1. This is a reference under sub-section (1) of section 66 of the Indian Income-tax Act (hereinafter referred to as the Act). The assessee is an individual. The year with which we are concerned is the assessment year 1956-57, the accounting year being S.Y. 2011 (period October 27, 1954, to November 14, 1955). The assessee had been in the prior fifteen to twenty years assessed as an individual in respect of the entire property which was his self-acquired property. The property consists of both moveables and immoveables including shares in certain partnership firms. By the deed dated 29th of November, 1954, the assessee declared that he had thrown all his self-acquired properties in to the common hotchpot of a Hindu undivided family consisting of himself, his wife and a minor son. The deed further effected a partition between the assessee, his wife and his minor son, allotting certain property out of the aforesaid properties thrown into the hotchpot to their separated shares. The deed also recited that it took effect from the 27th of October, 1954. On the basis of this deed the assessee filed returns only of the income of the property that had been allotted to his share on partition for the assessment year 1955-56 and also for the assessment year 1956-57 and claimed that he should be assessed only in respect of the income arising from the property that had been allotted to his share on partition, under the said deed of 29th of November, 1954. The Income-tax Officer rejected the claim observing :
'I, therefore, consider that being a collusive and a sham transaction, the amounts and property transferred to the minor child and wife still continue to be that of the husband and within his control. Mere passing of entries in the books and making a partition on the stamp paper could not and did not pass the interest which he had in the assets...'
2. In this view of the matter, the Income-tax Officer included in both the years income of the entire property in the income of the assessee and brought it to tax in his hands. The assessee filed appeals before the Appellate Assistant Commissioner against the assessment orders for both these years. The Appellate Assistant Commissioner accepted the assessee's contention and held that the assessee had, by the deed of 29th of November, 1954, thrown his self-acquired property into the Hindu undivided family hotchpot and had effected a partition thereof between himself, his wife and his minor son. He, however, held that this had occurred on 27th October, 1954, which was after the close of the assessment year 1955-56. In this view of the matter, the Appellate Assistant Commissioner allowed the assessee's appeal for the assessment year 1956-57 but rejected it in respect of the assessment year 1955-56. The assessee as well as the department appealed against the order of the Appellate Assistant Commissioner. The contention of the assessee was that his claim in respect of the assessment year 1955-56 also should have been allowed and the claim of the department was that the assessee's appeal had been wrongly allowed in respect of the assessment year 1956-57. The Tribunal allowed the appeal of the department in respect of the assessment year 1956-57 and dismissed the assessee's appeal in respect of the assessment year 1955-56. The view taken by the Tribunal is in the following terms :
'No doubt it is open to a member of a joint family to throw into the hotchpot his self-acquisitions. It is clear that this intention was only a transfer of the properties indirectly by this method to his wife and minor child. The transaction by itself may be valid but still in computing the total income of the assessee for the purposes of the assessment the income of the wife and the minor child, arising out of this indirect transfer, should also be included in that of the assessee in accordance with the provisions of section 16(3) of the Act. Even if the assessee satisfied a condition laid down in section 25A we think that the share income of the wife and the minor child will have to be included in the income of the assessee as stated.'
3. On an application by the assessee under sub-section (1) of section 66 of the Indian Income-tax Act, the Tribunal drew up a statement of the case and has referred the following question of law relating to the assessment year 1956-57 only :
'Whether, on the facts and circumstances of this case the income of the wife and the minor child arising from the properties transferred to them is liable to be included in the appellant's income under section 16 of the Act ?'
4. In our opinion the question has not been happily framed and does not bring out the controversy between the parties and the real question of law that arises out of the order of the Tribunal. The question assumes that by the instrument of 29th of November, 1954, certain properties have been transferred to the wife and the minor son of the assessee. If that be the position, then the answer is self-evident and the answer will have to be in favour of the department. The real dispute between the parties is, according to the department, that it is a transfer and, therefore, the income of those properties is liable to be taxed in the hands of the assessee under section 16(3) of the Act; while, according to the assessee, it is not a transfer but allotment of properties to the shares of his wife and minor child in a partition, which does not constitute a transfer. To bring out this controversy and the real question of law arising out of the order of the Tribunal, the question will have to be reframed and we reframe it in the following terms :
'Whether, on the facts and in the circumstances of the case, the income of the properties allotted to the shares of the wife and minor child of the assessee under the deed of 29th of November, 1954, is liable to be included in the assessee's income under section 16(3) of the Act in the assessee's assessment for the assessment year 1956-57 ?'
