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L. Bansi Dhar and Sons Vs. Commissioner of Income-tax, Delhi - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference Nos. 77 to 81 of 1976
Judge
Reported inILR1980Delhi415; [1980]123ITR58(Delhi)
ActsInsurance Act, 1938 - Sections 2(11); Indian Contract Act, 1872 - Sections 31 and 32; Transfer of Property Act, 1882 - Sections 3; Income Tax Act, 1961 - Sections 147, 171 and 256(1)
AppellantL. Bansi Dhar and Sons
RespondentCommissioner of Income-tax, Delhi
Cases ReferredController of Estate Duty v. A. T. Sahani
Excerpt:
.....an amount received by the assessed form the insurance company on a personal accident-cum-death policy on the accidental death to his father, is correctly treated as his individual income or the income of the h.u.f. of which he is the karta--difference between a life insurance policy and an accident insurance policy.; in the instant case, the petitioner's father late lala murli dhar was the kart of a hindu undivided family consisting of his wife and tow sons including the petitioners. he took out a personal accident-cum-death policy for a period of one year. lala murli dhar dies in an air crash during the pendency of the policy and under the terms of the policy a sum of rs. 5 lakhs become payable to his legal representatives. the insurer paid the compensation in equal shares to..........of his wife and two sons, lala bansi dhar and lala sridhar. he took out a personal accident-cum-death policy on the london and lancashire insurance company ltd. for a period of one year from december 1, 1949, to november 30, 1950. under the terms of the policy lala murli dhar was the insured, though it is said that the premium for the policy was paid by the delhi cloth & general mills co. ltd. who was the employer of lala murli dhar. under the contract of insurance two different contingencies, both uncertain, were in contemplation. firstly, if any bodily injury were to be caused to lala murli dhar by violent, accidental, external and visible means, compensation was payable to him for disablement and medical expenses. secondly, if he was to die as a result of such accident,.....
Judgment:

V.S. Deshpande, C.J.

1. In this group of reference the following three questions have been referred to this court under s. 256(1) of the I.T. Act, 1961 :

'1. Whether, on the facts and in the circumstances of the case, the amount of Rs. 2,49,874 received by L. Bansi Dhar from the insurance company on account of accident insurance policy covering the risk of the life of his father, L. Murli Dhar, is correctly treated as the amount of Shri Bansi Dhar in his individual capacity and not of the HUF of which he is the karta

2. Whether, on the facts and in the circumstances of the case, the dividend and interest earned in the aforesaid amount of Rs. 2,49,874 is correctly treated as belonging to Shri Bansi Dhar, in his individual capacity and not to the Hindu undivided family of which he is the karta

3. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the dividend on 400 shares of M/s. Bharat Ram Charat Ram (P.) Ltd. acquired in the name of Sh. Tilak Kumar, a minor member of the family, on 100 shares acquired in the name of Smt. Urmila Bansi Dhar, Karta's wife, could not be included in the income of the assessed-Hindu undivided family ?'

2. The facts out of which they arise may be summarised as below. The late Lata Murli Dhar was the karta of a HUF consisting of his wife and two sons, Lala Bansi Dhar and Lala Sridhar. He took out a personal accident-cum-death policy on the London and Lancashire Insurance Company Ltd. for a period of one year from December 1, 1949, to November 30, 1950. Under the terms of the policy Lala Murli Dhar was the insured, though it is said that the premium for the policy was paid by the Delhi Cloth & General Mills Co. Ltd. who was the employer of Lala Murli Dhar. Under the contract of insurance two different contingencies, both uncertain, were in contemplation. Firstly, if any bodily injury were to be caused to Lala Murli Dhar by violent, accidental, external and visible means, compensation was payable to him for disablement and medical expenses. Secondly, if he was to die as a result of such accident, compensation of Rs. 5,00,000 was payable to his legal representatives. Lala Murli Dhar died in an air-crash on December 12, 1949, and the stipulated compensation became payable to his legal representatives. Instead of asking for a succession certificate the insurer paid the compensation on security being furnished by the employer of the deceased. It was paid in equal shares to Lala Bansi Dhar and Lala Sridhar. We are here concerned with the amount of Rs. 2,49,874 received by Lala Bansi Dhar.

