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Commissioner of Income-tax, Bombay Vs. Bai Ratanbai Gordhandas - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 77 of 1962
Judge
Reported in[1968]68ITR1(Bom)
ActsIndian Income-tax Act - 66(1)
AppellantCommissioner of Income-tax, Bombay
RespondentBai Ratanbai Gordhandas
Appellant AdvocateG.N. Joshi, Adv.
Respondent AdvocateR.J. Kolah, Adv.
Excerpt:
.....of property or only on income of one fourth share therein - earlier document did not record a pre-adoption agreement and have effect of creating any right against adoptive son - held, family liable to be taxed for one fourth share of income from property. - section 31(4) (since repealed) :[tarun chatterjee & h.l.dattu, jj] jurisdiction of high court - respondent, a government company, chartered appellants vessel to carry rock phosphate from togo to west coast india - dispute arose between parties - under agreement, respondent had chosen mumbai as port of delivery vessel carrying rock phosphate was delivered at port of bombay - application filed by respondent earlier before delhi high court for appointment of certain individual as arbitrator had become infructuous because of his..........income of the properties inherited by her from her husband. on the 18th of may, 1954, bai ratanbai adopted ranjitsinh, the son of her brother-in-law, pratapsinh. the adopted son was born on the 19th february, 1938, and was, therefore, a minor at the date of the adoption, being about 16 years of age. on the 25th of february, 1955, a document came to be executed between bai ratambai, her brother-in-law, pratapsinh, and the adopted son, ranjitsinh, represented by pratapsinh his guardian. this document stated in its preamble that 'in connection with the adoption of ranjitsinh' it has been agreed between bai ratanbai and pratapsinh, as the natural father of the said ranjitsinh, that the said bai ratanbai, during her lifetime shall have full rights consisting of a hindu widow's estate in a.....
Judgment:

V.S. Desai, J.

1. The question, which has been referred to us on this reference under section 66(1) of the Indian Income-tax Act, arises out of the assessments made for the assessment years 1956-57 to 1959-60, the relevant previous years for which were the calendar years 1955 to 1958. In all these years the assessee has been assessed in the status of a Hindu undivided family. The Hindu undivided family consists of two members, viz., Bai Ratanbai Gordhandas, the adoptive mother, and Ranjitsinh, the adopted son. Gordhandas, the deceased husband of Bai Ratanbai, and his brother Pratapsinh obtained properties movable and immovable in equal share under the will of their father, Karsondas Madhavdas, who died in September, 1921. After the death of the father, Gordhandas and his brother enjoyed the properties obtained by them under the will of their father as undivided co-owners until the 26th of August, 1924, when Gordhandas died. On his death, his share in the properties was inherited by his widow, Bai Ratanbai, since he had no issue. From 1924-25 to 1954-55, Bai Ratanbai was assessed with reference to the income derived by her from her husband's properties in the status of an individual. During the course of this period on or about the 3rd of September, 1937, Bai Ratanbai and her brother-in-law, Pratapsinh had acquired a property called 'Kastoorchand Mills Estate' as tenants-in-common with equal shares. Bai Ratanbai had provided her share of the purchase money from the income of the properties inherited by her from her husband. On the 18th of May, 1954, Bai Ratanbai adopted Ranjitsinh, the son of her brother-in-law, Pratapsinh. The adopted son was born on the 19th February, 1938, and was, therefore, a minor at the date of the adoption, being about 16 years of age. On the 25th of February, 1955, a document came to be executed between Bai Ratambai, her brother-in-law, Pratapsinh, and the adopted son, Ranjitsinh, represented by Pratapsinh his guardian. This document stated in its preamble that 'in connection with the adoption of Ranjitsinh' it has been agreed between Bai Ratanbai and Pratapsinh, as the natural father of the said Ranjitsinh, that the said Bai Ratanbai, during her lifetime shall have full rights consisting of a Hindu widow's estate in a moiety of her share of the immovable property known as Kastoorchand Mills Estate situated at Dadar and that the said Ratanbai shall during her lifetime enjoy and be possessed of 1/4th share in the said Kastoorchand Mills Estate as Hindu widow's estate, that the said Ranjitsinh should, during the lifetime of the said Ratanbai be possessed of 1/4th share in the said Kastoorchand Mills Estate and the said Pratap sinh should continue to have and be possessed of the remaining 1/2 share in the said Kastoorchand Mills Estate as hitherto. The document further stated that it was being executed, as the parties were desirous of recording the facts of the adoption and also recording the agreement arrived at between them. The first two clauses of the document were declarations by Ratanbai and her brother-in-law, Pratapsinh, respectively, recording the fact of the adoption on the 18th May, 1954, and the adopted son, Ranjitsinh, being entitled to all rights of the adopted son from that day subject to the other terms and provisions of the agreement. Clause (3) was a further declaration by the parties to the document that the adoption had been performed and completed in a proper form and after performing all proper ceremonies prescribed by the Hindu law or religion. Clause (4) specified the agreement arrived at between the parties with reference to the property known as Kastoorchand Mills Estate and stated as follows :

