1. The assessee is assessed as an individual. Shri Jagjiwan Ujemshi Mulji, the father of the assessee, died intestate on 5-7-1959. A sum of Rs. 4,000 was inherited by the assessee from his father. Treating this as the nucleus of the HUF consisting of himself, his wife and daughter, the assessee withdrew a sum of Rs. 1,000 from his personal current account with the Bank of India and claimed to throw this into the common hotchpotch of his alleged HUF. A declaration to this effect was also filed before the income-tax authorities. Subsequently on 23-3-1978, the assessee, his wife and his unmarried daughter as settlors and in their capacity as members of a HUF settled an amount of Rs. 1,000 and certain shares held by the assessee individually on a trust for the benefit of the assessee, his wife and his unmarried daughter, i.e., themselves. For the assessment years 1972-73, 1973-74 and 1974-75, the TTO did not accept the claim of the assessee that the income from the above assets were to be assessed in the hands of a HUF, consisting of himself, his wife and daughter. A protective assessment was also made on the alleged HUF. The above assessments on the individual including in his income, the income from the properties allegedly thrown into the common hotchpotch, came up on appeal before the Tribunal on the question of status. For the assessment year 1972-73, the status claimed of HUF was not accepted by the Tribunal as well. Relying on the Supreme Court decision in the case of Surjit Lal Chhabda v. CIT  101 ITR 776, the Tribunal in IT Appeal Nos. 471 to 473 (Bom.) of 1976-77, dated 10-7-1978 held that the exercise of the assessee in throwing his personal properties into what he thought to be the family hotchpotch was an exercise in futility as it did not have any impact on the incidence of taxation, so far as his individual assessment was concerned. On the above basis the Tribunal negatived the application of Section 64(2) of the Income-tax Act, 1961 ('the Act'), as claimed by the assessee with regard to the income of the individual properties stated to be thrown into the common hotchpotch. For the assessment years 1973-74 and 1974-75, the Tribunal held that there was a change in the circumstances inasmuch as the shares and cash were transferred to a trust for the benefit of the family members. For the assessment years 1973-74 and 1974-75, the Tribunal remitted the matter back to the AAC for consideration of the consequences of the transfer of the assets to the trust in the light of the observations made by it.
2. For the assessment year under appeal when the matter came up before the Commissioner (Appeals), the Commissioner (Appeals) felt that the ITO had not considered the issue from the angle suggested by the Tribunal. He went through the deed of trust, dated 2.2-3-1972. He also considered the decision of the Gujarat High Court in the case of Ratilal Khushaldas Patel v. CIT  55 ITR 517. The Commissioner (Appeals) held that the trust was one created by the assessee-individual for his own benefit and hence, the income was assessable in his own hands as beneficiary. In the alternative, he held that if the income is regarded as belonging to the 3 persons, one-third of the income belonged to the assessee in his own right and was assessable in his hands. The balance of two-third was also assessable in his hands by applying the provisions of Section 64(1) (iv) and 64(1)(v). It is against the above order of the Commissioner (Appeals) that the present appeal is laid before the Tribunal.
3. The learned counsel for the assessee has pointed out that even on the basis of the decision of the Tribunal for the earlier years, the assessee's claim was to be accepted for the year under appeal. Even if the throwing of the property into the common hotchpotch had not become effective, there was a proper transferring of the property to a properly created trust. Under the trust, the income was to go to the joint family consisting of the assessee, his wife and minor daughter.
There was a provision for accumulation of the income for as long a period as 22 years. Even if the first act of throwing into common hotchpotch performed in 1971 was ineffective, the creation of the trust with a benefit going to the HUF was a legal fact of importance. The assessee as an individual has no right to the income of the trust nor can the wife or the minor child be regarded as the beneficiary of an indirect transfer for their benefit. The entire amount, therefore, was to be excluded from the assessment of the assessee. The decisions in Surjit Lal Chhabda's case (supra), Ratilal Khushaldas Patel's case (supra) and Prem Kumar v. CIT  121 ITR 347 (All.), were cited in this connection. Even if the alleged blending was ineffective, there was a gift to the family which took away these assets and the income therefrom from the individual.
4. For the department, it is pointed out that both the gift and the alleged trust in the alternative, were illegal. If the fact of the blending of the properties is, as directed by the Tribunal, ignored, the assessee was the owner of the property. There was no HUF which could transfer this property to joint owners or a HUF for a matter of that. The settlor, according to the trust, is shown to be the assessee, his wife and the minor child. When the first act was ineffective in law in view of the above facts, according to learned counsel for the department, the trust deed itself was illegal and ineffective. It is also pointed out that there cannot be a gift in such circumstances on the lines of Pushpa Devi v. CIT  109 ITR 730 (SC). Reliance is placed on the decision of the Madras High Court in the case of CIT v.M. Balasubramaniam  132 ITR 529.
