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M.A.R. Rajakumar Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1983)6ITD396(Hyd.)
AppellantM.A.R. Rajakumar
RespondentWealth-tax Officer
Excerpt:
1. these appeals are directed against the order of the commissioner dated 15 3-1982 under section 25(2) of the wealth-tax act, 1957 ('the act'). the assessment years involved are 1976-77 and 1977-78.2. according to the facts of this case, the assessee filed its returns in the status of huf. the wealth-tax assessments for the assessment years 1976-77 and 1977-78 were made by the wto taking into consideration the status of the assessee as huf (non-specified). in the assessment proceedings the assessee filed declaration to the effect that the members of the huf did not have taxable wealth for the assessment years under consideration. accordingly, the wto treated the status of the assessee as non-specified huf.3. subsequently, it came to light that the wife of the karta shri m.a.r. raja.....
Judgment:
1. These appeals are directed against the order of the Commissioner dated 15 3-1982 under Section 25(2) of the Wealth-tax Act, 1957 ('the Act'). The assessment years involved are 1976-77 and 1977-78.

2. According to the facts of this case, the assessee filed its returns in the status of HUF. The wealth-tax assessments for the assessment years 1976-77 and 1977-78 were made by the WTO taking into consideration the status of the assessee as HUF (non-specified). In the assessment proceedings the assessee filed declaration to the effect that the members of the HUF did not have taxable wealth for the assessment years under consideration. Accordingly, the WTO treated the status of the assessee as non-specified HUF.3. Subsequently, it came to light that the wife of the karta Shri M.A.R. Raja Kumar had substantial wealth and was assessed on a net wealth of Rs. 5,96,328 and Rs. 3,89,107 for the assessment years 1976-77 and 1977-78, respectively. Inasmuch as the wife of the karta who is also a member of the HUF had taxable wealth for these two years, the learned Commissioner came to the conclusion that the WTO obviously committed a mistake in taking the status of the assessee as non-specified HUF. According to the Commissioner, the WTO ought to have treated the assessee as specified HUF and adopted higher rate of wealth-tax. Hence, the learned Commissioner came to the conclusion that the assessments made by the WTO were erroneous and prejudicial to the interests of the revenue. Thereupon, the assessee was required to show cause why its status should not be taken as a specified HUF and higher rate of wealth-tax should not be levied for the two assessment years under consideration, in view of Section 25(2). In response to that the assessee submitted before the learned Commissioner that the wife of the karta of the joint family Smt. Naga Satyavathi had relinquished and released all her rights in the properties of the HUF, vested in her and under Hindu law by a relinquishment deed dated 5-4-1971. Hence, it was submitted that after executing the above-said document, the wife of the karta ceased to be a member of the HUF from 5-4-1971 and as such the assessments of the assessee in the status of non-specified HUF are correct and do not require any intervention.

4. After going through the said document, the learned Commissioner was of the view that the said document, even though it was executed on 5-4-1971, was not produced before the WTO and it was produced only before him during the proceedings. Therefore, he was of the view that the said document was not acted upon. The learned Commissioner was also of the view that the said Smt. Satyavathi, who is the wife of the karta, cannot relinquish her status as a member of the joint family by a deed of relinquishment. According to him, her status as member of the joint family will only cease either by obtaining a divorce from her husband or by death. Therefore, he came to the conclusion that she cannot relinquish her status as being a member of the joint family.

Ultimately, he came to the conclusion that as one of the members of the family was having taxable wealth for the assessment years under consideration, the WTO was wrong in treating the assessee as non-specified HUF. In that view of the matter, he directed the WTO to treat the assessee-HUF as specified HUF for the assessment years under consideration and adopt higher rate of tax as per law.

5. Aggrieved, the assessee filed the present appeals before the Tribunal. The learned Counsel appearing for the assessee contended before us that the Commissioner is not justified in holding that the assessee was a specified HUF for wealth-tax purposes for the years under consideration. It was further submitted that the Commissioner ought not to have held that the assessee was a specified HUF solely on the ground that the wife of the karta was having taxable wealth. Yet another submission made by the learned Counsel was that the learned Commissioner ought to have held that the wife of the karta relinquished her rights in the joint family properties through a deed, dated 5-4-1971, and she had ceased to be a member of the HUF for tax purposes. Lastly, it was contended that the Commissioner was not justified in doubting the deed dated 5-4-1971 on the ground that it was not produced before any authority earlier and, hence, it was submitted that he has no basis to hold that the deed was not acted upon.