'It is hereby further agreed and declared by and between the parties that the said Ratanbai shall during her lifetime have 'enjoy' and be possessed of and continue to have enjoy and be possessed of a one-fourth share in the land hereditaments and premises known as Kastoorchand Mills Estate and particularly described in the schedule hereunder written to the intent that she shall have Hindu widow's estate in such one-fourth share in the said Kastoorchand Mills Estate and that as such the said Ratanbai shall during her lifetime be entitled to have one-fourth share of the rents and profits of the said lands hereditaments and premises described in the schedule hereunder written after deducting therefrom all municipal and other rates, taxes assessments expenses and repairs and other outgoings all establishment charges, insurance premia and other expenses relating to the said Kastoorchand Mills Estate and to the further intent that during the lifetime of the said Ratanbai the said Ranjit Sinh shall be entitled to another one-fourth share in the said land hereditaments and premises described in the schedule hereunder written and that the said Pratapsinh shall continue to have and be possessed of and be entitled to the remaining one-half share in the said land hereditaments and premises as hithertofore. It is hereby further agreed and declared by and between the parties hereto that subject to the rights of the said Ratanbai in a one-fourth share of the said land hereditaments and premises as aforesaid Ranjitsinh shall have full rights powers and authority as an adopted son in the moiety or half share of the family of the said Gordhandas Karsondas in the said land hereditaments and premises described in the schedule hereunder written.'

2. Clause (5) provided that Ranjitsinh shall not during the lifetime of the said Ratanbai sell, mortgage or otherwise transfer or alienate his right, title and interest in the said immovable property known as Kastoorchand Mills Estate without obtaining the previous consent in writing of the said Ratanbai. Clause (6) of the agreement was in the these terms :

The parties hereto further agreed to that on the said Ranjitsinh attaining the age of majority he shall executed such further writings as may be necessary for the ratification of these presents and in particular for preserving the rights of the said Ratanbai over the said land hereditaments and premises described in the schedule hereunder written in manner mentioned above and further that if so required by the said Ratanbai the said Ranjitsinh shall execute a Deed of Trust or Deed of Transfer or any other documents that may be required by the said Ratanbai in respect of her one-fourth share as a Hindu widow's estate in the said land hereditaments and premises described in the schedule hereunder written.'

3. On the 19th of February, 1956, Ranjitsinh attained majority and on the 18th January, 1957, he executed a document accepting and ratifying the agreement embodied in the earlier document. After referring to the earlier document as a document declaring and recording that on the 18th of May, 1954, Ranjitsinh had been adopted by Ratanbai as a son to her deceased husband Gordhandas Karsondas, in the manner therein stated and that Ranjitsinh had from the said date of adoption all the rights of an adopted son of the said Gordhandas Karsondas subject to the other terms and provisions states in the said deed in clauses (4), (5) and (6) and after having set out those clauses the document proceeded to say :

'And whereas the said Ranjitsinh attained the age of majority on the 19th day of February, 1956, and whereas the said Ranjitsinh at the request of the said Ratanbai and the said Pratapsinh has agreed to confirm the terms and provisions of the said Deed in manner hereinafter appearing. Now This Indenture witnesseth as follows :'

4. In the first clause it is stated that Ranjitsinh, in pursuance of the earlier agreement and in consideration of the premises with the approbation of the said Ratanbai and Pratapsinh, confirms the earlier deed recording the adoption and agreement dated 25th February, 1955, to the intent that the said deed dated the 25th February, 1955, and all terms, provisions, declarations, agreements, covenants, powers and provisos, contained in the said deed shall take effect and be binding upon the said Ranjitsinh and the other parties to these presents in the same manner in all respects as if the said Ranjitsinh has been full age at the date of the said deed and had executed the same in his own proper person. Clause (2) declared and confirmed the fact of adoption and its having taken place in due conformity with the requirements of Hindu law and religion, and Ranjitsinh getting all the rights of an adopted son of the said Gordhandas Karsondas, subject to the other provisions contained in the said deed. The document thereafter stated :