3. The money was invested by Lala Bansi Dhar in the purchase of some shares and making deposits. The dividend became payable on the shares and interest on the deposits. 400 shares of M/s. Bharat Ram Charat Ram P. Ltd. were sold by Lala Bansi Dhar to his minor son, Tilak Kumar, acting under the guardianship of the mother, Smt. Urmila, while 100 shares were sold by him to Smt. Urmila. The money for the purchase of the shares paid by Tilak Kumar and Smt. Urmila was alleged to have been borrowed by them from the HUF as loans which were later repaid by them to the HUF. Dividends accrued to them on these shares for the years 1958-59 and 1959-60. Income of Lala Bansi Dhar consisting of dividends and interest for the year 1957-58 came up for for assessment. At the end of the assessment proceedings for these years, it was held by the Tribunal that the amount of Rs. 2,49,874 received by Lala Bansi Dhar under the terms of the insurance policy on the death of Lala Murli Dhar was not inherited by him from his deceased father, Lala Murli Dhar, and was not, thereforee, money belonging to the HUF of which Lala Bansi Dhar is the karta. On the other hand, this money was held to belong to Lala Bansi Dhar in his individual capacity as it was not inherited by his from his father, Lala Murli Dhar. Consequently, the dividend and interest earned by Lala Bansi Dhar on investment made by him out of his amount of Rs. 2,49,874 were also held to be the income of Lala Bansi Dhar in his individual capacity and not to be the income of HUF of which he is the karta. Lastly, the Tribunal held that the purchase of shares from Lala Bansi Dhar by his son, Tilak Kumar, and his wife, Smt. Urmila, was made with the help of loans obtained from the HUF which loans were repaid. The shares also, thereforee, became the property of Tilak Kumar and Smt. Urmila is individuals and the income from the shares, thereforee, belonged to them in their individual capacity and could not be included in the income of the assessed-HUF of which Lala Bansi Dhar is the Karta. The reference of the questions set forth above was sought by the revenue against these findings on questions of law decided by the Tribunal. These questions are considered below Serialtim : Question No. 1 :

The personal accident insurance policy, taken out by Lala Murli Dhar, was a contract entered into by him with the insurer. Lala Murli Dhar was the insured. They were the only two parties to this contract. The employer of Lala Murli Dhar who paid the premium for the policy cannot be regarded as a party to this contract. It is not material as to whether it was the employer or Lala Murli Dhar who was the policy holder inasmuch as the rights under the contract belonged only to the contracting parties and thereforee, the benefit of the insurance arising out of the contract could accrue only under the terms of the contract. The accrual of the benefit was, however, arranged in two different ways. The compensation payable for injuries which may be suffered by Lala Murli Dhar was payable to Lala Murli Dhar during his lifetime as he was the insured under the policy. On the other hand, compensation for death could be payable only on the death of Lala Murli Dhar. It was, thereforee, necessarily payable to the legal representatives of Lala Murli Dhar. We are here concerned only with the compensation payable on death caused by accident. The question for consideration before us is whether the amount of Rs. 2,49,874 belonged to Lala Murli Dhar or whether the said amount never belonged to Lala Murli Dhar in his lifetime but came into existence only on the death of Lala Murli Dhar and came to Lala Bansi Dhar under the terms of the policy, but not by way of inheritance from Lala Murli Dhar. In the former event, it would be a part of the HUF property but in the latter event it would be the individual property of Lala Bansi Dhar.