5. Mr. J.P. Pandit contends that the Tribunal was in error in holding that as a result of the deed of 29th November, 1954 (hereinafter referred to as the partition deed), there had been an indirect transfer of property in favour of the assessee's wife and minor child. According to him neither in impressing his self-acquired property with the character of ancestral property not in partitioning that property any transfer direct or indirect within the meaning of sub-section (3) of section 16 of the Act is involved. He referred to us the decisions in kishansingh Mohansingh Balwar v. Vishnu Balkrishna Joglekar; Duggirala Sadasiva Vittal v. Bolla Rattain and M.K. Stremann v. Commissioner of Income-tax. On the other hand, Mr. Joshi contends that on a true construction of the deed of partition, it will be clear that the assessee had transferred certain properties to his wife and minor son not by the deed of partition but on 18th October, 1952, obviously with a view to avoid payment of tax on the income thereof. But by this mode of transferring his property to his wife and minor son the assessee did not succeed and to achieve this very object the assessee has adopted this mode of purporting to throw the property into the hotchpot and effecting a partition thereafter. In the context of these facts, it is nothing but an indirect transfer of certain property to his wife and minor son. In the alternative, Mr. Joshi contends that admittedly there was no ancestral property belonging to the Hindu undivided family. A coparcener cannot impress his self-acquired property with the character of a coparcenary property unless there is some other ancestral property belonging to the family. If there is no such property, there is nothing with which the self-acquired property could be blended and, therefore, it is not open to the coparcener to impress his self-acquired property with the character of joint family property if the joint family possessed no joint family property. In the second alternative, Mr. Joshi contends that at any rate there had been no time lag between the assessee's impressing his self-acquired property with the character of the joint family property and the partition effected. Both have been done by one and the same instrument and that being the position it is nothing but an indirect transfer of his property to his wife and minor son.
6. The contentions raised on behalf of the assessee find support in the decisions on which reliance is placed by Mr. Pandit and it would be convenient to refer to those decision first. The facts in kishansingh Mohansingh Balwar v. Vishnu Balkrishna Joglekar, were one Narayan acquired certain property. He had two sons, Mohansingh and Dagdu, and a wife, Hirabai. Mohansingh had three sons, Kisansing, Fattesingh and Ramchandra, and a wife, Jamnabai. On November 18, 1930, Mohansingh mortgaged the suit property to Vishnu. Vishnu, filed a suit to enforce the mortgage and obtained a decree against Mohansingh and in execution he brought the property to sale. On June 15, 1936, Mohansing's sons, Kisansing, Fattesingh and Ramchandra, and his wife, Jamnabai, as also his mother, Hirabai, filed a suit against Vishnu for a declaration that the mortgage by Mohansingh in favour of Vishnu was void and, consequently, the decree obtained by him was void and incapable of being executed. The case of the plaintiff was that the mortgaged property was the self-acquired property of Narayan : Mohansing, therefore, had no right to mortgage the said property. The contention raised on behalf of the defendant was that Narayan had effected a partition of his property between himself and his sons, Mohansingh and Dagdu, and Mohansingh had mortgaged the property that had fallen to his share. It was further contended that the mortgage also was effected for payment of his antecedent debts and, therefore, was a valid mortgage. The facts found were that the property mortgaged was the self-acquired property of Narayan and that he himself had partitioned the property before the date of the mortgage between himself and his sons. The property mortgaged was given to the share of Mohansing. The mortgage executed was for payment of antecedent debts and, therefore, was a valid mortgage. The question of law that arose was whether the father was competent to effect a partition of his self-acquired property between himself and his sons. It will be pertinent to notice that there was no ancestral property or a joint family property belonging to the joint family consisting of Narayan and his two sons. This court held that under the Hindu law a transaction by which a father makes a division of his self-acquired property between his sons must be regarded as a transaction by which he, in the first instance, effects a severance of status between himself and his sons; in the second instance, he notionally throws into the hotchpot his self-acquired property, and then divides it between his sons, whether equally or unequally according to his pleasure. Such a transaction cannot be regarded as one of the five transactions mentioned in the Transfer of Property Act and, therefore, does not even require to be effected by a registered document. The rule laid down by a Division Bench of this court has been followed by the Madras High Court in M.K. Stremann