JAGANMOHAN REDDY C.J. - The Income-tax Tribunal has referred the following questions under section 27(1) of the Wealth-tax Act, 1957, for the opinion of this court :
'(1) Whether the assessee could impress the character of a joint family property on the property separately owned by him only for the benefit of himself and his sons constituting a separate Hindu undivided family to the exclusion of his father notwithstanding the fact that the Hindu undivided family consisted of the assessee, his father and his sons ?
(2) Whether there was any material before the Tribunal to reject the assessees version that he impressed his individual property with the character of joint family property from 1949 onwards ?'
The relevant assessment year in respect of which the above questions arise is 1957-58 for which the valuation date is March 31, 1957. The assessee is one of the members of a coparcenary consisting of his father, A. Rajaiah, himself and his two sons, the other son, Inder Prakash Rao, having been adopted by Pedda Veeranna, the maternal grandfather of the assessee. It may be stated that Pedda Veeranna had in the year 1943 gifted a sum of O. S. Rs. 4,00,000 to the assessee who, in the year of assessment, treated the amount as the wealth of the joint family consisting of himself and his two sons, Veereswars Rao and Mahesh Kumar. It is stated before us that an income-tax return was also filed on that basis and the Income-tax Officer accepted the stand taken by the assessee that the grant of O. S. Rs. 4,00,000 gifted to him had been impressed with the character of joint family. But in so far as the wealth-tax Officer as well as the Appellate Assistant Commissioner and the Tribunal uniformly held that there can be no smaller joint family in a larger joint family and also that there is no contemporaneous evidence that the property was treated as joint family property.
The answer to the first question in our view admits of no doubt, and the Tribunal is clearly wrong in holding as follows :
'If he (assessee) had intended to impress the conditions of joint family property on the assets so obtained by him, he cannot keep it exclusively for himself and his sons only. His intention is to exclude his father from its enjoyment. This can never be the intention of the law that a part of the joint family property should belong to one set of members and the remaining to another set. A, Hindu, even if he be joint, can possess separate property. Such property belongs exclusively to him. No other member of the coparcenary, not even his male issue, acquires any interest in it during his lifetime. On his death intestate, the property passes by succession to his heirs and not by survivorship to the surviving coparceners as in the joint Hindu family. He can, under the law, voluntarily throw his property into the common stock and it will become the joint property of the family. But the intention of abandoning all separate claims must be there. In the present case leaving aside the fact whether the assessee had, in fact, actually done so, his intention was to abandon his separate claim over the property in favour of himself and his sons. This he cannot do under the law.'
Though a prima facie reading of the extract of the above order shows that no exception can be taken to some portions of it, none the less the Tribunal did not seem to have a clear picture of the legal position before it and consequently held that even an intention to abandon his rights in favour of himself and his sons cannot avail the assessee in impressing it with the character of a joint family property. It was, we think, the view of the Tribunal that the separate property should be surrendered in favour of all the coparceners, that is to say, not only in favour of the sons of the minor coparcenary but also in favour of the father, Rajaiah. It appears to us that neither on principle nor on authority can this stand taken by the Tribunal be sustained. As long as back 1902 a Division Bench of the Madras High Court consisting of Sir Arnold While C.J., and Bhashyam Ayyangar J., in Sudarsanam Maistri v. Narasimhulu Maistri, dealt with this aspect of the case. Bhashyam Ayyangar J., at page 154, traced the foundation of the doctrine of joint family properties as founded under the Mitakshara Law which was dependent on two requisites, namely, (1) the existence of the property by such corporate body. This first requisite presupposes the family unit, and the second the possession by it of the property. He observed :
'The main family and its branches may possess joint property not only by operation of law but also by act of parties. Property acquired without the aid of joint family property, by one or more individual members thereof, -whether they belong to different branches or to one and the same branch of the family, - may by act of parties be incorporated with the joint property of the main family as a whole (vide Radhabai v. Nanarav), or to one of its branches (vide Kunacha Umma v. Kutti Mammi Hajee), as a coporate body. Even if the undivided family is not possessed of any nucleus of property which has come to it as unobstructed heritage, it may be that, by act of parties, property acquired jointly by all the members or separately by one of more members thereof, can be impressed with the character and incidents of unobstructed heritage or joint property belonging to the main family or to any of its branches. Property devolving by inheritance as obstructed heritage on all the members of a joint family (vide Gopalasami v. Chinnasami) or upon any one of them, may likewise be impressed with the character of joint family property. But so long as a family remains an undivided unit two or more members thereof - whether they be members of different branches or of one and the same branch of the family - can have no legal existence as a separate independent unit; but if they comprise all the members of a branch, or of a sub-branch, they can from a distinct and separate corporate unit within the larger corporate unit and hold property as such. Such property may be the self-acquisition of obstructed heritage of a paternal ancestor of that branch as distinguished from the other branches, which property has come to that branch and that branch alone as unobstructed heritage; or it may be the self-acquisition of one or more individual members of that branch, which by act of parties has been impressed with the character of joint property, owned by that branch and that branch alone, to the exclusion of the other branches.'
