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N.A. Mayanna Vs. Third Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1983)3ITD728(Bang.)
AppellantN.A. Mayanna
RespondentThird Wealth-tax Officer
Excerpt:
.....1 has to be given its due and full effect. it is observed as under: in order to ascertain the share of heirs in the property of a deceased coparcener it is necessary in the very nature of things and as the very first step, to ascertain the share of the deceased in the coparcenary property. for, by doing that alone can one determine the extent of the claimant's share. explanation 1 to section 6 resorts to the simple expedient, undoubtedly fictional, that the interest of a hindu mistakshara coparcener 'shall be deemed to be' the share in the property that would have been allotted to him if a partition of that property had taken place immediately before his death. what is, therefore, required to be assumed is that a partition had in fact taken place between the deceased and his.....
Judgment:
1. This is an appeal against the order of the Commissioner, Karnataka-I dated 17-3-1981 passed under Section 25(2) of the Wealth-tax Act, 1957 ('the Act'), setting aside the assessment order for the assessment year 1975-76 to be redone bringing into tax the entire wealth of the family.

2. The facts are : The HUF consisted of Shri Appayyanna, his wife Smt.

Eeramma and his son- Mayanna. On 11-4-1974, Shri Appayyanna died. His share of the property devolved on his widow Eeramma and his son Mayanna. Mayanna filed return of wealth declaring half of the wealth as belonging to the family in the status of a HUF and the other half as belonging to the individual. The WTO accepted the returns and assessed only half wealth in the case of the HUF. The Commissioner was of the view that the order of the WTO was erroneous and prejudicial to the interest of revenue. He invoked the provisions of Section 25(2). The assessee objected for invoking the provisions of Section 25(2). The Commissioner did not accept the objections of the assessee. He held that the properties of a HUF will remain with the family till a partition is effected. Since no partition is effected, all the properties of the family are assessable to wealth-tax as belonging to the family. Accordingly, he set aside the assessment and directed the WTO to re-do the same bringing into tax the entire wealth of the family. Against the same, the present appeal is filed.

3. It will be necessary to refer to the provisions of the Hindu Succession Act, 1956. Section 6 of the said Act deals with devolution of interest in coparcenary property. It reads as under : When a male Hindu dies after the commencement of this Act, having at the time of his death an interest in a Mitakshara coparcenary property, his interest in the property shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with this Act : Provided that, if the deceased had left him surviving a female relative specified in clause I of the Schedule or a male relative, specified in that clause who claims, through such female relative, the interest of the deceased in the Mitakshara coparcenary property shall devolve by testamentary or intestate succession, as the case may be, Under this Act and not by survivorship.

Explanation 1: For the purposes of this section the interest of a Hindu Mitakshara coparcener shall be deemed to be the share in the property that would have been allotted to him if a partition of the property had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not.

Explanation 2 : Nothing contained in the proviso to this section shall be construed as enabling a person who has separated himself from the coparcenary before the death of the deceased or any of his heirs to claim on intestacy a share in the interest referred to therein.

The main part of Section 6 provides that when a male Hindu dies after the commencement of the Act, having at the time of his death an interest in a Mitakshara coparcenary property, his interest in the property shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with this Act. But under the proviso to it, if the deceased had left behind him surviving a female relative specified in clause I of the Schedule or a male relative specified in that clause who claims, through such female relative, the interest of the deceased in the Mitakshara coparcenary property shall devolve by testamentary or intestate succession, as the case may be, under this Act and not by survivorship. Under Explanation 1, the interest of a Hindu Mitakshara coparcener shall be deemed to be the share in the property that would have been allotted to him if a partition of the property had taken place immediately before his death irrespective of whether he was entitled to claim partition or not.

