1. This judgment will dispose of three references, Income-tax Reference No. 28 of 1969, in the case of Krishan Bans Bahadur, and No. 80 of 1971, in the case pf his brother, Brij Bans Bahadur, and one Wealth-tax Reference No. 2 of 1972 in the case of Brij Bans Bahadur. All these references are at the instance of the revenue.
2. In Income-tax Reference No, 28 of 1969, there is a consolidated statement of case under Section 66(2) of the Indian Income-tax Act, 1922, relating to Krishan Bans Bahadur, as individual for the assessment year 1960-61, as Hindu undivided family, also for the assessment year 1960-61, and as Hindu undivided family for the assessment year 1961-62. The common question of law is as follows :
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that 660 shares belonged to the assessed'sHindu undivided family and, thereforee, the income there from was not taxable in the hands of the assessed in the status of an individual '
3. In Income-tax Reference No. 80 of 1971, the following two questions were referred to the High Court under Section 256(1) of the Income-tax Act, 1961:
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that 774 shares of Installment Supply Co. (P.) Ltd. belonged to the assessed's Hindu undivided family and, thereforee, the income there from was not taxable in the hands of the assessed in the status of an individual
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Appellate Assistant Commissioner of Income-tax was justified in reducing the interest income from Rs. 13,352 to Rs. 6,157? '
4. In Wealth-tax Reference No. 2 of 1972, the following questions were referred under Section 27(1) of the Wealth-tax Act, 1957 :
' (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that 774 shares of M/s. Installment Supply Co. (P.) Ltd. belonged to the Hindu undivided family and in excluding the value thereof from the individual assessment of the assessed?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 71,030 out of deposits of Rs. 1,74,596 belonged to the Hindu undivided family and in excluding the said sum from the assessment of the assessed?'
5. As the substance of the questions in all the three references is the same, the Tribunal disposed of the appeals of Brij Bans Bahadur in both his income-tax and wealth-tax cases, out of which, I.T.R. No. 80 of 1971 and W.T.R. No. 2 of 1972 have arisen, by adopting the reasoning and conclusions of the Tribunal in the appeal of Krishan Bans Bahadur (out of which arises I.T.R. No. 28 of 1969). We, thereforee, propose to deal with I.T.R. No. 28 of 1969 first.
6. Krishan Bans Bahadur is the assessed in this reference and, as already mentioned, is the brother of Brij Bans Bahadur, the assessed in I.T.R. No. 80 of 1971 and W.T.R. No. 2 of 1972. Their grandfather, R. B. Raj Narayan, herein called ' the grandfather ', had three sons, viz., R. B. Brij Narain, Shiv Raj Bahadur and Raj Bans Bahadur. R. B. Brij Narain had three sons, while both Shiv Raj Bahadur and Raj Bans Bahadur had two sons each. The sons of Raj Bans Bahadur, herein called ' the father ', are Krishan Bans Bahadur and Brij Bans Bahadur.
7. It appears that somewhere in or about April, 1945, 31 ordinary shares of M/s. Installment Supply P. Ltd., New Delhi, herein called ' the company ', had been gifted to Shri Krishan Bans Bahadur, the assessed.by one of his uncles. A like number had been gifted by the uncle to Brij Bans Bahadur also. But we are not concerned with these shares for our present purposes except to take note of these gifts as attendant circumstances. On February 9, 1949, the grandfather gifted 450 shares of the company to his seven grandsons. The distribution of these shares was made per stirpes. In other words, two sons of Raj Bans Bahadur (Krishan Bans Bahadur and Brij Bans Bahadur) together received 150 shares equally between themselves, so that each of them got 75 shares. The two sons of Shiv Raj Bahadur likewise got 150 shares divided equally between themselves, so that each of them got 75 shares. The three sons of R. B. Brij Narain in the like manner got 150 shares in all equally divided amongst them, so that each of them got 50 shares.
8. On the said date (February 9, 1949), the father (Raj Bans Bahadur), gifted 100 shares to each of his two sons, viz., the assessed and Brij Bans Bahadur. On December I, 1950, the father further gifted 33 shares to Krishan Bans Bahadur and 33 shares to his other son, Brij Bans Bahadur. On the original holding of 208 shares, thus received in gift from the father and the grandfather, Krishan Bans Bahadur was allotted by the company from time to time right shares aggregating 452 in all. The entire allotment money for these 452 shares was paid Krishan Bans Bahadur out of the dividends on the original holding of 208 shares. The practice followed by the company, as found by the Tribunal, was of paying dividend cheques by one hand and of taking back by the other the same cheques duly endorsed by the shareholder in its favor towards allotment money of the newly issued right shares. Krishan Bans Bahadur used to show the dividend on the shares and the interest on the accumulated dividends deposited with the company, in his individual income-tax returns till the birth of his son, Siddhartha, on October 23, 1959. There was no occasion, then, for any controversy about the ownership of these shares between him and his Hindu undivided family, as he had no son and was not joint with any one. On the birth of his son, the Hindu undivided family consisting of Krishan Bans Bahadur and his minor son, filed a separate income-tax return for the assessment year 1960-61 showing the dividend income from 660 shares and interest on the said accumulated deposits. A similar return was filed for the assessment year 1961-62.
