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Commissioner of Expenditure-tax, Gujarat Ii Vs. Sheth Motilal Karsondas - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberExpenditure-tax Reference No. 1 of 1968
Judge
Reported in[1971]82ITR333(Guj)
ActsExpenditure Tax Act, 1957 - Sections 4
AppellantCommissioner of Expenditure-tax, Gujarat Ii
RespondentSheth Motilal Karsondas
Appellant Advocate J.M. Thakore, Adv.
Respondent Advocate K.H. Kaji, Adv.
Excerpt:
direct taxation - construction - section 4 of expenditure tax act, 1957 - assessee hindu undivided family divided into three undivided smaller families - expenditure tax officer included expenditure by coparceners of smaller undivided families in taxable expenditure of assessee hindu undivided family - whether amount incurred by coparceners of undivided families can be included in expenditure of assessee hindu undivided family - expenditure by coparceners can be included if expenditure was incurred in respect of any obligation or personal requirement of hindu undivided family in their capacity as dependants - no evidence to show that expenditure incurred in respect of any obligation of assessee hindu undivided family - tribunal directed to find facts before final decision can be taken. ..........to the applicability of section 4(i) of the expenditure-tax act, 1957. the assessee is the hindu undivided family of sheth motilal karsondas (hereinafter referred to as 'the assessee-hindu undivided family'). the assessee-hindu undivided family consisted of three brothers, namely, hiralal, haridas and devidas, together with their respective sons. in or about 1943 there was a partial partition as regards property between the three branches of the assessee-hindu undivided family and some of the properties belonging to the assessee-hindu undivided family were divided amongst the three branches. the result was that three smaller hindu undivided families came into existence, one of hiralal and his sons, the other of haridas and his son and the third of devidas and his son. so far as.....
Judgment:

P.N. Bhagwati, C.J.

1. This reference raises a short question of law relating to the applicability of section 4(i) of the Expenditure-tax Act, 1957. The assessee is the Hindu undivided family of Sheth Motilal Karsondas (hereinafter referred to as 'the assessee-Hindu undivided family'). The assessee-Hindu undivided family consisted of three brothers, namely, Hiralal, Haridas and Devidas, together with their respective sons. In or about 1943 there was a partial partition as regards property between the three branches of the assessee-Hindu undivided family and some of the properties belonging to the assessee-Hindu undivided family were divided amongst the three branches. The result was that three smaller Hindu undivided families came into existence, one of Hiralal and his sons, the other of Haridas and his son and the third of Devidas and his son. So far as the other undivided properties were concerned, the assessee-Hindu undivided family continued to subsist with Hiralal as the karta. In the course of assessment of the assessee-Hindu undivided family to expenditure-tax for the assessment year 1959-60, for which the corresponding account year was Samvat year 2014, the Expenditure-tax Officer included in the taxable expenditure of the assessee-Hindu undivided family, the expenditure incurred by the smaller undivided families of Hiralal, Haridas and Devidas on the ground that such expenditure being expenditure incurred by the coparceners of the assessee-Hindu undivided family was liable to be included in computing the taxable expenditure of the assessee-Hindu undivided family be reason of section 4(ii) of the Expenditure-tax Act, 1957. The assessee-Hindu undivided family carried the matter in appeal to the Appellate Assistant Commissioner but the Appellate Assistant Commissioner agreed with the view taken by the Expenditure-tax Officer that the expenditure incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas was includible in the taxable expenditure of the assessee-Hindu undivided family under section 4(ii). This led to the filing of a second appeal by the assessee-Hindu undivided family to the Tribunal. Before the Tribunal it was concealed on behalf of the revenue that section 4(ii) had no application since the properties allotted to the smaller Hindu undivided families of Hiralal, Haridas and Devidas on partition could not be said to be properties transferred directly or indirectly to the coparceners by the assessee-Hindu undivided family so as to attract the applicability of section 4(ii). But the revenue relied on section 4(i) and contended that, by reason of that provision, the expenditure incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas was liable to be included in computing the taxable expenditure of the assessee-Hindu undivided family. Now, at no stage prior to the hearing of the appeal before the Tribunal, section 4(i) had been invoked by the revenue and the assessee-Hindu undivided family, therefore, objected to the revenue being allowed to rely on section 4(i) for the first time at the hearing of the appeal before the Tribunal but the Tribunal overruled the objection and entertained the contention based on section 4(i). The Tribunal, however, took the view that the case did not fall within section 4(i) and negatived the claim of the revenue to include the expenditure incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas in computing the taxable expenditure of the assessee-Hindu undivided family by relying on section 4(i). The revenue thereupon applied for a reference of the question of law arising out of the order of the Tribunal and on the application, the Tribunal referred the following question of law for the opinion of this court :

'Whether, on facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas could not be included in the taxable expenditure of the assessee under section 4(i) of the Expenditure-tax Act ?'

