1. This is a reference by the Income-tax Appellate Tribunal, Bombay Bench 'C', under section 66(1) of the Indian Income-tax Act, 1922. The reference arises out of the assessment proceedings under the Indian Income-tax Act for the assessment years 1957-58 and 1958-59, the relevant account years being Samvat years 2012 and 2013. Necessary facts material for the purpose of this reference are as follows :
The assessee is one Gordhandas K. Vora who is the only son of one Kishandas Vora and a grandson of one Sir Manmohandas Ramji, sir Manmohandas had three sons, Kishandas, Narandas and Bhagwandas. During his lifetime Manmohandas gifted to his son, Kishandas, shares of several companies. Kishandas died intestate in 1930 and on his death his son Gordhandas inherited those shares; they became ancestral property in his hands. A son was born to Gordhandas in 1953. It is the agreed position that the property that Gordhandas inherited in this manner from his father, Kishandas, was ancestral property in his hands and during the material account years it belonged to the Hindu undivided family consisting of Gordhandas and his son as coparceners, and his wife and a daughter as members of it.
2. Gordhandas also received some property from Sir Manmohandas in two different modes. On February 25, 1927, Manmohandas made a settlement of certain immovable properties in favour of his three sons. The trust deed provided that income was to be paid to the settlor during his lifetime, and on his death the trustees were to make over, transfer, assign and assure the trust property to the sons of the settlor as tenants-in-common in equal shares for their own absolute use and benefit. A copy of the deed of settlement has been annexed to the statement of the case as annexure 'A'. However, during the lifetime of Manmohandas, Kishandas died on February 4, 1930. On his death by a further deed made on March 17, 1930, the original trust settlement stood amended and by the amendment it was provided that the portion going to Kishandas on the settlor's death would be held in trust for Gordhandas during his minority and would be handed over to him on his attaining majority, it being stated that the amendment was made out of abundant caution.
3. Sir Manmohandas died in August, 1934, leaving behind him a will dated February 23, 1930. Clause 12 of the said will, which was in Gujarati, is relevant for our purposes and a copy of the agreed English translation of the said clause 12 is to be found annexed to the statement of the case as annexure 'B'. It provides that after the testator's death the trustees of the Will were to deal with the deceased's share of commission receivable from three mills in the manner provided therein, viz., that out of the commission received for each year the trustees were to pay to the testator's daughter, Sulochana, during her lifetime a sum of Rs. 600 per year and the remaining sum was to be divided into three equal parts two of which were to be given to Narandas and Bhagwandas, respectively, and the remaining one was to be accumulated for being given to Gordhandas on his attainment of the age of majority, after which event the amount was to be handed over to him.
4. It may be mentioned that on April 21, 1948, the trustees of the trust settlement transferred the immovable property to the three beneficiaries including the assessee. By a suit filed subsequently in the Bombay High Court the three beneficiaries-Narandas, Bhagwandas and Gordhandas-partitioned the immovable property.
5. Up to and including the assessment year 1956-57. The assessee, Gordhandas, had always filed returns in the status of an individual and had been assessed in that status in respect of his income from all the sources, viz., (i) income from shares inherited by him from his father, Kishandas, (ii) income from properties received under the settlement of February 25, 1927, read with the amending deed of March 17, 1930, which was subsequently partitioned amongst the three beneficiaries, and (iii) the share of the commission receivable as provided by clause 12 of the will of Sir Manmohandas.
6. Even for the assessment year 1957-58, the assessee originally filed are turn in the status of a Hindu undivided family, declaring therein income of Rs. 78,266 from the above three sources. Subsequently he filed two revised returns, one in the status of Hindu undivided family and relating to income derived from the shares that Gordhandas inherited from his father, Kishandas, and the other in the status of an individual and relating to income from the remaining two sources. It was claimed that two separate assessments should be made upon Gordhandas in two different capacities in respect of income mentioned in the two returns.