v. Commissioner of Income-tax. The facts of that case were that in 1938, a Hindu governed by the Mitakshara law, inherited from his father a dwelling house and certain monies which went to his bank account. He was the assessee in the case. He had also acquired an agency of a company which was his separate acquisition. Out of his income from the agency, he acquired properties, moveable and immoveable. Sons were born to him in 1944 and 1945. Until the assessment year 1952-53, the assessee was assessed as an individual on the entire income from the agency as well as the income of the properties. On December 19, 1952, the assessee effected a partition between himself and his minor sons and in the deed of partition, in which his wife represented the minor children, it was recited that the assessee had thrown into the common stock the properties acquired by him from the income of the agency business and had been treating it in the same manner as was the ancestral property and on this basis he effected a partition thereof between himself and his sons. The managing agency business, however, he kept for himself as his separate property. The assessee claimed that he should be assessed only in respect of the income of the properties that had fallen to his share under the deed and in respect of the income of the property that had fallen sons shares, the sons should be assessed. The income-tax authorities held that the case fell within section 16 of the Income-tax Act and the assessee was liable to be assessed on the income of all the properties thereunder. On a reference to the High Court, the High Court held that neither in the act of the assessee throwing his self acquired property into the hotchpot, no in the act of his effecting the partition between himself and his minor sons, a transfer within the meaning of section 16(3)(a) was involved. The income of the property that had fallen to the share of the sons, therefore was not liable to be included in the income of the assessee under section 16(3) of the Act. The ratio of the decision is well summarised in the placitum as under :
'Whether the self-acquired properties of a coparcener are pooled with joint family property and partitioned, there are three distinct stages. First, the self-acquired property of the coparcener is impressed with the character of the joint family property. The next stage is the disruption of the coparcenary, whereby the members become divided in status. The third stage is the actual division between the divided members of what had been the property of the joint family. Each of these stages may be separated from the succeeding one by an interval of time, considerable or otherwise. The length of the interval, however, is of no consequence. No question of transfer of assets can arise when all that happens is severance in status, though the result of such severance in status is that the property hitherto held by the coparcenary is held thereafter by the separated members as tenants-in-common....Similarly, when the separate property of a coparcener ceases to be his separate property and becomes impressed with the character of coparcenary property there is no transfer of that property from the coparcener to the coparcenary. It becomes joint family property because the coparcener, who owned it up to then as his separate property, has by the exercise of his volition, impressed it with the character of the joint family or coparcenary property, to be held by him thereafter along with the other members of the joint family. It is by his unilateral action that the property has become joint family property. The transaction by which a property ceases to be the property of a coparcener and becomes impressed with the character of coparcenary property does not itself amount to a transfer.'
7. It is to be noticed that in this case impressing the self-acquired property with the character of coparcenary property and the division of that property between the assessee and his wife and minor son was effected by one and the same deed. Mr. Joshi argued that the facts of this case are distinguishable from the facts of the present case. In the Madras case, the assessee had in his possession certain ancestral property. He could, therefore, with that property blend his self-acquired property. Such, however, is not the case of the assessee before us. In his hand, there was no ancestral property. He could, therefore, not blend his self-acquired property with the ancestral property and consequently he could not be in a position to impress that property with the character of joint family property. We are unable to accept this argument of Mr. Joshi. The decision of the Madras High Court, did not turn on the fact that the assessee had in his hand certain ancestral property and therefore, he could impress his self-acquired property with the character of coparcenary property. That fact is neither here not there. It may be recalled that in the decision of this court, to which we have already referred, there was no ancestral property in the hands of Narayan and yet this court had held that it was competent for Narayan to impress his self-acquired property with the character of the coparcenary property. Mr. Joshi was not in a position to show us any decision that has taken the view canvassed by Mr. Joshi.
