JUDGMENT OF THE APPELLATE TRIBUNAL
Under Section 33 of the Indian Income-tax Act (XI of 1922) the Income-tax Appellate Tribunal Calcutta Bench, consisting of R. P. Varma (Judicial Member) and P. N. S. Ayyar (Accountant Member) delivered the following judgment on April 10, 1942.
This appeal has been preferred by the Income-tax Officer, IV Circle, Madras, against the order of the Appellate Assistant Commissioner modifying the assessment made in this case. The appellant assessed the respondent as a Hindu undivided family and directed him to pay a tax of Rs. 54,990-9-0 on an income of Rs. 1,75,358. The Appellate Assistant Commissioner found the income to be Rs. 1,06,370 on the grounds which shall be considered in the other appeal against quantum of income preferred by the respondent of this appeal. The other appeal is R.A.A. No. 29 Madras of 1941-42.
2. The admitted facts of the case will be clear by the following pedigree which will show is sought to be assessed in his hands. The respondent is an an Oswal Jain :-
Sha Agarchand (died 1891).
Married Champa Kuvar.
Adopted Manmul (died 1895)
Married Sada Kuvar who adopted Sohanmal in 1896
(died 1915 married Udai Kuvar who died in 1931 and who adopted Mohanmul in 1918).
Mohanmul (married Neini Kuvar).
Manmul, Sohanmul and Mohanmul was each in his turn adopted. Sha Agar Chand died on February 12, 1891 leaving a "will," dated the February 4, 1891. Manmul was adopted by his widow Champa Kuvar, on February 26. 1891. He died intestate on June 5, 1895. His widow Sada Kuvar obtained letters of administration to her husbands estate on August 12, 1895. She adopted Sohanmul. There was an ante-adoption agreement dated August 25, 1896. Sohanmul was adopted by Sada Kuvar on August 31, 1896. Sohanmul also died intestate in July 1915. Sada Kuvar gifted the properties to Udai Kuvar by means of a gift deed, dated April 14, 1918. Sada Kuvar died in 1923. Udai Kuvar adopted Mohanmul in May 1918. She died in April 1931. She made gifts to her grandsons and grand-daughters in October 1930.
3. The law of adoption in relation to the Jains may be briefly set out so as to exhibit a clear conception of the case. The Jains do not believe on adoption in the same manner as the Hindus. Adoption among the Jains lacks spiritual element and is secular in character as the Jains do not perform such ceremonies after death as the Hindus do. The law in several particulars. For instance, a Jain widow can adopt without the permission of her husband or his kinsmen, while a Hindu widow requires such a permission. It is not necessary that the boy to be adopted should be unmarried. No religious ceremonies are necessary nor is there any restriction regarding the age of the adoptee. Relations prohibited for adoption amongst the Hindus are not prohibited from adoption among the Jains. The following are the case law :-
Lakshmi Chand v. Gatto Bai : "It is true that the powers of a Jain widow in the matter of adoption are of an exceptional character, namely, that she can make an adoption without the permission of her husband or the consent of his heirs and that she may adopt daughters son; and further that no ceremonies or forms are necessary. But, except in these respects it is not controlled by the Hindu Law of adoption, we think that in all others its principles and rules are applicable."
Asharfi Kunvar v. Rup Chand : "They find that it has been held that the ordinary Hindu Law of inheritance is applicable to Jains in the absence of proof of special customs and usages varying that law and the same rule has been applied in matters of adoption although the reasoning on which the law is based is not wholly applicable to Jains as no spiritual efficacy is attached in their case of adoption."
It is, therefore, evident that Jains are governed by the Hindu Law of inheritance and of adoption except in so far as these laws are varied in certain particulars due to to special and usages.