6. On the other hand, the learned departmental representative supported the order passed by the Commissioner.

7. We have heard the rival submissions made by the parties. For the assessment years 1976-77 and 1977-78, the wealth-tax assessments were completed by adopting the status of the assessee as HUF (non-specified). The assessee also filed declarations to the effect that the members of the HUF did not have any taxable wealth for the assessment years under consideration. It is on this basis that the WTO has treated the status of the assessee as non-specified HUF. Smt. Naga Satyavathi, who is the wife of Shri M.A.R. Raja Kumar, had substantial wealth and was assessed on the net wealth of Rs. 5,96,328 and Rs. 3,89,107 for the assessment years 1976-77 and 1977-78, respectively.

Inasmuch as the wife of the karta who is also a member of the HUF had taxable wealth for these two years, the learned Commissioner came to the conclusion that the WTO went wrong in taking the status of the assessee as the specified HUF. The assessee produced a relinquishment deed, dated 5-4-1971, executed by Smt. Satyavathi stating that she had relinquished all her rights in the joint family properties in favour of other members of the family. In the said deed she has not only relinquished her rights in the joint family properties but also her status of being a member of the joint family.

8. The point for consideration in these appeals is whether a wife during the lifetime of her husband can relinquish her status as member of the joint family. It is no doubt true that she became a member of the joint family by marrying her husband. It is well settled that a female member of a HUF can relinquish her interest in the joint family, properties in favour of other members of the joint family--Ramdas Chimna v. Pralhad Deorao AIR 1965 Bom. 74. After coming into force of the Hindu Succession Act, 1956, and the Hindu Adoption and Maintenance Act, 1956, they have introduced far reaching vital changes sweeping away and cutting at the root of the old traditional and conservative notions and concepts of customary Hindu law. A HUF is a legal expression which has been employed in taxation laws. It has a definite connotation and embodies the meaning ascribed to the expression Hindu joint family. Hindu joint family consists of persons lineally descended from an ancestor and includes their wives and unmarried daughters.

According to the facts arising in the present appeals, Smt. Satyavathi became a member of the HUF by virtue of her marriage with her husband who is the karta of the HUF. The status of being a wife and that of a member of the HUF are two different concepts. Even after the death of her husband, a wife can be a member of the HUF. A male member of a HUF can disrupt the status of the HUF by merely asking for a partition.

Female member of a joint family cannot ask for partition but in a partition initiated by a male member, shares will be allotted to female members also. There is nothing to prevent a member of a joint family from separating from his family without taking any share in the family properties in the case of Atmaram Bhogilal v. CIT [1952] 22 ITR 305 (Bom.). Under the modern concept of Hindu law female members are treated as equal to male members. The status of being a wife can be put to an end either by death or divorce according to the provisions of the Hindu Marriage Act, 1955. No principle of law was brought to our notice that a female member cannot relinquish her status as member of the joint family by retaining her marital relationship with her husband.

Under these circumstances we consider that there is nothing illegal on the part of Smt. Satyavathi in relinquishing her status as member of the HUF by executing a relinquishment deed, dated 5-4-1971.

9. In view of the fact that Smt. Satyavathi has already executed a relinquishment deed dated 5-4-1971 and she has already been assessed individually with regard to her separate wealth for the assessment years under consideration, we are of the opinion that the orders passed by the WTO in the case were neither erroneous nor prejudicial to the interest of the revenue. Accordingly, we hold that the orders passed by the WTO are quite correct and reasonable in treating the status of the assessee as a HUF (non-specified). In that view of the matter, we set aside the order passed by the Commissioner (Appeals) and restore the orders passed by the WTO for the years under consideration.