8. Now, in out view, possession of ancestral or joint family property under the Hindu law is not a condition precedent for enabling a coparcener to impress his self-acquired property with the character of a coparcenary property. What constitutes impressing self-acquired property with the character of a coparcenary property is the unequivocal act on the part of the coparcener to abandon his individual exclusive right in the property in favour of the coparcenary. It is a well-known principle of Hindu law that a coparcenary can exist even though it may own no coparcenary property. When a coparcenary can exist without possessing or owning coparcenary property, there is no reason why a coparcener could not be in a position to abandon his rights in his self-acquired property in favour of the coparcenary. It is his right under the Hindu law on the exercise of which the property assumes the character of the coparcenary property. Sir Dinshah Mulla in his Treatise on Hindu Law, 12th edition, at page 332, in paragraph 227, has stated the position thus :
'Property which was originally the separate or self-acquired property of a member of a joint family may 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.... Separate property thrown into the common stock is subject to all the incidents of joint family property.'
9. Mayne has also stated the position in identical terms (Mayne's Treatise on Hindu Law and Usage, 11th edition, page 348, paragraph 282).
10. From the aforesaid observations of the learned authors, it is clear that the only thing that is required to impress the self-acquired property with the character of a coparcenary property is a clear intention on the part of the coparcener owning that property of abandoning all separate claims upon it and throwing it into the joint stock of the coparcenary. A similar view has been taken by the Madras High Court in R. Subramania Iyer v. Commissioner of Income-tax, where it has been held :
'Under the Hindu law in order that a joint family may exist it is not necessary that there should be joint family property. A father and his son constitute members of a joint Hindu family and even if there was no ancestral nucleus or other joint family property there is nothing to prevent the father from impressing upon any self-acquired property belonging to him the character of joint family property. No formalities are necessary in order to bring this about and the only question is one of intention on the part of the father to abandon his separate rights and invest it with the character of joint family property.'
11. In our opinion, therefore, the ground on which Mr. Joshi tried to distinguish this case has little merit.
12. A similar view also has been taken by the Andhra Pradesh High Court in Duggirala Sadasiva Vittal v. Bolla Rattain. In our judgment, therefore, it was open to the assessee to impress his self-acquired property with the character of coparcenary property even though the family did not possess any ancestral or joint family property.
13. It is next to be considered whether the assessee has in fact impressed his self-acquired property with the character of a coparcenary property. As already stated, it is Mr. Joshi's contention that on a ture construction of the deed, it is clear that the assessee has, in 1952, transferred the very property which he has purported to allot to his wife and son by the partition deed of 1954. He, having transferred the property in 1952, did not possess that property to impress it with the character of the coparcenary property. In support of his contention he referred to certain portions of the partition deed executed on 29th of November, 1954, by the assessee on behalf of himself, his wife and the minor child, the assessee acting on his behalf as his guardian. The assessee has been described as the first party to the deed, his wife as the second party and the minor son as the third party. The relevant portion of the preamble of the deed on which emphasis was laid by Mr. Joshi runs as follows :
'And all the estate is in the name of the first party. Out of this estate, some amount stand credited to the account (khata) of the first party, in the shop called Messrs. Walchand Nanchand Shaha Shop, Sholapur. From out of the amount standing to the credit of the first party in his account (khata) in the said shop on October 18, 1952, the amount of Rs. 2,00,000 was transferred to the credit of the third party, by debiting this amount to the account of the first party and by opening a new account (khata) in the name of the third party. And the amount of Rs. 1,00,000 was debited to the amount of the first party and was transferred to the credit of the second party by opening a new account in her name.'
