1. In these income-tax and wealth-tax appeals, which relate to the assessment years as set out in the cause title, the question has arisen of the treatment to be accorded for wealth-tax purposes of certain assets and the assessability of income therefrom, i.e., 'whether the value of the assets and the income therefrom have to be included in the hands of the assessee where the assessment has been made in the status of individual, or not'. For this purpose, the applicability of the provisions of Section 4(6) of the Wealth-tax Act, 1957 ('the 1957 Act'), and Section 27(ii) of the Income-tax Act, 1961 ('the Act'), in regard to the erstwhile impartible estates belonging to the assessee subsequent to the enactment of the Orissa Estates Abolition Act, 1951, and the notification dated 29-12-1952 thereunder and the enactment of the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948, as made applicable to Andhra region and the notifications made in 1952 and 1955 thereunder requires consideration.
2. Regarding the effect of the Orissa and Madras Abolition Acts referred to, and the notifications thereunder, there is an earlier decision of the Cuttack Bench of the Tribunal in the common order dated 30-9-1975 in relation to income and wealth-tax appeals for certain earlier years in WT Appeal Nos. 80, 81 and 82 (Ctk.) of 1972-73 (relating to the assessment years 1967-68, 1968-69 and 1969-70) and IT Appeal Nos. 645, 646 and 647 (Ctk.) of 1974-75 (relating to the assessment years 1971-72, 1972-73 and 1973-74), respectively. The view taken eventually by the Cuttack Bench was that the repeal of the Madras Impartible Estates Act, 1904, was only partial and not total.
3. When the present appeals came before the regular Bench for hearing, the members constituting the Bench were of the view that the aforesaid decision required reconsideration. In such circumstances, the matters were directed to be placed before the President of the Tribunal with reference to the provisions of Section 255(3) of the Act, for consideration as to whether the matter may be referred to a Special Bench. The reference was made having regard to the facts set out in a detailed background note prepared by the Bench which was subsequently circulated to parties and on the facts stated in which there is no longer any dispute. The questions on which it was considered the decision of the Special Bench would be necessary in particular are: 1. Whether the Andhra Pradesh (Andhra Area) Estates (Abolition and Conversion into Ryotwari) Act (i.e., short title as amended of the Madras Act) and the Orissa Estates Abolition Act brought about only a limited repeal of the Madras Impartible Estates Act and whether any assets contemplated under the Madras Impartible Estates Act, were left untouched by the above two Abolition Acts and whether there is any scope to hold that such assets continued to be impartible in nature.
2. Whether obtaining lands and buildings on patta after introduction of Ryotwari System by the erstwhile land holder of an impartible estate by virtue of the Abolition Acts referred to in question (1) would amount to conversion of property of one nature into another.
3. Whether the nature of the properties (lands and buildings) which an erstwhile landholder of impartible estate obtained under the provisions of Abolition Acts referred to in question (1) under Ryotwari tenure would continue to retain the character of impartibility even after the repeal of the Madras Impartible Estates Act or would such properties revert to their original character as belonging to a HUF.The President has thereafter constituted this Special Bench for hearing the matters.
4. The family-tree, which would be relevant for deciding the present appeals, is as under: _________________________________________________________________ | | |Shri Shakti Vikram Deo Kumari Vijayalaxmi Shri Bibhuti Bhushan Deo (born in 1958) (born in 1961) (born in 1964) The assessee, it is to be clarified, was the adopted son of Shri Vikram Deo Varma. Shri Vikram Deo Varma was the holder of an impartible estate comprising of the estates of Kotpad, Salami and Jeypore in the State of Orissa (all comprehensively referred to as ascertained at the hearing as 'Jeypore') and the estates of Mudgal and Pachipenta in the State of Andhra Pradesh, all of which estates figure in the Schedule of the Madras Impartible Estates Act. The assessee succeeded to the aforesaid impartible estates on the death of his adoptive father. As already observed, estates in the State of Orissa were abolished by the notification dated 29-12-1952 promulgated under Section 3 of the Orissa Estates Abolition Act and the estates in the State of Andhra Pradesh were abolished by notifications issued in 1952 and 1955 under the Madras Estates (Abolition and Conversion into Ryotwari) Act. On the abolition of the estates, the assessee was paid compensation, most of which was adjusted towards income-tax and wealth-tax dues payable by the assessee and was, thus, expended. After, the abolition of the estates and on introducing ryotwari settlement in those estates, the assessee got patta of certain agricultural lands and topes and certain buildings which were prior to the abolition under personal cultivation and personal occupation, respectively.
