MEHROTRA C.J. - By an order of this court, a statement of the case was called for from the Income-tax Appellate Tribunal, Calcutta Bench, and the Tribunal was directed to refer the following question of law for opinion to this court :
"Whether, in the circumstances of the case, the Tribunal was justified in assessing the income of the minors in the hands of the guardians as the income of a Hindu undivided family ?"
The assessment year is 1954-55 and the accounting year is 1953-54. One Kishanlal Agarwal was assessed as an individual in respect of the income arising from the business carried on in the name of Shri. Krishna Rice Mills. Kishanlal died in the year 1950 leaving his widow and his two minor sons - Basant and Ashok. In the year 1952, his widow died, and, after her death, the family consisted of her two sons - Basant and Ashok - who were minors. An application was, therefore, made before the Subordinate Judge, Nowgong, praying that a guardian be appointed of the minors person and property and an interim appointment was made by the court by its order dated the 1st June, 1953, appointing one Nandlal Agarwal as the guardian of both the minors. Thereafter, this order was affirmed on the 15th December, 1953, with the modification that both Nandlal Agarwal and Dwarka Prosad Agarwal were appointed as guardians of the person and property of the two minors. They were directed to render accounts half-yearly to the court. On the 25th March, 1958, the guardians applied to the court asking for permission to show the accounts of the two minors separately. The court ordered the guardians to keep and submit separate accounts for each of the minors together with the accounts of profit and loss and separate expenditure of each minor. For the appreciation of facts it will be necessary to note the status in which the father of the minors was previously assessed. For the assessment year 1951-52, the profit of the mill was returned in the status of an individual. For the assessment year 1952-53 the return was filed after the death of the widow by Nandlal Agarwal as the guardian of the minors describing the status as an individual. For the next year 1953-54, the status was described as Hindu undivided family. The assessments for the years 1951-52 and 1952-53 were made on the basis of the declared status and were accepted without an appeal being filed. For the year 1953-54, the assessment was made by the Income-tax Officer in the status of an "association of persons". Return was filed for the year 1954-55 giving out the status as Hindu undivided family by the two guardians. The Income-tax Officer assessed the two guardians, Nandlal Agarwal and Dwarka Prosad Agarwal, under section 23(3) read with section 41 of the Indian Income-tax Act as an "association of persons" on a total income of Rs. 32,593. On appeal, the Appellate Assistant Commissioner took the view that the case was covered by sections 40 and 41 of the Income-tax Act since the shares of the two minors were definite and ascertainable. He, therefore, set aside the order of the Income-tax Officer and directed him to start proceedings for each of the two minors separately. The department went up in appeal to the Appellate Tribunal. The Appellate Tribunal reversed the decision of the Appellate Assistant Commissioner. The Tribunal came to the following finding : Firstly, that up to the time of his death in 1950 Kishanlal Agarwal was assessed as an individual. There was no joint family in existence at that time and thus the two minor sons acquired no right in the property of Kishanlal by virtue of birth. After the death of Kishanlal, the joint family consisted of the widow and the two minor sons. After the death of the widow, the shares of the minors were enlarged and they continued to be the members of the joint family. The Tribunal was of the opinion that the guardians were to be assessed in the same manner as beneficiaries and as the beneficiaries could have been assessed as Hindu undivided family on the income from the business, the guardians were liable to be assessed as Hindu undivided family. On that basis, the appeal was allowed and the order of the Income-tax Officer was modified only to the extent that the status in which the assessment was to be made was that of a Hindu undivided family instead of an "association of persons". On these facts, the present question has been referred to us for opinion.
Mr. Lahiri has contended that no plain interpretation of section 40 of the Income-tax Act which is attracted to the facts of the present case, the guardians were liable to pay the tax only on the income which came into their hands as the income of their beneficiaries, namely, the two minors, of whom they were appointed as guardians. It is not open to the department to assess the guardians as Hindu undivided family. Section 40 of the Act reads as follows :
"40.(1) Where the guardian or trustee of any person being a minor, lunatic or idiot (all of which persons are hereinafter in this sub-section included in the term beneficiary) is entitled to receive on behalf of such beneficiary, or is in receipt on behalf of such beneficiary of, any income, profits or gains chargeable under this Act, the tax shall be levied upon and recoverable from such guardian or trustee, as the case may be, in like manner and to the same amount as it would be leviable upon and recoverable from any such beneficiary if of full age or sound mind and in direct receipt of such income, profits or gains, and all the provisions of this Act shall apply accordingly.
(2) Where the trustee or agent of any person not resident in the taxable territories and not being a minor, lunatic or idiot (such person being hereinafter in this sub-section referred to as a beneficiary) is entitled to receive on behalf of such beneficiary, or is in receipt on behalf of such beneficiary of, any income, profits or gains chargeable under this Act, the tax, if not levied on the beneficiary direct, may be levied upon and recovered from such trustee or agent, as the case may be, in like manner and to the same amount as it would be leviable upon and recoverable from the beneficiary if in direct receipt of such income, profits or gains, and all the provisions of this Act shall apply accordingly."
Section 40 deals with the specific case of guardians while section 41 deals with the cases of managers and trustees. The relevant portion of section 40 is as follows :
"... the tax shall be levied upon and recoverable from such guardian or trustee, as the case may be, in like manner and to the same amount as it would be leviable upon and recoverable from any such beneficiary if of full age or sound mind and in direct receipt of such income, profits or gains and all the provisions of this Act shall apply accordingly."