'The parties hereto declare and confirm that the said Ratanbai shall from and after the 18th day of may, 1954, and during her lifetime have enjoy and be possessed of and continue to have enjoy and be possessed of one-fourth share in the land hereditaments and premises known as 'Kastoorchand Mills Estate' and particularly described in the schedule hereunder written to the Intent that she shall have Hindu Widow's estate and that as such the said Ratanbai shall after the 18th day of May, 1954, and during her lifetime be entitled to have a one-fourth share of the rents and profits of the said lands hereditaments and premises described in the schedule hereunder written after deducting therefrom all municipal and other rates, taxes, assessments, expenses of repairs and other outgoings including all establishment charges, insurance premia, and other expanses relating to the said Kastoorchand Mills Estate and to further Intent that from and after the 18th day of May, 1954, and during the lifetime of the said Ratanbai the said Ranjitsinh shall be entitled to another one-fourth share in the said lands hereditaments and premises described in the schedule hereunder written and in the rents and profits thereof after deducting therefrom all rates, taxes, assessments expenses of repairs and outgoings as aforesaid and that the said Pratapsinh shall continue to have and be possessed of and be entitled to the remaining one-half share in the said lands hereditaments and premises and in the rents and profits of the said lands hereditaments and premises after deducting therefrom all rates and taxes assessments expenses of repairs and outgoing as aforesaid. It is hereby further agreed declared and confirmed by and between the parties hereto that subject to the rights i of the said Ratanbai in a one-fourth share of the said lands hereditaments and premises as a foreside the said Ranjitsinh shall have all the rights powers and authorities as on adopted son in to and upon the moiety or half share in the said lands hereditaments and premises described in the schedule hereunder written belonging to the family of the said Gordhandas Karsondas.'

5. And clause (4) was in the following terms :

'It is further agreed and declared by and between the parties that the said Ranjitsinh shall not during the lifetime of the said Ratanbai sell, mortgage or otherwise transfer or alienate his right, title or interest in the said immovable property known as Kastoorchand Mills Estate described in schedule hereunder written without obtaining the previous consent in writing of the said Ratanbai.'

6. In the assessments made on the family for the assessment years 1955-56 to 1959-60, it was claimed by the assessee that one-fourth share of the property called Kastoorchand Mills Estate dealt with in the aforesaid documents was not assessable in the hands of the Hindu undivided family. The Income-tax Officer did not accept the said claim because, in his view, the agreement was not entered into prior to the adoption but subsequent thereto after the adopted son had become entitled to all the rights of a coparcener. The agreement, therefore, was invalid and not capable of achieving what it sought to achieve, which could only be done by a regular partition in the family. Since there was nothing to show that there was a partition between Bai Ratanbai and the minor, the one-fourth share of the income from the Mills Estate was not capable of being excluded from the income of the joint family. In the appeals against the said assessment orders, the Appellate Assistant Commissioner agreed with the view taken by the Income-tax officer and dismissed the appeals. The assessee took further appeals to the Income-tax Appellate Tribunal from the assessment orders in all the five assessment years 1955-56 to 1959-60. The appeal against the assessment order for the first year 1955-56 was dismissed by the Tribunal on the ground that since there was no agreement, which was effective during the relevent previous year, which was the calendar year 1954, there was no question of excluding any part of the income for the that year. It, however, allowed the appeals for the remaining four years holding that the agreements were effective for the said years; that the said agreements were bona fide arrangements arrived at between Ratanbai and the minor son as to how they should deal with the properties of the family and that there was nothing in it the Income-tax Act which affected those arrangements and prevented effect being given to the same. According to the Tribunal, although the arrangement did not purport to be a partial partition, the properties dealt with thereunder had effectively gone out of the fold of the joint family properties during the lifetime of Ratanbai and, consequently, the one-fourth share of the income of the properties was not liable to be assessed in the hands of the joint family. It was only upto the 25th February, 1955, that the joint family was the owner of the entire one-half share and afterwards the property in question had gone out of the hands of the joint family to the extent of one-fourth share and had to be treated as not belonging to the joint family to that extent so long as Ratanbai was alive. The Tribunal accordingly allowed the assessee's appeals for the assessment year 1956-57 to 1959-60. At the in stance of the department, it has then referred the following question to his court as arising out of its order :

'Whether, on the facts and having regard to the documents (annexures 'A' and 'B'), the Hindu undivided family consisting of Ratanbai and her adopted son, Ranjitsinh, is liable to be taxed on the income from the 1/2 share of the property called Kastoorchand Mills Estate or only on the income of the 1/4 share therein ?'

7. The annexure 'A' and 'B' referred to in the question are the two documents : the first dated 25th February, 1955, and the second dated 18th January, 1957, which have already been referred to earlier.