5. It may be mentioned at this stage that during the minority of the assessee, his estate was administered by the Court of Wards up to February 1953. The assessee was married in 1957 and his first son, Shakti Vikram Deo, was born in 1958. His daughter Vijayalaxmi was born in 1961 and the second son, Bibhuti Bhushan Deo, was born in 1964.
Thus, the family of the assessee consisted of himself, his wife, two sons and a daughter. According to the assessee, in the year 1960, he found it difficult to manage the properties himself and, therefore, applied on his own, as well as in his capacity as natural guardian of his two minor sons, to the State Government requesting it to take over his properties under the superintendence of the Court of Wards. The State Government acceded to his request, took possession of his estate and administered it through the Court of Wards by a notification dated 28-5-1960. The Court of Wards later released the estate and handed it back to the assessee with "effect from 15-5-1965.
6. On 10-6-1965, the assessee together with his two minor sons, represented by mother as guardian, executed two deeds of settlement, one in favour of his wife and the other in favour of his daughter. He also executed a deed of trust in favour of family deities, Shri Madanmohan and Shri Kanakadurga, and nominated himself as the trustee.
On the same date, the assessee also executed a registered deed of partition dividing properties between himself and his two sons. The subject-matter of the aforesaid deeds were only agricultural lands and topes. In all the documents, the settlors or parties to the partition, as the case may be, were described as members of a HUF. There was also mentioned that other movable and immovable properties would continue as joint family properties.
7. The assessee and his wife later became estranged and because of the estrangement his wife and sons filed a suit, T.S. 36 of 1972, in the Court of the subordinate judge, Jeypore, for partitioning the remaining properties not covered by the earlier deeds and challenging certain alienations made by the parties. While the suit was pending, the assessee executed a registered deed of partition dated 22-9-1972 partitioning the house properties among himself, his sons and his wife.
He also executed a deed of rectification dated 25-10-1972. Ultimately, on the intervention of elders as well as the advocates of the parties, the assessee and his wife acting for her and on behalf of her children compromised the suit. In pursuance of the compromise decree dated 30-6-1973, the parties confirmed the partition deed of 10-6-1965 which was registered as document No. 1488 of 1965, the settlement made on the wife of the assessee which was registered as document No. 1486 of 1965, and the settlement made in favour of the daughter of the assessee which was registered as document No. 1487 of 1965. So also, the parties accepted the partition deed dated 22-9-1972 as rectified by the deed of 25-10-1972 with some slight variations. The compromise petition was accompanied by Schedules A to E-3. As per the compromise, which emerged from out of the compromise decree, the properties as per Schedule A to the compromise fell to the share of the assessee, Schedule B properties fell to the share of the first son, Schedule C properties fell to the share of the second son and Schedule D properties were allotted to the wife of the assessee. Schedule E-l properties were set apart for the marriage expenses as also provision for dowry of the assessee's minor daughter, Vijayalaxmi. Schedule E-2 properties were set apart as endowed properties for purposes of seva puja of the family deities Shri Madanmohan and Shri Kanakadurga. Schedule E-3 properties were set apart for payment of taxes already assessed and to be assessed on the family properties. It was agreed in the compromise petition that any property not covered by the Schedules or escaped mention in the compromise deed was to be owned by the assessee and his two sons. Schedules E-l to E-3 properties, it was further agreed as per the compromise petition, were to be treated as joint properties of the assessee and his two sons for the purposes mentioned in the partition deed.
8. We would now set out the background of assessments. Prior to the partition in 1965, income-tax and wealth-tax assessments were completed in the status of individual. Even in those years, the assessee had been claiming the status of HUF in respect of properties which came to him on the abolition of the erstwhile impartible estates. His contention all along was that the impartiality which attached to the erstwhile estates was wiped out with the repeal of the Madras Impartible Estates Act and he ceased to be an individual owner any more of income from property under the deeming provisions of Section 27(ii) of the Act and of the assets under Section 4(6) of the 1957 Act.
9. The status of the assessee came up for consideration before the Cuttack Bench of the Tribunal in the order referred to for the assessment years 1967-68 to 1969-70 relating to wealth-tax appeals and for the assessment years 1971-72 to 1973-74 relating to income-tax appeals. The ultimate decision of the Tribunal relating to status for those years was as follows: In any view of the matter the properties retained by the assessee as well as the compensation received on the abolition of the estates and the properties received on revenue settlements must be viewed as an impartible estate attracting the deeming provisions of Section 4(6) of the Wealth-tax Act and Section 27(ii) of the Income-tax Act until the execution of the aforesaid deeds and the properties which fell to the share of the assessee under the partition deed must be viewed as individual properties of the assessee so that the assessment of the assessee of the assets held by him and the income therefrom in the status of an individual was correct.