2. The Tribunal also, at the instance of the assessee-Hindu undivided family framed a further question of law arising out of the order of the Tribunal, namely :

'Whether, in any event, the expenditure incurred by the Hindu undivided family of Hiralal, the karta of the assessee-Hindu undivided family, can be included in the taxable expenditure of the assessee-Hindu undivided family in view of the definition of 'dependent' in section 2(g) (ii) of the Expenditure-tax Act ?'

and referred it to this court for its opinion along with the main question referred at the instance of the revenue.

3. The main controversy between the parties turns on the true interpretation of section 4(i) but, in order to appreciate its true scope and ambit, it is necessary to refer to a few relevant provisions of the Expenditure-tax Act, 1957. Section 2(c) defines 'assessee' to mean an individual or a Hindu undivided family by whom expenditure-tax or any other sum of money is payable under the Act and there is an inclusive part of the definition which says that the assessee shall include every individual or Hindu undivided family against whom any proceeding under the Act has been taken for the assessment of his expenditure. It would thus be seen that the assessee under the Act may be either an individual or a Hindu undivided family. Section 2(g) then defines who is a 'dependent' within the meaning of the Act. It says that :

''Dependent' means -

(i) where the assessee is an individual, his or her spouse or minor child, and includes any person wholly or mainly dependent on the assessee for support and maintenance; and

(ii) where the assessee is a Hindu undivided family -

(a) every coparcener other than the karta; and

(b) any other member of the family who under any law or order or decree of a court, is entitled to maintenance from the joint family property.'

'Expenditure' is defined in section 2(h) to mean any sum in money or money's worth, spent or disbursed or for the spending or disbursing of which a liability has been incurred by an assessee, and includes any amount which under the provision of the Act is required to be included in the taxable expenditure. Section 3, which is the charging section, provides that, subject to the other provisions contained in the Act, there shall be charged for every financial year commencing on and from the first day of April, 1958, a tax (hereinafter referred to as 'expenditure-tax') at the rate or rates specified in the Schedule in respect of the expenditure incurred by any individual or Hindu undivided family in the previous year. The charge to expenditure-tax thus attaches to the expenditure incurred by the assessee who may be an individual or a Hindu undivided family. Now, obviously, the expenditure incurred by the smaller Hindu undivided families of Hiralal, Haridas and Devidas cannot be said to be expenditure incurred by the assessee-Hindu undivided family and, therefore, if there were no other provision in the Act apart from section 3, such expenditure could not have been chargeable to expenditure-tax. But section 4 artificially includes within the taxable expenditure of the assessee certain categories of expenditure incurred by the others. These categories of expenditure are set out in clauses (i) and (ii) of section 4. We are not concerned with section 4(ii) since no reliance was placed upon it on behalf of the revenue before the Tribunal and here also it has not been invoked on behalf of the revenue and, rightly so, since in the first place expenditure incurred by the smaller Hindu undivided families of Hiralal, Haridas Devidas, on partition, out of the income of which presumably the expenditure in question has been incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas be said to be properties transferred directly or indirectly to the coparceners by the assessee-Hindu undivided family. The revenue has staked its claim to include the expenditure incurred by the three smaller Hindu undivided families only on section 4(i) and it is to that provision that we must, therefore, turn for determining the validity of that claim.

Section 4(i), as it stood at the material time, provided :

'Unless otherwise provided in section 5, the following amounts shall be included in computing the expenditure of an assessee liable to tax under this Act, namely :-

(i) any expenditure incurred, whether directly or indirectly by any person other than the assessee in respect of any obligation or personal requirement of the assessee or any of his dependents to the extent to which the amount of all such expenditure in the aggregate exceeds Rs. 5,000 in any year'.

