1. This is a reference made by the Income-tax Appellate Tribunal, Bombay bench 'B', under section 66(1) of the Indian Income-tax Act, 1922. Before setting down the question referred to us, a few facts may be stated :
In this reference we are concerned with the assessment years 1942-43 to 1947-48 and 1952-53 to 1958-59, the corresponding accounting periods being S. Y. 1997 to S. Y. 2002 and S. Y. 2007 to S. Y. 2013, respectively. There were two sets of appeals before the Income-tax Tribunal, one set arising out of the original assessments and the other, against the reassessments made under section 34 of the Indian Income-tax Act, 1922, as a result of certain proceedings before the Income-tax Investigation Commission. The quantum was not in dispute in the appeals and the short question that was agitated before the Tribunal and which arises for consideration in the reference before us was whether the income from the firm of Messrs. Teju Kaya & Co. pertaining to the share of Shri Khimji or the income of a Hindu undivided family of which Shri Khimji Teju Kaya was the karta. The assessee desired that the status should be accepted as an individual as against the department's contention that the income should be clubbed with and assessed in the hands of the HUF of Shri Khimji Teju Kaya as its income.
2. The late Rao Saheb Teju Kaya acquired by his own exertions large properties, both movable and immovable. The fact that all the properties earned by him were his self-acquired properties was not in dispute. At the time of his death on April 24, 1928, he was a partner in the firm of M/s. Teju Kaya & Co. There were two other partners, one of them being his son-in-law. The shares of the three partners were : Teju Kaya, Rs. 0-6-3, Nensi Bhojraj, Rs. 0-5-6 and Devji Dharji Rs. 0-4-0. The balance of 3 pies was for charity. The business of the firm was principally that of contractors and this firm came into existence on October 24, 1919, though the partnership deed itself was executed on October 12, 1926. Teju Kaya left behind him a son and a widow. At the time of Teju Kaya's death his son was a minor and Teju Kaya's widow, Vejbai, became a partner in the firm of Messrs. Teju Kaya & Co. under the deed of partnership dated January 30, 1929, a copy of which is annexed as annexure 'A' to the statement of case. The partners in this partnership were Devji Dharsi, Nensi Bhojraj and Vejbai. Khimji thereafter attained majority. A new partnership deed was made which was dated February 4, 1937. Under this deed, the partners were Khimji Teju Kaya, Nensi Bhojraj, Meghji Ravji and Bhanji Monji. A copy of this deed of partnership is annexed to the statement of case as annexure 'B'. Under this deed, there was a specific provision in clause 25 for Khimji being exclusively entitled to the goodwill of the business. It has been observed by the Tribunal in the statement of case that when Khimji became a partner in the place of his mother, there was a debit balance in the account of the late Teju Kaya amounting to Rs. 92,000 whereas Vejbai's account showed a credit balance of Rs. 74,860. When Khimji became a partner, these two accounts were merged and transferred to the newly opened account in the name of Khimji Teju Kaya.
3. From the years 1938-39 to 1943-44, the share income from this firm was being assessed in the hands of HUF on the basis of the returns filed by the assessee, Khimji Teju Kaya, as its karta. The income from the firm as well as other income from the properties were all shown as property of the family of which Khimji was the karta. For the year 1943-44, however, there was a contention raised before the AAC in the appeal for the year which was to the effect that the income really belonged to the individual and not to the family. The AAC did not allow this ground to be taken in appeal.
4. Returns for the years up to 1947-48 were originally filed showing the status as HUF. However, received returns were filed for the years 1944-45 to 1947-48 claiming that the share income did not belong to the HUF but only to Khimji Teju Kaya, an individual. The contentions to this effect based on the provision of Hindu law were made before the Income-tax Officer but were rejected by the Income-tax Officer. The matter was carried in appeal to the AAC where these contentions were repeated. In the memorandum of appeal before the AAC a will dated September 4, 1972, left by Rao Saheb Teju Kaya was referred to and will was produced before the AAC. A copy of this will is annexed as annexure 'F'.