1. I regret I am unable to agree with the conclusion of my learned brother in the above appeals.

2. The assessee is a HUF. Smt. Naga Satyavathi, wife of Shri M.A.R.Raja Kumar, karta of HUF, had admittedly taxable net wealth. A HUF which has at least one member whose net wealth exceeds Rs. 1 lakh (generally described as 'specified HUF' is assessable at a higher rate of wealth-tax vide Schedule I to the Act. The WTO had applied the lower rate and the Commissioner ordered adoption of higher rate acting under Section 25(2). The assessee's objection is that the lady had executed a document on 5-4-1971 relinquishing her right to maintenance and membership of the joint family. The Commissioner had doubted the contemporaneous nature of the document on the ground that it was not produced earlier. He also found that she continued to live with her husband. He was of the view that unless death or divorce had intervened, there cannot be cessation of membership by act of parties.

The assessee is in appeal against the said order. The learned Counsel pointed out that the genuineness of the document cannot be doubted merely on the ground that it was not produced earlier. There was no occasion for its production earlier. He claimed that the lady after relinquishing her interest in family property was not a member of the family in respect of that family property. In this case there is also a further specific declaration that she had ceased to be a member of the family from that date. He argued that there could be no legal bar to her action. He pointed out that a wife on conversion ceased to be a member of Hindu joint family, but on that account she does not cease to be a wife. If so, he saw no reason as to why the converse should not be true. He also pointed out to certain observations in the decision of the Special Bench in the case of Ptemchand Chaganlalj Sardarilal v. ITO [1981] 7 Taxman 171 (Hyd. -Trib.) as supporting his case. The learned departmental representative relied upon the decision of the Tribunal in IT Appeal Nos. 1386 to 1389 (Hyd.) of 1977-78 dated 31-1-1979 (A Bench), where it was held that relinquishment of interest in properties did not preclude application of higher rate. In other words, it was not necessary that every member of family should have interest in joint family property for adoption of higher rate. He supported the order of the Commissioner on grounds stated by him and claimed that membership in the family was not a matter of contract so as to enable a member to renounce it. He pointed out that women members unlike coparceners have no right to ask for partition and get out of the family.

3. A joint Hindu family consists of male members descended lineally from a common male ancestor together with their mothers, wives and unmarried daughters bound together by the fundamental principle of sapindaship or family relationship which is the essence and distinguishing feature of the institution. This body is purely a creature of law and cannot be created by act of parties. A 'stranger' can become a member of family only by adoption or marriage with family.

Possession of property is only an adjunct of a joint Hindu family and is not necessary for its constitution--Indranarayan v. Roop Narayan AIR 1971 SC 1962. It is not necessary that every member of the family should have a right in family property in order that he or she may be a member. It is in this context that the supposed relinquishment of her right by the wife of the karta makes no difference to her status as a member of the family. For instance, female members and male descendants remoter than great grandson had no share in the family and yet they were members. Besides, the daughters cannot remain as member of her father's family even after the Hindu Succession Act whereby she has a right in her father's share of coparcenary property. No doubt the rights of a Hindu woman have been considerably enlarged by the Hindu Code enactments. She now has property rights equal to her brothers in the share of her father's coparcenary property. Hitherto limited interest is now an absolute right. She has not only the right of divorce under the law, but her husband's right to polygamous marriage is now taken away. She can adopt and be adopted. She has right to separate residence under specified conditions. She may have other rights as well. But, the old Hindu law prevails to the extent they have not been codified. None of the legisla tions have defined or abridged the legal position as to who constitute a HUF. Besides, a Hindu woman is still born as a member of one family till she enters another on marriage. She is not a coparcener. She cannot be a karta of the family.

She cannot still ask for a partition. She cannot blend her separate property into joint family property--Pushpa Devi v. CIT [1977] 109 ITR 730 (SC). Her position as a member of family has not undergone any change in the recent laws. In fact, even a male member's right to leave the family is linked with his right to ask for partition and such a right to ask for partition is not available to a female member.

Besides, even while exercising such a right or on disruption of the larger family, the male member starts his own family. If he has none at the moment, he has a potential one. In other words, even a male member leaves one family to form a new one as himself as a karta now or in future. These are the tenets of established and undisputed Hindu law and there is no authority for any proposition otherwise.