According to the assessee, the Tribunal accepted the partition from the date of execution of the deed. According to the revenue, the Tribunal held that the status of the assessee is individual and not HUF and so the Tribunal's decision did not prohibit inclusion of the income relating to the assets transferred in favour of the assessee's sons, wife, daughter and deities in the hands of the assessee under Section 64 of the Act.
10. From the assessment year 1974-75, according to the assessee, he and other members of the family became liable to pay income-tax and wealth-tax individually. The assessee began filing one income-tax return and one wealth-tax return in his status as individual relating to properties which fell exclusively to his share in the partition evidenced by the compromise petition and another income-tax return and another wealth-tax return in the status of HUF relating to the properties kept in the common pool as per Schedules E-1 to E-3 of the compromise petition. The other members of the family, i.e., the assessee's wife and sons, filed their income-tax and wealth-tax returns in the status of individual separately.
11. For the assessment year 1974-75, the assessment was completed by the ITO before receiving the order of the Tribunal. Incomes derived by other members from the properties allotted to them were also included in the hands of the assessee and the income-tax assessment was finalised. No appeal was preferred against that assessment and it became final.
12. Wealth-tax returns by the other members filed for the assessment year 1974-75 and the income-tax returns filed by them till assessment year 1977-78 were accepted and assessments were completed.
13. For the assessment years 1975-76 and 1976-77, the ITO completed assessments adding the income derived by the assessee over the Schedule A properties as per the compromise decree and also income derived over Schedules E-l to E-3 properties which were kept in the common pool and for which separate return was filed in the status of HUF. The ITO held that such common properties kept without division still constituted an impartible estate of the assessee. For the assessment year 1976-77, we may state, the assessee filed two returns on 22-7-1976, one in the status of individual admitting an income of Rs. 27,310 and the other in the status of HUF admitting total income of Rs. 13,435 and agricultural income of Rs. 4,283. The ITO completed the assessment on 24-3-1979 in the status of individual and he clubbed the income shown in both the returns and determined the same to be Rs. 40,760 by the order of assessment dated 24-3-1979.
14. Subsequently, for the assessment year 1976-77 (the first of the years now under appeal in relation to income-tax), the Commissioner exercising his powers under Section 263 of the Act, gave a show-cause notice dated 19-2-1981 wherein, according to him, the assessee was the absolute owner of the properties comprised in the impartible estate as its present holder and the transfer of certain properties effected by him by the deed dated 22-9-1972 in favour of his wife, his two minor sons, his minor daughter and the family deities was hit by the provisions of Section 64. The Commissioner further noticed that the ITO, while passing the assessment order, had not taken into consideration the income arising from the properties transferred by the assessee to his wife and his minor sons and did not include them in his hands. Therefore, according to the Commissioner, the assessment order of the ITO dated 24-3-1979 for the assessment year 1976-77 was erroneous and prejudicial to the revenue. After receipt of the notice, the assessee filed a written explanation dated 16-3-1981 objecting to the proposed revision.
15. After considering the objections raised by the assessee, the Commissioner ultimately came to the conclusion that the order dated 24-3-1979 passed by the ITO was erroneous and prejudicial to the interests of the revenue. He set out in his order the following conclusions: 1. The assessee, Shri R.K. Deo, is the absolute owner of the properties comprised in the impartible estate as an individual.
2. The members of the family possessing impartible estate have no right of partition and the present holder of the property has also no right to partition away the properties as it goes against the very nature of impartiality.
3. The so-called partition deed dated 22-9-1972 cannot be taken as evidencing any partition since there are no family properties which are capable of being partitioned. The properties comprising in the impartible estate are the individual properties of the assessee in respect of which his wife and minor sons have no right of partition.
4. The allotment of properties to the assessee's wife and his minor sons through the so-called partition deed amounted to 'transfer' within the meaning of Section 64 of the Income-tax Act, 1961.
5. The ITO has erred in not including the income attributable to the transferred assets in the hands of the assessee who is an individual.
6. Hence, the order of the ITO dated 24-3-1979 is prejudicial to the interests of revenue.
Thereafter, the Commissioner set aside the order of the ITO and directed him to make a fresh assessment after ascertaining the correct income attributable to the assets transferred by the assessee to his wife and minor sons and directed the ITO to include such income in the hands of the assessee under the provisions of Section 64. From such order, the assessee has preferred an appeal to the Tribunal which is IT Appeal No. 718 (Hyd.) of 1981 now under consideration.