4. What is the nature of a contract of insurance which provides for payment of compensation to the insured if he were to die in an accident Such a contract is to be distinguished from a contract of insurance providing for the payment of a sum of money on the death of the insured, in the ordinary course, as distinguished from a death caused by an accident. It has been said that :

'A policy of insurance constitutes not only a contract inter parties; it is also a species of property.... Life policies in particular are to be considered as something more than a contract... If the insurance is upon the assured's own life, the right to the policy moneys will devolve on his personal representatives on his death, who will be bound to treat it as money owing to him and forming part of his estate, just as much as money due to him under a promissory note'. (The Law of Insurance by Roul Colinvaux, 3rd Edn., Chap. 10, entitled 'Property in Policies', (1) Policies as a Form of Property, pages 159-160).

5. It is not clear if the learned author had the personal accident policy, providing for payment of compensation on accidental death, in mind in making the above statement of law. The distinction between a life policy and a policy providing for payment of compensation if death is caused by an accident is not only clear in principle but is also recognised in the definition of 'life insurance business' in s. 2(11) of the Insurance Act, 1938. While this definition applies to the payment of money on the death of the assured, it specifically excludes death caused by accident only from the concept of life insurance business. On principle the distinction between the two may be explained more fully as it is the crux of the present case before us. Normally, a contract may ripen into property. This is why s. 4 of the Transfer of Property Act 1882, provides that the chapters and sections of that Act which relate to contracts shall be taken as part of the Indian Contract Act, 1872. The question, however, arises as to when a contractual right is property and when it is not. In Smt. Shanthabai v. State of Bombay, : [1959]1SCR265 , it was observed by the Supreme Court as follows :

'To bring the claim under art. 19(1)(f) or art. 31(1) something more must be disclosed, namely, a right to property of which one is the owner or in which one has an interest apart from a purely contractual right.'

6. This distinction can be supported by reference to the relevant statutes. Firstly, ss. 31 and 32 of the Contract Act read as follows :

'31. A 'contingent contract' is a contract to do or not to do something, if some event, collateral to such contract ones or does not happen'.

'32. Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that even has happened.

If the event becomes impossible, such contracts become void'.

7. The distinction between the two is that the event referred to in s. 31 may be certain or uncertain but in either case it is a future event which is either certain to happen or may or may not happen. On the contrary, the event referred to in s. 32 is an uncertain future event which may or may not happen. It may be said, thereforee, that while s. 31 would apply to a life insurance policy in which money is payable on the death of the assured in the ordinary course, s. 32 would apply to an accident insurance policy in which compensation is payable only if death comes about in an accident and not in the ordinary course. While death in the ordinary course is an event certain, though future, the death by accident is uncertain and may or may not happen in the future. The consequences of this distinction are important. The contractual rights of the assured under a life policy are property because it is certain that the deceased would die some time in the future and it is also, thereforee, certain that compensation would be payable under the policy on the death of the insured. The mere fact that the compensation could not be payable to the deceased inasmuch as it becomes payable only after his death and, thereforee, must be payable to the nominees or the legal representatives of the deceased insured does not mean that the rights of the deceased insured under such a contract of insurance do not amount to property. This is why the life insurance policies are assignable under s. 38 of the Insurance Act, 1938. On the contrary, a contractual right of the insured under a personal accident policy in which compensation is payable only if the death is caused by accident is covered by s. 32. Such a right is not enforceable, unless and until the death by accident occurs. A contract which is not enforceable can hardly be said to be property because the essence of property is the capacity of its owner or possessor to use it for his benefit or enjoyment, or at any rate, to be able to dispose of it. The compensation payable on death by accident is not an existing property. It comes into being only if and when death occurs. Ex hypothesis the insured is not alive at the time such property comes into existence. It cannot thereforee, be said that such property which is to come into existence is future belongs to the insured. This is also in consonance with the unenforceable nature of the contract in view of s. 32.

8. The same result is obtained by reading the definition of 'actionable claim' in s. 3 of the Transfer of Property Act, which is as below :

'Actionable Claim' means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent'.