4. Besides, the concept of Hindu marriage, notwithstanding the recent provisions relating to divorce, has not undergone any change. Marriage under Hundu law was essentially a sacrament ('sanskara'). The Hindu Marriage Act, 1955, no doubt recognises civil marriage also. Shri S.T.Desai, the learned author of 14th edition of Mulla's Hindu Law, has this to say about the concept of a Hindu marriage after the Hindu Marriage Act: ... A Hindu marriage under the Act, it is submitted, is not entirely or necessarily a sacrament (sanskara) but a union of one man with one woman to the exclusion of all others satisfied by solemnization of the customary rites and ceremonies of either party essential for a marriage: and directly "it exists, creates a relation and a status not imposed or defined by contract but by law . . . .

Mulla's Hindu Law further observes that marriage even under the Act is the union of one man with one woman to the exclusion of all others. It creates a relation between the parties and what is called status of each. "The status of an individual, used as a legal term, means the legal position of the individual, in or with regard to the community: the relation between the parties, and that status of each of them with regard to the community, which are constituted upon marriage, are not imposed or defined by contract or agreement but by law." (page 710 of 15th edition of Mulla's Hindu Law). This concept of status of wife as a part of her husband had been invoked by the Bombay High Court in the case of Pandurang Narayan Salunke v. Sindhu AIR 1971 Bom. 413 (extracted at page 122 of 15th edition of Mulla's Hindu Law) as the principle underlying Section 2 of the Hindu Widow's Remarriage Act, 1856, read with Section 14(1) of the Hindu Succession Act, 1956, to the effect that the widow on her remarriage does not have a right in the erstwhile family estate because she ceases to be the surviving part of her husband's body on her remarriage. It must also be remembered that her status as a wife and a member of HUF, apart from not dependin g on existence of property for the family, has also a religious aspect as she partakes in 'sastric family rituals' at times of marriage and other religious occasions. She cannot get herself divested of these religious and social obligations unless any of the eventualities mentioned by the Commissioner intervene or on her ceasing to be a Hindu by conversion.

She may continue to be a wife without being a member on conversion, but she cannot continue as a Hindu and wife and yet cease to be a member of the family. It is so because her membership is not a matter of contract but a relationship dependent on status conferred by the Hindu law. It cannot, therefore, be divested. Hence, her declaration has no legal effect.

5. The Commissioner has stated that the declaration is an afterthought.

But he did not collect any materials for his conclusion which rested on mere doubts and surmises. If the documents were not produced earlier, it could well be because there was no occasion for its production. I am of the opinion that there is no firm basis for treating it as not genuine in the sense that it is not contemporary. But, I am of the opinion that the declaration has no legal effect for the reasons hereinbefore stated. The occasion for making the declaration is that she is giving up her right in the family property. Her right to future maintenance or any other right in lieu thereof on partition among coparceners may not be a right capable of being transferred and, therefore, of being surrendered. This has been the position vide Clause (dd) of Section 6 of the Transfer of Property Act as amended by the Amendment Act, 1929. She can no doubt release her right to maintenance charged to any specific property but not relinquish her right itself.

Inasmuch as it purports to do something not possible in law it cannot have any legal effect. Even if it is taken that it is possible for her to surrender her future right to maintenance or any other right in lieu thereof or her right to a share in property, it makes no difference to her status as a member of the family. Her purported surrender, even if it is not construed as a colourable exercise or action solely with a view to avoid legitimate tax consequences, will have no legal effect and has to be ignored. The Tribunal's decisions were cited by both parties. But no other case dealt with an attempt on the part of a lady member to walk out of the family and, hence, there is no precedent either way to follow.

6. There is also one more aspect. The Wanchoo Committee felt that the entitlement of a Hindu to have more than one status (one as an individual and another one or more as HUF) defeated the principle underlying progressive rate of taxation. It did not favour abolition of this right from tax point of view but suggested this concept of a higher rate for specified family on the principles that a person with higher income should pay a higher rate of tax. It is on this recommendation that the Finance Act, 1973, introduced differential rates of tax for HUF with reference to income/wealth of the members ([1973] 88 ITR (St.) 40 in the Finance Minister's Speech). Paragraph 11 of memorandum explaining the provisions of the Finance Bill, 1973 ([1973] 88 ITR (St.) 53) stated "In view of the position that the institution of HUF has been widely used for tax avoidance, it is proposed to restrict the tax benefits which can be acquired through this institution" and proceeded to propose the differential rates.