16. For the assessment year 1977-78, the income-tax assessment against the assessee was completed in the status of individual. The assessee filed on 22-2-1977 a return showing an income of Rs. 25,150. A revised return was filed on 21-3-1980 showing an income of Rs. 25,250. The assessed income including agricultural income came to Rs. 2,85,670. The assessee, aggrieved by the assessment order passed on 8-9-1980, appealed. Before the Commissioner of Income-tax (Appeals), reliance was placed on the decision of the Supreme Court in State of U.P. v. Raj Kumar Rukmini Raman Brahma AIR 1971 SC 1687 where the Supreme Court pointed out: Since the decision of the Privy Council in Shiba Prasad Singh v. Rani Prayag Kumari Debi 59 Ind App 331 (AIR 1932 PC 216) it must be taken to be well settled that an estate which is impartible by custom cannot be said to be the separate or exclusive property of the holder of the estate. If the holder has got the estate as an ancestral estate and he has succeeded to it by primogeniture, it will be a part of the joint estate of the undivided Hindu family. In the case of an ordinary joint family property the members of the family can claim four rights (1) the right of partition; (2) the right to restrain alienations by the head of the family except for necessity; (3) the right of maintenance; and (4) the right of survivorship. It is obvious from the very nature of the property which is impartible that the first of these rights cannot exist. The second is also incompatible with the custom of impartibility as was laid down by the Privy Council in the case of Rani Sartaj Kuari v. Deoraj Kuan, (1887-1888) 15 Ind App 51 (PC) and the First Pittapur case  26 Ind App 83 (PC). The right of maintenance and the rightof survivorship, however, sti 11 remain and is by reference to these rights that the property, though impartible has, in the eye of law, to be regarded as joint family property ...(p. 1690) It was also submitted that the Privy Council decision in CIT v. Dewan Bahadur Dewan Krishna Kishore  9 ITR 695 also showed that as regards income from house property even in the case of an impartible estate, it was chargeable in the hands of the HUF and to get over this decision the fiction in Section 27(ii) was introduced. According to the assessee, in view of the position in law aforesaid, the stand of the revenue that certain observations in the judgment of the Andhra Pradesh High Court in the case of P.V.G. Raju v. CWT  78 ITR 601 helped its case was untenable. It was finally contended that the view that the assets belonging to the impartible estate were the separate and individual assets of the holder of the estate was not justified. The Commissioner of Income-tax (Appeals) with reference to the aforesaid contentions observed: ... In my view the contention of the appellant is forceful. The provisions of Section 10(2) of the Income-tax Act exempting 'any sum received by any individual as a member of a Hindu undivided family where such sum has been paid out of the income of the family, or, in the case of any impartible estate where such sum has been paid out of the income of the estate belonging to the family', again favour the contention taken by the appellant. That apart, the Income-tax Officer's stand that Section 64(2) of the Income-tax Act will apply so as to include in the total income of the appellant the income derived by the wife and the minor children is not justified on the facts of this case and, consequently, even if one were to go by the view that the assets in question belonged to the appellant as an individual, it will still not justify the Income-tax Officer's treatment of the matter. This is because there is clear evidence that as early as on 10th June, 1965, the appellant treated all the properties as belonging to the Hindu joint family. While the agricultural lands, etc., were the subject of partition, the other movable and immovable properties remained unpartitioned and it had been clearly mentioned that they continued as joint family properties. Hence, even assuming that the properties belonged to the appellant as individual prior to 10th June, 1965, the effect of this unequivocal declaration is that as on that date these properties were blended and converted into joint family properties. It will be seen that Section 64(2) has application only to a case where any property having been the separate property of the individual has, at any time after 31st December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family. Hence, on the facts of this case, it is not necessary to decide whether, in the light of the Supreme Court decision in the case of State of U.P. v. Raj Kumar Rukmini Raman Brahma AIR 1971 SC 1687 the decision of the Andhra Pradesh High Court reported at 78 ITR 601 should be regarded as no longer good law. The assets in question have to be treated as joint family assets from 10th June, 1965, onwards and the partition effected in 1973 cannot, accordingly, be caught within the mischief of Section 64(2) of the Income-tax Act. In the circumstances, the Income-tax Officer's inclusion of the incomes of Smt. Rama Kumari Devi, Shri Bibhuti Bhushan Deo and Shri Shakti Vikram Deo in the total income of the appellant cannot be upheld. Turning to the inclusion of the Hindu undivided family income, it appears to me that the treatment of the income as belonging to the Hindu undivided family is not in accordance with law. It is clear enough from a perusal of the partition deed dated 22nd September 1972, that the family disrupted from that date as can be seen from the following narration: 'That with effect from the date of execution of this deed the joint family consisting of myself, my wife and my children is disrupted and each of the sharers shall be the absolute owner of the property allotted to him or her and shall hold and enjoy the property so allotted and free from all claims and demands of the others thereto or concerning therewith.' When this was pointed out to the appellant's representative, he has filed a petition dated 4th March, 1981, admitting that in respect of the properties held jointly the appellant and his sons were only co-sharers and, consequently, they were holding the properties as tenants-in-common and not as Hindu undivided family. It has, accordingly, been submitted that the interest of Shri R.K. Deo and his two sons is one-third each in the income from these properties and one-third of the income may be included in the computation of the appellant's total income. In my view, this represents the correct position. Two-thirds of the income will, therefore, be excluded and one-third only will be retained in respect of the same.
