain his wife and he along with his wife constituted the HUF. The ITO took the view that since the capital of the HUF had been partitioned and the wife had also got share and there was none to claim any share in the property which had come into the hands of the assessee, his status would be that of individual. The AAC on appeal by the assessee reversed the finding of the ITO. He held, following the decision of the Supreme Court in
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the status of the assessee should be an HUF ?"
3. The material facts of Tax Cases Nos. 61 and 62 of 1983 may be stated as follows. The assessees, namely, Jainath Prasad and Baijnath Prasad, were members of a bigger HUF. They were "Kartas" of their respective HUF consisting of self, wife and children. The HUF derived share income from firms. Partial partition was effected in the bigger HUF as a result of which the capital in various firms was divided. The ITO noticed that as a result of the partial partition, the capital had been partitioned not only amongst the assessee and their respective children but also their wives. In other words, their wives too had received their share in the capital. The ITO on these facts held that the income received by the assessees from the assets after partition was their individual income. He rejected the claim of the assessees that they be assessed as HUF. The AAC held that with respect to the assets received by the assessees on partial partition, they continued to be HUFs with their wives. He relied on N. V. Narendranaths case (supra). The Tribunal, on appeal by the Revenue, concurred in the view of the AAC. It held that simply because the wife had also received a share on partial partition, it does not mean that he ceased to constitute an HUF with the wife. What was received by the assessee on partial partition of the bigger HUF was not his absolute property, it was subject to charge and claims of members who may be born or adopted in future. The income derived from the assets received on partial partition was, therefore, liable to be assessed in the hands of the assessees in the status of HUF and not individual. The Tribunal, in coming to the conclusions, followed N. V. Narendranaths case (supra). It also referred to the case of
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that income from assets received on partial partition was liable to assessment in the hands of Sri Jainath Prasad/Sri Baijnath Prasad in the status of an HUF consisting of himself and his wife and not in the capacity of an individual ?
(2) Whether, on the facts and in the circumstances of the case, an individual can form an HUF with his wife in respect of the shares received by him on such partition in which the wife was also allotted a separate share and that share is used by her exclusively ?"
4. Mr. L. N. Rastogi, learned counsel for the Revenue, submitted that where on partition shares are allotted to the members of the erstwhile HUF, including wife, the existence of the HUF comes to an end and the assessee can no longer be assessed in the status of an HUF because the income accruing from the property allotted to his share belongs exclusively to him. He placed reliance on
5. Mr. S. K. Mishra, learned counsel for the assessee, in Tax Case No. 9 of 1982 (assessees in Tax Cases Nos. 61 and 62 of 1983 were un-represented) submitted that the partition in the family of the assessee did not mean that the wife became separate from the assessee, even though a separate share was allotted to her, and so far as the property allotted to the share of the assessee is concerned, the wife and, in fact, the children also would continue to have interest in that property and, therefore, the income therefrom in the hands of the assessee must be taxed in the status of HUF. He further submitted that the property which is impressed with the character of joint family property does not cease to be so on partition. He placed reliance on N. V. Narendranaths case (supra) and CWT vs. Pannalal Rastogi (supra).
6. The dispute as to whether on partition the share coming into the hands of the assessee is to be taxed in the status of individual or HUF has a rather long history. In Pannalal Rastogi (supra), a person no less than Untwalia C.J. (as he then was) observed, "the point at issue is not free from difficulty". Starting from Kalyanji Vithaldas vs. CIT (1937) 5 ITR 90 a decision rendered by the Privy Council in 1936, the question has been debated in a large number of cases in various High Courts and the Supreme Court. But as is often said, each case is to be decided on its own facts.
7. Since the Tribunal has heavily relied on N. V. Narendranaths case (supra) which, as a matter of fact, is the foundation of its decision, it would be only appropriate to know the ratio decidendi of that case. The Supreme Court in N. V. Narendranaths case (supra) observed that the expression "HUF" in the WT Act is used in the same sense in which a Hindu joint family is understood in the personal law of Hindus. Under the Hindu system of law, a joint family may consist of a single male member and his wife and daughters and there is nothing in the scheme of the WT Act to suggest that an HUF as an assessable unit must consist of at least two male members. (The term "HUF" is not defined under the IT Act and, therefore, must have the same incidents and meaning as the one given to it in the context of the WT Act). Having said so the Court observed :
"The next question is whether the assets which came to the share of the appellant on partition ceased to bear the character of joint family properties and became the individual property in his hands. In this connection, a distinction must be drawn between the two classes of cases where an assessee is sought to be assessed in respect of ancestral property held by him : (1) where property not originally joint is received by the assessee and the question has to be asked whether it has acquired the character of a joint family property in the hands of the assessee, and (2) where the property already impressed with the character of joint family property comes into the hands of the assessee as a single coparcener and the question required to be considered is whether it has retained the character of joint family property in the hands of the assessee or is converted into absolute property of the assessee".
