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Ramnath Panda Vs. Commissioner of Agricultural Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtOrissa High Court
Decided On
Case NumberS.J.C. Nos. 19 to 25 and 46 to 52 of 1968
Judge
Reported in[1972]84ITR206(Orissa)
ActsOrissa Agricultural Income Tax Act, 1947 - Sections 11(1)
AppellantRamnath Panda
RespondentCommissioner of Agricultural Income-tax
Appellant AdvocateS.C. Roy, Adv.
Respondent AdvocateStanding Counsel (Sales Tax)
Cases ReferredK. K. Handique v. Member
Excerpt:
.....to lead to the conclusion one way or the other. 12. where any person holds land, from which agricultural income is derived, as a common manager appointed under any law for the time being in force or under any agreement or as receiver, administrator or the like on behalf of persons jointly interested in such land or in the agricultural income derived therefrom, the aggregate of the sums payable as agricultural income-tax by each person on the agricultural income derived from such land and received by him shall be assessed on such common manager, receiver, administrator, or the like, and he shall be deemed to be the assessee in respect of the agricultural income-tax so payable by each such person and shall be liable to pay the same. the words 'on behalf of 'as used in section 12..........he effected another registered partition deed dated december 31,1954, between himself and his two minor sons represented by the mother-guardian. in the said partition, lands were divided by metes and bounds. according to the petitioner the minor sons were in separate possessn and enjoyment of the lauds falling to their share. while submitting his returns for the assessment year 1955-56 the petitioner excluded the income of the lands allotted to his minor sons. in the ultimate assessment after remand, the assessing officer held that the income of the minor sons from the lands allotted to them separately must constitute a part of the income of the petitioner and section 11(1) was applicable. the petitioner was unsuccessful both in first appeal and second appeal. he filed an application.....
Judgment:

G.K. Misra, C.J.

1. Facts may be stated in short. The petitioner is an assessee under the Orissa Agricultural Income-tax Act, 1947 (Orissa Act XXIV of 1947) (hereinafter to be referred to as 'the Act'). In 1947, there was a partition in his family by a registered partition deed whereunder all the properties including agricultural lands were divided amongst himself and his five sons. The petitioner's wife and mother were also given two shares in the partition. Thereafter the petitioner was being assessed on his own income including the income from the lands of his wife and mother every year. After the aforesaid partition, two more sons were born to the petitioner. He effected another registered partition deed dated December 31,1954, between himself and his two minor sons represented by the mother-guardian. In the said partition, lands were divided by metes and bounds. According to the petitioner the minor sons were in separate possessn and enjoyment of the lauds falling to their share. While submitting his returns for the assessment year 1955-56 the petitioner excluded the income of the lands allotted to his minor sons. In the ultimate assessment after remand, the assessing officer held that the income of the minor sons from the lands allotted to them separately must constitute a part of the income of the petitioner and Section 11(1) was applicable. The petitioner was unsuccessful both in first appeal and second appeal. He filed an application under Section 29(2) for referring a case to the High Court on the following questions of law arising out of the second appellate order. Those questions were:

' (i) Whether, in the facts and circumstances of the case, Section 11(1) of the Act is applicable and as such the income of the two minor sons would be included in the income of the assessee for the assessment years 1955-56, 1956-57 and 1958-59 to 1962-63 ?

(ii) Whether, in the facts and circumstances of the case, the judgment of the Tribunal is vitiated in law in not independently considering the materials on record for coming to the conclusion whether there was a partition in 1954 or not ?

(Reframed vide court's order $fo. 10 dt. 14-12-70).

(iii) Whether, in the facts and circumstances of the case, the income of the mother of the assessee can be included in the income of the assessee for the relevant assessment years

2. The Tribunal referred questions Nos. (i) and (iii) but refused to refer question No. (ii). The assessee filed an application before this court under Section 29(3) of the Act to call for reference on the second question. This court, by its order dated 9th March, 1970, directed the Tribunal to make a reference of the second question. Accordingly the second question has been referred to this court and all the three questions are for consideration in these applications.

3. In the further statement of fact the Tribunal has recorded the following findings:

(i) There is a registered deed of partition of the year 1954 allotting lands separately to the minors. The partition is by metes and bounds.

(ii) The assessee and the minor sons are assessed with income-tax separately.