4. We may point out at this stage that, prior to its amendment by Central Act 12 of 1959, section 4(i) contained the following words, namely, 'which, but for the expenditure having been incurred by that other person, would have been incurred by the assessee' immediately after the words 'or any of his dependents' but they were deleted by the Central Act 12 of 1959, and section 4(i) as it stood in the relevant assessment year was as set out above without these words. The question is whether the expenditure incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas can be said to be expenditure incurred by any person other than the assessee-Hindu undivided family in respect of any obligation or personal requirement of the assessee-Hindu undivided family or any of its dependents. If it is, it would be liable to be included within the taxable expenditure of the assessee but not otherwise.

5. Now, fortunately the proper interpretation of section 4(i) is no longer a question open to doubt or controversy. It stands concluded by a recent decision of the Supreme Court in Commissioner of Expenditure-tax v. Darshan Surendra Parekh. There also the question which fell for determination related to the interpretation of section 4(i) and the Supreme Court while interpreting that provision made certain observations which are extremely useful in the decision of the present controversy. Shah J., speaking on behalf of the Supreme Court, analysed the relevant provisions of the Act and, after pointing out that a karta of the Hindu undivided family is not a dependent within the meaning of section 2(g) (ii), proceeded to add :

'Under the Act, a Hindu undivided family is a taxable entity distinct from its coparceners and other members. A coparcener or other member of a Hindu undivided family is, for purposes of assessment of the family to expenditure-tax, a person other than the assessee. Expenditure incurred out of the family estate by the karta for and on behalf of the family is undoubtedly expenditure by the Hindu undivided family and taxable accordingly. Expenditure incurred by a coparcener or other member of the family out of his separate property is liable to be included in the taxable expenditure of the family, only if it is incurred in respect of the obligations of the family, or for the personal requirements of the coparceners or other members of the family, which if not incurred would have been incurred by the family. But every item of expenditure incurred by a coparcener or other member of the Hindu undivided family for his own purposes out of his separate property is not expenditure to meet the personal requirements of the coparceners or the other members of the family. For an item to be included under section 4(i) within the taxable expenditure of a Hindu undivided family, it must be incurred for the collective obligation of the family, or for the separate personal requirements of the coparceners or other members of the family in their capacity as members of the family........... Section 4(i) is intended to include expenditure incurred directly or indirectly by a person other than the assessee for discharging any obligation or for personal requirements of the assessee or dependent of the assessee. The clause applies in the computation of the expenditure of an individual as well as a Hindu undivided family............ Expenditure incurred by Surendra out of his separate property cannot, therefore, be taken into account in computing the taxable expenditure of the Hindu undivided family, in the absence of a finding that expenditure was incurred either for the obligation of the family, or for the personal requirements of the other coparceners or members of the family, which would have been incurred by the family if it had not been incurred by Surendra..............

Clause (i) is a reproduction of the original clause, subject to the deletion of the words 'which but for the expenditure having been incurred by that other person, would have been incurred by the assessee'. In our view, the words which were deleted did not add to the meaning of the expression 'obligation or personal requirement of the assessee or any of his dependants'. Expenditure which was not related to any obligation or personal requirement of the dependants in their capacity as dependants did not fall within the terms of section 4(i) before it was amended. The words to which we have already referred were surplusage : by deleting them no intention to alter the meaning of the original clause (i) may be attributed to the legislature.'

6. These observations make it clear that section 4(i) applies in computing the taxable expenditure not only where the assessee is an individual but also where the assessee is a Hindu undivided family as in the present case. The expenditure incurred by any person other than the Hindu undivided family would be includible in the taxable expenditure of the Hindu undivided family where it can be shown that it is incurred in respect of any obligation or personal requirement of the Hindu undivided family in their capacity as dependants. Now it is settled law that the burden of establishing that a particular item of expenditure is taxable is always on the revenue and this would be all the more so, when by a statutory provision the expenditure of another person is sought to be artificially included in the taxable expenditure of the assessee. The revenue must, therefore show that the conditions requisite for the applicability of section 4(i) are satisfied, or, in other words, the expenditure incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas was expenditure incurred by any person other than the assessee-Hindu undivided family in respect of any obligation or personal requirement of the assessee-Hindu undivided family or any of their dependants in their capacity as dependants. It is only if, on the material on record, the revenue succeeds in establishing this requirement that the revenue can claim to include the expenditure incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas in computing the taxable expenditure of the assessee-Hindu undivided family.