4. We are concerned with the assessment of Mohanmal Chordia, proprietor Sha Agarchand Manmul. The Income-tax Officer has taken the income of Messrs. Ratanchand, Parasmal, Bai Neini Kuvar and "Ratanchand Khivraj" as income of the respondent constituting a joint family. Sha Agarchand, the earliest member of this family, so far as we are concerned, died on February 18, 1891 leaving a "will," dated February 4, 1891. His widow, Champa Kuvar, adopted Manmul on February 26, 1891. He died intestate on June 5, 1851 and his widow, Sada Kuvar, obtained letters of administration to her husbands estate on August 12, 1895. Sada Kuvar adopted Sohanmul on August 31, 1896. There was an agreement dated the August 25, 1896, executed between Sohanmuls natural father and Sada Kuvar. This agreement will have a good deal of bearing on the decision of this case. It may also be mentioned that the age of this boy was then 17 years and 8 months and he was, in law, a minor. The agreement sets out certain dispositions already made by Sada Kuvar before the adoption. We are not concerned with these dispositions as they are valid in law and not challenged by any party. The agreement recites that the business of Sha Agarchand Manmul should be continued as usual and sets out details regarding establishment, customary alms, etc. The important paragraph is paragraph (9) by which a sum of Rs. 50,000 was reserved for the adoptive mother, Sada Kuvar. It is not altogether clear from the trend of the agreement whether the whole sum was to be the absolute property of the adoptive mother, for there are restrictions restraining her from dealing with these funds as she liked. It is provided that she could on a requisition in writing by her, draw from this fund a sum no exceeding Rs. 10,000 and further she was at liberty to bequeath by "will" or give a gift a sum not exceeding Rs. 10,000. As regards the balance in fact was to go to Sohanmul if he were alive or to his male issue. A point worth noting with regards to this part of the agreement is that in case Sohanmul predeceased Sada Kuvar without leaving a male issue then only was she entitled absolutely to the balance of the fund.
Paragraphs 10 to 13 of the agreement deal with certain dispositions made before the adoption with which as pointed out above, we are here concerned.
Paragraph 14 deals with certain charities.
Paragraph 15 places in limitation on the rights of the adopted son, who in the ordinary course of law, should acquire all the rights of a natural born son of Manmul. This clause further provides that the adoptive mother, i.e., Sada Kuvar, should be considered to be the sole owner of the entire properly and that the adopted son should have no right. We will later on consider whether this condition is valid or whether it is repugnant to Hindu Law and whether the Hindu Law governs this case. But to continue with the facts of this case, the Income-tax Officer did not consider that an agreement of this nature was binding and held that Sohanmul on adoption divested his adoptive mother, Sada Kuvar, of the entire property less reasonable dispositions and became the owner thereof. He also held that when on the death of Sohanmul his widow, Udai Kuvar, adopted the present respondent, he became the owner of this property and together with his sons who are set out in the pedigree, formed a joint Hindu family. The assessment was made on this joint family on the entire income.
5. The appellate Assistant Commissioner, however, took a different view and he came to the conclusion that Mohanmul Chordia is to be assessed as an "Individual," i.e., in the manner in which he had submitted his return and has set aside this part of the order of the Income-tax Officer. His reasons will be made clear by the contentions which have been urged before us and they are following:-
(i) The Jains are not governed by the Hindu Law.
(ii) When Sada Kuvar took the estate of her husband, Manmul, she took at as her absolute property. When she adopted Sohanmul, the adoption did not divest her and she continued to be the absolute owner of the properties.
(iii) There is the ante-adoption agreement date August 25, 1896 which clearly stated that Sada Kuvar was absolute owner of the property and that if her adopted son predeceased her. She was entitled to that property. This agreement was not void or voidable and Sohanmul ratified it after coming of age as ould be judged by his later conduct.
(iv) Being an absolute owner of the property she had every night to give it is a gift to her daughter-in-law, Udai kuvar, in 1918.
(v) Udai Kuvar was the owner of the property till her death in April 1931. In October 1930 out of a total capital of about Rs. 10,64,000 she gifted rupees four lakhs to her two grandsons and daughter-in-law law.
(vi) Sohanmul, during his lifetime, and Mohanmul from the date of his adoption up to the date of his mothers death accepted the position that Sada Kuvar and Udai Kuvar were each in their turn the absolute owners of the property.
(vii) This position has been accepted by the Department as well as the parties themselves. The Income-tax Officer cannot now say that such and such person was not the owner and that such person would be deemed to the owner and that that person had no right to act as he or she did.
(viii) The fact of gifts having been entered in the books, the Income-tax Officer cannot go against the evidence furnished by the books and disturb the position which the parties themselves have accepted between themselves. The property belonging to Neini Kuvar cannot now be ascribed by the Income-tax Officer to Mohanmul or to the estate as a whole.