The same holds good in respect of the income relating to the family deities as well.
Thus, the Commissioner of Income-tax (Appeals), by his order dated 7-3-1981, allowed the appeal and directed exclusion of the income attributable to the wife Smt. Rama Kumari and sons Shakti Vikram Deo and Bibhuti Bhushan Deo from the hands of the assessee. He also held that as regards income aggregating to Rs. 2,18,321 included on account of the income of the HUF, only one-third was includible. The further direction given was that the quantum of income had also to be redetermined insofar as it related to the capital gains arising on the sale of sites amounting to Rs. 1,25,862. The ITO was, therefore, directed to recompute the total income as well as the tax payable according to the directions given. Aggrieved by the aforesaid order, the revenue is in appeal for the assessment year 1977-78 and IT Appeal No. 791 (Hyd.) of 1981 now under consideration is such appeal. In particular, it is contended that the Commissioner erred in holding that even if the property was individual property earlier, in view of the unequivocal declaration in the deeds dated 10-6-1965, the properties were blended and converted into HUF properties. So also, it is contended that the Commissioner erred in directing exclusion of incomes relating to the wife and the sons and he also was in error of directing inclusion of one-third of incomes of the HUF and the deities.
17. Coming to the wealth-tax appeals, they relate to the assessment years 1974-75 and 1975-76 for which the valuation dates are 30-6-1973 and 30-6-1974. For the assessment year 1974-75, the assessee filed a return on 9-7-1974 declaring the net wealth at Rs. 7,76,008 and later, by a revised return dated 24-3-1979, the net wealth was revised to Rs. 4,73,240. During the course of the assessment proceedings, it was contended on behalf of the assessee that the partitions, effected between him and his sons and the settlement deed executed in favour of his wife were fully operative and they did not offend Section 4(1)(i) and (ii) of the 1957 Act and as such the value of the properties which fell to the share of the sons as per the partition deeds dated 10-6-1965 and 22-9-1972 as well as the settled properties on the wife by the deed dated 10-6-1965 could not be included in his wealth. This contention was rejected by the WTO who held that the assessee was an individual all along holding the impartible estate and, therefore, the partitions or transfers of property effected could not be recognised in the eye of law. According to the WTO, such transfers, even if they were to be accepted, were hit by the provisions of Section 4(1)(a) of the 1957 Act corresponding to Section 64 of the Act and the value of the properties transferred to the wife, minor sons, minor daughter and family deities would have to be assessed in the hands of the assessee as individual. Therefore, the WTO proceeded to aggregate the value of all the properties ignoring the partitions and settlements effected in 1965 and 1972. Accordingly, against returned wealth of Rs. 4,73,240 as per the revised return, the assessment was completed on a net wealth of Rs. 67,38,400 by the assessment order dated 22-3-1980.
18. For the assessment year 1975-76, the wealth-tax return filed on 18-8-1975 declared net wealth of Rs. 8,52,800. For the same reasons as in the assessment year 1974-75, the WTO ignored the assessee's plea for separate assessments being made and made a consolidated assessment on a total wealth of Rs. 70,86,955, including therein the wealth said to have been transferred in 1974-75 to the assessee's wife, minor sons, minor daughter and family deities.
19. The assessee appealed. It was urged that the inclusion of the wealth of the family members of the assessee and the family deities was erroneous. The contention was that only the value of assets as per Schedule A to the compromise decree could be considered in the hands of the assessee. Further, it was contended that the value of assets according to Schedules E-1 to E-3 of the compromise decree were to be considered as wealth of the HUF whereas the assets allotted two the wife, two sons, daughter and family deities were to be considered separately in their respective assessments.
