1. The assessee is an individual. The assessments to wealth-tax were made in this case for the years under appeal. Subsequently, the Commissioner, looking into the file of the assessee, found the order of the WTO erroneous and prejudicial to the revenue. Giving an opportunity to the assessee to be heard, he gave certain directions to the WTO with regard to the applicability of Section 4(1A) of the Wealth-tax Act, 1957('the Act').
2. The circumstances under which the Commissioner interfered with the assessment are, the individual assessee threw 17,500 equity shares of the Great Eastern Shipping Co., individually held by him into the common hotchpotch of his joint family by a declaration made on 26-10-1970. The then existing members of the HUF included the assessee, his wife and minor children. According to the Commissioner, the question was whether apart from the individual's own shares, the shares of his wife, minor son and unmarried minor daughter were not to be included in his individual wealth-tax assessment. Before the Commissioner it was represented that these assets had already been included in the net wealth of the Hindu joint family and assessed. It was not open to the Commissioner, therefore, in the course of proceedings under Section 25(2) of the Act, to club the proportionate interest of these persons under Section 4(1A) in the hands of the individual assessee. The assessment in the hands of the HUF subsists.
The inclusion was, it was claimed, not warranted in law especially in the light of a proviso to Section 4(1A)(c) as it stood before the amendment of the same by the Taxation Laws (Amendment) Act, 1975. The Commissioner rejected the arguments of the assessee. In fact, the individual's assessment was made on 29-3-1979, whereas the assessment of the HUF was made on 30-3-1979. The former assessment, therefore, really prejudiced the interest of the revenue insofar as the share of the wife and minor children were not included in the individual's wealth-tax assessment. It is on the basis of this conclusion that the Commissioner gave directions to the WTO to consider the applicability of Section 4(1A) with a view to club the appropriate interest and share of the assessee, his wife and his minor children in the converted assets, viz., the shares for the assessment years under appeal. These appeals are directed against the order of the Commissioner.
3. The learned counsel for the assessee has pointed out that the provisions of Section 4(1A) are not attracted in the present case as the assets were transferred prior to 1-4-1972 when the section was introduced. Though introduced in 1972, the section purported to have retrospective effect which was bad in law. There was an option with the WTO to assess the property in the hands of the individual or the HUF.The asset having been already included in the hands of the latter, could not again be included in the hands of the former, the transferor.
There is no mistake committed by the WTO or any error leading to prejudice against the revenue.
4. It is also pointed out that the amendment to Section 4 was brought into effect to confront the mischief created by individual assessees throwing property into the common hotchpotch of joint families. This has reference only to the case of a larger HUF, in this case that of the assessee, his brother and mother. It cannot have any effect on the net wealth of the assessability of a smaller HUF consisting of himself, his wife and minor children. Two families are involved in such transactions. Read as a clubbing section, the section can refer only to the larger HUF and not the smaller one. Taking us through the provisions of Clauses (a), (b) and (c) of Explanation thereto, it is pointed out that in the present case there was no question of any prejudice to the revenue. The WTO assessed the HUF on these assets and in so doing exercised a legal option he had in the matter. An option once exercised cannot be altered unless there exists such power of alteration. It is also pointed out that the transfer io the present case was prior to 1-4-1972 and would not be covered by the amended provisions. To stress his point, it is pointed out that the proviso occurs only in the HUF component of the section. The significance of this cannot be ignored.
5. For the department, stress is laid on the order of the Commissioner.
The original assessment order on the individual in this case having been passed on 29-3-1979, any non-inclusion of an item of asset in this assessment clearly prejudiced the revenue. On the date of the individual's assessment there was no assessment of the HUF. This fact clearly conferred jurisdiction on the Commissioner to interfere. With regard to the interpretation of the Section 1tself, the learned counsel for the revenue has pointed out that the section at no place mentions the karta of the HUF but has reference only to a member. The conflict pointed out between the interest of the larger and the smaller family, therefore, does not arise. It is also pointed out that the Commissioner at best directed making certain enquiries. This is in consonance with his power and the jurisdiction he has.
6. The individual assessee is a member of a larger HUF consisting of his mother and brother and also of a smaller HUF consisting of his wife and minor children. Apparently by the declaration dated 26-10-1970, the individual threw into common hotchpotch of the smaller HUF certain assets. The revenue's attempt to bring to tax the proportionate share of the wife and minor children relevant to the property thrown into the common hotchpotch is directed against the smaller family referred to above. The provisions of Section 4(1A)(6) as it stood prior to the amendment of 1975 with effect from 1-4-1976 referred to "the converted property or any part thereof insofar as it is attributable to the interest of the individual in the property of the family". After the amendment by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976, the expression 'insofar as it is attributable to the interest of the individual in the property of the family' was omitted. Clause (c) also referred to 'attributable to the interest of the spouse or any minor child' prior to the amendment, but this was deleted thereafter.