The questions are intricate and are by no means easy of solution. We shall take up each of these points one by one after dealing with them state the result.
6. Question (i)L- Are the Jains governed by the Hindu Law ?
It has been held in Asharfi Kunwar v. Rup Chand on the authority of previous decisions that the Hindu Law of Inheritance is applicable to Jains in the absence of proof of special customs and usages varying that Law. Reliance is placed in this case on 6 Indian Appeals, page 15, in the of a case of inheritance by a Jain and the above decision provides an answer to this question. The other matters will be dealt with under the appropriate headings.
7. Question (ii) :- Absolute and divesting of estate by adoption : It is true that a sonless Jain widow succeeds to the property of her husband and takes the property absolutely. This is the variation from the ordinary Hindu Law which has been established by many decided cases. The second question which arises is to the effect of adoption and whether there was divesting of the estate or whether the widow continued to be the absolute owner of the property. The question has been dealt with partly in answer to the first argument that the ordinary Hindu Law will be held applicable to the case of Jains. But there is some distinction with regard to this point between the ordinary Hindu Law and the Jain Law, if we may use that expression. In the ordinary Hindu Law a widow acquires only a limited or a life interest, as it is called, in the property of her husband. The case is, however, different in the case of sonless Jain widows. They take an absolute interest in the property left by their husbands. The adopted son, however, divests the adoptive mother of the properties held hitherto by her even as absolute owner. This matter has been the subject-matter of judicial decision and we will merely quote some of the cases without discussing further.
8. The earliest case is that decided by their Lordships of the Privy Council in Allahabad 688, in the case of Sheosing v. Dakho Morarilal. At page 704 Sir Montague E. Smith, who delivered the judgment, observed as follows:-
These findings are thus stated in the judgment, and their Lordships entirely concur in them:
"Contrasting this evidence with that given by the independent witnesses examined under the several commissions and having regard to the position which several of the Delhi witnesses hold as expounders of the law of the sect, it cannot be doubted that the weight of the evidence greatly preponderates in favour of the respondents. It appears to us that, so far as usage in this country ordinarily admits of proof, it has been established that a sonless widow of a Saraogi Agarwala takes by the custom of the sect a very much larger dominion over the estate of her husband than is conceded by Hindu Law to the widows of arthodox Hindus; that she takes an absolute interest at least in the self-acquired property of her husband (and as we have said, it is not necessary for us to go further in this suit, for the property of her husband); that she enjoys the right of adoption without the permission of her husband or the consent of his heirs; that a daughters son may be adopted, and on adoption takes the place of a begotten son. It also appears proved by the more reliable evidence that on adoption the estate taken by the widow passes to the son as proprietor."
In a later case in Madras, Sukhdevdas Ramprosad v. Choti Bai and Others, the Officiating Chief Justice held :-
"I am however, inclined to think that although the widow held an absolute estate from her husband, the adoption of defendant would have the effect of vesting that estate in him."
9. Question (iii) : Ante-adoption agreement dated August 25, 1896 - Not void or voidable etc. :
Whether an agreement of the nature as we are considering is binding on the adopted son admits of grave doubts. The natural father and the adoptive mother entered into an agreement, and agreed to certain conditions which have been reproduced above in the statement of facts. The natural father, however, could not curtail the rights of the minor in the way he has done. Paragraph 15 of the agreement is as follows :-
"The said Sohanmul Chordia shall by virtue of his adoption acquire no present interest whatever in the estate left by late Sha Manmul or in the business of Sha Agarchand Manmul and the same shall be considered the property of the said Sada Kuvar subject to the dispositions hereby provided."
This is an agreement definitely against the interest of the minor and is not of the class of cases that holds that reasonable covenant in the agreement reserving a life interest by the widow may be held to be valid. The decision of the Privy Council in 50 Madras 508 (Krishnamurthy Ayyar v. Krishnamurthy Ayyar) has a great bearing on this case. At page 527 Viscount Dunedin delivering the judgment of the Board observed as follows :-
"But the consensus of judgments seems to solve these two questions in this way, namely, that the consent of the natural father shows that it is for the advantage of the boy, and that the mere postponement of his interest to the widows interest, even though it should be one extending to a life interest in the whole property, is not incompatible with his position as a son. Their Lordships are, therefore, prepared to hold that custom sanctions such arrangements."