7. The Income-tax Officer by his assessment order dated January 31, 1962, rejected the assessee's contention in this behalf, holding that although the property which Gordhandas had received under the trust settlement and the will of his father might be separate properties, he had blended them all and thrown the entire income in the common stock. In this view of the matter the Income-tax Officer completed the assessment by including income from all these assets in the status of Hindu undivided family for each of these two assessment years.
8. The assessee, thereafter, appealed to the Appellate Assistant Commissioner, who considered the principles of Hindu law as set out in Mulla's Hindu Law and came to the conclusion that the Income-tax Officer was not justified in holding that there had been blending of the income from the separate property and the ancestral property of the assessee to render income from all the properties liable to be assessed as income of the Hindu undivided family. The Appellate Assistant Commissioner thereafter directed the Income-tax Officer to exclude from the total income of the Hindu undivided family income from all assets received by Gordhandas from his grandfather either through the instrumentality of the trust settlement or under clause 12 of Sir Manmohandas's will. The department thereafter appealed to the Income-tax Appellate Tribunal against the said conclusion and direction of the Appellate Assistant Commissioner. The contention of the department was that assuming that the two sets of properties were separate properties in the hands of the assessee when he received them either under the trust settlement or under the will of his grandfather, he by his subsequent conduct had treated these properties as properties of the Hindu undivided family consisting of himself and his son as coparceners. The Tribunal came to the conclusion that the department had failed to establish any deliberate blending on the part of the assessee. The result was that the department's appeals were dismissed.
9. On these facts the following question has been referred to us :
'Whether the income derived from the property received by Gordhandas under the trust settlement of February 25, 1927, and/or share income of the managing agency received by him under clause 12 of the will is assessable for the assessment years 1957-58 and 1958-59, in the hands of the Hindu undivided family consisting of Gordhandas and his son as coparceners ?'
10. Mr. Joshi, on behalf of the Commissioner, has referred us, in the first instance, to observations to be found at page 250 of Mulla's Hindu Law, thirteenth edition, and thereafter to the case of C.N. Arunachala Mudaliar v. A. Muruganatha Mudaliar.
11. In Arunachala Mudaliar's case the Supreme Court after a consideration of the texts on the subject and the variant opinions of the High Courts took the view that the question was primarily one of the intention of the donor or the testator to be gathered from the terms of the deed of gift or will. If there are no clear words describing the kind of interest intended to be given, the court would have to collect the intention from the language of the document taken along with the surrounding circumstances in accordance with the established canons of construction. The material question in such cases would be whether the grantor really wanted to make a gift of the property to his son or the apparent gift was only an integral part of the scheme to partition the same. It was observed that there was no presumption that he intended the one or the other.
12. Mr. Joshi then took us through the relevant portion of the trust deed dated February 25, 1927, and of the will dated February 23, 1930.
13. The trust deed clearly enjoins the trustees to pay the net balance of such rents, interest, dividends, income and profits to the settlor during his lifetime for his own absolute use and benefit, and on and after the death of the settlor to make over, transfer, assign and assure the trust property to the sons of the settlor as tenants-in-common in equal share for their own absolute use and benefit. In Arunachala's case the Supreme Court has observed that the interest which the son would have in such property would depend upon the terms of the grant. In my view the terms of the grant under the deed of trust dated February 25, 1927, are clear and unequivocal and admit of no ambiguity. After the death of the settlor the sons of the settlor are to receive in equal shares the net rents, interest, dividends, income and profits for their own absolute use and benefit, which is the specific expression used. It may be further mentioned that there is similar provision providing for distribution of the share of a predeceased sons to the male issues of such predeceased son or sons in equal shares also for their respective absolute use and benefit, it being provided that such male issues would take in equal shares among themselves the shares which their fathers would have taken if living. Such clear words in the grant indicate definitely that what is being given and received thereunder would have the character of separate properties and not that of ancestral properties.
