1. In this case the following question has been referred to us for our opinion by the Appellate Tribunal at the instance of the revenue :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the self-acquired and personal assets left by the said Manilal Chhotalal, the deceased father of the respondent, were to be assessed in the hands of the Hindu undivided family represented by the respondent and not in his hands in his individual capacity?'
2. The relevant assessment year in this case is 1964-65 and the assessee in this case is an individual. The assessee's father, Manilal, was assessed as an individual in respect of his self-acquired properties and in respect of income from such property. Manilal dies in February, 1926, leaving behind him his widow, his only son, the present assessee, and his daughter, Vasumati. At the time of the death of Manilal, both the assessee and his sister, Vasumati, were unmarried. Subsequently, the assessee got married to Mrinalini and Mrinalini bore a child, a daughter, Jayashree, and no other issue was born to the couple. What the assessee received on the death of his father, Manilal, consisted entirely of the self-acquired properties of Manilal. Before the Wealth-tax Officer, the assessee claimed the status of a Hindu undivided family in regard to the net wealth which consisted entirely of the assets which he had received on the death of his father, Manilal. On the relevant valuation date the family consisted of the assessee, his wife, Mrinalini, his daughter and his mother. The Wealth-tax Officer held that the correct status was to be treated as an individual and not that of a Hindu undivided family. Against the decision of the Wealth-tax Officer, the matter was carried in appeal by the assessee and the Appellate Assistant Commissioner upheld the decision of the Wealth-tax Officer and dismissed the appeal. The matter was taken in further appeal to the Appellate Tribunal and the Tribunal held that the value of the assets left behind him by the assessee's father, Manilal, on his death was to be assessed in the hands of the Hindu undivided family represented by the assessee and not in the individual capacity of the assessee. On these facts, at the instance of the revenue, the question hereinabove set out has been referred to us for our opinion.
3. On behalf of the revenue, Mr. Kaji has relied upon certain observations of their Lordships of the Privy Council in Kalyanji Vithaldas v. Commissioner of Income-tax. It was contended before us that in Kalyanji Vithaldas's case, the facts were that there was a partnership firm and the partners were governed by the Mitakshara school. In or about 1912, the partnership business was started by Moolji and Purshottam, who were brothers, who had separated prior to 1912, and one Kalyanji who was not related to either of the two brothers and in no case were ancestral funds employed for the purpose of that business. In 1919, Moolji made gifts of capital to each of his two sons, Kanji and Sewdas, and since 1919, Moolji, Kanji and Sewdas had been separate from each other. In 1919, by a deed dated May 1, 1919, Kanji and Chaturbhuj, who was the brother of Kalyanji, were taken into partnership and in 1930, Sewdas and Kalyanji's brother, Champsi, were taken into the firm on the terms of the deed of September 11, 1930. Interest of Kanji and of Sewdas were gifts individually from their father and the interest of Chaturbhuj was a gift from his brother, Kalyanji. It was found as a fact that the individual partner had thrown his interest in the firm or his receipts therefrom into the common stock, i.e., treated it as joint family property. The Privy Council held that from the facts it clearly appeared that so far as Moolji, Purshottam and Kalyanji were concerned, they were each members of a Hindu undivided family. Each had a son or sons from whom, so far as the evidence went, he was not divided. But the income from the firm was clearly the separate and self-acquired property of the partner, and as it had not been thrown into the common stock, it could not be regarded as income of the family. The question before the Privy Council was whether the income of these different partners from the partnership could be considered as income of the different Hindu undivided family represented by each of the partners and be assessable to super-tax as income of the Hindu undivided family. The Privy council also found that so far as Chaturbhuj was concerned, he had obtained his interest in the firm from his brother, Kalyanji. It was not self-acquired and not ancestral property. Chaturbhuj had no son, but even if he had, the son would have taken by birth no interest in the income from the partnership. Thus, in none of the cases of the four partners, Moolji, Purshottam, Kalyanji and Chaturbhuj did the fact that the partner concerned had a wife and daughter or more than one daughter affect the result and the existence of a son did not make his father's self-acquired property family property or joint property, and the existence of a wife or daughter did not make any difference. As regards the cases of Kanji and Sewdas, it was found that neither had a son but, in the case of each, his interest in the firm was obtained by gift from his father, Moolji. The Privy Council left the question open whether the interest obtained by each of the two partners, Kanji and Sewdas, by gift from their father, Moolji, was ancestral property or not in their respective hands but their Lordships proceeded upon the assumption that their interest was ancestral property, so that, if either had a son, the son would have taken an interest therein by birth. But no son having been born, no such interest had arisen to qualify or diminish the interest given by Moolji to Kanji and to Sewdas. And the question before the Privy Council was, whether the existence of a wife, or of a wife and a daughter, made income of Kanji and Sewdas from the partnership, income of a Hindu undivided family rather than income of the individual partner. At page 95 of the report, Sir George Rankin, delivering the opinion of their Lordships, has observed :
'In an extra-legal sense, and even for some purposes of a legal theory, ancestral property may perhaps be described, and usefully described, as family property; but it does not follow that in the eye of the Hindu law it belongs, save in certain circumstances, to the family as distinct from the individual. By reason of its origin a man's property may be liable to be divested wholly or in part on the happening of a particular event, or may be answerable for particular obligations, or may pass at his death in a particular way; but if, in spite of all such facts, his personal law regards him as the owner, the property as his property and the income therefrom as his income, it is chargeable to income-tax as his, i.e., as the income of an individual. In their Lordships view it would not be in consonance with ordinary notions or with a correct interpretation of the law of the Mitakshara, to hold that property which a man has obtained from his father belongs to a Hindu undivided family by reason of having a wife and daughters.'
