Commissioner of Income Tax v. S. Balasubramanian — 1994 DIGILAW 580 (MAD)

Judgment :- THANIKKACHALAM J. In pursuance of the direction given by the High Court under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Tribunal referred the following questions for our opinion Question in R. A. Nos. 938 and 939 of 1976-77 "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the dividend income of Rs. 15, 000 accruing to Sri S. Balasubramanian on the shares allotted to him on partial partition should be assessed in the hands of the Hindu undivided family consisting of himself, his wife and daughters excluding the minor son ?" Question in R. A. No. 938 of 1976-77 " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that Sri S. Balasubramanian, the karta of the Hindu undivided family consisting of himself, his wife, daughters and a son constitutes, and can claim the status of another Hindu undivided family with himself again as karta and the other members excluding his minor son as member ?" The assessee was assessed to tax in the status of a Hindu undivided family consisting of himself, his wife and minor daughters in respect of the assets acquired from partial partition with his late father, T. S. Srinivasa Iyer. The assessee got a son early in 1970. He effected a partial partition between himself and his minor son as per which each of the coparceners was allotted company shares of the value of Rs. 10, 00, 000. The assessee's claim of partial partition was also accepted by the Income-tax Officer in his order passed under section 171(3) dated February 28, 1970. The dividend income of Rs. 15, 000 arising out of the shares allotted to Balasubramanian on partition was offered by him in a separate return of income in the status of a Hindu undivided family consisting of himself, his wife and minor daughters. The Income-tax Officer, however, rejected the claim of the assessee regarding the smaller or the new Hindu undivided family on the ground that there cannot be more than one Hindu undivided family having the same person as the karta and, therefore, he held that the above income is assessable with that of the original Hindu undivided family. Thus, for the assessment year 1971-72, a sum of Rs. Thus, for the assessment year 1971-72, a sum of Rs. 15, 000 was also added under the head "Other sources" being the dividend returned in the file of a new Hindu undivided family. The Income-tax Officer assessed the dividend income in the hands of the assessee on a protective and precautionary basis without prejudice to the finding that this income should be really clubbed with that of the older Hindu undivided family. On appeal, the Appellate Assistant Commissioner held that after the partial partition the assessee continued to be a Hindu undivided family consisting of himself, his son and the other members of the family and, therefore, he has to be assessed in the same status in respect of the income arising out of the other assets which were not subjected to partition. But with regard to the dividend income of Rs. 15, 000 which arose from out of partial partitioned asset, viz., shares in the company, the Appellate Assistant Commissioner held that the ownership as well as the enjoyment of the assets and the income accrued therefrom absolutely vests with the Hindu undivided family consisting of Balasubramanian and his family excepting his minor son. The Appellate Assistant Commissioner, therefore, held that in so far as the income of Rs. 15, 000 is concerned, the assessee's claim that he should be assessed in the status of a smaller Hindu undivided family should be accepted. The Appellate Assistant Commissioner accordingly deleted the addition made in the case of the original (bigger) Hindu undivided family. Aggrieved by the order of the Appellate Assistant Commissioner, the Department went on appeal before the Appellate Tribunal against the deletion of a sum of Rs. 15, 000 from the income of the bigger Hindu undivided family and also against the observation of the Appellate Assistant Commissioner that the assessee can constitute a separate Hindu undivided family consisting of himself, his wife and minor daughters in respect of his income from dividends. The deletion of the addition in the individual assessment was also contested in appeal. The Tribunal disposed of both these appeals by a common order. The Tribunal also took the same view as that of the Appellate Assistant Commissioner. The deletion of the addition in the individual assessment was also contested in appeal. The Tribunal disposed of both these appeals by a common order. The Tribunal also took the same view as that of the Appellate Assistant Commissioner. Thus, the Tribunal confirmed the orders passed by the Appellate Assistant CommissionerLearned standing counsel for the Department submitted as under The Tribunal erred in holding that Balasubramanian, his wife and unmarried daughters constitute a separate Hindu undivided family in respect of the shares of the value of Rs. 10, 00, 000 allotted to Balasubramanian on the partial partition of the shares of Gemini Pictures Pvt. Ltd. and Vasan Publications Ltd. According to learned standing counsel for the Department, under Mitakshara law, it is not possible to have two separate units (Hindu undivided families) with the same karta. The learned Departmental representative pointed out that the partition deed dated March 26, 1970, brought about a severance in the status of the undivided family. After that date there was no Hindu undivided family. There was a partition by metes and bounds and with reference to the rest of the assets the members continue to hold the same as tenants-in-common. He further pointed out that until there is complete and total partition in respect of the properties of the family by metes and bounds the portion of the property that fell to the share of the other coparcener should be deemed to belong to the Hindu undivided family and under the Income-tax Act, it should be assessed at the hands of the Hindu undivided family On the other hand, learned counsel