14. Now, in the operative portion of clause 12 of the will (annexure 'B'), no similar words are to be found. Mr. Joshi very fairly drew our attention to the earlier part of the said clause in which the testator has indicated that even during his lifetime he was, as a matter of fact, distributing the commission receivable from the three mills named therein amongst his three sons in a certain manner, although they had no right in the same.
15. From this it appears that the testator wanted the same position to continue even after his death; and it would seem to indicate that he wanted his sons to continue to receive the shares from the commission which they had been receiving during his lifetime and to that extent would indicate that such income must be regarded as the sons' separate income.
16. It is important to note clause 12 of the will which pertains to the disposal of the said commission. There are no words circumscribing or limiting in any manner the right of the sons or indicating that they are to utilise the said income for the purpose of their families.
17. In Arunachala's case the Supreme Court has observed that where there were no clear words describing the kind of interest which the donee is to take, the question would be one of construction and the court would have to collect the intention of the donor from the language of the document taken along with the surrounding circumstances. The language of the document is, to a certain extent, against the view urged by Mr. Joshi. There are no surrounding circumstances brought on the record or pointed out to us which go to the contrary. As a matter of fact, the recital at the beginning of clause 12 of the will could itself be deemed to be a surrounding circumstances which would militate against the view canvassed by Mr. Joshi.
18. Accordingly, it must be held that these two categories of assets received by Gordhandas, viz., the assets attributable to the trust deed dated February 25, 1927, and clause 12 of the will dated February 23, 1930, were his separate properties as distinguished from the shares inherited by him from his father, which admittedly were ancestral properties.
19. The question which now remains to be considered is whether by his subsequent conduct the assessee had treated these properties as Hindu undivided family properties. Before the Tribunal the departmental representative relied on the following circumstances in support of his contention :
(a) that no separate books of account have been kept for of the separate sources of income;
(b) the same bank account which stands in the name of the assessee, his wife and his widowed mother had been credited with all moneys received from these assets as well as all moneys received from the personal business conducted by the assessee;
(c) the cash book maintained does not make any distinction between the different kinds of receipts, and
(d) the assessee's ledger contains two ledger accounts : (1) Kishandas Manmohandas account in which net income from all sources is credited, and (ii) Gordhandas Kishandas account which carries only a nominal credit balance of only Rs. 141, being insurance commission earned by the assessee in S.Y. 2002, while the relevant accounting years were S.Y. 2012 and 2013.
20. The question of blending or throwing the income into the common stock is dealt with at page 253 of Mulla's Hindu Law, thirteenth edition, as under :
'227. Property thrown into common stock. - (1) Property which was originally the separate or self-acquired property of a member of a joint family may, by operation of the doctrine of blending, become joint family property, if it has been voluntarily thrown by him into the common stock with the intention of abandoning all separate claims upon it. A clear intention to waive his separate rights must be established, and it will not be inferred from the mere fact of his allowing the other members of the family to use it conjointly with himself nor from the fact that the income of the separate property was used to support a son nor from the mere failure of a member to keep separate accounts of his earnings...'
21. Thus, the mere fact that the assessee had not kept separate accounts in respect of his income from these two types of properties cannot, in my opinion, be enough or equivalent to having thrown them into the common stock or of having blended them. Support for this view is to found in C. V. Vythianatha Iyer v. C. V. Varadaraja Iyer, P. N. Venkatasubramania Iyer v. P. N. Easwara Iyer and Goswami Maharaj Ranchhodraiji Govindlalji v. Commissioner of Income-tax.
22. It appears to me that the view taken by the Madras and the Gujarat High Courts is the correct view and that merely by reason of the fact that separate accounts were not kept the assessee could not be regarded as having blended the properties. It is not possible to hold that the Income-tax Appellate Tribunal took any erroneous view on either aspect of the matter being considered before it.
23. I agree and have nothing to add.
By the court
24. The question referred to us is answered in the negative and in favour of the assessee.
25. The Commissioner will pay the costs of this reference to the assessee.
26. Question answered in the negative.