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K.S. Muthukali Chettiar Vs. Commissioner of Wealth-tax, Karnataka, Bangalore - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberTax Reference Case Nos. 1 to 4 of 1981
Judge
Reported in(1985)44CTR(Kar)215; ILR1985KAR672; [1984]150ITR359(KAR); [1984]150ITR359(Karn)
ActsWealth Tax Act, 1957 - Sections 4(1), 4(1A) and 27(1); Income Tax Act, 1961 - Sections 64(1) and 64(2)
AppellantK.S. Muthukali Chettiar
RespondentCommissioner of Wealth-tax, Karnataka, Bangalore
Appellant AdvocateK.R. Prasad, Adv.
Respondent AdvocateG. Sarangan, Adv.
Excerpt:
.....expenses; rs.25,000/- towards loss of expectation of life and rs.36,500/- towards medical expenses). - it indeed, clearly states that the individual shall be deemed to have transferred the converted property through the family to the members of the family for being held by them jointly......, the supreme court observed that if a member of a huf converts his separate property into joint family property by impressing it with the character of property belonging to the family or throwing it into the common stock of family then that would not amount to a transfer. 11. in cit v. keshavlal lallubhai patel : [1965]55itr637(sc) , the supreme court held that the partition of a joint hindu family property cannot also be termed as a 'transfer' within the meaning of the i.t. act. it was to supersede the views taken in these decisions that s. 4(1a) of the w.t. act and s. 64(2) of the i.t. act, 1961, were inserted by the said amendment act. 12. the effect of these provisions is that if a coparcener converts at any time after december 31, 1969, his separate property in property belonging.....
Judgment:

Jagannatha Shetty, J.

1. The question referred in these references under s. 27(1) of the W.T. Act, 1957, relates to the extent of the interest of the assessee in the converted property for the purpose of inclusion in the net wealth in his wealth-tax return.

2. Since the question raised is common for all the assessment years, viz., 1971-72 to 1974-75, the same will be disposed by this common order.

3. The assessee was assessed to wealth-tax on the value of his movable and immovables. On March 15, 1971, certain immovable properties owned by the assessee, as separate properties, were thrown into the family hotchpot by means of a declaration Those properties consisted of buildings, factory, vacant sites and certain agricultural lands. The Hindu undivided family ('HUF') of which the assessee was the manager comprised of his wife and two minor sons.

4. It was contended before the WTO that the value of the properties thrown into the common stock of the joint family should not be assessed in the hands of the assessee. The WTO rejected that contention placing reliance on s. 4(1A) of the W.T. Act. He held that the entire value of the said properties should be assessed in the hands of the assessee and accordingly, included the value thereof in the assessee's net wealth.

5. Being aggrieved by the assessments, the assessee appealed to the AAC and urged for exclusion of the value of the converted properties from his assessment. But the AAC did not accept the contention. He observed that under s. 64(2) of the I.T. Act, 1961, the income of the HUF in the converted properties was already included in the net income of the assessee and since s. 4(1A) of the W.T. Act is similar to s. 64(2) of the I.T. Act, 1961, the value of the converted properties should also be included in the wealth-tax assessment of the assessee.

6. The assessee thereupon appealed to the Income-tax Appellate Tribunal. The Tribunal dismissed the appeals by following its earlier judgment in ITO V Dr. K. V. Subharaj, I.T. As. Nos. 460 to 470 (Bang.) 75-76, arising under s. 64(2) of the I.T. Act, 1961.

7. The Tribunal however, at the instance of the assessee has referred the question, the substance of which we have already set out at the beginning and the exact question would be set out at the end of this order.

8. The answer to the question turns upon the scope of s. 4(1A) of the W.T. Act. The said provision, so far as material, as it then stood, is set out below for immediate reference.

'4(1A). Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after December 31, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family (such property being hereinafter referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computing the net wealth of the individual under this Act for any assessment year commencing on or after April 1, 1972, -

(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly;

(b) the converted property or any part thereof in so far as it is attributable to the interest of the individual in the property of the family, shall be deemed to be assets belonging to the individual and not to the family;

(c) any part of the converted property in so far as it is attributable to the interest of the spouse or any minor child of the individual in the property of the family and where there is a partition (partial or total) amongst the members of the family, the converted property or any part thereof which is received by the spouse or minor child on such partition spouse or minor child and the provisions of sub-section (1) shall, so far as may be, apply accordingly :

Provided that the property referred to in clause (b) or clause (c) shall, on being included in the net wealth of the individual, be excluded from the net wealth of the family or, as the case may be, the spouse or minor child of the individual.'

9. Explanation (d) to sub-s (7) reads :

'(d) the expressions 'interest of the individual in the property of the family' and 'interest of the spouse, or any minor child of the individual in the property of the family' mean, respectively, the proportion in which the individual or, as the case may be, the spouse or minor child would be entitled to share the property of the family if there had been a total partition in the family as on the valuation date of the family relevant to the assessment year for which the individual is to be assessed under sub-section (IA)'.

10. This section was inserted by Finance (No. 2) Act, 1971, with effect from April 1, 1972, against the backdrop of the following two decisions of the Supreme Court. In Goli Eswariah v. CGT : [1970]76ITR675(SC) , the Supreme Court observed that if a member of a HUF converts his separate property into joint family property by impressing it with the character of property belonging to the family or throwing it into the common stock of family then that would not amount to a transfer.

11. In CIT V. Keshavlal Lallubhai Patel : [1965]55ITR637(SC) , the Supreme Court held that the partition of a joint Hindu family property cannot also be termed as a 'transfer' within the meaning of the I.T. Act. It was to supersede the views taken in these decisions that s. 4(1A) of the W.T. Act and s. 64(2) of the I.T. Act, 1961, were inserted by the said Amendment Act.