(iii) The rent receipts issued by the Notified Area Council, Aska, show that rents are separately paid.

(iv) No account of the income and expenditure is produced by the assessee.

(v) The minor sons are having their education.

(vi) Except the enquiry made by the inspectors of the department in the absence of the assessee, no evidence is available whether the lands are jointly or separately cultivated and whether the paddy is threshed and kept separately or jointly.

(vii) The minor sons were having common mess with the petitioner and their mother and were living jointly with them.

4. In the second appellate judgment the Tribunal, which is the final court of fact, did not record any finding that the registered partition deed of the year 1954 was a sham transaction. Section 11(1) of the Act was made applicable as the father and the minor sons were still living in a joint mess.

5. The Tribunal while hearing a second appeal has jurisdiction to enter into questions of fact. It has shirked its responsibility in not examining the various features which would lead to the conclusion whether the registered partition deed of the year 1954 was genuine or not. We were constrained to call for a further statement of fact. In the further statement of fact the Tribunal has expressed its inability to give an answer as, according to it, necessary data to declare the partition deed sham are lacking.

6. We would proceed to clarify the factual and legal position. There is a registered partition deed recording partition by metes and bounds. The assessee presents the deed as being genuine. There is no evidence contra that it is a sham transaction. On the other hand, the assessee and the minor sons are being separately assessed with income-tax and they are paying rents separately for lands allotted to their respective shares. The only feature which seems to have obsessed the taxing authorities is that the minors are jointly living and having a common mess with the father and mother and that there is no evidence that the lands are being separately cultivated and the usufruct thereof is being separately stored.

7. Partition amongst the members of a joint family is effected for various reasons. Sometimes the family becomes unwieldy and it becomesuncomfortable to remain together. In many cases positive dissensionsaffect the peace and comforts of joint living. In recent times even if thereis no dissension or discomfort, people desire to separate to avoid injuriousattack on their property rights by law. The Land Reforms Act, tenancylaws, Wealth-tax Act, Income-tax Act and Estate Duty Act have madeserious inroads into property rights. Even a family consisting of only thefather and the sons have to sacrifice their income and interest in theirlands if they continue joint. Under the Land Reforms Act and the tenancylaws a ceiling has been fixed and anybody having lands more than theceiling shall have to surrender the same for a small compensation. Takefor instance, each individual can have 20 standard acres of land under theprescribed ceiling. A family consisting of a father and four sons have got100 acres of land. If they remain joint they have to part with 80 acres asa family is taken to be a unit. On the other hand, if they separate, each canpossess 20 acres of land. Thus, a partition so effected as to derive the maximum advantage under the law cannot be said to be a sham transaction.Exercise of one's rights as sanctioned by law cannot be discountenanced.So also under the Wealth-tax Act one has to pay wealth-tax if the totalassets are beyond a limit, while, if the members separate, they may not beliable to pay wealth-tax at all. The same principle applies to liabilitiesunder the Income-tax Act and the Act. Thus, if in these circumstances toget rid of the rigours of law a partition is effected in the joint family thetransaction is not sham. So long as a person acts within the bounds of lawhis conduct cannot be open to attack merely because it results in certainadvantages to him by circumventing the law and the taxing authorities do not get a chance to collect more money.

8. Even after effecting partition the erstwhile members of the joint family who have ceased to be coparceners may agree to live together for economy and convenience. Joint messing has got its own blessings, particularly when the family consists of the parents and the minor sons. When a minor exercises his juristic right to be separated through the volition of the guardian and yet decides to remain together for economy and convenience, the arrangement cannot be said to be sham merely because the taxing authorities under any taxing statute cannot reach the income or wealth of all the members taken together.

9. When there is a partition by a decree of a court or a registered partition deed, usually the court accepts the same as genuine unless it is established by the sum-total of facts and circumstances that it is sham. In this case there were no circumstances before the taxing authorities to reach the conclusion that the registered partition deed was not genuine. The petitioner is a substantial person. If his properties had not been partitioned amongst his sons he would have been liable to be heavily assessed on the total income being held in the hands of one individual. Joint cultivation and joint living by themselves are not determinative of the fact that the members of a family have not partitioned. When authentic and clear evidence in the shape of a registered partition deed or a decree of a court is lacking, courts examine other indicia like cesser of commensality, separate living and separate cultivation as features to lead to the conclusion one way or the other. But, when authentic evidence is available, those factors cannot detract from the effectiveness thereof unless as a result of the assessment of the sum-total of the evidence the court comes to the conclusion that the transaction is sham.