After quoting the observations of the Judicial Committee in Attorney General of Ceylon vs. A. R. Arunachalam Chettiar (1958) 34 ITR 42 : (1957) AC 540, that : "it is only by analysing the nature of the rights of the members of the undivided family, both those in being and those yet to be born, that it can be determined whether the family property can properly be described as joint property of the undivided family", the Supreme Court observed at page 197 of the Report that "though in the absence of male issue the dividing coparcener may be properly described in a sense as the owner of the properties, upon the adoption of a son or birth of a son to him, it would assume a different quality. It continues to be ancestral property in his hands as regards his male issue for their rights had already attached upon it and the partition only cuts off the claims of the dividing coparceners. The father and his male issue still remain joint. The same rule would apply even when a partition had been made before the birth of the male issue or before a son is adopted, for the share which is taken at a partition by one of the coparceners is taken by him as representing his branch. Again, the ownership of the dividing coparcener is such that female members of the family may have a right to maintenance out of it and in some circumstances, to a charge for a maintenance upon it". On this a priori reasoning their Lordships concluded that when a coparcener having a wife and two minor daughters and no son receives his share of the joint family properties on partition, such property in the hands of the coparcener belongs to the HUF of himself, his wife and minor daughters and cannot be assessed as his individual property.
8. The decision in N. V. Narendranaths case (supra) does, at the first instance, seem to support the case of the assessees. There is, however, one salient fact which turns the tables against them. It is that in N. V. Narendranaths case (supra) no separate share had been allotted to the wife while in these cases, as noticed above, separate shares were allotted to the wives, besides the children. This is evident from the statement of fact at page 198 of the Report (in N. V. Narendranaths case) to the effect that "it is no doubt true that there was a partition between the assessee, his wife and minor daughters on the one hand and his father and brothers on the other hand".
9. It is clear that the Supreme Court was dealing with an entirely different case. The Tribunal appears to have been swayed by certain observations made in the judgment in N. V. Narendranaths case (supra) to the effect, for example, that to constitute an HUF it is not necessary that there should be two male members. In N. V. Narendranaths case (supra), on partition, a share had been allotted to Narendranath who held the same on his own behalf as well as on behalf of his wife and minor daughters. In the present case, the fact that the wife has also been allotted a share, besides the children, makes all the difference. Dealing with a similar case, the Madhya Pradesh High Court in CIT vs. Dhannamal (supra) held :
"Had the wife not been allotted any share in the partial partition, the matter was simple and there would have been no difficulty in holding that the assessee and his wife constituted an HUF."
The Madhya Pradesh High Court followed an earlier case in
10. As noticed above, the expression "HUF" is to be understood in the same sense as it is understood in the ordinary Hindu law. In Maynes Hindu Law and Usage (p. 575, 13th Edn.), it has been stated :
"Property which a man takes at a partition will be his separate property as regards those from whom he has severed but will be ancestral property as regards his own male issue. So too, family property vested in the last surviving male member of a coparcenary will be his separate property subject to its becoming at any moment coparcenary property when he has male issue or when an adoption is made to him or to a predeceased coparcener in the family, and subject to the right of maintenance of the other female members of the family ..."
Mullas Hindu Law [Paragraph 223(4), p. 248, 16th Edn.] states :
"The share which a coparcener obtains on partition of an ancestral property is ancestral property as regards his male issue. They take an interest in it by birth, whether they are in existence at the time of partition or are born subsequently. Such share, however, is ancestral property only as regards his male issue. As regards other relations, it is separate property, and if the coparcener dies without leaving male issue, it passes to his heirs by succession."
In N. R. Raghavachariars Hindu Law, Principles and Precedents, the law has been stated in para 260 at page 222 (8th Edn.) in these words -
"The share is the ancestral estate which a coparcener gets on partition with his co-sharers in his separate property as against the coparceners from whom he separates, though as against his own male issue who are born after partition or who were born before but who do not get themselves separated from him the property has still the character of ancestral property in which they take an interest by birth."
11. It is evident from the above statements of law that, on the date partition is effected between the assessee and his father and/or brothers or even the son, the property coming into his hands is deemed to be a separate property though liable to become a joint family property when a son is born subsequently or an adoption is made. It may also have the trappings of a joint family property on account of a right to maintenance available to female members of the family. Such is not the case here. In both Tax Case No. 9 of 1982 and Tax Cases Nos. 61 and 62 of 1982, not only the children but the wives also had got separate shares on partition. No son was subsequently born or adopted. The wives having already been allotted shares, they could not claim a right of maintenance and, therefore, had no charge on the property. In such a situation, the property coming into the hands of the assessees must be held to be their separate property and income derived therefrom by them must be assessed in the status of individual and not HUF.
12. In Pannalal Rastogis case (supra), relied upon by counsel for the assessee, the family of the assessee at the time of partition consisted of self and wife. It does not appear from the said judgment that there was only inter se partition between the husband and wife. In that view the Division Bench correctly, if I may say so, followed and applied the ratio of the decision in N. V. Narendranaths case (supra) and held that the assessee should be assessed as HUF and not as an individual. This case too, therefore, has no application in the present case.