12. The effect of these provisions is that if a coparcener converts at any time after December 31, 1969, his separate property in property belonging to the HUF, he shall be deemed to have transferred the property for the members to hold it jointly. Further, the converted property or any part thereof, in so far as it is attributable to the interest of the individual therein, shall be deemed to assets or the income, as the case may be, of the individual and not of the family. Likewise, the converted property so far as it is attributable to the interest of the spouse or any minor son of the individual will be deemed to be the assets transferred indirectly by the individual to the spouse or minor son and will be accordance with the provision if s. 4(1) of the W.T. Act, 1957 or s. 64(1) of the I.T. Act, 1961. Similar would be the effect in the event of partition of the converted property against the members of the family.

13. Mr prasad learned counsel for the assessee, however submitted that this intent of Parliament has not been achieved by the provisions of s. 4(1A) of the W.T. Act, 1957 or s. 64(2) of the I.T. Act, 1961, and the said provisions are practically unworkable. He urged that by reason of the deeming provisions under s. 4(1A)(a) of the W.T. Act, 1957, what has been considered as not a transfer of the converted property has been held to be a transfer to the members of the family and if it is a transfer to the members of family, then, clause (b) would be unworkable since it refers to the interest of the individual in the property of the family.

14. We do not think that we could accept these contentions. No statute, to our knowledge, is free from gibberish. We must first understand the intelligible purpose of the statue and then try to honour the purpose so found. Professor Reed Dickerson in his book. 'The Interpretation and Application of Statutes' (1975 edition), at page 97, states :

'Once legislative purpose has been reliably ascertained, the only remaining problem is to determine the extent to which the language used in the statute can sustain a meaning that not only is co-extensive or consistent with the purpose but appears to the most plausible one under the circumstances.'

15. Clause (a), in our opinion, was not intended to create a fiction of transfer to the members of the family. It indeed, clearly states that the individual shall be deemed to have transferred the converted property through the family to the members of the family for being held by them jointly. 'Through the family', in the context in which it is used, means 'by reason of the family' and not apart from the family. Upon transfer, the members of the family hold the converted property jointly.

16. Clause (b) would be consistent with this idea when it states that the converted property or any part thereof in so far as it is attributable to the interest of the individual in the property of the family, shall be deemed to the assets of the individual and not of the family. The method of ascertaining the interest of the individual in the property of the family has been provided under clause (d) to the Explanation. It envisages a national partition of the converted property for the purpose of ascertaining the respective shares which they are legitimately entitled to. No doubt the said Explanation refers to a total partition but the total partition need not be a partition of all the HUF properties of the family as contended by Sri Prasad. The partition refereed to in the Explanation having regard to the other provisions of s. 4(1A) appears to be a partition contemplated for the purpose of determining only the interest of the individual in the converted property.

17. That was also the view taken the Gujarat High Court in Kalyanbhai Trikamlal Shaw v. CWT : [1982]135ITR750(Guj) and the Madras High Court in CIT V. Ayyaswamy Iyer [1981] 132 ITR 97, on the analogous provision of section 64(2) of the I.T. Act, 1961.

18. As to the next contention of Mr. Prasad that the national share attributable to the individual in the converted property should be clubbed and assessed in the hands of the smaller family consisting of the individual and his wife and not in the hands of the individual alone, we may point out that although the individual along with his wife may constitute a smaller family, the wife is not entitled to a share in the portion. Under the Mitakshara law practiced in Southern India, the mother is not entitled to any share upon partition between the sons and the father. In 'Mulla Principles of Hindu Law' (15th edition), at page 436, it is stated :

'Madras State. - In Southern India the practice of allotting shares upon partition to females has long since become obsolete.'

19. This passage has been quoted with approval by the Supreme Court in Lakshmi Chand Khajuria v. Smt. Ishroo Devi, AIR 1977 SC 1994.

20. Apart from that, the entire scheme provided under s. 4(1A)(a), (b) and (c) of the W.T. Act, 1957, is for computing the interest of the individual in the converted property and that the individual's interest is required to be determined in the manner provided under the Explanation.

21. The Division Bench decision of this court in CWT v. G. M.Manjunath (TRC No. 28 of 1965-dt. September 30, 1966) holding that the status of the assessee was that of a HUF for the purpose of wealth-tax assessment, cannot be relied upon in this case since that was not a case in which the scope of s. 4(1A) of the W.T. Act, 1957, was considered.

22. Before concluding, it must be point out that the question referred makes a reference to the income of the individual in the converted property. The reference to the 'income' attributable to the converted property is plainly inappropriate since the case arise under the W.T. Act. The question, therefore, may be recast as follows :

'On the facts and in the circumstances of the assessee's case, when the assessee has thrown his self-acquired property into the common hotchpot of the Hindu undivided family consisting of himself, his wife and minor children, whether the Tribunal was right in law in holding that the value of the converted property falling to the share of the assessee on notional partition is assessable in the hands of the assessee in his status as individual and not as Hindu undivided family consisting of the assessee and his wife ?'

23. For the reasons stated, we answer the question in the affirmative and against the assessee in T.R.Cs Nos. 2, 3 and 4 of 1981.

24. In T.R.C.No. 1 of 1981 the said question does not arise for consideration. Both Parties did not notice that s. 4(1A) of the Act was inserted by the Finance (No. 2) Act, 1971, which came into force with effect from April 1, 1972 and, therefore, it would be applicable for the assessment years 1972-73 onwards. On this ground alone, we answer the question in T.R.C.No 1 of 1981 in the negative and in favour of the assessee.

25. In the circumstances, we make no order as to costs.


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