4. We may point out that the assumption on which their Lordships of the Privy Council proceeded in Kalyanji Vithaldas's case no longer holds good after the decision in Arunachala Mudaliar v. Muruganatha Mudaliar. After considering the text of the Mitakshara and various relevant texts, the Supreme Court observed at page 499 of the report :
'The property of the grandfather can normally vest in the father as ancestral property if an when the father inherits such property on the death of the grandfather or receives it by partition, made by the grandfather himself during his lifetime. On both these occasions the grandfather's property comes to the father by virtue of the latter's legal right as a son or descendant of the former and consequently it becomes ancestral property in his hands..... To find out whether a property is or is not ancestral in the hands of a particular person, not merely the relationship between the original and the present holder but the mode of transmission also must be looked to; and the property can ordinarily be reckoned as ancestral only if the present holder has got it by virtue of his being a son or descendant of the original owner.'
5. The Supreme Court in this case held that when the father obtains the grandfather's property by way of gift, he receives it not because he is a son or has legal right to such property but because his father chose to bestow a favour on him which he could have bestowed on any other person as well. In paragraph 13, B. K. Mukherjee J., as he then was, delivering the judgment of the Supreme Court, observed :
'It may be noted that the expression 'obtained through favour of the father' (Pithru prasad labdha) which occurs in placitum 28, section 4 of Mitakshara is very significant. A Mitakshara father can make a partition of both the ancestral and self-acquired property in his hands any time he likes even without the concurrence of his sons; but if he chooses to make a partition, he has got to make it in accordance with the directions laid down in the law. Even the extent of inequality, which is permissible as between the eldest and the younger sons, is indicated in the text : vide Mit. Chapter 1, section 2. Nothing depends upon his own favour or discretion. When, however, he makes a gift which is only an act of bounty, he is unfettered in the exercise of his discretion by any rule or dictate of law. It is in these gifts obtained through the favour of the father that Vijnaneswar, following the earlier sages, declares the exclusive right of the sons. We hold, therefore, that there is no warrant for saying that according to the Mitakshara, an affectionate gift by the father to the son constitutes ipso facto ancestral property in the hands of the donee.'
6. In the light of this decision of the Supreme Court, it is clear that so far as Kalyanji Vithaldas's case was concerned, each of the gifts made by Moolji to Kanji and Sewdas, as regards their respective shares in the partnerships, was not ancestral property in their hands and was to be treated as the self-acquired property in the hands of Kanji and Sewdas and thus the whole question which was before the Privy Council in Kalyanji Vithaldas's case could have been answered on the footing that the property which was in the hands of Kanji and Sewdas was the selfacquired property of these two respective partners and the income from their respective shares in the partnership could not be treated as joint family income of the joint family consisting of Kanji and his wife and daughter or daughters and Sewdas and his wife and daughter or daughters.