14. It is true that the property that has been allotted by this partition deed to the wife and minor sons principally consists of these two sums. There is, however, one difficulty in the way of Mr. Joshi. The contention, which has been raised before us, is not purely a question of law. It had not been raised by the department before the Tribunal. Further the finding of the Tribunal runs counter to the aforesaid contention of Mr. Joshi. The Tribunal has found that the transactions evidenced by the partition deed are valid transactions. In other words, the assessee by the said deed had validly impressed his self-acquired property with the character of coparcenary property and has validly effected a partition of that property between himself, his wife and minor son. In other words, the transactions have been held to be bona fide and genuine transactions by the Tribunal. In our opinion, this contention, therefore, is not open to Mr. Joshi. On merits also, there is little force in this contention. We are unable to hold that in 1952 the assessee had effected any transfer as such of Rs. 2,00,000 to his son and of Rs. 1,00,000 to his wife. All that is said is that on his instructions, an account was opened in the name of his son in which Rs. 2,00,000 were credited taking them out from his account and another account was opened in the name of his wife crediting it with Rs. 1,00,000 by debiting the said sum to his account. The opening of accounts by a karta of a Hindu undivided family in the names of different members of the coparcenary does not necessarily constitute a transfer of that property to the respective coparceners. The presumption is that the property remains still the coparcenary property. The position has been made clear in the deed itself in certain recitals that follows the recitals on which reliance was placed by Mr. Joshi. They are as follows :
'In doing all this, the object was to extinguish the individual rights of the first party in all the moveable and immoveable property and to convert it all into coparcenary estate of all the three of us. And for accomplishing this object it was necessary to make a list of all the estate, moveable and immoveable, and to convert the same into the property of joint ownership of all the three of us. But on account of the pressure of other work, this work remained to be completed. Therefore, all the moveable and immoveable estate that the first party holds in his name and all the amounts that stand credited to the account of the first party in Messrs. Walchand Nanchand Shaha Shop and in Messrs. Nanchand Khemchand Shaha shop and the amount that is to the credit of the second party in her account in Messrs. Walchand Nanchand Shaha Shop - all this moveable and immoveable property is treated as estate of the ownership of the joint family of the three of us and for the benefit of the joint family of the three of us. And so on October 27, 1954, Miti Kartik Sud 1, Shake 1876 and Samvat Year 2011, the first party gave up and extinguished his individual rights in the same and made it as described above the joint family property of the joint ownership of the three of us and threw all his property into the hotchpot of the joint family of the three of us.'
15. It appears that opening the accounts in the names of his wife and minor son were only steps in the direction of impressing his self-acquired property with the character of coparcenary property. The object was achieved by the aforesaid unequivocal declaration made by the assessee in the deed. The contention raised by Mr. Joshi should, therefore, also fail on this ground. After the recitals in the deed of impressing the said property with the character of coparcenary property, there is also a recital effecting a partition between the assessee, his minor son and his wife. The question that falls for consideration is whether either in impressing his self-acquired property with the character of coparcenary property or thereafter partitioning it between his wife, minor child and himself the assessee effects a transfer of his property either direct or indirect in favour of his wife or child within the meaning of section 16(3) of the Act.