20. The Commissioner of Wealth-tax (Appeals) found that the assets in question had to be treated as joint family assets from 10-6-1965 onwards and the partition effected in 1972 could not be caught within the mischief of Section 4(1A) and the inclusion of the assets belonging to the wife and the two minor sons in the computation of net wealth of the assessee could not be upheld. So also, he held that the family was disrupted on 22-9-1972 and, consequently, the assets held jointly by the assessee and his sons were held by them as 'tenants-in-common' and not as HUF. Therefore, he held that the WTO would be justified in including one-third of the assets treated as belonging to the HUF in computing the net wealth of the assessee as an individual. Ultimately, the two wealth-tax assessments were set aside with a direction given to the WTO to make fresh assessments in accordance with law bearing in mind the findings and directions given in his order. Aggrieved, the revenue has come up in appeal and WT Appeal Nos. 383 and 384 (Hyd.) of 1981 now under consideration are the relevant appeals. The grounds urged are similar to those in the income-tax appeals and boil down to contending for restoration of the assessments as made by the WTO.21. Before us, the submission of the learned departmental representative was that some, at least, of the properties comprised in the estate would have acquired the character of impartibility as a result of custom, having regard to the doctrine of incorporation as explained by the Supreme Court in Pushpavatl Vijayaram v. P. Vishweswar AIR 1964 SC 118, as against an impartible estate which may have been created by a Government grant statutorily, i.e., an estate granted by the crown subject to descent by primogeniture. When property in an estate has become impartible as a result of custom by incorporation, he submitted, the Abolition Acts could not do away with the impartible nature of such property for such property had not acquired the impartible nature under a statute which was the subject of repeal. For such a distinction, he relied on the judgment of the Andhra Pradesh High Court in the case of P.V.G. Raju (supra). He went on to state that in the aforesaid judgment, the Andhra Pradesh High Court had held that the Prince of Wales Market and certain items of jewellery retained their character of impartiality even after coming into force of the Madras Estates (Abolition and Conversion into Ryot-wari) Act. An estate which had acquired impartibility by custom, it was stated, would continue to have the same nature notwithstanding the Abolition Acts and, according to the learned departmental representative, the fictions of law enumerated in Section 4(6) of the 1957 Act and Section 27(ii) of the Act would continue to apply to such properties.
22. The learned Counsel for the assessee submitted that no such distinction in the nature of properties comprised in the estates under consideration had been made by the revenue at any stage, nor was it even contended for on behalf of the revenue at any earlier stage that there was such a distinction. Even in the order of the Commissioner under Section 263, it was categorically stated that the estates of the assessee in Orissa as well as in Andhra Pradesh were abolished by notifications under the respective Acts and compensation was paid to the assessee. Therefore, he contended that the stand of the revenue throughout was that all the properties in the impartible estate of the assessee fell within the purview of the Madras and Orissa Abolition Acts and such estates were abolished and compensation paid and all that the revenue was contending for was that the effect of the Madras and Orissa Abolition Acts was only a partial repeal of the statutes under which impartible estates had come into being and there was no total abolition of the impartible estate itself. According to the learned Counsel for the assessee, once the notifications were issued under the respective Acts, the estates vested in the State and the erstwhile impartible estates in the hands of particular individuals were extinguished. Thereafter, if the State granted lands on patta or otherwise to the erstwhile holder of the impartible estate, such lands would not partake of the character of impartible estates. Similar would be the position in respect of buildings. According to the learned Counsel, the order of the Commissioner in revision had, therefore, to be set aside and the order of the Commissioner of Income-tax (Appeals) where the factual position stood correctly appreciated had to be upheld for the assessment years to which they respectively pertained.
23. We have carefully considered the rival submissions. The Cuttack Bench of the Tribunal observed in its order referred to earlier: We agree with the revenue that the Estates Abolition Acts could not have the effect of putting an end of the impartible estate as the assessee had still certain properties left with him, untouched by the Estates Abolition Act which continued to maintain its character as an impartible estate and which was augmented by the lands and buildings settled on the assessee under the Estates Abolition Act.
We find that the repeal of the Impartible Estates Act was limited repeal and the Act continues to apply in respect of the properties left with the assessee. It has also been held by the Madras High Court in the case of Shri Revu Janardhan Krishna Ranga Rao Bahadur v. State of Madras AIR 1953 Mad. 185 as well as in the recent decision of the Rajasthan High Court in the case of Thakur Bhairon Singh 1975 Tax LR 672 that conversion of the property did not alter or change the nature of the property and even after abolition the compensation received by the holder would continue to be part of the impartible estate. We are therefore of the opinion that this contention of the assessee must be rejected.
Section 66(i) of the Madras Estates (Abolition and Conversion into Ryotwari) Act, as applied to Andhra Pradesh, reads as under: (i) The Madras Impartible Estates Act, 1904, shall be deemed to have been repealed in its application to the estate, if the estate has been governed by that Act immediately before that date;.
The provisions of the Orissa Estates Abolition Act, are similar and the repealing provision is Section 48. We consider that the repeal by the aforesaid Abolition Acts of the Madras Impartible Estates Act was complete and not in any manner partial. Where there was an estate which was subject to the ascent by primogeniture, impartibility by incorporation insofar as it relates to immovable properties is legally permissible. This concept does not extend to movables but it can be proved with reference to family custom that particular items of movable property were also treated as impartible. However, there is no material on record to show that any properties comprised in the erstwhile impartible estates were those which acquired impartibility by custom and were, thus, left untouched by the Abolition Acts referred to.