9. The contention of the assessed was that 208 shares had been gifted not to him personally, but to him as representing his branch and that the dividend income on those shares and the interest income on those deposits belonged to the Hindu undivided family and was to be taxed in its hands. The Income-tax Officer accepted this stand for the dividend income, but rejected it regarding the interest on accumulated deposits which he taxedin the hands of Krishan Bans Bahadur, as individual. Neither the individual nor the Hindu undivided family appealed.
10. The Commissioner of Income-tax later reopened the assessment under Section 33B of the Indian Income-tax Act, 1922, and set aside all the three assessments holding the original 208 shares as gifted to Krishan Bans Bahadur personally and hence the entire lot of 660 shares being his personal property. He directed fresh assessment for taxing dividend income in the hands of the assessed as an individual and to recall the refund of tax granted to the Hindu undivided family.
11. The assessed preferred appeals before the Tribunal and contended, inter alia, that the Commissioner was influenced by two wholly irrelevant factors, viz., (1) that the donors while making gifts of the shares had not specifically expressed that the gifts were for the benefit of the assessed's family, and (2) that the gifts were made in 1949 and 1950, when Krishan Bans Bahadur was unmarried and had no family ; that there was, in fact, no presumption in favor of the gift either being personal or being for the donee's branch of the family; that the manner of distribution of shares among the grandchildren was in the nature of partition of property, indicating the intention of making gift in favor of the branch and not to the donee personally. A regular practice amongst the members of the assessed's family to partition self-acquired property by such gifts not for the individual benefit of the donee, but for the benefit of his branch of the family was also referred to. This practice was said to have been established by an affidavit of Raj Bans Bahadur, which had remained unchallenged. The Tribunal accepted the assessed's arguments and relied on the judgment of the Supreme Court in C, N. Arunachala Mudaliar v. C. A, Mumganatha Mudaliar, : 1SCR243 for the proposition that there could be no initial presumption about the gift being of one category or the other. It was further observed that Krishan Bans Bahadur himself understood and treated the gifts to be in favor of his branch of the family and not to him personally, inasmuch as on the birth of a son he had separately returned the income in the status of undivided family and had opened a separate account and that he had not treated the shares received from his uncle as property of his undivided family. Under these circumstances, the Tribunal was satisfied that the gifts were not personal to the assessed but in favor of his branch of the family ; and that the 452 right shares were mere accretion to the original 208 shares received in gift and, thereforee, belonged to the joint family.
12. Mr. B. N. Kirpal, appearing on behalf of the revenue, submitted that the approach of the Tribunal was completely erroneous as there could be no question of any initial presumption in this case. The attendent circumstances, he urged, also had no relevance in this case. The donors had made gifts to Krishan Bans Bahadur when he was unmarried and there was no question of a family of his own. The gifts were, thereforee, personal to him and the donors could have no other intention at that time. The argument of the learned counsel, however, is untenable. It is based on the counsel himself taking into consideration the attendant circumstances of the assessed being unmarried at the time when the gifts were made. But there is no justification to ignore the other relevant circumstances, which throw considerable light on the intention of the donors at the time of making the gifts. Admittedly, there is no document containing an express provision to show that the donee was to take the gift exclusively for himself or that the gift was for the benefit of the branch of his family. In the absence of such a document, the intention of the donor has to be gathered from all the surrounding circumstances. We cannot proceed with an initial presumption that the donor intended the gift to be of one category or the other. In C. N. Arunachala Mudaliar v. C. A. Muruganantha Mudaliar, the Supreme Court observed:
' As the law is accepted and well-settled that a Mitakshara father has complete powers of disposition over his self-acquired property, it must follow as a necessary consequence that the father is quite competent to provide expressly, when he makes a gift, either that the donee would take it exclusively for himself or that the gift would be for the benefit of his branch of the family. If there are express provisions to that effect either in the deed of gift or a will, no difficulty is likely to arise and the interest which the son would take in such property would depend upon the terms of the grant. If, however, there are no clear words describing the kind of interest which the donee is to take, the question would be one of construction and the court would have to collect the intention of the donor from the language of the document taken along with the surrounding circumstances in accordance with the well-known canone of construction. Stress would certainly have to be laid on the substance of the disposition and not on its mere form.
The material question which the court would have to decide in such cases is, whether taking the document and all the relevant facts into consideration, it could be said that the donor intended to confer a bounty upon his son exclusively for his benefit and capable of being dealt with by him at his pleasure or that the apparent gift was an integral part of a scheme for partition and what was given to the son was really the share of the property which would normally be allotted to him and to his branch of the family on partition. In other words, the question would be whether the grantor really wanted to make a gift of his properties or to partition the same. As it is open to the father to make a gift or partition of his proper-ties as he himself chooses, there is, strictly speaking, no presumption that he intended either the one or the other.'