5. The facts lie in a very short compass. There is no dispute about the fact that the assessee received a certain amount from his father, out of which Rs. 1,000 was allegedly thrown into the common hotchpotch of his family. Immediately, thereafter, by a deed, dated 23-3-1972 the same property was transferred to a trust, the transferors being the assessee and his wife and the assessee representing his minor daughter also. The trust was for the benefit of the family consisting of the assessee, his wife and the minor child. The relevant portions of the trust deed are as under: This indenture made at Bombay this 23rd day of March, 1972. Between Vasant Jagjiwan Sheth, Asha Vasant Sheth and Ketaki Vasant Sheth, the last one being a minor under the age of 18 years by her father and natural guardian the said Vasant Jagjiwan Sheth all of Bombay Indian Inhabitants, all members of Hindu undivided Family of Vasant Jagjiwan Sheth hereinafter called 'the settlors' . . .
Whereas the settlors are members of the Hindu undivided family of Vasant Jagjiwan Sheth consisting of themselves the said Vasant Jagjiwan Sheth being the Manager and karta of the said Hindu undivided family and whereas the said Hindu undivided family is inter alia seized and possessed of a cash amount of Rs. 1,000 (Rupees one thousand) and whereas the settlors are desirous of settling the said sum of Rs. 1,000 for the benefit of the members and member constituting the said Hindu undivided family of Vasant Jagjiwan Sheth, the present members of which Hindu undivided family are the said Vasant Jagjiwan Sheth, the said Asha Vasant Sheth and the said Ketaki Vasant Sheth as aforesaid and whereas the settlors have in anticipation of the execution of these presents handed over to the trustees the said sum of Rs. 1,000 (the receipt whereof the trustees do hereby admit) to be held by them upon the trusts, powers and provisions hereinafter declared and contained concerning the same and whereas the trustees have at the request of the settlors agreed to act as the trustees of these presents as is testified by their joining in and executing these presents now this indenture, withnesseth and it is hereby agreed and declared as follows: (a) Upon trust, in the first instance to collect the dividends, interest, rents and other income of the. trust fund (hereinafter for brevity sake called 'the income' of the trust fund) and from and out of the same in the first place pay all costs, charges and expenses of and incidental to the collection thereof and all outgoings in respect of the trust fund and any immovable property or properties for the time being subject to the trusts hereof as also all costs, charges and expenses of and incidental to the execution of the trusts and powers herein contained ; (b) subject to the provisions of Sub-clause (a) of this clause the trustees shall till the date of distribution hereinafter mentioned pay, appropriate or apply the whole of the income of the trust fund to the Hindu undivided family of Vasant Jagjiwan Sheth for the maintenance, residence, education, medical attendance and treatment or any purpose of emergency or urgent necessity, advancement and benefit of the Hindu Undivided Family of Vasant Jagjiwan Sheth.
2. On the expiration of 22 (twenty-two) years from the date hereof hereinafter referred to 'as the date of distribution', the trustees shall distributes, pay and transfer the trust fund, the income thereof and accretions to the trust fund in equal shares amongst the members or member constituting the Hindu undivided family of Vasant Jagjiwan Sheth and each such member shall be the sole and absolute owner of his, her or their share of the trust fund, the income and accretion to the trust fund. If on the date of distribution of the trust fund and/or on the date of earlier distribution of the trust fund all the members constituting the Hindu undivided family of Vasant Jagjiwan Sheth are dead, the trustees shall pay, distribute and transfer the trust fund income and accretions to the trust fund amongst the heirs of the members of the said Hindu undivided family who shall have died last, according to the law by which the member who shall have died last may be governed at the time of his or her death. If, however, all the members of the said Hindu undivided family shall die at one and the same time and it is not possible for the trustees to determine which of the members died last, the trustees shall pay, distribute and transfer the trust fund, income and accretions to the trust fund amongst the heirs of the youngest member of the said Flindu undivided family according to the law by which such youngest member may be governed at the time of his or her death. Provided that the trustees may in their absolute discretion donate at any time out of the corpus a sum not exceeding 1/3 (one-third) of the trust fund now settled in trust to any charitable institutions they think proper.