Though there is a reference in the order of the Cuttack Bench to some properties being left untouched by the Estates Abolition Act, no such property were specifically identified with reference to any material on record. As a matter of fact, the Commissioner, in his order of revision, spoke to the abolition of the estates and payment of compensation for the same. All this would show that the submission of the learned departmental representative that there may have been some properties which acquired impartibility by custom is not borne out by the record as it stands.
24. Since we are proceeding on the basis that the provisions of the Madras and Orissa Abolition Acts are similar, we would refer to the provisions of the Madras Estates (Abolition and Conversion into Ryotwari) Act. Section 3(6) is wide in its sweep and reads as under: 3. With effect on and from the notified date and save as otherwise expressly provided in this Act,-- (b) The entire estate [including minor inams (post-settlement or pre-settlement) included in the assets of the Zamindari estate at the permanent settlement of that estate, all communal lands and porombokes; other non-ryot lands; waste lands; pasture lands; lanka lands, forests; mines and minerals, quarries; rivers and streams; tanks and irrigation works; fisheries; and ferries], shall stand transferred to the Government and vest in them, free of all incumbrances; and the Madras Revenue Recovery Act, 1864, the Madras Irrigation Cess Act, 1886 and all other enactments applicable to ryotwari areas shall apply to the estate;.
It is clear that the erstwhile estates stood transferred to the Government free of all encumbrances. Under Section 3(c) of the said Act, all rights and interests created in or over the estate before the notified date by the principal or any other landholder, as against the Government, ceased. Under the provisions of Section 3(d) the Government was to take possession except that a person who was entitled to ryotwari patta was not to be physically dispossessed and under Section 3(e), the principal or any other landholder and any other person whose rights stood transferred to the Government was entitled to only compensation from the Government. The effect of abolition of estates is, thus, resumption of the whole estate and regrant by the Government of such of the lands and buildings over which the landholder has a rightful claim. Impartibility of the estate, thus came to an end with the abolition of the estate in the present case because it has not been shown that any items of property specifically fell outside the purview of the Abolition Act. The authorities below have all stated that compensation received has by and far been expended by way of payment of tax dues. Hence, on the facts, the nature of the compensation received ceases to be of any significance as far as the present appeals are concerned. The elucidation of the character of the compensation received on the abolition of the estate has been made by the Andhra Pradesh High Court in P.V.G. Raju's case (supra) having regard to the provisions of Section 45 of the Madras Estates (Abolition and Conversion into Ryotwari) Act, etc. Such criteria do not attach to property resumed by the Government on the abolition of estates and regranted by it to the assessee.
Whereas the parties hereto have been members of an undivided Hindu joint family with No. 1 of us as the manager thereof and whereas the joint family is possessed of movable properties including the agricultural lands and topes described in the schedule hereto and whereas the parties have decided to partition and divide their agricultural lands and topes by metes and bounds leaving all other property movable and immovable to continue as joint family properties ....
In each of the deeds of settlement, also dated 10-6-1965, it was stated: Whereas the settlors are members of a Hindu Joint family of which settlor No. 1 is the manager and whereas the settlors have decided to provide some topes and lands for the settlee ....
In the deed of partition of 22-9-1972, the fact of the assessee being the karta of the HUF stood reiterated.
26. In the case of CIT v. M.K. Stremann  56 ITR 62, the Supreme Court had occasion to consider the effect of facts as narrated in a partition deed. The Court observed as under: ...In the first clause above, it is recited that the assessee has been blending his money with inherited assets till this date. In other words, it asserts a continuous course of conduct ending with the day when the deed was executed. The deed seems to be carefully drafted and the assessee must have given instructions as to the contents of the draft. When instructions are given that the self-acquired property is to be treated as joint family property, in our opinion, at that moment the property assumes the character of joint family property. On execution, the deed becomes evidence of a pre-existing fact, i.e., of throwing the self-acquired property into the hotchpotch. The words 'till this date' are significant and must be given effect to. The High Court, in our opinion, was right in observing that 'the partition proceeded on the basis that the self-acquired properties were made available for partition along with the only item of joint family property. That itself constituted proof that antecedent to the partition, however short the interval, there was blending of the self-acquired properties of the assessee with his ancestral joint family property'. We agree with the High Court that 'whether the averment in relation to the past was supported by other evidence or not, it certainly was unequivocal that the properties dealt with at the partition were treated by the volition of the assessee as the properties available for partition between the members of the joint family. It was certainly an unequivocal declaration that all the properties dealt with under that partition had been impressed with the character of joint family properties, properties belonging to the joint family of the assessee and his son. The genuineness of the transaction itself was never in issue. The result was that at least on 19th December, 1952, antecedent to the partition, the properties became impressed with the character of joint family property. There was a partition on 19th December, 1952. Thereafter, the properties allotted to the shares of the assessee and his divided sons were held by them in severally.
