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Vrajlal Trikamlal Vs. Commissioner of Income-tax, Ahmedabad - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 10 of 1970
Judge
Reported in[1971]80ITR299(Guj)
ActsIncome Tax Act, 1961 - Sections 256(2)
AppellantVrajlal Trikamlal
RespondentCommissioner of Income-tax, Ahmedabad
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredGoli Eswariah v. Commissioner of Gift
Excerpt:
.....firm - petition filed - doctrine of blending required to be shown to treat personal property as joint family property - doctrine absent - order passed by tribunal confirmed. - - the assessee-firm being aggrieved by the order of the income-tax officer preferred an appeal to the appellate assistant commissioner but the appeal was unsuccessful and the tribunal in further appeal also took the same view and confirmed the disallowance of the interest paid in the account of vrajlal trikamlal in the assessment of the assessee-firm. the law relating to blending of separate property with joint family property is well-settled. here, admittedly, there was no overt act on the part of mulchand trikamlal at any time right up to the letter dated 18th october, 1957, from which an inference could..........of mulchand trikamlal that the credit balance standing in the account of vrajlal trikamlal was the joint family property of mulchand trikamlal and his two sons, and treated interest received in the account of vrajlal trikamlal as income belonging to the hindu undivided family of mulchand trikamlal and allowed it as deduction in computing the profits and gains of the assessee-firm for the assessment year 1957-58. the assessments for the subsequent years up to the assessment year 1962-63 were also made on the same footing; the amount of interest credited in the account of vrajlal trikamlal was assessed as income of the hindu undivided family of mulchand trikamlal and it was allowed as deductible expenditure in the assessment of the assessee-firm. 3. the income-tax officer, however, in the.....
Judgment:

P.N. Bhagwati, C.J.

1. This reference arises out of assessment to income-tax made on a firm called Messrs. Vrajlal Trikamlal for the assessment year 1962-63, the corresponding account year being Samvat year 2017. Prior to his death, which occurred on 29th May, 1949, one Vrajlal Trikamlal was a partner in the assessee-firm and at the time of his death, there was a certain credit balance in his account in the books of account of the assessee-firm. Vrajlal Trikamlal died without leaving a widow or any children with the result that his brother, Mulchand Trikamlal, inherited the properties left by him as his only heir. On the death of Vrajlal Trikamlal, Mulchand Trikamlal was admitted as a partner in the assessee-firm but the credit balance in the account of Vrajlal Trikamlal in the books of account of the assessee-firm continued to stand in the same name. Every year, the assessee firm credited interest in the account standing in the name of Vrajlal Trikamlal and such interest was shown by Mulchand Trikamlal in his personal assessment and it was taxed as his personal income on the footing that the credit balance in the account of Vrajlal Trikamlal belonged to him as his separate property. The assessee-firm also on the same footing treated interest credited in the account of Vrajlal Trikamlal as interest paid to Mulchand Trikamlal and such interest was disallowed as an impermissible deduction in the assessment of the assessee-firm on the ground that it represented interest paid to a partner. This state of affairs continued up to the assessment year 1956-57. Even for the assessment year 1957-58, Mulchand Trikamlal had filed his return on the same basis, but before the assessment could be completed, he addressed a letter dated 18th October, 1957, to the Income-tax Officer submitting a revised return showing interest credited in the account of Vrajlal Trikamlal as income belonging to the Hindu undivided family of himself and his two sons. He pointed out that he had made a mistake in showing interest received in the account of Vrajlal Trikamlal as his personal income and took up the stand that it was income belonging to the joint Hindu family consisting of himself and his two sons. The reason for which he took up this stand was, to quote from his own letter :

'.... I beg to state that my elder brother, Shree Vrajlalbhai, had died since eight years and I and my two sons who are majors are his heirs. This interest at income is not my personal income but it belongs to our joint Hindu family of three persons. Late Shree Vrajlalbhai has no heir, successor or widow behind him. The said property has been received by our joint Hindu family, so after making necessary rectification and omitting the said interest income, I have submitted herewith revised return which may be taken note of.'