This statement of the law has been followed by several High Courts and by Division Benches of the same High Court in Damodar Krishnaji Nirgude v. Commissioner of Income-tax, Natesan v. Commissioner of Income-tax, In re T. Arumuga Mudaliar, D. Sadashiv v. B. Rattain and Keshvalal v. Commissioner of Income-tax. The last three case further lay down that no formalities are necessary to impress the character on a separate property of joint family property. Umamaheswaram J., delivering the judgment of the Division Bench of this court consisting of himself and Krishna Rao J., has put this aspect of the case tersely as follows :
'By a clear expression of intention, such as by a statement in a deposition or by an affidavit or by executing a document or by course of conduct he may alter the character of the self-acquired or separate property into joint family property. No formalities, whatsoever, are required for impressing the self-acquired property with the character of joint family property.'
The position of law as laid down by the several High Courts now receives the impress of authority of their Lordships of the Supreme Court in Bhagwan Dayal v. Revti Devi, Subba Rao J., as he then was, after citing the observations of Bhashyam Ayyangar J., in Sudarsanam Maistri v. Narasimhulu Maistri, observed at page 302 as follows :
'The above passage clearly lay down the principle behind the rule. Hindu law recognises only the entire joint family or one or more branches of that family as a corporate unit or units and that the property acquired by that unit in the manner recognized by law would be considered as joint family property. But in the case of two or more members of a joint Hindu family belonging to different branches or even to the same branch, they do not acquire the property as a corporate unit or for the corporate unit and, therefore, they are only governed by the terms of the contract, express or implied, whereunder they have acquired the property.'
Further, after considering the decisions of several High Courts, the position of law was summed up at page 304 in these words :
'Coparcenary is a creature of Hindu law and cannot be created by agreement of parties except in the case of reunion. It is a corporate body of a family unit. The law also recognises a branch of the family as a subordinate corporate body. The said family unit, whether the larger one or the subordinate one, can acquire, hold and dispose of family property subject to the limitations laid down by law. Ordinarily, the manager, or by consent, express or implied of the members of the family, any other member or members can carry on business or acquire property, subject to the limitations laid down by the said law, for or on behalf of the family. Such business or property would be the business or property of the family. The identity of the members of the family is not completely lost in the family. One or more members of that family can start a business or acquire property without the aid of the joint family property, but such business or acquisition would be his or their acquisition. The business so started or property so acquired can be thrown into the common stock or blended with the joint family property in which case the said property becomes the estate of the joint family. But he or they need not do so, in which case the said property would be his or their self-acquisition, and succession to such property would not be governed by the law of joint family but only by the law of inheritance. In such a case, if a property was jointly acquired by them, it would not be governed by the law of joint family; for Hindu law does not recognize some of the members of a joint family belonging to different branches, or even to single branch, as a corporate unit. Therefore, the rights inter se between the members who have acquired the said property would be subject to the terms of the agreement whereunder it was acquired. The concept of joint tenancy known to English law with the right of survivorship is unknown to Hindu law except in regard to cases specially recognised by it.'
Applying these principles in so far as the first question is concerned, we have no doubt that the answer must be in favour of the assessee, namely that there can be a smaller Hindu joint family within a larger family, that it can hold property as a unit to the exclusion of the larger joint family, that the separate property of any one of the coparceners of that smaller joint family can be impressed with the character of the joint family property and that, for doing so, no formalities are requires, and that an unequivocal expression of intention, whether by course of conduct or declaration or any document or any statement in a deposition, etc., would be sufficient to impress the separate property with the character of a joint family property.
On the second question, we must sustain the stand taken by the Tribunal inasmuch as the only intention of treating the property of the value of Rs. 4,00,000 gifted to the assessee by his maternal grandfather as joint family property was made evident when he filed his income-tax and wealth-tax returns in August, 1958. These returns were followed by a letter given by the assessee on July 23, 1959, in which he informed the Wealth-tax Officer that he had treated the said property which was gifted to him by his grandfather as a joint family property since 1949. There is no other evidence to substantiate the statement that in 1949 he treated the property as a joint family property nor is there any evidence of a course of conduct from which the Tribunal could have arrived at that conclusion. The returns filed by him and the letter given by him can at best be taken in effect as a declaration of his intention to treat the property be taken in effect as a declaration of his intention to treat the property as a joint family property from then onwards but certainly it cannot be accepted that the treated the property as a joint family property on the date of the valuation, namely, March 31, 1957. In this view, our answer to the second question must be in favour of the department.
Accordingly, we answer the first question in the affirmative in favour of the assessee and the second question in the affirmative in favour of the department, and since there has been equal success for both parties, we direct each party to bear his own costs. Advocates fee Rs. 250.