8. Mr. Joshi, learned counsel for the department, has argued that on the finding of the Tribunal that there was no agreement in existence in the year in which the adoption took place, the agreement dealt with in the document dated 25th February, 1955, was not a pre-adoption agreement entered into by the natural father of the adopted boy to agree to the curtailment of the rights of the adopted son in consideration of his being adopted and could, therefore, not be treated as having a legal and binding effect. At the date when the said adoption took place, the rights of the adopted son had already come into existence and moreover his natural father had lost all rights to represent the adopted son or to act on his behalf. The natural father of the adopted son, therefore, had no locus standi whatsover to represent the minor in the said agreement, for had he any right to agree on his behalf to a curtailment of his rights. The agreement of the 25th February, 1955, therefore, was an invalid agreement. The subsequent document dated the 18th January, 1957, to which the adopted son was a party after attaining majority was not an independent agreement but one that was in pursuance of the earlier invalid agreement. Mr. Joshi referred us to clause (6) of the first agreement which had provided that the adopted son on attaining majority shall execute another document in ratification of the said agreement, and argued that the second document was not executed by the adopted son of his own volition, but because he was enjoined to do so by the earlier document executed by his natural father. Mr. Joshi, therefore, has argued that, inasmuch as the second document owes its existence to the first document is invalid, the second document must also be treated as invalid and of no effect. Mr. Joshi has argued that the case referred to by the Tribunal in upholding the agreements and giving effect to the same have no application to the present case. The case of Krishnamurty V. Krishnamoorthy was a case of ante-adoption agreement entered into by the natural father of the adopted son, and the decision of the privy council relates to the validity of such an agreement. Their Lordships have pointed out that an arrangement made on adoption of a Hindu whereby the widow of the adoptive father is to enjoy his property during her lifetime or for a lesser period, that arrangement being consented to by the natural father before the adoption, is to be regarded as valid by custom. But an agreement or consent by the natural father is not effectual in law or by custom to validate any other disposition, taking effect after the adoption and curtailing the rights of the adopted son as a co-sharer. Mr. Joshi has argued that it is only where the agreement is entered into prior to the adoption and curtails the rights of the adopted son only to the limited extent specified in the said decision that the agreement is held to be valid. An agreement, which goes beyond the limits for is effected after the adoption has taken place, is not valid in view of this decision. As to the other decision referred to by the Tribunal, viz., Sir Sunder Singh Majithia v. Commissioner of Income-tax, Mr. Joshi says that it was a case of partial partition. There the members of the joint family had decided to hold one item of the joint family property as partitioned between the several members and held subsequently by them as partners. In the present case, as has been held by the Tribunal, there has been no partial partition. What is sought to be achieved is the exclusion of only a one-fourth share of the income of the property, which still continues to be joint and treated as joint family property. Mr. Joshi, therefore, has argued that the view taken by the Tribunal that under the documents dated 25th February, 1955, and the 18th January, 1957, the assessee is entitled to have the income of the one-fourth share of the property excluded from the joint family is not correct.

9. Now, it would appear to us that the document of the 25th February, 1955, had reference to an agreement arrived at between the adoptive mother and the natural father of the adopted son anterior to the date of the adoption or contemporaneously with the adoption. The document in terms spoke of an agreement in connection with the adoption and further stated that it was being executed, as the parties were desirous of recording the adoption and also of recording the agreement between the parties as aforesaid that is, in connection with the adoption. The agreement purported to be an agreement curtailing the rights to the adopted son in the properties of his adoptive father. Such an agreement would normally be expected to be arrived at anterior or at any rate contemporaneous with the adoption since such agreement normally is an agreement in consideration of the boy being adopted. It is difficult to understand why, after the boy has been adopted and his rights in respect of the family of the family of the adoption father have already come into existence, the natural father of the boy should enter into an agreement curtailing his rights. It is no doubt true that the first document does not speak of any particular point of time anterior to the date if adoption as the time when the agreement was arrived at and it is because of this fact and the inability of the counsel appearing for the assessee to give the exact point of time when the said agreement was entered was entered into that the Tribunal was inclined to take the view that there was no agreement in existence until the 25th February, 1955. In our opinion, the exact point of time prior to the adoption when the agreement was entered into was really not necessary to be determined and it would have been sufficient if the fact as to whether the agreement was pre-adoption or post-adoption had only been considered. Whatever may be the point of time anterior to the adoption, the agreement could only be effective as from the date of the adoption. An agreement entered into subsequent to the adoption may not take effect at any time anterior to the date of the agreement but an agreement entered into prior to the adoption could have no effect on the date of the agreement but only on the adoption taking place. That so far as the parties are concerned that they regarded the agreement that has been entered into, which was recorded in the document dated 25th February, 1955, as taking effect form the date of adoption is made clear from the second document. In the said document it has been specifically and expressly stated that the rights created by the agreements between the parties, came into effect as from the date of the adoption and that would only be if the agreement had taken place between the parties either anterior to the adoption or contemporaneously with the adoption. We, are, therefore, not inclined to agree with the view taken by the Tribunal that there was no agreement in existence until the 25th of February, 1955. Mr. Joshi, however, has rightly pointed out that the finding recorded by the Tribunal that there was no agreement in the year of adoption and prior to the 25th February, 1955, is a finding of fact, which was gone unchallenged and must be accepted in the present reference. The learned counsel has pointed out that it is on the basis of the said finding that for the assessment year 1955-56, which was the first year, the assessee's claim to have the income excluded from the income of the joint family has been rejected by the Tribunal. Mr. Joshi has therefore, argued that it will not be possible in the present reference to consider the position on the basis that there was an agreement prior to the adoption, which was subsequently recorded in the document dated 25th February, 1955. It appears to us that Mr. Joshi is right in this submission and we must, therefore, proceed to consider the case on the footing that the agreement between the parties first came into existence on the 25th February, 1955, and was not in existence at any time earlier to that date.