4. In the instant case, the deceased has left surviving a female relative specified in clause I of the Schedule, i.e., the widow of the deceased. Hence, the proviso to Section 6 would apply. Hence, the property was not devolved by survivorship but only by intestate succession as the deceased has not left any intestate. Under the Explanation, a notional partition shall be deemed before the death of the deceased. The share in the coparcenary property which would have been allotted to the deceased on partition if the partition had taken place immediately before his death shall devolve on his heirs. This does not affect the continuance of the HUF. Where provison to Section 6 of the Hindu Succession Act applies, there will be no dissolution of joint family status. The coparcenary will continue till a partition is effected but the coparcenary property will not include the interest of the deceased coparcener which has devolved on his heirs by inherited succession. That share of the deceased which has devolved on the heirs by intestate succession goes out of the HUF and the HUF continues to be the owner of the remaining share. The share of the deceased which has devolved on his heirs will be held by them as tenants-in common. Under Section 19 of the Hindu Succession Act, the heirs shall take the property as tenants-in-common and not as joint tenants. Thus, the share of the deceased in the coparcenary property which has devolved on his heirs by intestate succession having gone out of family to the heirs who held them as tenants-in-common cannot be included in the net wealth of the HUF. In view of Explanation 1, a notional partition shall be deemed to arrive at the share of the deceased, There need not be actual partition, The Commissioner was wrong in thinking that the properties of the HUF will remain in the family till a partition is effected.

5. We may refer to few decisions which are directly on the point. In CIT v. Smt. Nagarathnamma [1970] 76 ITR 352 the Mysore High Court held as under : ...When a male Hindu dies after the commencement of the Hindu Succession Act having at the time of his death an interest in a Mitakshara copercenary property, his interest in the property devolves by succession on his heirs if he had left behind him a surviving female relative specified in Clause (1) of the Schedule to the Hindu Succession Act. For the purpose of computation or determination of the share of the male Hindu, Explanation (1) to Section 6 of the Hindu Succession Act assumes that a notional partition in the family had taken place immediately before his death. Not withstanding the death of a male member of a Hindu undivided family, the Hindu undivided family continues, but the property of the Hindu undivided family gets diminished to the extent of the share of the male Hindu dying. Therefore, on the death of Ramaswamy Setty, the share of the joint family in the two firms is reduced from 13/17th to 9/17th share. Therefore, the Tribunal was entirely right in holding that the income of the share of Ramaswamy Setty is not liable to be included in the income of the Hindu undivided family.

The argument advanced on behalf of the Commissioner by his learned counsel, Sri S.R. Rajasekhara Murthy, that in the absence of a partition by metes and bounds the income-tax department cannot take notice of a mere division in status by virtue of Section 171 of the Income-tax Act, 1961, is untenable. The joint family, notwithstanding the death of one of its male members, continues for the purpose of income-tax but the share of that joint family is diminished as in the case of alienation of any of the joint family properties. (pp. 353-54) It was held therein that notwithstanding the death of a male member of the HUF, the HUF continues, but the property of the HUF gets diminished to the extent of the share of the male Hindu dying. The revenue's contention that in the absence of a partition by metes and bounds the income-tax department cannot take notice of a mere division in the status by virtue of Section 171 of the Act, was held to be untenable.

It was further held that the joint family, notwithstanding the death of one of its male members, continues for the purpose of income-tax but the share of that joint family is diminished as in the case of alienation of any of the joint family properties. The above decision answers all the objections of the revenue which squarely applies to the instant case.