9. It is useful to read the definition of 'actionable claim' bearing in mind that actionable claim represents par excellence the type of property that a person can have by way of a contractual right. The test of the applicability of this definition is that the right of the claimant should be such as the civil courts would recognise as affording grounds for relief. If a personal accident insurance contract making compensation payable only if death is caused by accident is unenforceable till the happening of such an uncertain event, then it is difficult to see how a civil court would recognise the right of the assured under such a contract as sufficient for the grant of any relief to the assured during his lifetime. Even if, thereforee, it is on death caused by accident is beneficial interest which is contingent within the meaning of this definition of 'actionable claim' still such beneficial interest would not be a ground on which the assured during his lifetime could obtain any relief from the civil court. While, thereforee, a life insurance policy can be regarded as an 'actionable claim', a personal accident policy in which compensation is payable only if death is caused by accident cannot be regarded as 'actionable claim'.

10. It would appear, thereforee, that whatever may be the interest owned by the assured, under a personal accident policy, providing for compensation payable on death caused by accident, the compensation or the right to receive it cannot be vested in the assured during his lifetime. It would be a contradiction in terms to say that the assured can own or can have any beneficial interest in such compensation which is payable only if his death is caused by accident. The assured under a life insurance policy under which compensation is payable if death occurs in the ordinary course can perhaps own contingent beneficial interest in such compensation because his death in the ordinary course is a contingent, but a certain event. But this reasoning would cease to apply as soon as the compensation under a personal accident policy is made payable only if the death is caused by accident, for the simple reason, that the happening of the accident resulting in the death is an event which may or may not happen at all. It is for that reason that under s. 3 of the Transfer of Property Act such a contract ceases to be an 'actionable claim' in respect of compensation payable on death caused only by accident and in relation to the assured.

11. It may be that the beneficial interest to compensation payable on the accidental death of the assured may be claimed as a contingent interest by the legal representatives of the deceased even during the lifetime of the deceased and such an interest may become vested interest of the legal representatives after the death of the assured in view of ss. 19, 21,23 and 24 of the Transfer of Property Act. But that would not help the revenue. For, that would only show that even during the lifetime of the assured, the contingent beneficial interest belonged not to the assured but to his legal representatives.

12. Certain decisions under the Estate Duty Act were referred to during the course of argument. We are here not concerned with the assessment of estate duty. That assessment becomes relevant when property passes on death or is deemed to pass on death. The deeming provision is not relevant at all in our case. So far as the concept of passing property on death in the Estate Duty Act is concerned, it has been interpreted to mean the passing of beneficial enjoyment of property or a change in title or possession by the supreme Court in Controller of Estate Duty v. Hussainbhai Mohamedbhai Badri : [1973]90ITR148(SC) , dismissing the appeal against the decision of the Gujarat High Court in Controller of Estate Duty v. Husenbhai Mohamedbhai Badri : [1970]76ITR14(Guj) . Particular reliance was placed by the learned counsel for the revenue on the decision of this court in Controller of Estate Duty v. A. T. Sahani : [1970]78ITR508(Delhi) . The assessment of a estate duty on compensation received by the legal representatives of a deceased pilot of the Indian Airlines on death caused by accident was upheld in that case-both under ss. 5 and 6 of the E.D. Act. In coming to the conclusion that the right to receive compensation was property which passed on the death of the deceased, reference was made to English decision. One argument was that such compensation was virtually remuneration of the deceased pilot himself under the terms of his employment. Elsewhere the payment of premium for such a policy has been regarded as an investment made by the assured. There are two reasons why, with respect, we have not been able to accept the application of such a reasoning to the facts of our case.

13. Firstly, the decision of the court in A. T. Sahani's case : [1970]78ITR508(Delhi) was not based exclusively on s. 5 of the E.D. Act, but both on ss. 5 and 6. Since the concept of property, which shall be deemed to have passed on the death, is peculiar to estate duty and is not applicable to the concept of ancestral property under the Hindu law with which we are concerned in this case, this decision would not be relevant for our purpose. Secondly, no reference was made to the definition of 'actionable claim' under s. 3 of the Transfer of property Act and ss. 31 and 32 of the Contract Act by the court in Sahani's case : [1970]78ITR508(Delhi) , in considering the nature of the property under a personal accident insurance policy in which compensation is payable only if the death is caused by accident. If these statutory provisions had been considered in all probability, the decision would have been modified thereby.