5. The AAc directed the Income-tax Officer to report, inter alia, on the legal consequences of the will and pursuant to these directions the ITO relying upon the decision of the Supreme Court in Arunachala Mudaliar v. Muruganatha Mudaliar : 1SCR243 , stated that the real intention of the testator was that the properties bequeathed by him should belong to his son not as an individual but as karta of HUF. On receipt of this remand report, the matter was again heard by the AAC. As far as the will was concerned, the AAC commented upon the will not having been mentioned at any stage right from 1928 to May 11, 1961, as also on the said will not having been probated. The AAC was of the view that even if the will was taken to be a genuine document, it was ineffective. Relying upon the fact that the assessee had himself treated the income from the firm as joint family property, the AAC upheld the decision of the ITO. Being aggrieved with the order, the appellant preferred appeals to the Tribunal. IT was urged that in interests of justice the assessee should be given a opportunity of proving the genuineness of the will. Accordingly, by the remand order dated June 29, 1963, the Tribunal directed the AAC to give such an opportunity to the assessee. By the remand report dated May 15, 1964, the AAC observed that there was no reason to suspect that the will had been got up after the death of Teju Kaya in order to provide evidence for the appellant's case before the AAC. Both parties thereafter made detailed submissions on this remand report and on the material before it and on their arguments the Tribunal held that the will dated September 4, 1927, was the last will and testament of Teju Kaya and that it was a genuine one. Thereafter, the Tribunal proceeded to consider the contention which was advanced on behalf of the revenue that by the clauses of the will, Teju Kaya intended his son and his family to benefit and this was not a bequest in favour of Khimji absolutely. Reading the will in the light of the relevant decision, the Tribunal held that it was Khimji that was intended to benefit and that it was not possible to spell out any scheme of settling the family affairs or benefiting anybody other than Khimji. Reliance was placed before the Tribunal on the assessee's own treatment of the share income and it was submitted that in any event the properties including the income from the firm were treated as joint Hindu family properties. The Tribunal rejected the argument that the assessee's conduct would amount to estopped. In its opinion, before such a conclusion could be drawn, it must be shown that the assessee knew of the existence of the will and, notwithstanding that knowledge, he offered the income for assessment as that of the HUF. Accordingly, the Tribunal was clearly of the view that the share income from the firm of Messrs. Teju Kaya & Company was the separate property of Khimji and the joint family had no title or interest in that property. It was accordingly directed to be assessed on that footing. The Tribunal gave a further direction regarding deletion of the addition of the share income with that of the other income of the HUF.
6. The Commissioner wanted the Tribunal to refer three questions to this court for its opinion, which were principally directed at the genuineness of the will, the question about the will being considered for determining the alleged status of the assessee and the Tribunal permitting the assessee to alter its status in view of the earlier return filed, where the income was shown that of the HUF of which Khimji was the karta. The Tribunal did not accept the questions submitted by the Commissioner, but referred merely the following question to us which is the question is required to be considered and answered :
'Where, on the facts in the circumstances of the case, the share income from the firm of M/s. Teju Kaya & Co. belonged to Khimji in his individual capacity or as representing the HUF of which he was the karta ?'
7. A perusal of the Tribunal's consolidated order and of the statement of case reveal that the Tribunal has come to th following factual conclusions, which conclusions we are bound to accept and act upon :
(i) That the will dated September 4, 1927, was the genuine will of Rao Saheb Teju Kaya;
(ii) That at the time when the earlier returns were filed in which returns the income from the firm was shown belonging to the HUF of which Khimji Kaya was the karta, the concerned parties were not aware of the existence of the will.
8. The Tribunal has also observed in its order that it was not obligatory to have the will probated and the question sought to be raised by the Commissioner before the Tribunal (but which questions were not accepted and referred to by the Tribunal) did not seek to have this aspect, viz., lack of probate of the will and legal effect thereof, referred for the consideration of this court. This would suggest that it was not argued before the Tribunal that to give effectiveness to the said will any probate was required and the effect of lack of probate would be to render it invalid and ineffective in law. We are mentioning this because this point was sought to be urged by counsel for the revenue before us. In our view, it would not seem to arise from the order of the Tribunal and accordingly it would not be proper to allow the point to be canvassed before us.
9. Mr. Joshi on behalf of the revenue submitted that on the true interpretation of the will of Teju Kaya, (1) Teju Kaya clearly intended his son to hold the share from the business of Messrs. Teju Kaya & Co. as ancestral property or as property for the benefit of the family and did not intend to bequeath to Khimji such share absolutely; (2) The terms of the deed of partnership and the manner of dealing with the share of income from the firm would suggest that the assessee himself treated the income from the firm as joint family property. In this connection, he adopted as his arguments the view expressed by the AAC in paragraph 17 of the AAC's order dated March 24, 1962 (annexure 'I' to the statement of case), which paragraph is reproduced in paragraph 15 of the statement of case; (3) That Khimji himself had thrown his share into the hotchpotch and treated it as property of the HUF. This third argument was not merely based on the question of estopped, which was rejected by the Tribunal, that the assessee having taken one stand could not be permitted to alter it, but was principally based on the contention that a Hindu may treat his individual property as HUF property by throwing it into the hotchpotch and if he does so, it would alter its character despite the fact that it was by law and fact initially the individual property of the Hindu.
