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income-tax Officer Vs. Krishnakumarsinhji P. Parmar - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1985)11ITD237(Ahd.)
Appellantincome-tax Officer
RespondentKrishnakumarsinhji P. Parmar
Excerpt:
.....the assessee is a former ruler of the state of santrampur. on abolition of his right to receive privy purse, he was paid a lump sum amount of rs. 5,11,333 ex-gratia.in these appeals, we are concerned with the income from this amount.the question before us is whether that income is to be taxed in the hands of the huf or in the hands of the assessee. the assessee claimed that the income cannot be taxed in his hands as an individual because it belongs to the huf. the ito rejected this contention.3. however, the aac accepted it and that is how the department is in appeal before us. the aac held that after passing of the hindu succession act, 1956, the impartible character of the property was converted into huf character, relying upon the various decisions of the tribunal. he has relied.....
Judgment:
1. In all the above appeals, the grounds are common and, therefore, they are dealt with by this common order.

2. The first common ground is that the AAC erred in holding that the income arising from the amount of Rs. 5,11,333 is the income of the HUF not taxable in the hands of the assessee. The assessee is a former ruler of the State of Santrampur. On abolition of his right to receive privy purse, he was paid a lump sum amount of Rs. 5,11,333 ex-gratia.

In these appeals, we are concerned with the income from this amount.

The question before us is whether that income is to be taxed in the hands of the HUF or in the hands of the assessee. The assessee claimed that the income cannot be taxed in his hands as an individual because it belongs to the HUF. The ITO rejected this contention.

3. However, the AAC accepted it and that is how the department is in appeal before us. The AAC held that after passing of the Hindu Succession Act, 1956, the impartible character of the property was converted into HUF character, relying upon the various decisions of the Tribunal. He has relied upon two further facts : (a) that part of the privy purse was directly payable to the Maharani for her maintenance, which suggested that the privy purse was granted for the entire family and not for the Maharaja in his individual capacity ; and (b) that the assessee had treated the said amount as a HUF asset by a unilateral declaration and filed a return of income in the status of a HUF, relying upon the decision of the Gujarat High Court in the case of Ratilal Khushaldas Patel v. CIT [1965] 55 ITR 517.

4. In the agreement of merger between the Government of India and the ruler of the State in 1948, it was provided by Article 2 thereof as follows : The Maharana shall, with effect from the said day, be entitled to receive from the revenue of the State annually for his privy purse, the sum of Rs. 1,12,000 (Rupees one lakh and twelve thousand) free of taxes. This amount is intended to cover all the expenses of the ruler and his family, including expenses on account of his personal staff, maintenance of his residences, marriages and other ceremonies, etc., and will neither be increased nor reduced for any reason whatsoever.

5. The learned departmental representative put forward the following arguments : 1. That on an interpretation of this article, mention of family, personal staff, marriages, etc., did not mean that the amount belonged to the HUF because that expenditure was the personal obligation of the Raja, like the obligation of any private individual to maintain his family and to pay for the expenses mentioned in that article.

2. The AAC should not have relied on the fact that certain amount was paid to the Maharani for her maintenance because that was not brought on record before the ITO. 3. That the assessee had made a gift of Rs. 1 lakh to the HUF, which showed that the assessee himself regarded the said amount of Rs. 5,11,333 as an individual property.

4. That the assessee should have led evidence to prove that the property in question was impartible estate and the decision in the case of Pratapsinhji N. Desai v. CIT [1983] 139 ITR 77 (Guj.), was not applicable because that decision was based on the fact that the property in question was impartible estate. He, therefore, urged that the matter should be restored to the ITO to ascertain whether there was such a custom.

5. The learned departmental representative drew our attention to the fact that the assessee had claimed that a sum of Rs. 1,00,000 out of the said amount of Rs. 5,11,333, should be considered as a gift to the HUF and only the balance amount should be considered as wealth of the individual. The WTO's order for the assessment year 1977-78 records this and grants the said relief. According to him, therefore, the assessee could not now claim that the income from the said sum should be regarded as the income of the HUF.6. On the other hand, the assessee's advocate advanced the following arguments : 1. Although gaddi or the kingdom might be an impartible property, the privy purse did not have that character.