10. A similar view has been taken in Hari Raj Swamp v. State of U.P., [1970] 77 I.T.R. 853 (AH.) and Kaihirvelu Nadar v. Commissioner of Agricultural Income-tax, [1968] 68 I.T.R. 786 (Mad.). (See also T. G. Sulakhe v. Commissioner of Income-tax, [1960] 39 I.T.R. 394 (A.P.) and Aruna Group of Estates v. State ofaMadras, [1965] 55 I.T.R, 642 (Mad.)). On the materials in this case that there is a registered partition deed and that the assessee and the minor sons are separately assessed with income-tax and rents are being paid separately, the mere fact of joint living and messing or even joint cultivation does not displace the fact of partition. After giving our anxious consideration we have no hesitation in holding that there was a partition between the father and the two minor sons in 1954 and the learned Tribunal committed a clear error of law in its second appellate judgment in not directly adverting to this question and in not accepting the partition,

11. On the aforesaid analysis, the minors are owners of their respective lands- allotted to them in the partition.

12. The next question for consideration is whether the income of the minors from the lands of which they are the owners are taxable in the hands of the petitioner under Section 11 (1) by adding the same to his income from his own lands.

13. Sections 11 and 12 may be extracted for comparison and proper appreciation of the scope of Section 1 -I :

' 11. (1) Save as provided in Sections 12 and 13, if a person holds land from which agricultural income is derived partly for his own benefit and partly for the benefit of beneficiaries, agricultural income-tax shall be assessed on the total agricultural income derived from such land at the rate which would have been applicable if such person had held the land exclusively for his own benefit, and the agricultural income-tax so payable shall be assessed on the person holding such land, and he shall be liable to pay the same,

(2) Any person holding such land shall be entitled, before paying to any beneficiary the amount of agricultural income which such beneficiary is entitled to receive from the agricultural income derived from such land, to deduct the amount of agricultural income-tax at the rate at which the agricultural income is or will be assessed under Sub-section (1).

Explanation.--In this section ' beneficiary' means a person legally entitled to a portion of the agricultural income derived from the land.

12. Where any person holds land, from which agricultural income is derived, as a common manager appointed under any law for the time being in force or under any agreement or as receiver, administrator or the like on behalf of persons jointly interested in such land or in the agricultural income derived therefrom, the aggregate of the sums payable as agricultural income-tax by each person on the agricultural income derived from such land and received by him shall be assessed on such common manager, receiver, administrator, or the like, and he shall be deemed to be the assessee in respect of the agricultural income-tax so payable by each such person and shall be liable to pay the same.'

14. It would appear from the aforesaid two sections that the expression ' holds ' has been used in both the sections. In Section 11(1) the expression ' for the benefit of ' has been used while in Section 12 the corresponding expression is ' on behalf of '. At the appropriate place we would examine the significance of these expressions.

15 Under Section 11 the lands must be held by a person for the benefit of the beneficiaries. In such a case the total agricultural income derived from such lands would be assessed to tax as if such person had exclusively held the lands for his own benefit. Necessarily, the rate of taxation by such computation must be high.

16. A ' beneficiary ' has been defined in the Explanation as meaning a person legally entitled to a portion of the agricultural income derived from the land. This definition is not in consonance with its accepted meaning as given in Wharton's Lay Lexicon or its ordinary dictionary meaning. In Wharlon's Law Lexicon a beneficiary has been defined as follows:

' A person having the beneficial enjoyment of property of which a trustee, executor, etc., has the legal possession, in which sense it is gradually superseding the old term cestui que trust.''

7. In the Oxford Dictionary its meaning is given thus :

' One who receives benefits or favours: a debtor to another's bounty.'