2. It appears that the assessee-firm had also submitted its return for the assessment year 1957-58, and an assessment order had already been passed disallowing deduction of interest paid in the account of Vrajlal Trikamlal on the ground that it represented interest paid to a partner. Mulchand Trikamlal, therefore, addressed a letter dated 25th October, 1958, to the Income-tax Officer requesting him to rectify the assessment of the assessee-firm for the assessment year 1957-58, by treating interest paid in the account of Vrajlal Trikamlal as interest paid not to a partner, but to the Hindu undivided family of Mulchand Trikamlal. Mulchand Trikamlal also filed a declaration dated 31st October, 1958, stating that, on the death of Vrajlal Trikamlal, 'his capital in the firm of M/s. Vrajlal Trikamlal has been inherited by us, i.e., my sons and myself and the said capital has become the property of our joint Hindu family, after the death of my elder brother' but 'until now, i.e., Samvat year 2011, through oversight, I have shown the interest on the said account in my personal income'. The Income-tax Officer accepted the contention of Mulchand Trikamlal that the credit balance standing in the account of Vrajlal Trikamlal was the joint family property of Mulchand Trikamlal and his two sons, and treated interest received in the account of Vrajlal Trikamlal as income belonging to the Hindu undivided family of Mulchand Trikamlal and allowed it as deduction in computing the profits and gains of the assessee-firm for the assessment year 1957-58. The assessments for the subsequent years up to the assessment year 1962-63 were also made on the same footing; the amount of interest credited in the account of Vrajlal Trikamlal was assessed as income of the Hindu undivided family of Mulchand Trikamlal and it was allowed as deductible expenditure in the assessment of the assessee-firm.

3. The Income-tax Officer, however, in the course of assessment of the assessee-firm, for the assessment year 1962-63, once again raised the question whether the credit balance in the account of Vrajlal Trikamlal was the separate property of Mulchand Trikamlal or belonged to the Hindu undivided family of Mulchand Trikamlal. The assessee-firm, with a view to supporting its contention that the credit balance in the account of Vrajlal Trikamlal belonged to the Hindu undivided family of Mulchand Trikamlal, filed three affidavits dated 30th September, 1963, one of Mulchand Trikamlal and the other two of his two sons. What is stated in these affidavits is rather important and we may therefore, refer to their material portions. Mulchand Trikamlal stated in his affidavit :

'Shree Vrajlal Trikamlal..... died in 1949, leaving after him our Hindu undivided family as only heir. As such his capital in the said firm at the time of death has become the property of our Hindu undivided family.... I have abandoned all rights over it in my personal capacity, if any, in favour of our Hindu undivided family which is very clear from my statement dated October 18, 1957.'

4. The two sons of Mulchand Trikamlal reiterated this statement in their respective affidavits :

'The deposit in the firm of M/s. Vrajlal Trikamlal has been received by us from our late uncle, Shree Vrajlal Trikamlal, who died in 1949, leaving no heirs except us.... My father Mulchand Trikamlal has treated this deposit as a Hindu undivided family property and he has relinquished all his rights if any in his personal capacity.'

5. These affidavits did not impress the Income-tax Officer, since they were made long after the time when, according to the assessee-firm, the credit balance in the account of Vrajlal Trikamlal was impressed with the character of joint family property an did not, therefore, possess any evidentiary value. The Income-tax Officer took the view that the credit balance in the account of Vrajlal Trikamlal having been inherited by Mulchand Trikamlal as an heir of his brother, Vrajlal Trikamlal, belonged to him as his separate property and there was no declaration or other overt act on the part of Mulchand Trikamlal showing that he had voluntarily thrown this credit balance in the common hotchpot of the Hindu undivided family with the intention of abandoning his separate claims upon it and, therefore, this credit balance had not acquired the character of joint family property and it continued to be the separate property of Mulchand Trikamlal and, on this view, the Income-tax Officer added back the amount of interest paid in the account of Vrajlal Trikamlal in computing the profits and gains of the assessee-firm. The assessee-firm being aggrieved by the order of the Income-tax Officer preferred an appeal to the Appellate Assistant Commissioner but the appeal was unsuccessful and the Tribunal in further appeal also took the same view and confirmed the disallowance of the interest paid in the account of Vrajlal Trikamlal in the assessment of the assessee-firm. Hence, the present reference at the instance of the assessee under section 256(2) of the Income-tax Act, 1961.