appearing for the assessee submitted as under Rs. 20, 00, 000 worth shares have come out of the bigger Hindu undivided family as a result of partial partition which was accepted by the Department. According to learned counsel, the bigger Hindu undivided family continued to exist. Learned counsel pointed out that the Explanation to section 171 would elucidate what is meant by partial partition within the meaning of the above-said Explanation. The partial partition was effected and accepted by the Department as per the order dated February 28, 1970, passed by the Income-tax Officer under section 171 of the Act. Therefore, partial partition took place between Balasubramanian and his minor son as a result of which Rs. 20, 00, 000 was divided between two coparceners. The partial partition was effected and accepted by the Department as per the order dated February 28, 1970, passed by the Income-tax Officer under section 171 of the Act. Therefore, partial partition took place between Balasubramanian and his minor son as a result of which Rs. 20, 00, 000 was divided between two coparceners. According to learned counsel, it is open to the said Balasubramanian to continue the Hindu undivided family consisting of himself, his wife and minor daughters. According to learned counsel, the income arising out of the shares allotted to Balasubramanian would be deemed to be the income of the Hindu undivided family consisting of himself, his wife and minor daughters. Therefore, it cannot be assessed in the hands of Balasubramanian in his individual capacity especially when income arising out of Rs. 10, 00, 000 allotted to his minor son was assessed in his hands in his individual capacity. Learned counsel further pointed out that as regards the other properties which are not divided the joint family consisting of Balasubramanian, his wife, his son, Srinivasan, unmarried daughters would always continue as the bigger Hindu undivided family. Thus, learned counsel supported the order passed by the Tribunal in holding that the income arising out of Rs. 10, 00, 000 allotted to Balasubramanian in a partial partition is to be assessed in the hands of the Hindu undivided family consisting of himself, his wife and his minor daughters. Learned counsel further pointed out that under the Income-tax Act, there is no impediment for Balasubramanian to be the karta of the bigger and smaller Hindu undivided familiesWe have heard the rival submissions. The points that arose for consideration in these references are: (i) whether the assessee can constitute a separate Hindu undivided family consisting of himself, his wife and minor daughters in respect of his income from dividends; and (ii) whether there can be more than one Hindu undivided family having the same karta From the assessment year 1966-67, Balasubramanian was assessed in the status of a Hindu undivided family in respect of his property acquired from the partial partition with his father, the late T. S. Srinivasa Iyer. Balasubramanian constituted a Hindu undivided family consisting of himself, his wife and minor daughters. A son, by name Srinivasan, was born to Balasubramanian early in 1970. Balasubramanian constituted a Hindu undivided family consisting of himself, his wife and minor daughters. A son, by name Srinivasan, was born to Balasubramanian early in 1970. After the birth of the son, the family of Balasubramanian consisted of himself, his wife, his minor daughters and minor son. This is referred to as the bigger Hindu undivided family. A partial partition took place on March 26, 1970, between Balasubramanian and his son, Srinivasan, under which shares in Vasan Publication Pvt. Ltd. and Gemini Pictures Circuit Pvt. Ltd. of the value of Rs. 20, 00, 000 belonging to the bigger Hindu undivided family were partitioned between Balasubramanian and Srinivasan. Under schedule A to the said deed, Rs. 10, 00, 000 worth shares were allotted to Balasubramanian and under schedule B Rs. 10, 00, 000 worth shares were allotted to Srinivasan. After this partition a claim was made by the members of the family before the Income-tax Officer under section 171 of the Act. In the course of the assessment proceedings for the assessment year 1970-71, the Income-tax Officer had passed an order on February 28, 1972, accepting the claim of partial partition under section 171 of the Act According to learned standing counsel for the Department, the said registered deed of partial partition had effected a division in the status of family, after the said date there was no joint family in existence and thereafter the property was sought to be held by the members of the family as co-tenants only. It remains to be seen that the members of the family under section 171 of the Act, in the course of the assessment proceedings for the assessment year 1970-71, made a claim for acceptance of the partial partition. According to the order passed under section 171 of the Act evidence had been produced before the Income-tax Officer in support of the claim for partial partition. On a perusal of the evidence and after conducting enquiries, the Income-tax Officer recorded a finding under section 171 of the Act accepting the partial partition as mentioned in the deed dated March 26, 1970. On a perusal of the evidence and after conducting enquiries, the Income-tax Officer recorded a finding under section 171 of the Act accepting the partial partition as mentioned in the deed dated March 26, 1970. This order had become final"Partition" referred to in sub-section (1) of section 171 of the Act includes a partial partition also, either as regards the persons constituting the undivided family or the properties belonging to it or both, in view of the provisions contained in the other sub-sections and in the Explanation. After a partial partition as regards the property, the property divided is held by the members of the undivided family as divided members with all the incidents flowing therefrom and the property not so divided as members of an undivided family. The fiction enacted in section 