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Commissioner of Income-tax, Madras Vs. M.K. Stremann, Madras - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtSupreme Court of India
Decided On
Judge
Reported inAIR1965SC1494; [1965]56ITR62(SC); [1965]2SCR106
ActsIncome-tax Act - Sections 16, 16(3) and 25A
AppellantCommissioner of Income-tax, Madras
RespondentM.K. Stremann, Madras
Cases ReferredGujarat v. Keshavlal Lallubhai
Excerpt:
direct taxation - assessment of family income - sections 16, 16 (3) and 25a of income-tax act - partition deed executed - claim for separate assessment - income-tax officer observed no partition effected - appeal to assistant appellate commissioner - income-tax officer held to be justified in ignoring partition deed - appeal to income-tax appellate tribunal - observed partition deed came within ambit of section 16 - matter referred to high court - observed provisions of section 16 (3) (a) (iv) not attracted as no direct or indirect transfer of assets by assessee taken place within section 16 (3) (a) (iv) - appeal to supreme court - upheld high court's decision on same grounds. - .....that the self-acquiredproperties were made available for partition alongwith the only item of jointfamily property. that itself constituted proof that antecedent to thepartition, however short the interval there was blending of the self-acquiredproperties of the assessee with his ancestral joint family property.' weagree with the high court that 'whether the averment in relation to thepast was supported by other evidence or not, it certainly was unequivocal thatthe properties dealt with at the petition were treated by the volition of theassessee as the properties available for partition between the members of thejoint family. it was certainly an unequivocal declaration that all theproperties dealt with under that partition had been impressed with thecharacter of joint family.....
Judgment:

Sikri, J.

1. This is an appeal by special leave directed against the judgment of theMadras High Court answering a question referred to it by the Appellate Tribunalagainst the Revenue. The Appellate Tribunal had referred the following threequestions :

1. Whether there was material forthe Tribunal to reach the conclusion that the various assets in questionbelonged only to the assessee in his individual capacity till December 19, 1952?

2. If the answer to the firstquestion is in affirmative, whether the deed, Annexure 'B' aforesaid amountedto a transfer of assets to the three minor children aforesaid so as to attractthe provisions of Section 16(3)(a)(iv) of the Income-tax Act

3. If the answer to the firstquestion is in the negative, the Income Tax Officer having rejected the claimof partition under Section 25A and the assessee not having independentlyappealed against such decision, whether the assessee is entitled in law to anymodification of the assessment other than the status alone

2. Question No. 1 was answered by the High Court in favour of the Revenue;question No. 2 against the Revenue, and question No. 3 in favour of theassessee. The respondent M. K. Stremann, hereinafter referred to as theassessee, has not filed any appeal against the answer given to question No. 1,and this has become final. From the way the questions have been worded, we areonly concerned with the point whether the High Court rightly answered questionNo. 2.

3. The facts relevant for the disposal of this appeal are as follows. Thefather of the assessee, Kulandavelu Mudaliar, was an agent of Muller &Phipps; (India) Ltd., for the sale of its pharmaceutical preparations in Madras.While he was an agent, the assessee was employed as an assistant by the saidCompany. Kulandavelu died on July 27, 1938, leaving a house property at AyalurMuthiah Mudali Street, a few insurance policies and income-tax refunds due to him.The assessee realised a total amount of Rs. 26,600/- from these and with theseproceeds he purchased a house at No. 3, Varadarajulu Naidu Street, in December,1945. There is no dispute that this property was joint Hindu family property.

4. On the retirement of his father as agent of Muller and Phipps Ltd., theassessee was appointed as agent in his individual capacity. From 1938-39 till1952-53, he was assessed as an individual not only on the income from theagency but also income from joint Hindu family property. He maintained only oneset of accounts both for his income from the agency and from joint familyproperty. In 1944, one son was born, and another son was born in 1945.

5. On December 19, 1952, the assessee executed a deed of partition and on itsbasis claimed before the Income-tax Officer, in the course of assessmentproceedings for the assessment year 1953-54 (accounting year ending March 31,1953) that an order under section 25A be passed and separate assessments madeon each of the members of the erstwhile family as from December 19, 1952. TheIncome Tax Officer held that 'the mere existence of any ancestral property,however small, would not render all self-acquired property part and parcel ofthe joint Family assets by the mere fact that the incomes are not separatelyaccounted for.' He held that there was no partition but simply a case ofdonation made by the assessee of his own self-acquired property and section16(3)(a)(iv) was attracted. In the alternative, he held that assuming that theassessee's assets have been 'thrown into the common stock and afterbecoming assets of the joint family were divided between him and the minorchildren. Section 16(3)(a)(iv) is again attracted because the said sectionapplies to both the direct and indirect transfers of the assets to minorchildren ... It would have been an indirect transfer to make (minor) childrenif the transfer is effected by the interposition of a joint family by a legalfiction.'

