C. S. P. Singh, J. - This is a reference under section 256(1) of the Income-tax Act, 1961 at the instance of the Department of the following two questions of law have been raised :-
1. Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that the amount of Rs. 15,000/- received by the assessee from his father bore the character of a joint family property ?
2. Whether the Tribunal was legally correct in holding that the wife of the assessee had invested in the firm Messrs Cottage Industries Emporium out of the Hindu undivided family funds and her share of profit in the firm belonged to the Hindu undivided family and should not be clubbed with the assessees individual income under section 64(1) of the Income-tax Act, 1961 ?
2. In the financial year ending 31-3-1966 relevant to the assessment year 1966-67, Hari Prasad Gupta the assessee and his wife Shrimati Uma Devi partners in the firm Messrs Cottage Industries Emporium, Vishwanath Gali, Varanasi. Smt. Uma Devi received an amount of Rs. 1562/- as share of profit from the aforesaid firm. This income was clubbed with the income of the assessee by resort to the provisions of section 64(1) of the Income-tax Act. 1961. The assessee objected to the clubbing of this income on the ground that Shrimati Uma Devi was a partner in that firm as representative of Hindu Undivided Family which consisted of her, the assessee and their sons According to assessee, the Hindu Undivided Family through Shrimati Uma Devi had invested an amount of Rs. 10,000/- in the firm. The aforesaid amount had come in the hands of the H.U.F. at a result of the family settlement in which the assessee had received Rs. 17,000/- from his father Shri Batuk Prasad. The order of the Income-tax Officer in respect of this amount was upheld by the Appellate Assistant Commissioner. On appeal, the Tribunal found that the assessee had filed a suit against his father Shri Batuk Prasad and his other brothers for partition of movable and immovable properties. In that suit, the father had agreed to give Rs. 15,000/- in cash and a motor cycle worth Rs. 2,000/- and a cycle rikshaw worth Rs. 500/- for the maintenance and education of the assessees sons and his business, provided that the assessee relinquished his rights to the properties under suit. The assessee did relinquish those rights and executed a released deed. In view of this, the Tribunal found that the property was impressed with the character of H.U.F. property qua the family of the assessee. Further it found that the interest on the amount of Rs. 10,000/- was being paid to the H.U.F. and shown in the assessees books, and was allowed by the income-tax authorities in the assessment year 1965-66, 1968-69 and 1970-71. The Tribunal also took into account the partnership deed of the firm which contained in a recital that money invested by Shrimati Uma Devi represented the money of the H.U.F. In view of all these considerations, the Tribunal came to the conclusion that Shrimati Uma Devi was a partner in the firm as representing the H.U.F. and as such her share of profits in the firm could not be clubbed with that of the assessee in his individual assessment.
3. Coming to the first question, the assessee received an amount of Rs. 15,000/- and other movable property from his father for the maintenance and education of his sons and his own business. These amounts were paid to the assessee for relinquishing his share to the ancestral property in respect of which he claimed partition. It was prefectly valid for the assessee to have made it a condition precedent for the renouncement that certain amount will be paid to him by the other precedent of the H.U.F.) see Guruswami Goundan and others vs . Mauappa Goundan and others 0065/1950 : AIR1950Mad140 . There is no finding by the Tribunal as to whether the money and the movable property paid or given to thr assessee came from the ancestral property held by the assessees father or from self acquired property held by his father. This, however, would not make any difference as regards the character of the property which came in the assessees hands. In C. N. Arunachala Mudaliar vs . C. A. Muruganatha Mudaliar and another : 1SCR243 , one of the questions that arose was as to the nature of the property taken by a son received from his father by way of a gift or will. The property in that case was the self-acquired property of the father. The Supreme Court held that according to the Mitakshara an affectionate gift the father to the son does ipso constitute ancestral property in the hands of the donee. It, however went on to held that in case the gift was for the benefit of the branch of the sons family, the property would be that of the sons H.U.F. It would be useful to quote the relevant passage of the decision of the Supreme Court on this point :-
'..... We hold, therefore, that there is no warrant for saying that according to the Mitakshara, an affectionate gift by the father to the son constitutes ipso facto ancestral property in the hands of the donee.
As the law is accepted and well settled that a Mitakshara father has complete powers of disposition over his self acquired property, it must follow competent to provide expressly when he makes a gift, either that the donee would take it exclusively for himself of that the gift would be for the benefit of his branch of the family. If there are express provisions to that effect either in the deed gift or a will no difficulty is likely to arise and the interest which the son would take in such property would 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 alongwith the surrounding circumstances in accordance with the well-know canons of construction Stress would certainly have to be laid on the substance on the substance of the disposition and not on its mere form.'
In the present case, the money and the movable property given by the father were for the benefit of the assessees sons and his business. Thus, even if the property given to the assessee by the father was the self-acquired property of the father, the property for the benefit of the assessee and his sons. If the money came from the ancestral property, it would undoubtedly belong to the H.U.F. of the assessee, as it would not lose its character of H.U.F. property merely on account of the fact that the assessed had got it for relinquishment of his share in the H.U.F. It is also necessary to point out that apart from these consideration, the Tribunal has found for fact that the assessee treated the amount of Rs. 15,000/- as belonging to the H.U.F., and impressed it with the character of joint family property. Thus, even if the amount aforesaid at its initial stage was the separate property of the assessee, it became H.U.F. property on account of its being thrown in the common hotch potch of the H.U.F.
4. So far as the second question is concerned, that depends really on the answer given to the first question, for once it is held that amount of Rs. 15,000/- belonged to the H.U.F. the amount of profits accruing on the investment of that on note that the amount aforesaid had been shown as belonging to the H.U.F. in the partnership deed, and the interest on it was being shown in the assessees books as being paid to the H.U.F. The correctness of the entries partnership deed have been accepted by the Tribunal.
We, therefore, answer both the question in the affirmative, in favour of the assessee and against the Department. The assessee is entitled to costs which we assessee at Rs. 200/-.