171(1) of the Act can, therefore, operate in such a case also because the family which has become divided as regards the property which is the subject-matter of partial partition is deemed to continue as the owner of that property and the recipient of the income derived from it, except where and in so far as a finding of partition has been given under section 171. As long as a finding is not recorded under section 171 holding that a partial partition had taken place, the Hindu undivided family should be deemed for the purposes of the Act to be the owner of the property which is the subject-matter of the partition, and also the recipient of the income from such property The recitals in the partition deed dated March 26, 1970, clearly indicate that Rs. 20, 00, 000 worth of shares which were divided under schedules A and B went out of the hands of the bigger Hindu undivided family. As a result of an order passed under section 171 of the Act on the basis of the partition deed dated March 26, 1970, Balasubramanian and Srinivasan got each Rs. 10, 00, 000 worth shares. According to learned standing counsel for the Department, the order passed by the Income-tax Officer under section 171 of the Act has simply recorded a finding that shares worth Rs. 10, 00, 000 were taken away by Srinivasan under the partial partition and that the balance of Rs. 10, 00, 000 worth of shares continued with the bigger Hindu undivided family. 10, 00, 000 were taken away by Srinivasan under the partial partition and that the balance of Rs. 10, 00, 000 worth of shares continued with the bigger Hindu undivided family. It is not correct to state that partial partition took place between the bigger Hindu undivided family and Balasubramanian since as per the partition deed partial partition took place between Balasubramanian and Srinivasan with regard to the shares worth about Rs. 20, 00, 000. The partial partition brought about a severance in the status between Balasubramanian and Srinivasan as per the abovesaid deed of partial partition. But under the Income-tax Act, the family would be deemed to continue until complete partition with regard to the remaining undivided properties. Before the execution of the partial partition deed, Rs. 20, 00, 000 worth of shares were belonging to the bigger Hindu family. After the execution of the partial partition deed and after an order was passed by the Income-tax Officer under section 171 of the Act, Rs. 20, 00, 000 worth of shares went out of the bigger Hindu undivided family. Srinivasan would be holding shares worth about Rs. 10, 00, 000 in his individual capacity. He also filed a return to this effect. So far as Balasubramanian is concerned, Rs. 10, 00, 000 worth of shares allotted to him in the partial partition would be deemed to have been belonging to his smaller Hindu undivided family consisting of himself, his wife and his minor daughters. In the case of N. V. Narendranath v. CWT, it has been held 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 Hindu undivided family of himself, his wife and minor daughters and cannot be assessed as his individual property. The expression 'Hindu undivided family' in the Wealth-tax Act is used in the sense in which a Hindu joint family is understood in the personal law of Hindus. The expression 'Hindu undivided family' in the Wealth-tax Act is used in the 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 Wealth-tax Act to suggest that a Hindu undivided family as an assessable unit must consist of at least two male members." The same principle was applied by the Supreme Court in Gowli Buddanna v. CIT. In that case, one Buddappa, his wife, his two unmarried daughters and his unmarried son, Buddanna, were members of a Hindu undivided family. Buddappa died and after his death the question arose whether the income of the properties held by Buddanna as the sole surviving coparcener was assessable as the individual income of Buddanna or as the income of the Hindu undivided family. It was held by the Supreme Court that since the property which came into the hands of Buddanna as the sole surviving coparcener was originally joint family property, it did not cease to belong to the joint family and income from it was assessable in the hands of Buddanna as income of the undivided family In M. S. M. M. Meyyappa Chettiar v. CIT, it was held that (at page 597): "if the family while continuing joint parts with some of its property either to a member or members or even to a stranger, the income from such property would not form part of the income of the undivided family and has to be excluded from the assessment of the undivided family. Even if there is a partial partition of the properties, if the status of the family is not affected by such partition, the properties as partitioned cease to be joint family properties, and their income cannot enter into the computation of the income of the undivided family. The income of the family fluctuates. Even if there is a partial partition of the properties, if the status of the family is not affected by such partition, the properties as partitioned cease to be joint family properties, and their income cannot enter into the computation of the income of the undivided family. The income of the family fluctuates. The income of the undivided family gets reduced by parting with the property; but so long as the status of the family continues undivided, the income of the remaining properties owned and possessed by the family forms the basis for the assessment for purposes of income-tax." After the execution of the partial partition deed and after an order was passed by the Income-tax Officer under section 171 of the Act, the income earned out of Rs. 10, 00, 000 of shares allotted to Balasubramanian should be assessed as income in the hands of the smaller Hindu undivided family consisting of himself, his wife and minor daughters. The said income cannot be assessed in the hands of the bigger Hindu undivided family deemed to continue under the Income-tax Act in the absence of complete partition with regard