10. The incidents of separate or self-acquired property of a Hindu are indicated in Mulla's Principles of Hindu Law (1974 edition) in section 222. Such property is described as belonging exclusively to him in which no other member of the coparcenary, not even his male issue, acquires any interest by birth. The owner may sell, he may make a gift of it, or bequeath it by will to any person he likes. On his death, it would pass by succession to his heirs and not by survivorship. If such Hindu dies intestate and the property is inherited by his male issue, then in such a case it would appear that in the hands of the son, grandson or great grandson, the property would become ancestral property. The position, however, should be different where Hindu, instead of allowing his self-acquired or separate property to go by decent, makes a gift of it to his son, or bequeaths it to him by will. In such a case, a question arises whether such property is the separate property of the son, or whether it is ancestral in the hands of the son as regards the son's male issue. This question had resulted in a judicial controversy between the different High Courts in India and came to be considered by the Supreme Court in C. N. Arunachala Mudaliar v. C. A. Muruganatha Mudaliar : 1SCR243 . In the said decision, the Supreme Court ended the controversy among the High Courts. The Madras, Patna and Calcutta view appeared to be that it was undoubtedly open to the father to determine whether the property which he has bequeathed shall be ancestral or self-acquired but unless he expresses his intention clearly, it should be held to be ancestral in the hands of the son. On the other hand, the Bombay view was to hold such gifted property (and similar considerations would apply to bequeathed property) as the individual property of the donee unless there was clear expression of intention on the part of the donor or testator to make it ancestral and this view was accepted by the Allahabad and the Lahore High Courts. The Supreme Court then went on to consider the relevant text of Mitakshara and observed that where there was express provision to that effect in the deed of gift or will no difficulty was likely to arise and the interest which the son would take in such property would depend upon the terms of the grant. What was to happen if such express provision was not found In the words of Mukherjea J., who spoke for the Bench, at page 500 of : 1SCR243 :
'If, however, there are 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 in accordance with the well-known canons of construction.'
11. In other words, according to the Supreme Court, the material question was whether taking the document and all the relevant facts into consideration, it could be said that the donor intended to confer a bounty upon his son exclusively for his benefit and capable of being dealt with by him at his pleasure or whether the apparent gift or bequest was an integral part of a scheme for partition and what was given to the son was really the share of the property which would normally be allotted to him and his branch of the family on partition. It was further observed that there could be no presumption either way.
12. Arunachala's case : 1SCR243 , was subsequently applied by the Supreme Court in M. P. Periyakaruppan Chettiar v. Commissioner of Income-tax : 99ITR1(SC) . In the said case, it had been contended on behalf of the revenue that since the gift was stated to be in favour of the donees and 'their respective heirs, executors, administrators and assignees', these words really indicated that the objects of the bounty were the sons as heads of their respective families. This contention was rejected by the Supreme Court which observed that there was nothing in the document to suggest that the interest transferred to the sons was limited in any way.
13. Arunachala's case : 1SCR243 was considered by a Division Bench of this High Court in Commissioner of Income-tax v. Gordhandas K. Vora : 96ITR50(Bom) . This decision also examines the question whether the separate or self-acquired property had been thrown into the common stock and what was required for this purpose (seepage 56). In connection with the argument of the property being thrown into the common stock, the views expressed in Mulla's Hindu Law to the effect that a clear intention to waive separate rights must be established and this could not be lightly inferred, was approved.
14. This brings up to a consideration of the will of Teju Kaya which is to be found as annexure 'F' to the statement of case. The original will is in Gujarathi and the translation has been annexed as annexure 'F' Clause 10 pertains to the partnership business of Teju Kaya & Company. This may be fully extracted.
'10. I along with the said Devji Dharsey and Nensi Bhojraj carry on business in partnership as shroffs and contractors in the name of Teju Kaya & Co. at Bombay. After may death, my partners shall continue the said business if they so deem proper and carry on the management thereof in such manner as they deem proper. And, as to (the amount) coming to my share therein, the same shall be paid to my wife, Vejbai, till my son, Khimji attains majority and Vejbai shall be at liberty to deal with the same as she may deem fit and she shall not be bound to account for the same to anyone. In case, there be loss in the said business, then my share therein shall be paid out by my estate. On my son, Khimji attaining majority he shall be the owner of my share in the said company. And, if my partners think proper, they may admit him as partner in my place. But, if my partner wish to make a change in my share in the said company before Khimji attains majority, then they will be fully entitled to do so in such manner as they deem fit. Further, any objection whatever raised by my executors and trustees with regard thereto and the management of the said company, shall not prevail.'