"As soon, however, as the arrangements go beyond that, i.e. give the widow property absolutely or give the property to strangers, they think no custom as to this has been proved to exist and that such arrangements are against the radical view of the Hindu Law. Their Lordships are, therefore, against the idea of a general propos ition that all arrangements consented to by a natural father, and of benefit to the boy in the sense that half a loaf is better than no bread, he is better with an adoption with truncated rights than with no adoption at all, are valid."
In the case before us, the effect of the agreement is to do away with the entire rights of the son and such an agreement is not binding. The next question for consideration is whether such an agreement is void or 554, that an agreement going beyond that sanctioned by custom does not bind the minor, it is not void and it may be ratified by the adopted son. In support of this view the cases reported in Ramasami v. Venktaramaiyan, Kali Das v. Bajai Shanker, and Subramaniam Chettiar v. Velayudam Chettiar are cited.
10. We have examined these cases and do not find that an agreement of this nature where it absolutely does away with the rights of the minor to succeed can be regarded as reasonable or voidable. Such an agreement is altogether void. Where an agreement is fair and reasonable it may be ratified but not an agreement of this nature. Krishnamurthy Ayyar v. Krishnamurthy Ayyar (50 Madras 508).
11. Question (iv): Being absolute owner - Whether there is right to give the property as gift to daughter-in-law.
Being an absolute owner of the property, Sada Kuvar, it is contended, had every right to give it as a gift to her daughter-in-law, Udai Kuvar, in 1918. This point s also covered by the decision on the previous point that she is not the absolute owner after the adoption and she had no right to give anything to the daughter-in-law in that year. Further, the daughter-in-law herself had by her own right as the widow of Sohanmul, become entitled to this property.
12. Question (v):- Gift of rupees four lakhs to two grandsons and daughter-in-law by Udai Kuvar.
According to the discussion above and from the pedigree, Udai Kuvar became entitled to the whole property absolutely being the sonless widow of her husband, Sohanmul. Before any adoption, she could make gifts or alienations but not after adoption. When Mohanmul was adopted it will follow from the previous decisions and authorities cited that he became the owner of this property and divested Udai Kuvar.
13. Question (vi) : We find that Sohanmul, during his lifetime, and Mohanmul, from the date of adoption, up to the date of his mothers death in April 1931, accepted the position that Sada Kuvar and Udai Kuvar were each in their turn the absolute owners of the property and acted accordingly.
14. Question (vii) : The contention is that this position has been accepted by the Department as well as the parties themselves. it was now not competent for the Income-tax Officer to go back on this accepted position and dispute the ownership of the properties and say that a particular person was not the owner and that another particular person should be deemed to be the owner and that a person had no right to act as he or she did. These are vital points for the determination of this appeal.
15. From the discussion of the case law as above we may have come to the conclusion that the property is the joint family property and that all the members of the family pedigree mentioned above became jointly entitled to the properties in their possession. The Department, however, on the basis of the returns made by Sada Kuvar and Udai Kuvar respectively accepted them individually as owners of the property in the years of assessment is which they were in possession. The present Income-tax Officer went into the matter and has given a finding which appears to be correct according to law, namely that the property can be said to be a joint family property and that the assessment should be made in the status of a Hindu undi vided family and not that of an individual as claimed by the respondent to this appeal.
16. It has been held on several occasions that the assessment of each year is an independent assessment and the rules of res judicata and estopped do not apply to the income-tax proceedings. The correct state of affairs has to be ascertained and the assessment made accordingly. The rights of the Income-tax Officer to make any such assessment departing from the previous position were considered in the following cases :-
Shankaralinga Nadar Bros. v. Commissioner of Income-tax, Madras [19 29] (4 I.T.C.226).
Messrs. Deokinandan & Sons v. Commissioner of Income-tax, Delhi [19 30] (4 I T C 398).