6. The Tribunal in the above-referred to order of its has held that the act of throwing the property into the common hotchpotch has not become effective and to that extent for the purpose of income-tax assessment should be ignored. During the year of account and for the year under appeal, the position should, however, be governed by the legal effect of the alleged execution of the trust, dated 23-3-1972. The decision in Surjit Lal Chhabda's case (supra) has laid down the principles governing HUF's throwing of property into the common hotchpotch. Their Lordships of the Supreme Court referred to two classes of cases each of which required a different approach. They observed: There are thus two classes of cases, each requiring a different approach. In cases falling within the rule in Gowli Buddanna's case, the question to ask is whether property which belonged to a subsisting undivided family ceases to have that character merely because the family is represented by a sole surviving coparcener who possesses rights which an owner of property may possess. For the matter of that, the same question has to be asked in cases where the family, for the time being, consists of widows of deceased coparceners as in Commissioner of Income-tax v. Rm. Ar. Ar. Veerappa Chettiar so long as the property which was originally of the joint Hindu family remains in the hands of the widows of the members of the family and is not divided amongst them. In cases falling within the rule in Kalyanji's case, the question to ask is whether property which did not belong to a subsisting undivided family has truly acquired the character of joint family property in the hands of the assessee. In this class of cases, the composition of the family is a matter of great relevance for, though a joint Hindu family may consist of a man, his wife and daughter, the mere existence of a wife and daughter will not justify the assessment of income from the joint family property in the status of the head as a manager of the joint family . ...
. . . In the first place, joint family and undivided family are synonymous terms. Secondly, when one says that a joint Hindu family consists of a single male, his wife and daughter, one implies necessarily that there is no son....
There is no substance in the contention of the respondent that in the absence of an antecedent history of jointness, the appellant cannot constitute a joint Hindu family with his wife and unmarried daughter....
The joint Hindu family, with all its incidents, is thus a creature of law and cannot be created by act of parties, except to the extent to which a stranger may be affiliated to the family by adoption. But the absence of an antecedent to history of jointness between the appellant and his ancestors is no impediment to the appellant, his wife and unmarried daughter forming a joint Hindu family. The appellant's wife became his sapinda on her marriage with him. The daughter too, on her birth, became a sapinda and until she leaves the family by marriage, the tie of sapindaship will bind her to the family of her birth....
In the case of Gowli Buddanna v. CIT  60 ITR 293, the Supreme Court held that 'the Income-tax Act does not indicate that a Hindu undivided family as an assessable entity must consist of at least two male members.
In the case of N.V. Narendranath v. CWT 74 ITR 190, the Supreme Court held that a joint Hindu family could consist under the Hindu law of a single member, his wife and daughters and that it was not necessary that the assessable unit should consist of at least two male members.
Referring to the above cases, their Lordships of the Supreme Court observed in the case of Surjit Lal Chhabda (supra), that the contention of the department that in the absence of a pre-existing joint family the appellant cannot constitute a Hindu undivided family with his wife and unmarried daughter must fail. Surjit Lal Chhabda's case (supra) also clearly lays down that the decision of the Privy Council in the case of CIT v. A.P. Swamy Gomedalli  5 ITR 416 and the observations made by it in the case of Kalyanji Vithaldas v. CIT  5 ITR 90 regarding the view taken by the Bombay High Court in the case of CIT v. Gomedalli Lakshminarayan  3 ITR 367 were expressly disapproved by the Court in at least two cases, viz., Gowli Buddanna (supra) and N.V. Narendranath (supra). The Supreme Court held, on a consideration of the cases, that a Hindu could form a joint Hindu family with his wife and minor daughter. For income-tax purposes his alleged throwing of self-acquired property into the above joint family hotchpotch was not accepted for the reasons that the property 'may be usefully described as the property of the family after it was thrown into the common stock, but it does not follow that in the eye of Hindu law it belongs to the family, as it would have, if the property were to devolve on the appellant as a sole surviving coparcener'. The property in dispute in Surjit Lal Chhabda's case (supra) was thus held to be assessable in the hands of the individual assessee only for the reason that the income therefrom still remained 'his income even after the property was thrown into the family hotchpotch'.
8. Surjit Lal Chhabda's case (supra) thus clearly enunciates that a joint Hindu family can consist of a husband, wife and daughter. The family coming into existence on account of sapindaship with marriage, the husband and wife constitute a joint Hindu family. With a birth of a daughter, the daughter also becomes a member of the joint family.
Even though, therefore, in the present case, following the decision in Surjit Lal Chhabda's case (supra), the assessment of the property in the hands of the HUF as a sequal to the alleged throwing in cannot be accepted, the fact that there was a joint family cannot be rejected.
The question is whether by the first act of 1971, the assessee, the joint family, has acquired any right in the property. Surjit Lal Chhabda's case (supra) may not. furnish an answer for this question, but this would be available from the decision of the Supreme Court in the case of Pushpa Devi case (supra).
