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K.S. Mohan Rao Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1983)4ITD1(Hyd.)
AppellantK.S. Mohan Rao
Respondentincome-tax Officer
Excerpt:
.....son of late shri prakasa rao. the properties of late prakasa rao devolved on his heirs under the hindu succession act. the assessee, shri mohan rao, being the second son of his late father, succeeded to certain properties as the heir and derived income therefrom. during the accounting year relevant to the assessment year 1975-76, the assessee has derived such income amounting to rs. 24,466. the assessee had filed a return admitting the above income but claiming the status as huf consisting of himself as karta and his wife and children. before the ito the assessee had relied upon the ruling of the gujarat high court in the case of cit v. dr. babubhai mansukhbhai [1977] 108 itr 417 in support of his claim. the ito, however, rejected the claim of the assessee following the ruling of the.....
Judgment:
1. The assessee in this appeal is Shri K.S. Mohan Rao. His father Shri K.S. Prakasa Rao died intestate in the year 1969. Shri Mohan Rao is the second son of late Shri Prakasa Rao. The properties of late Prakasa Rao devolved on his heirs under the Hindu Succession Act. The assessee, Shri Mohan Rao, being the second son of his late father, succeeded to certain properties as the heir and derived income therefrom. During the accounting year relevant to the assessment year 1975-76, the assessee has derived such income amounting to Rs. 24,466. The assessee had filed a return admitting the above income but claiming the status as HUF consisting of himself as karta and his wife and children. Before the ITO the assessee had relied upon the ruling of the Gujarat High Court in the case of CIT v. Dr. Babubhai Mansukhbhai [1977] 108 ITR 417 in support of his claim. The ITO, however, rejected the claim of the assessee following the ruling of the Allahabad High Court in the case of CWT v. Chander Sen [1974] 96 ITR 634 and that of the Madras High Court in the case of Addl. CIT v. V.R.A. Manicka Mudaliar 1977 Tax LR 1420. He held that the income returned belonged to the assessee as an individual. He, however, completed the assessment in the status of HUF as a protective measure.

2. On appeal, the Commissioner (Appeals) following the ruling of the Allahabad High Court in CIT v. Ram Rakshpal Ashok Kumar [1968] 67 ITR 164 and the Full Bench of the Madras High Court in the case of Addl.

CIT v. PL. Karuppan Chettiar [1978] 114 ITR 523 upheld the order of the ITO. Against this order of the Commissioner (Appeals), the assessee has come on further appeal before the Tribunal.

3. In view of the fact that there was a conflict of opinion among the Benches of the ITAT at Hyderabad regarding the correct status of an assessee on similar facts, the appeal was referred to the President of the Tribunal under Section 255(3) for constituting a Special Bench.

1. IT Appeal No. 274 (Hyd.) of 1980 dated 25-11-1980 (Bench consisting of Shri P.V.B. Rao and Shri George Cheriyan) in which the Tribunal following the decision of the Gujarat High Court in the case of CIT v. Dr. Babubhai Mansukhbhai (supra) accepted the view canvassed by the asses-see, namely, that the status should be that of a HUF. The same view was taken in IT Appeal Nos. 880 and 881 (Hyd.) of 1979 dated 11-7-1980 (Bench comprising Shri P.V.B. Rao and Shri D.A. Upponi).

2. ED Appeal No. 4 (Hyd.) of 1978-79 dated 20-1-1980 (Bench comprising Shri T. Venkatappa and Shri N. Krishnan) in which the decision of the Allahabad High Court in CIT v. Ram Rakshpal Ashok Kumar (supra) and that of the Madras High Court in Addl. CIT v. P. Karuppan Chettiar (supra) were followed in preference to the decision of the Gujarat High Court in BabubhaVs case (supra).

Similar view was taken in IT Appeal No. 2017 (Hyd.) of 1976-77 dated 20-9-1978.

In these circumstances this appeal came up for hearing before this Special Bench constituted by the President.