7. The next decision which is required to be noted in this connection is the decision of their Lordships of the Privy Council in a case arising from Ceylon in Attorney-General of Ceylon v. Arunachalam Chettiar (No. 2) and the legal consequence flowing from the decision in Attorney-General of Ceylon v. Arunachalam Chettiar (No. 2) has been summed up in two subsequent decisions of the Supreme Court and, therefore, it is not necessary for us to refer at length to the observations of their Lordships in Arunachalam Chettiar's case. In Gowli Buddanna v. Commissioner of Income-tax, the facts were that A, his wife, his two unmarried daughters and B, his adopted son, were members of a Hindu undivided family. A died and the question arose whether the property in the hands of the adopted son could be said to be property of the Hindu undivided family consisting of the son, his widowed mother and his two unmarried sisters. On these facts following the observations of their Lordships of the Privy Council in Arunachalam Chettiar's case, it was held by the Supreme Court that the property of the joint family did not cease to belong to the family merely because the family was represented after A's death by a single coparcener B, who possessed rights which an owner of property might possess, and the income received therefrom was taxable as income of the Hindu undivided family. The Supreme Court there held 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. The expression 'Hindu undivided family' in the Income-tax Act is used in the sense in which a Hindu joint family is understood under the personal law of the Hindus. Under the Hindu system of law a joint family may consist of a single male member and widows of deceased male members, and the Income-tax Act does not indicate that a Hindu undivided family as an assessable entity must consist of at least two make members. The Supreme Court pointed out that there is a distinction between a coparcenery which is a smaller unit and a Hindu undivided family which is a larger unit and the Hindu coparcenery is a much narrower body than the joint family : it includes only those persons who acquire by birth an interest in the joint or coparcenery property, these being the sons, grandsons, and great grandsons of the holders of the joint property for the time being. In Gowli Buddanna's case the Supreme Court pointed out that some of the observations in Kalyanji Vithaldas's case were not justified and particularly the criticism of the Privy Council in Kalyanji Vithaldas's case of the decision of the Bombay High Court in Commissioner of Income-tax v. Gomedalli Lakshminarayan, was not justified on the facts of the case. At page 300, Shah J., as he then was, delivering the judgment of the Supreme Court, has pointed out that the judgment of the Judicial Committee in Attorney-General of Ceylon v. A. R. Arunachalam Chettiar (No. 2) was in point and in connection with the right of disposal of the sole surviving coparcener, the following passage from Arunachalam's case was relied upon by the Supreme Court in Gowli Buddanna's case :
'..... though it may be correct to speak of him (the sole surviving coparcener) as the 'owner', yet it is still correct to describe that which he owns as the joint family property. For his ownership is such that upon the adoption of a son it assumes a different quality : it is such, too, that female members of the family (whose members may increase) have a right to maintenance out of it and in some circumstances to a charge for maintenance upon it. And these are incidents which arise, not withstanding his so-called ownership, just because the property has been and has not ceased to be joint family property.... it would not appear reasonable to impart to the legislature the intention to discriminate, so long as the family itself subsists, between property in the hands of a single coparcener and that in the hands of two or more coparceners.'
8. The Supreme Court pointed out in Gowli Buddanna's case that in Arunachalm's case the Privy Council had considered the question whether a single coparcener can alienate the property in a manner not open to one of several coparceners. In that connection the Privy Council had observed in Arunachalam's case :
'..... Let it be assumed that his power of alienation is unassailable : that means no more than that he has in the circumstances the power to alienate joint family property. That is what it is until he alienates it. and, if he does not alienate it, that is what it remains. The fatal flaw in the argument of the appellant appeared to be that, having labelled the surviving coparcener 'owner', he then attributed to his ownership such a congeries of rights that the property could no longer be called 'joint family property'. The family, a body fluctuating in numbers and comprised of male and female members, may equally well be said to be owners of the property, but owners whose ownership is qualified by the powers of the coparceners. There is in fact nothing to be gained by the use of the word 'owner' in this connection. It is only by analysing the nature of the rights of the members of the undivided family, both those in being and those yet to be born, that it can be determined whether the family property can properly be described as 'joint property' of the undivided family.'
9. Thus, according to this passage from the decision of the Privy Council in Arunachalm's case the correct test is not the power of disposal which a sole surviving coparcener has over the property but the test of what are the rights of the members of the undivided family and for this purpose those who are actually members of the family, and who are in existence and even those who are yet to be born and who on their birth will become the members of the Hindu undivided family have to be borne in mind and it is in the light of the rights of these persons, those in being and those yet to be born, that the question has to be decided whether a particular item of property is joint family property or not. We may respectfully point out that applying the test which the Privy Council applied in Arunachalam's case the test which appealed to their Lordships of the Privy Council in Kalyanji Vithaldas's case cannot be the correct test, but be that as it may, this test of the rights of the members of the family both which are in being and those who are yet to be born is the correct test for the determination of what constitutes joint family property.