6. The only question which arises for consideration in this reference is whether during the year of account the credit balance standing in the name of Vrajlal Trikamlal in the books of account of the assessee-firm was the separate property of Mulchand Trikamlal or it belonged to the Hindu undivided family of Mulchand Trikamlal and his two sons. Now, there can be no doubt that Mulchand Trikamlal having inherited the credit balance standing in the account of Vrajlal Trikamlal as an heir of his brother, Vrajlal Trikamlal, it came to him as his separate property. But the contention of the assessee-firm was that by clear and unequivocal conduct Mulchand Trikamlal had treated the credit balance in the account of Vrajlal Trikamlal as jointly property and thrown it into the common hotchpot of the joint family with the intention of abandoning his separate claims upon it and, therefore, the credit balance, though originally received by him as separate property, was impressed with the character of joint family property and was property, belonging to the Hindu undivided family during the year of account. There were three acts of Mulchand Trikamlal on which reliance was placed on behalf of the assessee-firm in support of this contention : (1) letters dated 18th October, 1957, and 25th October, 1958, and the declaration dated 31st October, 1958; (2) filing of returns from 1958-59 to 1961-62, showing income paid in the account of Vrajlal Trikamlal as income belonging to the Hindu undivided family; and (3) affidavits dated 30th September, 1963, filed by Mulchand Trikamlal and his two sons. These acts, according to the assessee-firm, showed that Mulchand Trikamlal had, throughout the period of five years from 1957 to 1962, treated the credit balance in the account of Vrajlal Trikamlal as join family property and thereby converted its character from separate property into joint family property. Now, before we examine this contention, it may be pointed out at the outset that when we asked Mr. Kaji, learned advocate appearing on behalf of the assessee-firm, as to what was the date from which, according to the assessee-firm, the credit balance standing in the account of Vrajlal Trikamlal was converted into joint family property, he stated that it was not the case of the assessee-firm that the credit balance was impressed with the character of joint family property from the assessment year 1958-59, but it was converted into joint family property immediately after it was inherited by Mulchand Trikamlal on the death of Vrajlal Trikamlal. It is a little difficult to appreciate this contention. The law relating to blending of separate property with joint family property is well-settled. Property, separate or self-acquired, of a member of a joint Hindu family, may be impressed with the character of joint family property if it is voluntarily thrown by the owner into the common stock with the intention of abandoning his separate claim therein; but to establish such abandonment, a clear intention to waive separate rights must be established. There must, therefore, be some conduct on the part of the owner which would show that he voluntarily threw his separate property into the common hotchpot of the joint family with the intention of abandoning his separate claim to it. Here, admittedly, there was no overt act on the part of Mulchand Trikamlal at any time right up to the letter dated 18th October, 1957, from which an inference could be drawn that he voluntarily threw the credit balance into the common hotchpot of the joint family and, if that be so, we fail to see how the credit balance could possibly be regards as having been impressed with the character of joint family property immediately after it was inherited by Mulchand Trikamlal. As a matter of fact, right from the time of the death of Vrajlal Trikamlal up to the assessment year 1956-57, the credit balance was treated by Mulchand Trikamlal as his separate property and interest paid on it by the assessee-firm was shown by him in his personal assessment. It was only in the course of assessment for the assessment year 1957-58 that Mulchand Trikamlal for the first time claimed that the credit balance was property belonging to his Hindu undivided family. It is true that, thereafter, Mulchand Trikamlal treated the credit balance as joint family property by filing return showing interest paid on the credit balance by the assessee-firm as income belonging to his Hindu undivided family. But it is apparent from the letter dated 18th October, 1957, and the declaration dated 31st October, 1963, made by Mulchand Trikamlal and his two sons that the credit balance was treated by Mulchand Trikamlal as joint family property, because he believed that on the death of Vrajlal Trikamlal it was inherited by him and his two sons as members of a joint family. The believe entertained by Mulchand Trikamlal was clearly erroneous, since the credit balance was inherited only by him and not by his two sons and the inheritance being from a collateral source, the credit balance was received by his as his separate property. The argument of the assessee was that evens if the conduct of Mulchand Trikamlal was promoted by an erroneous belief, the fact remains that he throughout the period of five years from 1957 to 1962, treated the credit balance as joint family property and this had the effect of converting the credit balance which was separate property into joint family property. The conduct of Mulchand Trikamlal, contended the assessee-firm, clearly disclosed an intention on his part to treat the credit balance as joint family property and this was sufficient to covert the character of the credit balance from separate property into joint family property. It was not necessary in order to attract the doctrine of blending that Mulchand Trikamlal should have known at the time when he treated the credit balance as joint family property that it was his separate property. This argument, plausible though it may seem, is, in our opinion, not well-founded. It ignores the there principle behind the doctrine of blending. What is the true scope of the doctrine of building is now well-settled as a result of several decision of the Supreme Court. To quote from the latest decision in Goli Eswariah v. Commissioner of Gift-tax :