If the narrations in the instruments of 10-6-1965 are considered in the light of the aforesaid observations, it is clear that there is an unequivocal declaration that all the property was HUF property and such declaration is sufficient for coming to the conclusion that even if the property was individual property earlier, such property in any event was thrown into the common hotchpotch from the relevant date of the documents, i.e., at least from 10-6-1965. The unequivocal assertions in the documents of partition and settlement, all dated 10-6-1965, that the property was joint family property which was made after the coming into effect of the Madras and Orissa Abolition Acts and the notifications thereunder would, in any view of the matter, make the properties in question joint family properties. Under the deed of settlement executed in favour of the wife, the settlement of property was in lieu of her right to maintenance. As far as the sons are concerned, they acquired their right in the joint family property and had the right of partition, right of joint possession, etc., from the date of abolition of the estate or in any event sometime prior to 10-6-1965. They got their due share of properties of the joint family under the partition deeds dated 10-6-1965,22-9-1972 and 25-10-1972 as confirmed by the compromise decree. In view of these documents and settlement deeds of 10-6-1965 which, in our view, are all valid, we consider that the properties which were the subject-matter of partition and settlement are not hit by the provisions of Section 4(1) of the 1957 Act or Section 64 of the Act. Since in any view of the matter, even if it is assumed property was only thrown into the hotchpotch, such event having been evidenced by averments in the documents of 1965, the provisions of Section 64(2) of the Act and Section 4(1A) of the 1957 Act which deem blending of property subsequent to 31-12-1969 as 'transfer', do not apply. Since the estate had ceased to be impartible, the fictions under Section 4(6) of the 1957 Act (which fiction operates for all purposes under that Act) and Section 21(ii) of the Act (which fiction applies only for the purposes of Sections 22 to 26 of that Act) also do not operate.
27. We, therefore, consider that the Commissioner was not justified in holding in his order under Section 263 of the Act for the assessment year 1976-77 that the assessee was the absolute owner of the properties comprised in the erstwhile impartible estate after the Madras and Orissa Abolition Acts came into force. In view of this finding, the members of the family have the rights which we have ad umbrated earlier. The partitions and settlements are all valid and the allotment of properties did not amount to transfer within the meaning of Section 64(2) of the Act or Section 4(1 A) of the 1957 Act. We are, therefore, of the view that the order of the Commissioner under Section 263 for the assessment year 1976-77 cannot stand. The said order is set aside and the order of the ITO stands restored. The appeal of the assessee for the said year is, accordingly, allowed.
28. In paragraph 2, we had set out the questions on which it was considered that the decision of the Special Bench would be necessary.
We have already come to the conclusion that the Madras and Orissa Abolition Acts brought about a total repeal of the Madras Impartible Estates Act, and the repeal brought about was in no way a limited repeal. Therefore, the first question which has been set out in paragraph 2 already stands answered. As far as the second and third questions are concerned, the Government had resumed the estates after the coming into force of the Madras and Orissa Abolition Acts and had regranted certain properties to the assessee. The regranted properties did not partake of the nature of compensation granted for resuming the estate which compensation is found to have been expended in liquidating tax dues, etc. In view of the unequivocal declaration in the documents of 1965 that the properties held by the assessee were HUF properties, i t is clear that at least at that time the properties in question had become HUF properties in any view of the matter. This would be the answer to the second and third questions.
29. In view of our aforesaid discussion, as far as the assessment year 1977-78 in relation to income-tax proceedings is concerned, we are of the view that the decision of the Commissioner of Income-tax (Appeals) is comprehensive and in order. We, accordingly, confirm his conclusions and dismiss the appeal of the department.
30. In deciding the wealth-tax appeals, the Commissioner of Wealth-tax (Appeals) has only followed his decision in the income-tax appeal for the assessment year 1977-78 conclusions which we have upheld. We, therefore, uphold his finding in the wealth-tax appeals also and the appeals of the revenue for the assessment years 1974-75 and 1975-76 in wealth-tax proceedings are also dismissed.
31. The result is that the IT Appeal No. 718 (Hyd.) of 1981 is allowed and IT Appeal No. 791 (Hyd.) of 1981 and WT Appeal Nos. 383 and 384 (Hyd.) of 1981 are dismissed.