7. Now, there can be no doubt that the three smaller Hindu undivided families of Hiralal, Haridas and Devidas satisfied the description of 'any person other than the assessee'. But the question would still remain, whether the expenditure incurred by them was expenditure in respect of any obligation or personal requirement of the Hindu undivided family or any of its dependants in their capacity as dependants. The revenue did not contend that the expenditure had anything to do with the obligation or personal requirement of the assessee Hindu undivided family but the argument of the revenue was that the expenditure was certainly relatable to some obligation or personal requirement of the coparceners of the assessee-Hindu undivided family in their capacity as such coparceners and it was, therefore, covered by the latter part of section 4(i). The assessee of course could not dispute that the coparceners of the three smaller Hindu undivided families of Hiralal, Haridas and Devidas were also coparceners of the assessee-Hindu undivided family and were, therefore, dependants of the assessee Hindu undivided family barring of course Hiralal who as the karta could not be said to be dependant of the assessee-Hindu undivided family. But the contention of the assessee-Hindu undivided family was that the expenditure incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas on their respective coparceners was in virtue of their being coparceners of these three smaller Hindu undivided families and not in virtue of their being coparceners of the assessee-Hindu undivided family. The assessee urged as a proposition of law that, when a person occupies a dual capacity, one as a coparcener of a smaller Hindu undivided family and expenditure is incurred in respect of his obligation or personal requirement by the smaller Hindu undivided family, the expenditure must be taken to have been incurred for him in his capacity as member of the smaller Hindu undivided family and not in his capacity as member of the bigger Hindu undivided family. If this proposition of law is well-founded, then of course the assessee must straightway succeed. The expenditure incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas, even if it was in respect of any obligation or personal requirement of one or more of their respective coparceners, cannot in that event be said to have been incurred for such coparceners in their capacity as coparceners of the assessee-Hindu undivided family : it would not be related to any obligation or personal requirement of the dependants in their capacity as such dependants. But we do not think we can accept any such proposition as an absolute proposition of law. It is no doubt true that, when a smaller Hindu undivided family spends in respect of any obligation or personal requirement of its coparcener, it would ordinarily - we might say almost always - be in virtue of his capacity as coparcener of the smaller Hindu undivided family and not in his capacity as member of the bigger Hindu undivided family. The smaller Hindu undivided family would be incurring the expenditure for him because he is a coparcener entitled to be maintained out of the property of the bigger Hindu undivided family would be irrelevant so far as the incurring of the expenditure by the smaller Hindu undivided family is concerned. But this cannot be elevated to an absolute and invariable proposition of law. It would always be a question of fact and it would be open to the revenue to show that the expenditure was incurred by the smaller Hindu undivided family for the coparcener not in his capacity as coparcener of the smaller Hindu undivided family but in his capacity as coparcener of the bigger Hindu undivided family, though from a practical point of view such a task may be extremely difficulty, if not impossible. Here, in the present case, the only finding of fact before us is that the expenditure was incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas. We do not know whether the expenditure was in respect of any obligation or personal requirement of the coparceners other than Hiralal or even if it was in respect of any obligation or personal requirement of the coparceners, whether it was for them in their capacity as coparceners of the smaller Hindu undivided families of Hiralal, Haridas and Devidas or in their capacity as coparceners of the assessee-Hindu undivided family. The revenue cannot succeed in bringing the expenditure incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas within the net of taxation unless both these requirements are found in favour of the revenue. There is unfortunately no finding of the Tribunal in regard to either of these two requirements and it is, therefore, necessary to call for a supplement of the case from the Tribunal before we can finally dispose of this reference.

8. We, therefore, direct the Tribunal to submit a supplement statement of the case giving its finding on the question whether the expenditure incurred by the three smaller Hindu undivided families of Hiralal, Haridas and Devidas was in respect of any obligation or personal requirement of the coparceners other than Hiralal and even if it was in respect of any obligation or personal requirement of the coparceners, whether it was for them in their capacity as coparceners of the smaller Hindu undivided families of Hiralal, Haridas and Devidas or in their capacity as coparceners of the assessee-Hindu undivided family. The Tribunal will of course confine itself to the material on record for the purpose of giving its finding. The reference will be placed on board for final disposal after the supplemental statement of the case is received from the Tribunal.


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