11. It would thus be se*n that a beneficiary is not the same as a full owner. An owner enjoys the property on his own behalf and for his own benefit while in the case of a beneficiary the legal estate in the property vests in the trustee and the beneficiary merely gets a beneficial enjoyment of the property. The owner has full right of disposal of the property while the beneficiary has no dominion or control over the property and has not got the right of disposal of the corpus of the estate. Title to the property vests in the trustee and he has also control or dominion over the same by having possession thereof. Judged in the light of the aforesaid meaning of ' beneficiary ', the definition given in the Explanation is not exhaustive or complete. It has now been firmly established by authorities that the meaning of the expression ' beneficiary ' in the Explanation is to be controlled by its accepted legal meaning (See Province of Bihar v. F. R. Hayes, [1946] 14 I.T.R. 326 (Pat.)).

12. Thus beneficiaries referred to in Section 11(1) are those persons who have beneficial interest in the property and have no title or legal ownership therein. Section 11(1) which was the subject-matter of discussion in the Special Bench Patna case is identical with Section 11 of the Act. Smt. G. Thankamal Ravi Niketan v. State of Kerala, [1964] 52 I.T.R, 634 (Ker.) 'also comes to the same conclusion.

13. In W. G. Holdsworth v. State of U.P., [1958] 33 I.T.R. 472 IS.C.), their Lordships observed that the expressions ' for the benefit of' and ' on behalf of' are not synonymous. They convey different meanings. The words ' on behalf of ', as used in Section 12 predicate that the land is held by such common manager, receiver, administrator or the like not as the owner but as the agent or representative of these persons. Under Section 12 there is no vestige of ownership in the common manager or receiver. All that the common manager is entitled to do is to manage or administer the land on behalf of persons who are jointly interested in the agricultural income derived therefrom.

14. Under Section 12 a common manager, or receiver or administrator holds land for different persons who have title and possession. If the common manager is assessed to tax in respect of the land that he holds on behalf of different persons, each of those persons would be separately taxed in respect of their income and the total tax so assessed separately would be collected from the common manager. The incidence of taxation would be much lower than what it is under Section 11.

15. The same is not the position in the case of owners or trustees who hold the land on their own behalf and for their own benefit.

16. As agent holding property belonging to the principal or guardian holding property belonging to the minor has no right of ownership in the property. He cannot be said to be holding the property for the benefit of the principal or the minor. He holds the property on their behalf. The same view was taken in K. K. Handique v. Member, Board of Agricultural Income-tax, Assam, [1966] 60 I.T.R. 216 (S.C.) where similar provisions under the Assam Act were under examination. Sections 12 and 13 of the Assam Agricultural Income-tax Act correspond to Sections 11 and 12 of the Act, Therein, their Lordships held that the expression 'hold' in both the sections must be given the same meaning and it takes in the concept of title and possession in both.

17. Applying the aforesaid principles to the facts of this case, it would be clear that the minor sons of the petitioner are owners of the land which fell to their share. They have both title and possession in the land. The petitioner merely manages the property on their behalf and for their benefit. The minor sons are not beneficiaries within the meaning of that expression in Section 11(1). The petitioner is not, therefore, liable to be taxed under Section 11 in respect of the income derived from the lands of the minor sons.

18. The minor sons would be assessable to tax through their guardians in respect of their income, provided (he same comes within the taxable limit. The income of the minors cannot be added to the income of the petitioner' for purpose of taxation.

19. The learned Tribunal has mentioned in paragraph 2 of its second appellate judgment that for the first time it was urged before it that the income of the mother should not be included in the assessment of the petitioner though till 1955-56 it was being so included. As the point was urged for the first time before the Tribunal and not at an earlier stage, it rightly rejected that contention. This is not a question of law arising out of the appellate order and should not have been referred to this court. The reference was without jurisdiction.

20. In the light of the aforesaid discussion, we would answer the questions as follows :

(i) In the facts and circumstances of the case, Section 11(1) of the Act is not applicable. The income of the two minor sons is not to be included in the income of the assessee for the impugned assessment years,

(ii) In the facts and circumstances of the case, the judgment of the Tribunal is vitiated in law in not independently considering the materials on record for coming to a conclusion whether there was a partition in 1954 or not. On the materials on record, there is no escape from the conclusion that there was a partition by metes and bounds amongst the petitioner and his two minor sons.

(iii) The reference regarding this question is without jurisdiction as it involves a pure question of fact and not a question of law arising out of the second appellate order. Consequently, the income of the mother of the assessee is to be included in the income of the petitioner in the years of assessment.

21. In the result, the references are accepted in part as indicated above. In the circumstances, parties to bear their own costs.

Patra, J.

22. I agree.


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