14. For the above reasons, we are of the view that the amount of Rs. 2,49,874 was not in existence during the lifetime of Lala Murli Dhar. It came into existence only when he died. The contract in this respect being unenforceable at the instance of Lala Murli Dhar no property or claim to this amount could inhere in Lala Murli Dhar during his lifetime. On the other hand, the property came into being for the first time after the death of Lala Murli Dhar and was received by Lala Bansi Dhar by virtue of the terms of the contract of insurance and because the legal representatives of Lala Murli Dhar were beneficiaries under that contract and not because this amount belonged in any sense to Lala Murli Dhar. Since ancestral property comes into existence only when the ancestor owned it and it is inherited by the descendants on the death of the ancestor, this property was not ancestral in the hands of Lala Bansi Dhar. It was, thereforee, his property in his individual capacity and was not the property of the HUF, of which he was the karta. This is our answer to question No. 1.

15. Question No. 1 :

The amount of Rs. 2,49,874, having been held above as the individual property of Lala Bansi Dhar, the income from the investment of the said amount would be of the same character and would also be the individual property of Lala Bansi Dhar and not the property of the HUF of which he is the karta. This is our answer to question No. 2.

16. Question No. 2 :

The finding of fact given by the Tribunal at page 95 of the paperbook is that the amount received by Tilak Kumar from the HUF for the purchase of the shares was by way of a loan. Our attention has been drawn by the learned counsel for the assessed to the accounts which he and his mother Smt. Urmila, had with the HUF. These accounts are reproduced on pages 34 onwards of the supplementary paper-book in ITR Nos. 82 and 83 of 1973. It would appear there from that Smt. Urmila also used to receive loans from the HUF.

17. At page 68 also, the Tribunal has held that the wife also had obtained loans from the HUF for the purchase of the shares by her.

18. The learned counsel for the revenue relied upon the decision of the Supreme Court in Y. L. Agarwalla v. CIT : [1978]114ITR471(SC) , for the argument that the use of the joint family funds for the acquisition of property by individual member thereof would make the property a part of the joint Hindu family property and it could not be claimed as the individual property of the member acquiring it. For, such property is acquired with the aid and assistance or at the detriment of the HUF funds. A fortiori this would be so if no interest is charged on the loan given to the individual member of HUF. In our view, this decision and the reasoning would not apply to our case because Tilak Kumar and Smt. Urmila did not use the funds of the HUF as such. The ownership of the money vested in Tilak Kumar and Smt. Urmila as soon as loans were granted to them by the HUF. The very essence of the loan is to create a relationship of creditor and debtor and pass the title of money from the creditor to the debtor. thereforee, acquisition of property by the debtor himself. The shares thus became the individual property of Tilak Kumar and Smt. Urmila. The loans were subsequently repaid by them. This further supports the finding given by the Tribunal that the money with which the shares were purchased amounted to loans and, thereforee, shares in the hands of Tilak Kumar and Smt. Urmila were their individual property and not the property of the HUF. It follows that the income obtained by them had the same character being the individual property of the HUF. This is our answer to question No. 3.

19. At page 4 of the paper-book in this reference the following two additional questions have been referred to us for opinion under s. 256(1) of the I.T. Act. The question are as below :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified is upholding the action under section 147 as valid in law

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in coming to the conclusion that there was omission/failure on the part of the assessed-HUF to disclose fully and truly all material facts necessary for its assessment ?'

20. Since we have already held that the amount of compensation received by Lala Bansi Dhar was his individual property and was not a part of the property of the HUF of which he was the karta, the question of reopening the assessment of income-tax of the income of Lala Bansi Dhar and the members of his family does not arise, inasmuch as this basis has been held by us above to be the correct basis. It is only if it is held that the above-mentioned amount and the income derived from its investment was a part of the property of the HUF that the question of reopening the assessment under s. 147 would have arisen. The additional two questions are, thereforee, answered as above.


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