4. Shri Y.V. Anjaneyulu, the learned counsel for the assessee, submitted that the ratio of the ruling of the Gujarat High Court in CIT v. Dr. Babubhai Mansukhbhai (supra) clearly applied to this case. He pointed out though the Allahabad High Court in Ram Rakshpal's case (supra) and in the case of CIT v. Chander Sen (supra) and in CIT v.Khushi Ram Rangi Lal and the Madras High Court in Addl. CIT v. V.R.A.Manika Mudaliar (supra) and in the case of Addl. CIT v. P.L. Karuppan Chettiar (supra) and the Calcutta High Court in Makhand Thirani & Sons v. CIT [1980] 121 ITR 976 have taken a contrary view, the decision of the Gujarat High Court has to be preferred in view of the position that the Allahabad, Madras and Calcutta High Courts have failed to appreciate that the character of the property that fell to the share of the assessees were not affected by the provisions of the Hindu Succession Act and that the character cf the property that fell into the hands of the heir continued to be ancestral property under the Hindu law. He further referred us to the order of the Appellate Tribunal, Hyderabad Bench 'B' in ED Appeal No. 5 (Hyd ) of 1978-79 (supra) in the case of ACED v. N.V.S. Bapaju Shroffing Merchant, Palakole (order dated 20th January, 1980) in which the Tribunal had preferred to follow the ruling of the Gujarat High Court aforesaid and upheld the claim that the property inherited by the deceased in that case belonged to the joint family. He also referred to the ruling of the Andhra Pradesh High Court in the case of CED v. Estate of Late M.V.K. Papa Rao [1981] 128 ITR 813 in which the honourable Andhra Pradesh High Court had observed that the character of the property inherited by the heir from his father would be none other than ancestral. The learned counsel also raised before us an alternative contention which was not raised by the assessee before the lower authorities to the effect that even in the assessment year 1970-71, the assessee had claimed that the properties belonged to the joint family but the ITO rejected it, that later on an application under Section 154 was filed, that an appeal was filed before the Tribunal against the ITO's refusal to rectify under Section 154, that the same was dismissed by the Appellate Tribunal (Bench comprising Shri P.V.B. Rao and Shri O.V. Subramanian, Madras Bench camping at Hyderabad) in IT appeal No.1828 (Hyd.) of 1977-78 by order dated 5-2-1979, that in the wealth-tax proceedings, the assessee had claimed that the properties under consideration to which he succeeded on the death of his father belonged to the HUF of himself, his wife and children and that the same should not be included in the net wealth of the assessee as an individual. He further submitted that such claims made were accepted by the WTO in the wealth-tax assessments made on the assessee as an individual in the assessment years 1970-71 and 1971-72 by excluding the impugned properties, that as per the ruling of the Andhra Pradesh High Court reported in the case of Gundlapalli Mohan Rao v. Gundlapalli Satyanarayana [1972] 84 ITR 685, such statements made in the returns amounted to a declaration of an intention to impress the property with the character of joint family property, and that, therefore, the father having died in the year 1969, the assessee should be deemed to have impressed the property in question with the character of joint family property even then. He, therefore, urged even on the basis of this alternative ground that the assessee's claim should be accepted.

5. On behalf of the revenue the learned departmental representative submitted that the Gujarat High Court has confined its decision to the consideration of only Section 6 of the Hindu Succession Act, in its decision reported in the case of CIT v. Dr. Babubhai Mansukhbhai (supra), whereas the Madras, Allahabad and Calcutta High Courts have considered the impact of Section 8 of the Hindu Succession Act and that, therefore, the correct status would be that of individual alone.

Referring to the alternative contention of the assessee, the learned departmental representative objected to its being admitted at this stage since it was not raised before the lower authorities. He further submitted that in case it was admitted by the Tribunal then the matter should go back to the ITO for examining and considering the claim.

6. We have considered the rival submissions. The only issue that arises for decision in this appeal is whether the properties to which Shri K.S. Mohan Rao succeeded on the death of his father intestate belonged to him as an individual or belonged to his HUF and consequently in whose hands, i.e., whether in the hands of Shri K.S. Mohan Rao as individual, or Shri K.S. Mohan Rao as HUF, the income derived from the above properties should be assessed to income-tax for the assessment year 1975-76.

7. The assessee's father Shri K.S. Prakasa Rao died intestate in 1969.

The assessee being the second son of his late father succeeded to the property under consideration as a class I heir under the Hindu Succession Act. The claim of the assessee is that this property did not belong to him as an individual but belonged to him as the karta of the HUF of himself and his wife and children. This submission of the assessee is no doubt supported by the ruling of the Gujarat High Court decision in Dr. Babubhai Mansukhbhai (supra). However, as noticed below, the Allahabad, Madras and Calcutta High Courts have taken a contrary view.