9. In Pushpa Devi's case (supra) a female member of a HUF made a sworn declaration unequivocally declaring her intention to treat her share and capital in a firm, which was her absolute property, as joint family property of the HUF and stating that she had abandoned her ownership and separate interest in those items of property in favour of the family to be wholly and exclusively possessed and enjoyed by it. The Court held that since a right to blend property was limited to coparceners, a female member of a joint family could not blend her separate property with that of the joint family even if she were an absolute owner thereof. However, the declaration made by the assessee was held to make a gift of the properties mentioned therein to the HUF in whose hands the income of the property gifted to has to be taxed.
The position here is exactly similar. Even though the declaration made by the assessee to blend his properties with that of the joint family does not serve the purpose of making the income from the properties that of the joint family, for assessment purposes that the family existed and the declaration served as a gift to the family cannot be legally disputed. A family thus becomes the owner of the property even though in the light of Surjit Lal Chhabda's case (supra), its income was assessable in the hands of the sole surviving coparcener. When, however, subsequently, the family members of the assessee, his wife and unmarried daughter represented by the guardian as settlors created a trust for the benefit of the assessee, his wife and his unmarried daughter, i.e., themselves, there was a clear case of the family, the legal owner of the property, divesting itself of its ownership in favour of the trust. The fact that such divesting was done under the signature of the assessee and his wife and himself representing the daughter or the other fact that they were themselves the beneficiaries under the trust does not alter the effectiveness in law of the transfer. If the assessee be regarded as the karta of the family, perhaps it could have been sufficient in law that he signed a transfer deed, transferring the property to the trust. The fact that the wife also signed as a settlor and the father joined it as a guardian of the minor, does not alter the legal position even a little. The fact, therefore, has to be accepted that after the trust was created, these assets stood transferred to the trust.
10. The question is whether Section 64 would be applicable to the case and if so to what extent. In view of the foregoing, perhaps it cannot be contested that there was an indirect transfer of the property by the individual to the trust for the benefit of the named beneficiaries.
Even this would not attract the provisions, in our opinion, of Section 64. The provisions of the trust deed as to distribution have been quoted above. The only purpose for which during the currency of the trust amounts could be applied is 'for the maintenance, residence, education, medical attendance and treatment or any purpose of emergency or urgent necessity, advancement and benefit of the Hindu undivided family'. That there was a joint family of Vasant J. Sheth cannot be ignored. The above distribution, therefore, would enure only to the benefit of this family. Where an asset belongs to or that expenditure is incurred for a joint Hindu family, it cannot be stated, as a matter of law, that the particular asset or expenditure is related to any particular member of the family. As far as the asset is concerned, the decision in Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300 clearly applies. As regards the expenditure, this could be said to have been incurred only as an obligation of the family and cannot, therefore, be regarded as an indirect expenditure incurred by the assessee for the benefit of any particular member of the family. In other words, Sub-clause (b) relating to the current application of the income of the trust cannot be said to attract the provisions of Section 64 in so far as it does not enure to the benefit of the wife or minor child of the assessee. The other and more important point in this connection is that this Sub-clause (b) deals with the income of the trust. Even if it is regarded as having been spent on the wife or minor child of the assessee, Section 64 applies to the amount transferred directly or indirectly by the parents of spouse and not the income therefrom.
11. The other provision for distribution in the trust deed relates to the division in equal shares amongst the members or member constituting a HUF on the expiration of 22 years from the date of the trust deed. As regards the children of the assessee, who are minor at the time of the transfer, after 22 years they would have become major. Section 64 cannot apply to them. The wife, if alive on that date, of the assessee and any children born during the 22 years' period who would be a minor on the expiration of that period, might if at that time be in receipt of the portion of the corpus also may not attract the provisions of Section 64. That period, however, is long ; the person who would be alive and benefited uncertain ; and since the assessability under Section 64 refers to the income of the amounts transferred without consideration that would apply to the income of these shares received by the wife or any newly born minor children of the assessee at that time-also a matter of uncertainty and conjecture. Section 64 can apply only to a definite and ascertainable state of things. That in the future and that too after a period long beyond the minority of any existing person an indirect transfer of assets to the wife or minor child could be anticipated or presumed, would not justify the application of Section 64 to those assets, Under this clause, therefore, of the trust deed, no tax liability under Section 64 can arise.
12. We have, therefore, no hesitation in holding that in the light of the facts as above, the income from the trust cannot be assessed in the hands of the assessee either during the 22 years accumulation period or thereafter.