As observed by their Lordships of the Bombay High Court in the case of Saifudin Alimohamed v. Commissioner of Income-tax "... these two sections... are undoubtedly machinery sections and they do not impose any new liability, nor do they in any way reduce or minimise the liability which is already there upon the assessee under the other provisions of the Income-tax Act. Section 40 deals with a case of minor, lunatic or idiot and where a guardian or trustee is appointed, and what it provides is that when you have a guardian or a trustee and he receives or is entitled to receive on behalf of his ward or beneficiary any income, he is liable to pay tax upon that income in the like manner and to the same amount as it would be leviable upon and recoverable from any such beneficiary if of full age and sound mind and in direct receipt of such income, profits or gains, and all the provisions of this Act shall apply accordingly. Therefore, to use simple language, section 40 imposes a vicarious liability upon a guardian and trustee and that vicarious liability is co-extensive with the liability of the ward or the beneficiary of whom the assessee is the guardian or the trustee. It is not the liability of the guardian or the trustee himself; it is the liability of the minor or the beneficiary. But the law provides a machinery whereby the taxing department by this option, instead of recovering the tax from the minor or the ward or the beneficiary, may recover it from the guardian or the trustee." We are in complete agreement with the above observation. Section 40 provides only the machinery for levy and recovery of the tax in respect of the income in the hands of the guardian which he receives for and on behalf of the minor. In the present case, Nandlal Agarwal and Dwarka Prosad Agarwal were appointed guardians of the two minors. They received the shares of these minors in the profit of the business as their income. By the order of the court, separate accounts in the name of the two minors were opened in which the receipts and expenses relating to each of the minors were separately adjusted. The guardians were thus only liable to pay tax on the amount which they received on behalf of these two minors separately. It cannot be said that they were appointed guardians of any joint family as such, so that their beneficiary was the joint family as such and thus they were liable to pay tax on the total income received by them on behalf of the Hindu undivided family, their ward. The beneficiaries were the two minors separately. The two minors are the wards of the guardians. The guardians will, in our opinion, be liable to pay tax on the separate income of each of the minors. The business was, no doubt, carried on by the guardians as a single unit and the integrity of the business was not broken, but the guardians are not taxed under section 40. As joint guardians they had to carry on the business on behalf of the minors but the minors cannot be said to be carrying on the business as a Hindu undivided family. The income which comes into the hands of the guardians on behalf of their wards is the share of the profit of each of them separately. That the responsibility of the guardians is joint does not mean that their ward is the Hindu undivided family and not the minors separately. It is contended by the learned counsel for the department that on the findings arrived at by the Tribunal, it is not open to the assessee to say that the status of the assessee will be anything different from that of a Hindu undivided family. His contention is that if these minors were majors, they would have been liable to pay tax as Hindu undivided family, and, therefore, the guardians appointed by the court will also be liable to pay tax and the entire income from the business in the status of Hindu undivided family. In our opinion, the question of the status is not relevant for the purpose of section 40 of the Income-tax Act. Under section 40, as we have already pointed out, the income of the minor of whom the guardian is appointed is liable to be taxed in the hands of the guardian. The guardian, therefore, cannot be taxed as a "Hindu undivided family." Mr. Lahiri has further contended on behalf of the assessee that on the findings arrived at by the Tribunal, as a matter of law, no inference can be drawn that the business was a joint family business, and, therefore, the income of the business could not be assessed in the hands of the guardian as the income of the Hindu undivided family. His contention is that it is the finding of the Tribunal that at the time of the death of Kishanlal Agarwal, there was no joint family. In the past he had all along been assessed as an individual. The finding of the Tribunal is that after the death of Kishanlal these two members constituted a joint family. From this it does not necessarily follow that the income of the business run by Kishanlal will be a joint family property in the hands of his sons which they get by inheritance. Mr. Choudhary, who appears for the department, has contended that the presumption will be that the property inherited by the two minor sons - namely the business run by Kishanlal - will be treated to be an ancestral property in the hands of the two sons and thus it will in the absence of any evidence that it was treated as a separate property by the members of the joint family be presumed to be a joint family property. This question is relevant only if the minors were directly assessed as Hindu undivided family. As in our opinion on the interpretation of section 40 of the Income-tax Act, the guardians cannot be taxed in respect of the total income as Hindu undivided family, it is not necessary to go into that question at all. On the plain language of section 40, a guardian can be held liable to pay tax only on the share of the profit received by him of each of the minors separately. In this view of the matter, we answer the question referred to us in the negative.
Mr. Choudhary referred to cases of Vedathanni v. Commissioner of Income-tax, Commissioner of Income-tax v. Gomedalli Lakshminarayan, Commissioner of Income-tax v. Lakshmanan Chettiar, Commissioner of Income-tax v. Dhannalal Devilal, in support of his contention that a joint family may consist of a single male member. It is not necessary to deal with these cases at length as they do not decide the point for consideration before us.
The assessees will be entitled to their costs which we assess at Rs. 200, inclusive of the hearing fee and other costs.
S.K. DATTA J. - I agree.
Question answered in the negative.