to the undivided propertiesAfter the partial partition Balasubramanian constituted a separate Hindu undivided family consisting of himself, his wife and his minor daughters. He requested that the income arising out of the shares allotted to him in the partial partition should be assessed in the hands of the smaller Hindu undivided family and not in the hands of the bigger Hindu undivided family. The request made by Balasubramanian to the Income-tax Officer to pass an order under section 171 of the Act would amount to expressing his intention to treat the shares obtained under partial partition as that of his smaller Hindu undivided family. Thus the share obtained in the partial partition was thrown in the common hotchpotch of the smaller Hindu undivided family. In view of the order passed under section 171 of the Act which had become final, the request made by Balasubramanian is acceptable According to learned standing counsel for the Department, Balasubramanian cannot claim to be the karta of the bigger Hindu undivided family and also karta of the smaller Hindu undivided family. In view of the order passed under section 171 of the Act which had become final, the request made by Balasubramanian is acceptable According to learned standing counsel for the Department, Balasubramanian cannot claim to be the karta of the bigger Hindu undivided family and also karta of the smaller Hindu undivided family. While answering a similar question, the Bombay High Court in the case of CIT v. M. M. Khanna held as under (headnote) "Where a Hindu joint family consists of branch families each of the branch families may possess property which constitutes the joint family property of that branch alone and in which the other branches or the main Hindu family as such have no right or interest. The smaller joint family can have a legal existence and is capable of holding property of its own as distinct from the property of the main family while the main family remains intact. While the main family may possess property which belongs to the entire family or in other words belongs to the hotchpotch of the main family, each of the smaller joint families existing within the main family may possess property which belongs to its own hotchpotchUnder the Hindu law any member of a joint family can throw his self-acquired property in the hotchpotch of the family to which he belongs and thus make it the joint family property of the said family. A member of the smaller joint family, can, therefore, impress his self-acquired property with the character of the joint family property of the smaller family to which he belongs. He is no doubt also a member of the main joint family and he can, if he so chooses, throw his self-acquired property in the hotchpotch of the main family also. But that will be a matter of his volition. He is no doubt also a member of the main joint family and he can, if he so chooses, throw his self-acquired property in the hotchpotch of the main family also. But that will be a matter of his volition. There is nothing in the Hindu law or in the concept of a joint family under the Hindu law which prevents him from throwing his property in the hotchpotch of the smaller unit to which he belongs, while the larger unit remains intact." Learned standing counsel for the Department further submitted that so long as the family remains an undivided unit, two or more members thereof whether they be members of different branches or of one and the same branch of the family can have no legal existence as a separate independent unit, but if they comprise the members of a branch or a sub-branch they can form a distinct and separate corporate unit within the larger corporate unit and hold property as such. Therefore, in the present case, according to learned standing counsel, Balasubramanian cannot constitute a separate Hindu undivided family of his own along with his wife and minor daughters excluding the son and at the same time another Hindu undivided family cannot be created by himself with his wife, daughters and minor son. The fact remains that after a son was born to Balasubramanian, there are two male members (coparceners) in the bigger Hindu undivided family. Each male member can constitute a separate Hindu undivided family of his own. Srinivasan was a minor. As per the fiction created under section 171 of the Act even after the partial partition, the bigger Hindu undivided family continues in which the minor son is also a member. So far as Balasubramanian is concerned, he separated his branch consisting of himself, his wife and daughters excluding the other coparceners. Since the smaller Hindu undivided family created by Balasubramanian consisted of all members of a branch the creation of such smaller Hindu undivided family is valid in law. For the foregoing reasons, it cannot be said that Balasubramanian created a smaller Hindu undivided family which is against the principles of Hindu law. Further, in the bigger Hindu undivided family, inasmuch as one of the coparceners was a minor Balasubramanian acted as karta. For the foregoing reasons, it cannot be said that Balasubramanian created a smaller Hindu undivided family which is against the principles of Hindu law. Further, in the bigger Hindu undivided family, inasmuch as one of the coparceners was a minor Balasubramanian acted as karta. Under such circumstances, it cannot be said that Balasubramanian cannot act as karta of the bigger Hindu undivided family as well as of the smaller Hindu undivided family. In that view of the matter, we consider that the order passed by the Tribunal in holding that the income arising out of Rs. 10, 00, 000 worth of shares allotted to Balasubramanian in the partial partition should be assessed in the hands of the smaller Hindu undivided family consisting of Balasubramanian, his wife and his unmarried daughters is in order. Accordingly, both the questions referred to us are answered in the affirmative and against the Department. However, there will be no order as to costs. Counsel's fee is fixed at Rs. 1, 000.