Explanation (d) to Section 4 which defined the expressions 'interest of the individual in the property of the family' and 'interest of the spouse or any minor child of the individual in the property of the family' was also removed with effect from 1-4-1976. These provisions, thus, have been amended once in 1972 and once in 1976. While the property thrown into the common hotchpotch prior to 31-12-1969 is free from the mischief of the section for all time to come, property thrown after that date is covered for all assessments made for all time to come. Clause (b) treated converted property or any part thereof insofar as it was attributable to the interest of the individual in the property of the family to be assessed belonging to the individual by a fiction. If that was so, Clause (a) treating the transaction as a transfer to the members of the family seems to serve no purpose. The property considered is the converted property. In the case of a HUF, no member can predicate at any time a share of property going to him much less can he refer to any particular item of property he obtains on partition--Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 (SC) 1300. If the family had other property after the alleged throwing into the common hotchpotch on even a notional partition, the entire property was to be regarded as divided. It would be difficult in such a case to say that the assessee or his wife or the minor child got the converted property or a portion thereof on partition. The fiction, therefore, had to apply on the basis if it was to be effective, that the family has no other property. The definition of 'property' given in Explanation (c) dealing with interest in property proceeds of sale, etc., leads to further difficulty. This was the position brought in by the amendment of 1972. Under the amendment of 1975 the entire 'converted property' and not merely that portion attributable to the share of the assessee or his wife or minor children is includible in the net wealth.
7. The throwing into the common hotchpotch in the present case is after 31-12-1969. The provisions of Section 4(1A), therefore, would apply to a property thrown into the common hotchpotch. In order to effectively make an addition under the provisions of Section 4(1A), it is not only necessary that the property be thrown into common hotchpotch and the circumstances are satisfied, but the extent of inclusion to be made must be capable of measurement. Even if in the present case we were to reject the assessec's case that the transfer being prior to 1-4-1972, it involves a retrospective operation of the Act which would be legally ineffective--which in the light of the law and the judicial decisions require to be rejected--it would be a question whether the extent of property if at all includible in the assessee's net wealth is capable of computation. The amendment brought in by the Taxation Laws (Amendment) Act, 1975, cannot be relevant for the assessment years under appeal. We have only to lean on the position as it obtained prior to the amendment insofar as the amendment does not purport to have retrospective operation. What is, therefore, to be included is not the converted property or if there be a partition the converted property or any part thereof received by the spouse, minor child, etc., but the converted property, etc., to 'the extent attributable to the interest of the individual in the property of the family'. This latter expression defined in the pre-1975 provisions in Explanation (d) refers to the proportion in which the individual, the wife or minor child would be entitled to the share of the property if there be a total partition on the valuation date. What we are concerned in the present case, therefore, is as under the pre-amended provision the property includible on the basis of a notional partition as on the valuation dates. The expression used in this connection is 'total partition'.
Under the Hindu law, the concept of total partition is to be understood as against the concept of partial partition. Even though the learned counsel for the department drew our attention to some other possible interpretation which ought to be put on this expression 'total partition', in the light of the clear concept obtaining under the Hindu law, this cannot be accepted. For the purposes of giving effect to the provisions, therefore, on the valuation date we have to find out the share that will be allotted to the wife and the minor child on a total partition of the family and not a partial partition.
8. The 'total partition' contemplated is a notional one, there being no actual partition on that date, but the notional one should take into account the rights of the parties concerned. In the present case, the assessee has thrown his individual property into the common hotchpotch allegedly of a smaller HUF consisting of himself, his wife and minor children. Even the major HUF exists without having been partitioned.
The question of partition of the smaller HUF would come up for consideration or be legally relevant only after the major HUF is partitioned. This would especially be so if the requirement is of 'total partition'. The expression used in the Explanation is total partition and not partitions. The assessee is a member of the major HUF consisting of his brother and mother, etc. A partition, therefore, in the singular would first have relevance to the partition of the major HUF. Such a partition would enable the assessee to obtain a share of the property belonging to the major HUF. Where the property has been not thrown into the major HUF in the first place, no question of a notional partition of that major HUF is relevant for our purpose. Where allegedly the major HUF remains full and not partitioned, there is no legal relevance to a partition of the smaller HUF. If the Explanation has used 'partitions' in the plural instead of a single partition, it might perhaps be possible to have notional partition in the major family in the first intance and another partition of the minor family in the second. A clear interpretation of the provisions does not envisage more than a single notional partition. For this reason alone, so far as the major family remains unpartitioned, there is no authority to think of a second, third or a later partition even on a notional basis. No partition of the smaller HUF can be said to be contemplated by the section or the Explanation.
9. More important than that, even if a second partition of the smaller HUF could be anticipated, the rights of all the members of the major HUF have to be first settled before a partition of the assessee's smaller family is to be thought of, since under the Mitakshara law the partition has to be done per stirpes. What would devolve on the assessee's branch as an individual on the partition of the major HUF having been determined, the other additions to be made to this property, or property belonging to the smaller HUF itself have also to be computed before a notional partition of the second HUF is launched upon. In our view, in view of the complicated interest of the parties, in would be almost impossible to determine the share of the wife and the minor child even in a second or third notional partition. Even if that could be found out, to determine the proportionate share relevant to the converted property would be still more difficult, since the converted property on a notional partition could as well go not to the branch of the assessee even on the per stirpes basis but to some other branch. Apart, therefore, from the legal capability of a second notional partition itself, we have to hold that the extent of inclusion is, not only from the practical but even from a theoretical point of view, incapable of. determination in the present case. In this sense, the claim of the learned counsel for the assessee that Section 4(1A) could have relevance only to a major HUF where it is not partitioned and not to minor or subsequent HUFs, would have some legal consequence and meaning.
10. We hold that the computation share under Section 4(1A) cannot be included in the assessee's net wealth.