2. The privy purse was inherited from the father and, therefore, it was HUF property, relying upon the decision in the case of CIT v. Dr. Babubhai Mansukhbhai [1977] 1Q8 ITR 417 (Guj.).

3. The Maharani had been given maintenance out of the privy purse, which was reduced to that extent and on her death, it was correspondingly increased which showed that the privy purse belonged to the HUF. 4. The affidavit of the assessee, dated 29-3-1976, states that the said amount was treated by the assessee as belonging to the HUF, relying upon the Supreme Court decision in the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181. He submitted that since the assessee had not been examined by the ITO, this statement in the affidavit should be accepted.

5. He drew our attention to the AAC's order for the assessment years 1976-77 to 1979-80, where the assessee had filed an appeal on the ground that the ITO had wrongly considered the assessments in the hands of the HUF as protective. The AAC, relying upon his order for the assessment year 1976-77, held that the assessments in the hands of the HUF should be treated as regular and not protective. The assessee's advocate stated that the department had not filed any appeal over this order and so the department must be considered to have accepted the position that the income from the amount of Rs. 5,11,333 belonged to the HUF. 6. Regarding the contention of the learned departmental representative that the assessee had, in his wealth-tax return, showed the said amount as belonging to the individual, the assessee's advocate replied that no return had been filed in the capacity of the individual in respect of income from this amount.

7. Regarding the interpretation of Article 2 of the agreement between the Government of India and the Raja quoted above, Shri Shah relied upon the order of this Tribunal in IT Appeal Nos. 2071 to 2073 (Ahd.) of 1979, wherein transfer of certain assets to the assessee and his family was considered to be a transfer to the HUF of the assessee. The learned departmental representative replied that nothing will turn on the fact that the departmsut had not filed an appeal against the order of the AAC because filing of appeal is not a duty. Regarding the interpretation of the said Article 2, he said that mention of personal staff in the said article showed that the people who had no right of maintenance as members of HUF were mentioned therein, which meant that privy purse belongs to the assessee as an individual.

7. It can be seen from the above summary of arguments that the main controversy has been on the question whether the amount of Rs. 5,11,333 was impartible property or not. The line of reasoning is that if it is impartible property then under Section 27(ii) of the Income-tax Act, 1961 ('the Act'), the holder thereof would be deemed to be individual owner. If he is not the individual owner, then the property would be considered to belong to the HUF. For this purpose, reliance is placed on the Hindu Succession Act, by which impartible estates have been abolished so that Section 27(z7) would have no application and, thus, the property would be HUF property. This approach to the problem is not correct. It is not logical to consider that if the property is not impartible, it would not be individual property. This reasoning presumes that impartible property can never be self-acquired property, which is not so. [Reference Mulla's Hindu Law, Fifteenth edition, p.

672], The question before us is whether the property had HUF character or not. The answer to this question must be arrived at independently of the consideration whether it is impartible property or not. Both the sides have placed reliance upon the interpretation of the said Article 2 of the agreement. The assessee's advocate has tried to make short work of the learned departmental representative's argument by a counter argument that since the assessee had got privy purse from the father, it was HUF property. This argument is untenable because the assessee was getting privy purse not by inheritance from his father, but by reason of a grant from the Government of India as per the agreement.

Further, these arguments on both the sides are short cuts and superficial in their approach. The historical background to the acquisition of the said amount cannot be ignored. The father of the present assessee was the holder of gaddi, which me ant rulership. This was taken over by the Government of India as per an agreement and the ruler was paid a privy purse in respect thereof. This right to privy purse was abolished and the present assessee was given a lump sum amount ex-gratia. Therefore, the said amount has its origin in the rulership or gaddi. The proprietary right on the lump sum amount would take on the same nature as that of the rulership or gaddi. We have, therefore, to ascertain the nature of the proprietary right in respect of rulership or gaddi. On this problem, fortunately, we have the decision of the Hon'ble Gujarat High Court in the case of Pratapsinhji N. Desai (supra). In that case, the Court was concerned with the article of agreement with the Government of India, which was similar to the article in the agreement is this case. That article reads as follows : Article XIII - (1) The succession, according to law and custom, to the gadcli of each covenanting State, and to the personal rights, privileges, dignities and titles of the ruler thereof, is hereby guaranteed.