6. On appeal, an additional point was sought to be made by the assessee thatthe commission business was ancestral business in his hands, but the AppellateAssistant Commissioner did not accede to this contention. He further held thatthe Income Tax Officer was justified in ignoring the partition deed.

7. The Appellate Tribunal held that there was no evidence that all assetsand liabilities including the agency business were transferred to the JHF in1944, when his first son was born, or later. It further observed :

'The first time we hear of the family possessingthe assets in question is the deed of dissolution in which there is a recitalto that effect .... this certainly cannot constitute an unequivocal declarationof the admitted individual investing his self-acquired properties with thecharacter of joint family property referred to in the judgment in : [1955]28ITR352(Mad) (R. Subramania Ayyar v. Commissioner of Income-tax) '.

8. Accordingly, it held that the partition deed came within the ambit ofsection 16. As stated above, the Appellate Tribunal referred three questions tothe High Court. The High Court answered the questions in the manner mentionedabove.

Mr. Rajagopala Sastri, the learned counsel for the Revenue, has urged thefollowing points :

(1) That question No. 2 did notarise out of the order of the Appellate Tribunal and the High Court should haverefused to answer the question.

(2) That before the partitionthere was no antecedent blending of self-acquired properties with ancestralproperty.

(3) That the partition deedeffects a direct transfer of assets to the minor children within section16(3)(a)(iv).

9. The first point was not raised before the High Court, or in the statementof the case in this Court. We, accordingly, cannot allow this point to beraised at this stage.

10. The second point depends on the interpretation of the partition deed,dated December 19, 1952. This deed was executed between the assessee, his twominor sons and minor daughter, the latter three being represented by theirmother. It recites that the father of the assessee died on July 27, 1938,leaving a house and other movable investment and cash and that the assesseesucceeded to the said property and the agency of Messrs. Muller and Phipps.Then follow two clauses which are important and they are :

'Whereas the party of thefirst part has been earning commission and acquiring properties and blendinghis money with the assets inherited from his father and treating the entireproperties extant before and after the birth of the parties of the second andthird parts till this date as joint family property without making anydiscrimination or distinction;

Whereas the party of the firstpart is desirous of making the legal character of the assets that exist now andthe legal relationship between the parties definite and to make an arrangementof partition of the parties of the first, second and third parts and also toprovide for making jewels, maintenance and marriage for the party of the fourthpart, in exercise of his powers as a Hindu father, in order to ensure peacefulenjoyment and friendly relationship between the parties and to keep his ownfuture earnings separate with powers to deal with them in any manner heliked.'

11. Mr. Sastri contends that as the recital in the first clause reproducedabove has been found to be false, there is no antecedent blending of the selfacquired property with ancestral property before it is partitioned among theparties. He says that all the clauses took effect on the signature of the deed,and no moment of time elapsed between the alleged blending and partition. Weare unable to accede to this contention. In the first clause above, it isrecited that the assessee has been blending his money with inherited assetstill this date. In other words, it asserts a continuous course of conductending with the day when the deed was executed. The deed seems to be carefullydrafted and the assessee must have given instructions as to contents of thedraft. When instructions are given that the self-acquired property is to betreated as joint family property in our opinion at that moment the propertyassumes the character of joint family property. On execution, the deed becomesevidence of a pre-existing fact, i.e., of throwing the self-acquired propertyinto the hotchpotch. The words 'till this date' are significant andmust be given effect to. The High Court, in our opinion was right in observingthat 'the partition proceeded on the basis that the self-acquiredproperties were made available for partition alongwith the only item of jointfamily property. That itself constituted proof that antecedent to thepartition, however short the interval there was blending of the self-acquiredproperties of the assessee with his ancestral joint family property.' Weagree with the High Court that 'whether the averment in relation to thepast was supported by other evidence or not, it certainly was unequivocal thatthe properties dealt with at the petition were treated by the volition of theassessee as the properties available for partition between the members of thejoint family. It was certainly an unequivocal declaration that all theproperties dealt with under that partition had been impressed with thecharacter of joint family properties, properties belonging to the joint familyof the assessee and his sons. The genuineness of the transaction itself wasnever in issue. The result was that at least on December 19, 1952, antecedentto the partition, the properties became impressed with the character of joint familyproperty. There was a partition on December 19, 1952. Thereafter, theproperties allotted to the shares of the assessee and his divided sons wereheld by them in severalty.'

12. We have just pronounced judgment in The Commissioner of Income Tax,Gujarat v. Keshavlal Lallubhai [1965] 2 S.C.R. 99, and following thatjudgment we hold that there is no force in the third point raised by Mr.Sastri.

13. Agreeing with the High Court, we hold that was no direct or indirecttransfer of assets to the minor children by the assessee within section16(3)(a)(iv).

14. The Appeal accordingly fails and is dismissed with costs.

15. Appeal dismissed.


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