Charging of a higher rate for the family as such when a member has taxable wealth is, therefore, in accord with the avowed purpose of the provisions. No doubt, it is open to the assessee to arrange its affairs with the least tax consequence. But such arrangement should be legally tenable. The attempt we have encountered here is, at best, an attempt at legal innovation. No doubt, Hindu law even before codification did entertain innovative concepts like partial partition though not spelt out in ancient Hindu texts on grounds of equitable principles not specifically forbidden by Hindu law. Old Hindu law does not recognize any attempt of a wife to cut herself away from the family. Even if this attempt is sought to be recognised as a modern advance, it cannot be said that any principle of equity or a social necessity is involved in such an attempt except the tax advantage. Any such innovation with the sole object of tax avoidance or reduction, in my opinion, may not be capable of being justified and, therefore, recognized as valid.

7. Under the circumstances, I am of the view that the action of the Commissioner is justified and I would uphold his conclusion that the assessee is liable to be taxed at a higher rate applicable to a specified HUF.1. There has been a difference of opinion between the learned members who heard these appeals originally. The point of difference formulated is: Whether the assessee is assessable as a specified HUF at a higher rate for the assessment years 1976-77 and 1977-78 on the basis of taxable wealth of the wife of karta, notwithstanding the fact that she had made a declaration on 5-4-1971 to the effect that she had ceased to be a member of the family The cases having been assigned by the President, Income-tax Appellate Tribunal to himself for disposal under Section 24(11) of the Wealth-tax Act, 1957, read with Section 255(4) of the Income-tax Act, 1961, the appeals came up for hearing before me as a Third Member.

2. The facts are in a narrow compass and have been correctly stated by the learned members. Even then, for the sake of completeness, I would like to refer to the facts briefly. The subject-matter of the assessments is 'the property' which originally belonged to a joint Hindu family comprising of Shri M.A.R. Raja Kumar, the father and the karta, his two sons and his wife, Smt. Naga Satyavathi. By a deed of relinquishment, dated 5-4-1971, Smt. Naga Satyavathi relinquished all her rights and interest in 'the property' and also her status of being a member of the joint Hindu family.

The position under the Hindu law is that while the father and the two sons were coparceners, the wife's status was that of a member of the family only who would be entitled to a share equal to that of her sons in the event of a partition between her husband and the sons but had no right to claim partition. She had, of course, the right to maintenance out of the property.

Smt. Naga Satyavathi, it is common ground, is continuing to stay with her husband, the karta, and her sons as earlier, i.e., before 5-4-1971, the date on which she relinquished all her rights and interest in the property, etc. It is also common ground that she has her separate property liable to the assessment under the Act. 'The property' is being assessed in the hands of the HUF. The short question that arises for consideration is whether the HUF is entitled to be assessed as non-specified HUF or specified HUF. It is pertinent to mention that if the status of the assessee-HUF is specified HUF, it will be liable to wealth-tax at a higher rate.

3. The relevant provision in Schedule I to the Act prescribing rates of wealth-tax as applicable for the years is: In the case of every Hindu undivided family which has at least one member whose net wealth assessable for the assessment year exceeds Rs. 1,50,000,-- 4. The parties have been heard. By and large, the assessee's learned Counsel, Shri A. Satyanarayana, and the senior departmental representative, Shri C. Satyanarayana, have relied upon the orders of the Judicial Member and the Accountant Member, respectively. Besides, reliance was placed on a decision of the Madhya Pradesh High Court in the case of CIT v. Dhannamal [1983] 12 Taxman 59 on behalf of the assessee in support. On the other hand, it was reiterated by the departmental representative that the right to maintenance could not have been given up by Smt. Naga Satyavathi, wife of the karta of the assessee-HUF, and, in any event, if the circumstances changed, she could have revived her claim for maintenance. It is pointed out that she continued to stay with her husband where the other members of the assessee-HUF have been staying. In reply, it was stated by the assessee's counsel that there are two kinds of maintenance which a Hindu wife is entitled to claim. While one is against the property of the HUF of which she is a member, the other is a personal right against her husband in terms of Section 18 of the Hindu Adoptions and Maintenance Act, 1956.