10. Now, on the 25th February, 1955, the adopted boy had already been adopted; he had lost all his rights in the natural family and had acquired the rights of an adopted son in the adopted family. His connection with the natural family having been cut off, the natural father had no right to represent him thereafter. Mr. Joshi is, therefore, right in saying that the natural father, by an agreement entered into by him subsequent to the adoption, could not curtail or effect the rights of the adopted son in respect of the property of the adoptive family. But the consequence of this submission is that the adopted son could ignore and treat as invalid the agreement entered into by his natural father and may refuse to abide by the same. In the present case, therefore, if on attaining majority Ranjitsinh, the adopted son, were to disregard the agreement and refuse to allow Ratanbai to possess and enjoy the one-fourth share in the said property, the agreement could not be set up against him so as to prevent him from so acting. In other worlds, the agreement of the 25th February, 1955, could not have the effect of creating any rights against the adopted son, Ranjitsinh. What has, however, happened in the present case in that the adopted son on attaining majority has, far from repudiating or refusing to recognise the agreement as invalid and of no effect, chosen to give effect to it and has executed another document. He has accepted the rights created under the first document as if he had been of full age at the date of the said agreement and had executed the same in his own proper person. The second document of 18th January, 1957, has explicitly stated that the rights specified therein are accepted by him as being effective from the date of the adoption. Now, it may be pointed out that, at the date when this document was executed by Ranjitsinh, he was the sole surviving coparcener in the joint family entitled to treat the property as belonging to him absolutely and deal with it in that capacity. If he chose to treat any item of the property in the fashion in which he has agreed to do under the said second document, there is nothing in law to prevent him from so doing. Although, therefore, the first agreement of 25th February, 1955, on the finding of the Tribunal that it did not record a Pre-adoption agreement but an agreement which came into existence on the date of its execution, would not have the effect of creating any rights against Ranjitsinh, his own document would undoubtedly have a proper and legal effect. As has been pointed out by the learned Tribunal, there is no question of the bona fides of the agreement and if the said agreement is permissible in law, there is nothing in the Income-tax Act to prevent it from being recognised. In our opinion, there is nothing in the Hindu law which prevents or comes in the way of the said agreement dated 18th January, 1957, from having effect.

11. Mr. Joshi has argued that the said document, being in pursuance of clause (6) of the first document, which made it obligatory on the adopted son to execute the second document, could not be regarded as a voluntary agreement executed by the adopted son. We are unable to accept the said submission. If the first document had no binding effect whatsoever or was not capable of creating any rights, it could exert no obligation on the adopted son to executed a document in pursuance thereof. It in not because the adopted son was obliged to execute the latter document but because he close to do so that it has been executed. In terms, the second document says that Ranjitsinh, at the request of Ratanbai and Pratapsinh, has agreed to confirm the terms and provisions of the earlier document and is, therefore, executing the present document. In our opinion, therefore, the agreement of 18th January, 1957, could not be treated as one which was not executed by Ranjitsinh of his free will or volition.

12. In conclusion, therefore, our answer to the question referred to us is that the Hindu undivided family is liable to be taxed on the income from the one-fourth share of the income from the property called Kastoorchand Mills Estate. The Commissioner will pay the costs of the assessee.


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