16. On the first question it must be said that there is diversity of judicial opinion. We have already referred to the decisions of the Madras High Court wherein it has been held that impressing self-acquired with the character of coparcenaries property is a unilateral act and, therefore, does not involve any transfer of property. A contrary view, however, has been taken by a Division Bench of the Gujar at High Court in Keshavlal Lallubhai Patel v. Commissioner of Income-tax. The case related to the assessment year 1952-53, the relevant accounting period being 1st April, 1951, to 31st March, 1952. The assessee had a wife, an adult son and a minor son and they constituted a joint Hindu family. But there was no property belonging to the joint family. For a number of years the assessee was being assessed as an individual. The assessee was possessed of self-acquired properties. The assessee claimed that on 18th April, 1951, he threw some of his self-acquired properties consisting of agricultural lands and a house as also some shares of limited liability companies into, what is stated to be the common hotchpot of the Hindu undivided famiy. In support of his contention he filed an affidavit. No entries, however, in the books of account were made evidencing such a transaction. In June, 1951, an oral partition was effected among the members of the said Hindu undivided family, and entries were made in the books of account showing the properties allotted to the shares of the respective coparceners. On 26th June, 1951, a joint declaration was made by the assessee, his wife and his adult son in respect of such a partition. A joint statement also was made on the 5th of December before the Talathi. The assessee claimed that the income of the properties allotted to the shares of his wife and minor son cannot be included in his income. The Tribunal proceeded on the footing of the genuineness of the transactions of impressing the self-acquired property with the character of coparcenary property and partitioning it among the coparceners. The Tribunal, however, held that the provisions of section 16(3)(a)(iii) and (iv) were wide enough to cover an arrangement like the one entered into in the case. According to the Tribunal the transactions resulted in an indirect transfer of property within the meaning of sections 16(3) of the Act. A Division Bench of the Gujarat High Court held that by reason of operation of law, a transfer of property takes place when a member of a joint family throws his separate property into the hotchpot of the joint family. But the transfer that takes place in such a case is not either directly or indirectly to the wife or the minor child of the assessee. On the other hand, the transfer is to the Hindu undivided family, which is a separate and a distinct unit for levy of tax under the Indian Income-tax Act. The learned Chief Justice, who delivered the judgment of the court, then proceeded to consider the question whether the further transaction of effecting the partition of the property between the assessee and the other coparceners amounted either to a direct or indirect transfer of property to his wife or his minor son. After discussing the question, the learned Chief Justice observed :
'The two transactions, viz., the one of throwing the separate property of the assessee into the hotchpot of the joint family and the other of partitioning the joint family properties, are separate, genuine, independent transactions. Neither by the one nor by the other there has been any transfer, direct or indirect, effected by the assessee to his wife or minor son within the meaning of section 16(3)(a)(iii) and section 16(3)(a)(iv).'
17. With respect we see no reason to differ from the aforesaid observations of the learned Chief Justice.
18. Mr. Joshi argued that this decision has no application to the facts of the present case because in that case throwing the separate property by the assessee into the hotchpot and the partition effected by him of the joint family property were not on one and the same day. There was a time lag. The self-acquired property was thrown into the hotchpot on 18th April, 1951, and the partition was effected on 12th June, 1951. For nearly two months, the joint family enjoyed ownership over the property as joint family property. Coparceners had thus acquired right in that property and, therefore, the partition of that property by metes and bounds did not constitute a transfer. According to Mr. Joshi the decision of the Gujarat High Court is distinguishable because in the case before us by one and the same deed the property had been thrown by the assessee into the hotchpot and its partition has been effected thereafter. We find it difficult to agree with Mr. Joshi that the decision of the Gujarat High Court can be distinguished on this ground. The decision did not turn on the ground of time lag between throwing of the property into the hotchpot and effecting the partition. On the other hand, the reason on which the decision is founded are that when a coparcener impresses his self-acquired property with the character of coparcenary property, the transfer is not in favour of individual coparceners but in favour of a Hindu undivided family. The coparceners and a Hindu undivided family. The coparceners and a Hindu undivided family under the Act are separate and distinct units of taxation. The rights of a coparcener until a partition takes place consists in a common possession and a common enjoyment of the coparcenary property. There is community of interest and unity of possession. No coparcener can predicate his share in the undivided coparcenary property. It is only on a partition that he becomes entitled to a definite share. With respect we, therefore, see no reason to take a view different from the one taken by the Gujarat High Court. It is not in dispute that if no transfer direct or indirect in favour of the wife or the minor son is involved either in the transaction of throwing the self-acquired property into the hotchpot or in effecting its partition, then the income of the property allotted to the share of the wife and minor child cannot be included in the income of the assessee.
19. For reasons stated above, in our opinion, the answer to the question will have to be returned in the negative. We answer it accordingly. The commissioner shall pay the costs of the assessee.
20. Before parting with the case, it is necessary to state that the partition deed was not included in the statement of the case. At the request of the counsel for parties, a copy of the original as well as the English translation of the partition deed has been allowed to be filed in the case. They be taken on record.
21. Question answered in the negative.