13. No case has been cited by counsel for the assessee or referred to in the orders of the Tribunal taking the view that even where on partition a separate share is allotted to the wife, income from the property coming into the hands of the husband is to be taxed as HUF. The Tribunal mainly relied on N. V. Narendranaths case (supra), but the facts of N. V. Narendranaths case (supra) being different and distinguishable, as indicated hereinabove, the ratio of the decision is of no avail to the assessee in these cases. As the Supreme Court itself observed in that case (passage quoted above), where the property already impressed with the character of joint family property comes into the hands of the assessee as a single coparcener, the question which is required to be considered is whether it has "retained" the character of joint family property in the hands of the assessee or is converted into his absolute property. I have no hesitation in holding that in these cases on account of allotment of the separate share of the wife and in the absence of any son - born or adopted subsequently - the property did not retain the character of joint family property. It rather "acquired" the character of separate property in the hands of the assessees and income therefrom was liable to be assessed to tax in the status of individual. I may usefully quote the following observations of the Supreme Court in
"In view of the above, it cannot be denied that the appellant at present is the absolute owner of the property which fell to his share as a result of partition and that he can deal with it as he wishes. There is admittedly no female member in existence who is entitled to maintenance from the above-mentioned property or who is capable of adopting a son to a deceased coparcener. Even if the assessee-appellant in future introduces a new member into the family by adoption or otherwise, his present full ownership of the property cannot be affected."
In view of what has been stated above, it is unnecessary to deal with the cases cited by Mr. Rastogi. More so, because the facts of those cases were different. In fairness to counsel, however, I would very briefly refer to them.
14. In Surjit Lal Chhabda (supra) (heavy reliance was placed on this case), the assessee had a wife and one unmarried daughter and no son. His wife and unmarried daughter were entitled to be maintained by him from out of the income of a certain "Kathoke Lodge" which was the separate property of the assessee. On 26th January, 1956, the assessee made a declaration that he had thrown the said property into family hotch-pot and he would be holding the same as "Karta" of the joint family property consisting of himself, his wife and unmarried daughter in order to impress the property with the character of joint family property. The question was whether income received by the assessee from the property was to be assessed in the status of an HUF. The Supreme Court rejected the assessees contention. The Court observed in that connection that until a son is born to him the personal law of the assessee regarded him as the owner of the property and income therefrom as his income even after the property was thrown into the family hotch-pot. It may appear that the observation "until a son is born" is at a tangent with the observation in N. V. Narendranaths case (supra) that "there is no warrant for the contention that there must be at least two male members to form an HUF as a taxable unit". These observations, however, have to be understood in the fact situation of the two cases. In N. V. Narendranaths case (supra) the property was a joint family property of a bigger HUF in which the assessee along with wife and daughters got shares on partition. They together constituted an HUF. The existence of another male member was not necessary. In Surjit Lal Chhabdas case (supra) there was no partition. The property was self-acquired property of the assessee which was sought to be impressed with the character of joint family property on the basis of a "declaration" that it was being thrown in the family hotch-pot. It was held that without a son there cannot be joint Hindu family and the character of the property does not become joint family property.
15. In the case of Rajeshwari Prasad (supra), the facts were similar to those of the case of Surjit Lal Chhabada (supra). The property belonged exclusively to the assessee who later claimed the same as belonging to the HUF on the basis of a declaration that he had thrown it in the family hotch-pot. This Court, following Chhabdas case, (supra) held that the property was the individual property of the assessee and could not be taxed in the status of HUF.
16. CWT vs. Chander Sen (supra) was the case of a father dying intestate after partition between himself and the son. The property devolving on the son on his death was held to be his individual property and not the property of the HUF. The case of P. L. Karuppan Chettiar (supra) falls in the same class of cases.
17. In Shankar Lal Budhia (supra), the assessee had acquired some shares in a company on a partial partition of the HUF. Later he acquired some immovable property and filed returns in the status of the individual for a number of years and was assessed as such. On marriage, he claimed the status of an HUF. On these facts, the Full Bench of this Court held that the status of an individual assessee governed by Hindu law would not automatically change to that of an HUF under the IT Act.
18. In R. S. Chidambaram (supra), the assessee along with son obtained property on partition of the bigger HUF. Subsequently, there was a partition between the assessee and the son. It was held that the property belonged to the assessee as an individual.
19. It would thus appear that all these cases were decided on different set of facts, and, strictly speaking, do not have much relevance in these cases. The plea of the Revenue none the less has to be accepted as already indicated above.
20. The law so far as relevant for the purpose of these cases may be summarised thus. On a partition of a bigger HUF, the property coming into the hands of the assessee becomes his separate property vis-a-vis other coparceners although it continues to be joint vis-a-vis his wife and children and he continues to constitute an HUF with them, i.e., his wife and children, and, in the absence of the children, with the wife alone. But where on partition separate shares are allotted not only to the children but also to the wife, the existence of the HUF comes to an end. And the property in the hands of the assessee becomes separate property and the income therefrom is liable to be taxed in the status of individual until another son is born or adopted in future.
In the above premises, the Tribunal was not correct in holding that the assessees should be assessed in the status of an HUF. The questions referred for the opinion of this Court are accordingly answered in the negative, that is, in favour of the Revenue and against the assessees. I will make no order as to costs.
AFTAB ALAM, J. :
I agree.