15. Mr. Joshi took us in extenso through the provisions of this will and contended that the testator was providing for the members of his family and it was clear from these provisions that the share in the firm of Teju Kaya and Co. was given to the widow as long as Khimji was a minor and thereafter on Khimji's attaining majority it was to go to Khimji. According to him, these provisions and the express provisions and the express provisions in clause 10 indicated that Khimji did not take interest absolutely, but took it for himself and his male issue. We are afraid that we are unable to accept this submission which is not borne out by proper reading of the provisions of the will and in particular of clause 10 thereof. It is not usual in a will that the testator makes provision for his family. It would be an unnatural will in which such a provision is not made. What is to be found and which alone would be relevant for the purposes of the revenue would be that there must be something express in the document to suggest that the interest which was conferred on Khimji was limited in any way. This is the clear observation of the Supreme Court in Periakaruppan Chettair's case : 99ITR1(SC) . We are unable to find in the will any provision limiting Khimji's interest in any manner whatsoever to suggest that what the testator was doing was bequeathing the property not to Kimji absolutely but to Kimji and his male issue indicating that Khimji would have it on intestacy. There is nothing in the will to warrant any such conclusion and it would be rather usual for a will to be made to subserve the same purpose as would be achieved on intestacy. If at all, commonsense would require that a contrary approach be accepted.
16. It is also not possible to accept the arguments to be found in paragraph 7 of the order of the AAC which Mr. Joshi adopted as his own in this reference. It is clear from the two subsequent partnership deeds, the first wherein Vejbai was inducted as a partner, and the second by which Khimji became a partner in the firm of Messrs. Teju Kaya & Co. that these were not separate and totally distinct partnership unconnected with an disassociated from the earlier firm of Teju Kaya, the share of which was disposed of by clause 10 of the will of Teju Kaya. It is true that in these partnership deeds there is no reference to the will, but that would not alter the basic fact that the partnerships are not separate agreements standing in isolation by themselves, but part of the scheme of disposing of Teju Kaya's interest in the firm and its pursuant to his wishes (ignoring the will for the time being) after Vejbai became a partner in the first place to be replaced by Khimji after Khimji attained majority. The manner in which the debit and credit accounts of Teju Kaya and Vejbai were dealt with when Khimji became a partner would also justify and such a conclusion.
17. The Tribunal has very rightly rejected the contention raised on behalf of the revenue that the assessee was estopped from contending that the income belonged to the individual and not to the HUF when in the initial returns the income had been shown as belonging to the HUF. The reason for rejecting this argument which appealed to the Tribunal is the proper reason, viz., that the principles of estopped cannot be said to operate against a party unless the conduct which is said to have occasioned the estopped was of a party which was aware of all the pertinent facts, the pertinent fact in this case being the existence of the will of Teju Kaya. The conduct of the assessee in ignorance of the provision and legal effect of the will would give rise to no estoppel inasmuch as on intestacy the share in the firm of Messrs. Teju Kaya & Co., which Khimji would obtain, undoubtedly constituted his ancestral property and after the birth of his son same footing the contention that the separate property had been thrown into the hotchpotch would be required to be rebutted and as observed in Gordhandas Vora's case : 96ITR50(Bom) (where the passage from Mulla's Principles of Hindu Law has been quoted with approval), a clear intention to waive separate rights must be established. In this case, no such intention can be established since at the time when this income was shown as the income of the HUF, it is clear that Khimji was unaware of the true character of that income or of his true legal rights since he not aware of the will. He proceeded on the footing that this was the income of the HUF which would be the correct footing in law if there was no will. Since he not aware of the existence of the will there could be no estoppel against him nor any question of an intention on his part to waive his separate right and throw the property into the hotchpotch.
18. In this view of the matter, all the three arguments of Mr. Joshi deserve to be rejected. In the result, the question referred to us is answered as follows :
'On the facts and circumstances of the case, the assessee's income from the firm of Messrs. Teju Kaya & Co. belonged to Khimji in his individual capacity and not as representing the HUF of which he was the karta.'
19. The Commissioner will pay the costs of the reference to the assessee.