1. The Allahabad High Court in the case of CIT v. Ram Rakshpal Ashok Kumar (supra) held that in view of the provisions of the Hindu Succession Act, 1956, the income from assets inherited from his father from whom he had separated by partition cannot be assessed as the income of the HUF of the son.

2. The Allahabad High Court again in the case of CWT v. Chander Sen (supra), and CIT v. Khushi Ram Rangi Lal [1974] 96 ITR 634 held that under Section 8 of the Hindu Succession Act, the property of a Hindu who died intestate devolved on his son in his individual capacity and not as the karta of his family.

3. The Madras High Court in the case of Addl. CIT v.V.R.A. Manika Mudaliar (supra) followed the ruling of the Allahabad High Court reported in 1 above and held that the Tribunal was correct in holding that the property of the assessee in that case constituted his separate and individual property and not the property of the joint family of himself and his sons.

4. Again the Full Bench of the Madias High Court in the case of PL.

Karuppan Chettiar (supra), followed its earlier ruling referred to above, and that of the aforesaid Allahabad High Court decision in Ram Rakshpal's case (supra). The Madras High Court dissented from the view taken by the Gujarat High Court in Dr. Babubhai Mansukhbhai's case (supra).

5. The Calcutta High Court in the case of Malchand Thirani & Sons (supra) followed the ruling of the Full Bench of the Madras High Court in P.L. Karuppan Chettiar's case (supra), and that of the Allahabad High Court decision in Ram Rakshpal's case (supra), and observed that the rule of survivorship was abrogated in a case where succession under Section 8 opened.

Shri Anjaneyulu, appearing for the assessee, had urged before us, that the ruling of the Gujarat High Court should be preferred because the Gujarat High Court had rightly pointed out that the character of the property in the hands of the heir which is ancestral property is not affected by the provisions of Section 8 of the Hindu Succession Act and that the other High Courts have missed this vital point. We are unable to agree. We find that this point was duly considered by the Madras High Court in the Full Bench case reported in P.L. Karuppan Chettiar's case (supra). Section 4 of the Hindu Succession Act, 1956, provided that any text, rule of interpretation of Hindu law or any custom or usage as part of that law in force immediately before the commencement of this Act shall cease to have effect with respect to any matter for which provision is made in the Hindu Succession Act. In this case, under Section 8 of the Hindu Succession Act, after the death of his father intestate Shri Mohan Rao had succeeded to the properties under consideration as heir to his father, and when he was alive, his son or grandson had no interest whatsoever in the said properties. If the properties that fell to the share of Shri Mohan Rao on the death of his father intestate could be described as ancestral property as claimed on behalf of the assessee then his son and grandson would have right by birth in the said properties. Now Section 8 of the Hindu Succession Act has taken away such right by birth of the son and grandson. The right by birth available under the old Hindu law thus stands abrogated by Section 8, read with Section 4 of the Hindu Succession Act. This position is clearly pointed out by the Calcutta High Court in Malchand Thirani & Son's case (supra). Therefore, respectfully following the rulings of the Allahabad, Madras and Calcutta High Courts referred to above, we hold that in such cases the property would be inherited by the heir as individual property.

8. The alternative contention raised by the learned counsel for the assessee was that even, assuming that the properties under consideration were the separate properties of Shri Mohan Rao, since in the tax proceedings, he had clearly declared that the properties belonged to his HUF after the death of his father on 26-6-1969, the property should be deemed to have been impressed with the character of joint family property. In support of his above contention the learned counsel had filed copies of statements filed by Shri Mohan Rao along with his wealth-tax returns for the assessment years 1970-71 and 1971-72 which had been accepted by the WTO and requested that this alternative submission should be admitted. Since all the facts are already on record and no fresh investigation is necessary, we admit this alternative ground now raised on behalf of the assessee. However, since this factual aspect was not specifically raised before the ITO nor considered by him, in the interest of justice, we direct the ITO to examine and consider this contention with reference to the materials available on record and decide the claim on merits and in accordance with law.


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