10. In N. V. Narendranath v. Commissioner of Wealth-tax, the question was regarding joint family property and the question arose on these facts. When a coparcener having a wife and two minor daughters and no son receives his share of joint family properties on partition, such property, in the hands of the coparcener, belongs to the Hindu undivided family of himself, his wife and minor daughters and cannot be assessed as his individual property for the purposes of wealth-tax. The Supreme Court there held that there need not be at least two male members to form a Hindu undivided family as a taxable unit for the purposes of the Wealth-tax Act, 1957. The expression 'Hindu undivided family' in the Act is used in the sense in which a Hindu joint family is understood in the personal laws of Hindus. Under the Hindu system of law a joint family may consist of a single make member and his wife and daughters and there is nothing in the scheme of the Wealth-tax Act to suggest that a Hindu undivided family as an assessable unit must consist of at least two male members. Mr. Kaji for the revenue relies upon the following passage from the judgment of Ramaswami J., who delivered the judgment of the Supreme Court in N. V. Narendranath's case, at page 193 of the report :
'The next question is whether the assets which came to the share of the appellant on partition ceased too bear the character of joint family properties and became the individual property in his hands. In this connection, a distinction must be drawn between two classes of cases where an assessee is sought to be assessed in respect of ancestral property held by him : (1) where property not originally joint is received by the assessee and the question has to be asked whether it has acquired the character of a joint family property in the hands of the assessee; and (2) where the property already impressed with the character of joint family property comes into the hands of the assessee as a single coparcener and the question required to be considered is whether it has retained the character of joint family property in the hands of the assessee or is converted into absolute property of the assessee.'
11. Mr. K. H. Kaji rightly pointed out that on the facts of each of the cases, Gowli Buddanna's case, N. V. Narendranath's case and the case which came up before the Gujarat High Court in Bharatkumar Chinubhai v. Commissioner of Income-tax, each of the three cases fell in the second category, namely, where property which had already been impressed with the character of joint family property came into the hands of the assessee as a single coparcener and the question arose whether it had retained the character of the joint family property in the hands of the assessee. None of those three cases was a case which fell in the first category, namely, at the time when it was received by the assessee, the property was not originally joint but the question that had to be considered was whether it had acquired the character of joint family property in the hands of the assessee. On the facts of the case before us, since the property in the hands of Manilal, the father of the assessee, was the self-acquired property prior to the death of Manilal, that property was not joint property but it passed into the hands of the assessee as ancestral property held by him and the question that we have to answer is, whether it has acquired the character of joint family property in the hands of the assessee. At page 196, after dealing with the decisions in Kalyanji Vithaldas's case and the case of Attorney-General of Ceylon v. A. R. Arunachalam Chettiar (No. 2) and setting out the passage which we have set out above, Ramaswami J. had observed :
'The basis of the decision (Arunachalam Chettiar No. 2's case) was that the property which was the joint family property of the Hindu undivided family did not cease to be so because of the 'temporary reduction of the coparcenary unit to a single individual'. The character of the property, viz., that it was the joint property of a Hindu undivided family, remained the same.'
12. At page 197, Ramaswami J. had observed :
'As pointed out by the Judicial Committee in Arunachalam's case it is only by analysing the nature of the rights of the members of the undivided family, both those is being and those yet to be born, that it can be determined whether the family property can properly be described as 'joint property of the undivided family'.'
13. Thus, the test which has been approved in N. V. Narendranath's case is as to what are the rights of the members of the Hindu undivided family and for this purpose we have to consider the rights not only of the members who are in existence but also those who may yet to be born.
14. Applying the test evolved by the Supreme Court in Narendranath's case, to the facts of this case, it is obvious that at the time of the relevant valuation date, the family consisted of the assessee, his wife, Mrinalini, his daughter, Jayashree, and his mother. The three female members of the family, namely, his widowed mother, his wife and his daughter were entitled to be maintained out of the property and were not only members of the family but had certain rights in the property which is in dispute. These are the rights of the members of the family who were in existence at the valuation date but applying the test of members of the family who were in existence at the valuation date but applying the test of members yet to be born, it is obvious that if a son were to be born to the assessee or to be adopted by the assessee, then the newly born son or adopted son would get right as from birth or as from the date of adoption into the property which is the subject-matter of dispute and when they become the members of the family in this manner, either by birth or by adoption, the property would undoubtedly become joint family property in the hands of the assessee. But, as the Supreme Court pointed out in Arunachala Mudaliar v. Muruganatha Mudaliar, it is the mode of transmission from Manilal to the assessee which is the crucial question and the mode of transmission in this case is not an inter vivos gift or testamentary bequest from Manilal to the assessee but the course of transmission is by succession and undoubtedly that mode of transmission of the property would stamp it with the character of joint family property once the correct test to be applied is that of the members of the family in being and yet to be born. On this test the only conclusion which can be reached is that the property received by the assessee on the death of his father, Manilal, became the property of the joint Hindu family which at the valuation date consisted of the assessee, his wife, his daughter and his mother and the value of that estate on the valuation date must be treated as the value of the estate belonging to that Hindu undivided family.
15. In the light of these conclusions we answer the question referred to us in favour of the assessee and against the revenue and hold that the Tribunal was right in holding that the self-acquired personal assets left by Manilal Chhotalal, the father of the respondent-assessee, were to be assessed in the hands of the Hindu undivided family represented by the respondent and not in his hands in his individual capacity.
16. We answer the question accordingly. The Commissioner of Wealth-tax will pay the cost of this reference to the respondent.