13. Surrounding circumstances, thus have to be examined to ascertain the real intention of the donor, as express mention about the nature of the gifts is nowhere available. The grandfather had seven grandsons. In the absence of any indication to the contrary, it is safe to assume that he had the same love and affection for each of them. If, thereforee, the gifts were intended to be made personally to the grandsons, the distribution of the shares would have been done on per capita basis. In other words, the shares gifted by the grandfather would have gone to the grandsons in equal proportions. What we find is that he made the distribution per stirpes. The gifts were being made to the families of his three sons in the ratio of 150 shares for each family. Each of the three sons of R. B. Brij Narain got 50 shares and not 75 shares as were gifted to each of the grandsons from his other sons. The intention clearly was to gift away 50 shares to the family branches of each of his three sons and not to the donees exclusively for themselves.
14. Another factor of very great importance is the declaration of the father, the other donor, who stated in clear terms that his intention was that the shares should go to the joint family of the donee and not for his separate and exclusive enjoyment. This affidavit of the father was accepted not only by the Tribunal, but also by the Appellate Assistant Commissioner, who, however, was inclined to give it effect from the date on which it was made. This, thereforee, is a positive piece of evidence of express nature, which cannot be ignored.
15. Another significant factor to be taken note of is the attitude of the assessed himself. True, that it is the donor's intention and not the donee's which determines the nature of the gift. But the donee's attitude may shed some light which may help in understanding the donor's intention and the precise character of the gift. As the Tribunal observed, the assessed understood and treated the gifts as having been made to his branch of the family and not to him personally, as is apparent from his showing the income from the shares in the status of the Hindu undivided family, when his son was born and his having opened a separate account. It is also significant to note that the assessed did not treat the shares received by him in gift from his uncle in the same manner. These shares were found to have been treated by him as personal gifts. The Tribunal, thereforee, was right in holding on the basis of the aforesaid circumstances that the shares in dispute belonged to the joint family of the assessed and not to the assessed personally. So far as 452 right shares are concerned, facts found by the Tribunal conclusively show that payments in respect thereof were made from the dividend income from the shares received in the aforesaidgifts. The same were rightly treated as accretion to the original shares. The answer to the question referred to us in I.T.R. 28 of 1969, thereforee, is in the affirmative, i.e., in favor of the assessed and against the revenue.
16. An attempt was made by Mr. Kirpal to distinguish the case of Brij Bans Bahadur, the assessed in I.T.R. No. 80 of 1941, by pointing out that he had not treated the shares as belonging to the Hindu undivided family immediately, when his family had come into being. After the assessed's marriage, he got two daughters, one after the other. The said assessed, said the counsel, could at that time have claimed the shares to be the property of the joint family. Mr. Kirpal referred to Gowli Buddanna y. Commissioner of Income-tax, : 60ITR293(SC) where the Supreme Court observed that there need not be more than one male member to form a Hindu undivided family as a taxable entity under the Income-tax Act. Joint family was distinguished from a Hindu coparcenary, which is a much narrower body including only those who at quire an interest by birth in the joint or coparcenary property. Reference was also made by him to the decision of the Mysore High Court in this very case, reported as : 50ITR467(KAR) , which the Supreme Court had affirmed. Claiming the shares as belonging to the joint family on the birth of his son and not when the assessed had a Wife and daughters, according to the learned counsel, showed that the assessed did not himself treat the shares to be the property of the joint family. The contention of the learned counsel, however, cannot be accepted. We have already held in the case of Krishan Bans Bahadur, the brother of the assessed, that the grandfather and the father had made gifts in favor of the branch of the family of the donee concerned and not to the donee personally. The decision in this case has to be on the same lines. The nature of the bounty as being in favor of the branch of the family of the donee and not personally to him was stamped on the gift at the time when it was made. The donee cannot change the character of the gift subsequently. If the assessed had erroneously missed to advance his claim earlier or had remained under a confusion about the true legal position, as contended by Mr. Ved Vyasa, his learned counsel, which contention cannot be easily ruled out, in view of the fact that it was the Supreme Court, which had to finally settle the position in Gowli Buddanna's case in 1966 that cannot change the facts of the case. The position of the deposits of the accumulated dividends yielded by the gifted shares is also the same as that of the shares themselves. These deposits and the interest thereon have to be treated as belonging to the Hindu undivided family. The questions referred to us in I.T.R. No. 80 of 1971 and W.T.R. No. 2 of 1972, thereforee, have to be answered in the affirmative, i.e., in favor of the assessed and against the revenue.
17. In the peculiar circumstances of the ease, however, there shall be no order as to costs.