(2) Every question of disputed succession in regard to a covenanting State shall be decided by the council of rulers after referring it to the High Court of Kathiawar and in accordance with the opinion given by that High Court.

The Dominion Government guarantees the succession, according to law and custom, to the gaddi of the State and to the Maharana's personal rights, privileges, dignities and title.

The High Court held that the said article did not provide that the succession was to take place by rule of primogeniture and that, therefore, section 5(ii) of the Hindu Succession Act, 1956 did not exclude the applicability of that Act.

In that case, the Hon'ble High Court was concerned with a similar question as in the present case and it was held that when the property held by the assessee ceased to be impartible, it regained all its attributes of HUF property and the income derived from the property was assessable as that of the HUF. The properties in question were those inherited by the assessee by rule of primogeniture on succeeding to certain gaddi as ruler of Patadi. This clearly means that all the properties acquired by a ruler by reason of having his rulership, are HUF properties, though impartible. Therefore, in the present case also, the said sum having been acquired by reason of its connection with the rulership was also HUF property. Moreover, it is well known that rulership is ancestral and hereditary and, therefore, any proprietary right in connection therewith has HUF character. With regard to the argument of the learned departmental representative based on the assessee's wealth-tax return, we have to say that the character of the property has to be judged independently of the return filed by the assessee because that is a legal issue and does not depend upon the stand of the assessee. The assessee's claim that Rs. 1,00,000 was a gift to the HUF, was only an alternative plea and so our decision cannot be based on it.

Regarding the argument of Shri J.P. Shah, based on the assessee's affidavit, we have to repeat that the character of the property has to be judged by independent evidence irrespective of the assertion of any party. Regarding his argument that the department had not filed an appeal over the AAC's order dated 26-2-1983, in our view that is not necessary because the department has filed an appeal over the order, dated 22-2-1983. In the result, we hold that the income from the said amount of Rs. 5,11,333 cannot bs taxed in the hands of the assessee as an individual.

8. For the assessment year 1976-77, there is an additional ground as follows : On the facts and in the circumstances of the case and in law, the learned AAC erred in holding that since there was no proximate relation between the gift made and sale of the flat, provisions of Section 64(iv) would not apply on the capital gain.

The assessee's wife had sold a flat and as a result, there was a capital gain. Part of the purchase price of the flat was derived from the gift by the assessee and the ITO taxed the proportionate amount of capital gains in the hands of the assessee under Section 64(iv) of the Act. The AAC held that there was no proximate relation between the gift made and the sale of the flat because there was a gap of five years between the gift and the capital gains and so the said section was not applicable. We are in agreement with his reasoning. Moreover at the time of hearing, we were informed that the capital gain had been taxed in the hands of the assessee's wife and the department had not filed an appeal from that order. Therefore, this ground is rejected.

1. The learned AAC has erred in holding that the gun and revolver and also generator were not articles of personal use and holding that the capital gain arising from the sale is taxable.

2. Your petitioner prays that the capital gain of Rs. 10,000 on sale of gun and revolver and Rs. 15,000 on sale of generator be treated as not taxable under the Act.

The AAC has held that since gun, revolver and generator could not be intimately connected with the persons of the assessee, the capital gains arising out of the same would be taxable. We are, however, of the view that these articles are of personal use to the assessee. The requirement that they should be intimately connected with the person of the assessee, does not mean that they should be attached to his body.

It is sufficient that they serve the personal needs of the assessee.

Therefore, we hold that the capital gains resulting therefrom is not taxable. The cross-objection is allowed.

10. In the result, the appeals are rejected and the cross-objection is allowed.


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