'The separate property of a member of a joint Hindu family may be impressed with the character of joint family property if it is voluntarily thrown by him into the common stock with the intention of abandoning his separate claim therein. The separate property of a Hindu creases to be separate property, and acquires the characteristics of joint family or ancestral property, not by any physical mixing with his joint family or his ancestral property but by his own volition and intention by his waiving and surrounding his separate rights in it as separate property.'

7. It is clear from these observations that what the doctrine of blending requires is that the separate property of a member of a joint Hindu family must be thrown by him into the common hotchpot with the intention of abandoning his separate claim in it. The property in such a case acquires the character of joint family property by his own volition and intention by his waiving and surrendering his separate rights in it as separate property. This clearly postulates that the member of the joint family throwing his separate property into the common hotchpot knows that it is his separate property and by his own volition and intention, he waives and surrenders his separate rights in it as separate property. Now, how can he have the intention of abandoning his separate claim in the property as separate property unless he knows that it is his separate property? How can he voluntarily and intentionally waive or surrender his separate rights in the property as separate property unless he is conscious that it is his separate property? The doctrine of blending, therefore, clearly requires that the property which is said to be impressed with the character of join family property is separate property of a member of the joint family and he knows it to be his separate property and with full knowledge of that fact he voluntarily throws it into the common stock with the intention of abandoning his separate claim upon it. This essential element in the doctrine of blending was absent in the present case when Mulchand Trikamlal addressed the letter dated 18th October, 1957, made the declaration dated 31st October, 1958, and filed returns of income for the assessment years 1957-58 to 1961-62. Mulchand Trikamlal did all these acts not with the intention of abandoning his separate claim upon the credit balance, but because he believed that the credit balance was at no time his separate property, but was the property of his Hind undivided family. These acts did not, therefore, have the effect of impressing the credit balance with the character of joint family property. The affidavits heated 30th September, 1963, filed by Mulchand Trikamlal and his two sons also did not carry the matter any further for they affirmed the erroneous belief of Mulchand Trikamlal that, on the death of Vrajlal Trikamlal, the credit balance was inherited by him and his two sons as members of a joint family and it was on that account that the property was treated by him as joint family property. It is, therefore, no possible to accept the contention of the assessee-firm that during the year of account the credit balance in the account of Vrajlal Trikamlal had acquired the character of joint family property and the amount of interest paid in that account cannot be held to be the income or the Hindu undivided family of Mulchand Trikamlal. The Tribunal was, in the circumstances, right in taking the view that the amount of interest credited in the account of Vrajlal Trikamlal belonged to Mulchand Trikamlal as his personal income and it was not allowable as a deduction in assessing the total income of the assessee-firm.

8. The first question must, therefore, be answers in the negative and the second question in the affirmative. The assessee will pay the costs of the reference to the Commissioner.


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