5. There cannot possibly be any dispute that a joint Hindu faimly consists of male members descending lineally from a common male ancestor with their mothers, wives, widows, unmarried sisters and daughters. This body is purely a creature of law and cannot be created by an act of parties except insofar that by adoption or marriage a stranger may become a member/coparcener of the joint family. Similarly, perhaps, a member/ coparcener, if given in adoption, and the mothers/wives by taking divorce can cease to be members/coparceners of the joint family. There is a presumption that all such persons constitute a joint Hindu family and it is of little consequence whether such a joint family owns or does not own any joint property. In other words, owning of joint property is not sine qua non for the existence of a joint Hindu family.

6. Applying the above well known principles of Hindu law in the present case, it appears to me that Smt. Naga Satyavathi could have relinquished all her rights and interest in the joint family property which she has, admittedly, done by executing a deed of relinquishment dated 5-4-1971. However, she could not, in law, relinquish her status of being a member of the joint Hindu family. All the same it cannot be disputed that after the relinquishment, Smt. Naga Satyavathi did not have any interest in 'the property' which is the subject-matter of the assessments herein. In this connection, it may be observed that there does not appear to be any merit in the argument advanced on behalf of the revenue that Smt. Naga Satyavathi could, in certain circumstances, change her stand of claiming maintenance out of the HUF property. To my mind, her right to maintenance under Section 18 of the Hindu Adoptions and Maintenance Act, 1956 is entirely different from the right to maintenance and/or a share at the time of partition of the HUF property under the Hindu law.

7. In order to appreciate the point, let us take an example. There is a HUF comprising of husband, wife and two sons. The said HUF owns joint property which comprises of a business and, say, three immovable properties. The law envisages partial partition both as regards the property and as regards personnel. In this case, one son separates from the family as regards the business but continues to be a member of the joint Hindu family as regards the remaining property. When the question of assessment of the business comes up for consideration, the assessment will, certainly, be made in the status of HUF but then this HUF will comprise of husband, wife and one son and not the other son.

For the purpose of assessing this HUF, the fact of the other son having taxable wealth exceeding a particular amount will be of no consequence as he is not a member of that HUF although under the Hindu law he continues to be a member of the bigger HUF as such.

8. For identical reasons, I would agree with the learned Accountant Member that Smt. Naga Satyavathi continues to be a member of the HUF comprising of the father, two sons and the wife. However, such a unit will have no property because of Smt. Naga Satyavathi relinquishing all her rights and interest in the joint property. Once this distinction is kept in mind, it would be clear that the property, which is the subject-matter of the assessment, belonged to another HUF of which Smt.

Naga Satyavathi is not a member and if Smt. Naga Satyavathi is not a member of the HUF before me, the question of her having taxable wealth of a particular amount has no bearing whatsoever on the assessment of the assessee-HUF. In my view, the department has not appreciated that while under the Hindu law a joint Hindu family need not have a joint property, for the purpose of tax it is the property which is important rather than the mere existence of the HUF. Therefore, the first question to be asked for the purpose of considering whether a HUF is a specified HUF or a non-specified HUF, is who are the persons interested in the property which is the subject-matter of the assessment. This interest may be that of a coparcener or of a member. The second question to be asked would be whether any of those persons, who are interested in the property, has taxable wealth as laid down in the Schedule. As to my mind, Smt. Naga Satyavathi is not a person who is interested in the property, which is the subject-matter of assessment herein. She is not a member of the family which is being assessed. As a natural corollary, being not a member of the family which is being assessed here, her having taxable wealth will have no bearing on the assessment of the HUF.9. In the result, I am inclined to agree with the learned Judicial Member and hold that the assessee-HUF has to be assessed in the status of non-specified HUF.The order will now be placed before the Bench for disposing of the appeals in accordance with the majority view.


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