6. In CWT v. Kantilal Manilal [1973] 90 ITR 289, the Gujarat High Court held as under : ...It would, therefore, appear to be obvious that when the proviso says that the interest of a deceased coparcener in coparcenary property shall devolve by intestate succession, what is meant is that the share in the coparcenary property which would have been allotted to him on partition, if a partition had taken place immediately before his death, shall devolve on the heirs. The concept of a, notional partition is brought in for the purpose of defining the nature and quality of the interest which devolves by succession. It is the share which would have been allotted to the deceased coparcener on partition, if a partition had taken place at that time. The quantum of share is fixed : the proportion in which the share is to be counted are also crystallized. This specific share in definite ascertained properties, subject of course to payment of proportionate share of the debts and liabilities, devolves on the heirs by intestate succession. But, that does not affect the continuance of the Hindu undivided family. The fiction of partition is introduced for the limited purpose of defining the nature and quality of the interest which devolves by succession and it cannot be extended beyond its legitimate field. The Hindu undivided family, therefore, continues with the surviving coparceners as it would have done under ordinary Hindu law, but the share of the deceased coparcener in the properties of the Hindu undivided family having devolved on the heirs by intestate succession, that share goes out of the Hindu undivided family and the Hindu undivided family continues to be the owner of only the remaining share. The result is that in the properties which belonged to the Hindu undivided family at the date of death of the coparcener, the heirs have a defined share, namely, the share which the deceased coparcener whom they have succeeded would have had, if a partition had taken place immediately before his death and the remaining share belongs to the Hindu undivided family. Now, once this position is reached, it is clear that the Hindu undivided family and the heirs hold these properties as Thus, it was held therein that the HUF continues with the surviving coparceners but the share of the deceased coparcener in the properties of the family having devolved on the heirs by intestate succession, that share goes out of the HUF and the HUF continues to be the owner of only the remaining share.In Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum [1981] 129 ITR 440 Supreme Court held that the proviso to Section 6 of the Hindu Succession Act contains the formula for fixing the share of the claimant while Explanation 1 contains the formula for deducing the share of the deceased. The Explanation compels the assumption of a fiction that in fact 'a partition of the property had taken place', the point of time of the partition being the one immediately before the death of the person in whose property the heirs claim a share. The fiction created by Explanation 1 has to be given its due and full effect. It is observed as under: In order to ascertain the share of heirs in the property of a deceased coparcener it is necessary in the very nature of things and as the very first step, to ascertain the share of the deceased in the coparcenary property. For, by doing that alone can one determine the extent of the claimant's share. Explanation 1 to Section 6 resorts to the simple expedient, undoubtedly fictional, that the interest of a Hindu Mistakshara coparcener 'shall be deemed to be' the share in the property that would have been allotted to him if a partition of that property had taken place immediately before his death. What is, therefore, required to be assumed is that a partition had in fact taken place between the deceased and his coparceners immediately before his death. That assumption, once made, is irrevocable, In other words, the assumption having been made once for the purpose of ascertaining the share of the deceases in the coparcenary property, one cannot go back on that assumption and ascertain the share of the heirs without reference to it. The assumption which the statute requires to be made that a partition had in fact taken place must permeate the entire process of ascertainment of the ultimate share of the heirs, through all its stages. To make the assumption at the initial stage for the limited purpose of ascertaining the share of the deceased and then to ignore it for calculating the quantum of the share of the heirs is truly to permit one's imagination to boggle. All the consequences which flow from a real partition have to be logically worked out, which means that the share of the heirs must be ascertained on the basis that they had separated from one another and had received a share in the partition which had taken place during the lifetime of the deceased.

The allotment of this share is not a processual step devised merely for the purpose of working out some other conclusion. It has to be treated and accepted as a concrete reality, something that cannot be recalled just as a share allotted to a coparcener in an actual partition cannot generally be recalled. The inevitable corollary of this position is that the heir will get his or her share in the interest which the deceased had in the coparcenary property at the time of his death, in addition to the share which he or she received or must be deemed to have received in the notional partition. (p.

447) 7A. The ratio laid down in the above cases squarely apply to the instant case. The proviso to Section 6 applies to the instant case.

Under Explanation 1, notional partition shall be deemed to have taken place before the death of the deceased. The deceased and his son Mayanna were the coparceners. The deceased gets half share in the HUF property. On his death, his half share has devolved on his heirs, viz., his widow Eeramma and his son Mayanna. Half share of the property which has devolved on his heirs by intestate succession gets diminished from the property of the HUF. The joint family continues even after the death of Appayyanna, but the share of the joint family is diminished.

Though there is no actual partition, the partition is deemed to have taken place under Explanation 1 to Section 6. Thus, the half share of the deceased which has devolved on his heirs cannot be included in the net wealth of the HUF. The WTO was justified in making the assessment only in respect of half wealth of the HUF and excluding the other half which has devolved on the heirs of the deceased. The Commissioner was wrong in setting aside the assessment order and directing him to re-do by bringing into tax the entire wealth of the family.

8. The decision in Kalloomal Tapeswari Prasad (HUF) v. CIT [1982] 133 ITR 690 (SC) relied on by the revenue has no application to the facts of the instant case. That is a case dealing with the claim of partition under Section 171. It has no application to the instant case, as here, the HUF continues, but only the share of the property of the deceased which devolved on his heirs gets diminished from the property of the HUF. In fact, this objection of the revenue has been answered by the Mysore High Court in the case of Nagarathnamma (supra).

9. We cancel the order dated 17-3-1981 of the Commissioner, Karnataka-I and restore the assessment order of the WTO. In the result, the appeal is allowed.


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