Commissioner of Income-tax, Madras v. Harveys, Ltd  (8 I.T.C 307)
17.One other argument was advanced on behalf of the appellant that the person or persons who gave and the person or persons who received the properties were also owners as members of a Joint Hindu family, that the businesses in the names of Mohanmul, and Ratanchand Parasmal, which later were conducted by Parasmal and Ratanchand respectively were conducted from their commencement with the aid of the family funds, and that the parties had only jointly managed the entire business and in fact a specific fund which was earmarked in the name of a specific person, has been administered in the manner in which it was agreed to be dealt with and the matter of gifts, etc., in 1930 was merely soughts to be deducted from the entries in the books of account, We must observe that on the basis of the finding that the ante-adoption deed was not valid, this action of the parties would lead to the inference that the properties held were of the Joint Hindu family. Though we agree with the Income-tax Officer that the property may be said to belong to the Hindu undivided family. For the reasons presently stated, we do not agree that the position so far accepted and acted upon should be departed from after a lapse of so many years. The parties have evidently accepted the position of allotment by gifts and there have been separate dealings in regard to such assets as found recorded in the several books of account. This leads to the irresistible inference that they have accepted the ante-adoption agreement and have not chosen to consider it invalid.
18. The decision, moreover, on the question of validity of the ante-adoption agreement, dated the 25th August 1896, and the rights of the parties arising in law are unquestionably beset with difficulties. The Appellate Assistant Commissioner has taken a contrary view of the matter. We feel that though the view of the Income-tax Officer is justified in law in our opinion, yet from the manner in which the parties have themselves chosen to accept their respective rights and positions, it is not possible to say now that the property is a joint family property. The parties have dealt with the property on the basis of the ante-adoption agreement for the last 45 years. The Department also has accepted the position as correct so far. It is true as held above that the Income-tax Officer can change his view, but it should be for some reason or on any fresh material and not on account of a mere change of opinion after such a long interval on the question of the validity of an action that took place years back. The parties have held the amount given by Sada Kuvar as their own and have, in their books of account, dealt with the amount separately as separate property. To disturb this position acted upon from 1896 after such along lapse of time will not, we think, be right. The parties themselves have not raised any dispute and have not taken any steps so far against the accepted position in any manner. Nobody has challenged the position so far. The Income-tax Department is an independent third party and although it can go into the question as to what the position of the parties is they cannot allocate the rights of the parties after a lapse of so much time as 45 years, which the parties themselves do not claim. This is not a case in which the real nature of the transactions is to be found after the interval but this is a case in which the assessment is to be arrived at on the basis of the dealing of the parties. We think, therefore, that it would not be right to disturb the position adopted by the Department hitherto and we uphold the Appellate Assistant Commissioner in treating the parties as "Individuals" and not as members of a joint Hindu family, a position accepted for long between the Department and the respondent.
19. The result is that this appeal preferred by the Department is rejected.
20. Before taking leave of this matter we must say that the investigation of the matter by the Income-tax Officer has impressed us for its throughness. Although we could not agree with him finally for the reasons stated above, yet we must say that his opinion on the legal points appears to be right. We must also observe that the Appellate Assistant Commissioner too has dealt with the case with marked ability."
(Judgment of the Court was delivered by the Honble the Chief Justice).
The Income-tax Appellate Tribunal, Calcutta Bench, has at the instance of the Commissioner of Income-tax, Madras, made this reference. It concerns the assessment of four money-lending businesses. The Commissioner of Income-tax says that these businesses are really the business of a joint Hindu family and the profits should be assessed on that basis. The Tribunal has held that they are separate businesses and the profits should be assessed separately. The first and most important business is carried on in the name of Sha Agarchand, Manmul and the three other businesses under the styles of N. Ratanchand, M. Parasmal and Bai Naini Kuar respectively. The question which has bed referred reads as follows :-
"Whether in the circumstances of the case the income of the business in the names of Ratanchand, Parasmal and Naini Kuar, sons and wife of the respondent is assessable as the income of a Hindu undivided family in the hands of the respondent ?"
In order to understand the position it is necessary to go back to the year 1891. On February 12, of that year Sha Agarchand, an Oswal Jain, the founder of the business now carried on under the style of Sha Agarchand Manmul died, leaving a widow Champ Kuar, but no issue. On the February 12, 1968 Champ Kuar adopted a son. Manmull, who married Sada Kuar. On June 5, 1895, Manmull died without issue, but he was survived by his widow. In the month of August 1896 Sada Kuar contemplated adopting one Sohanmul and on the 25th of that month she entered into an agreement with the father of Sohanmul under which she was to make the adoption. But it was not to operate to divert her of the estate which had devolved upon her on her husbands death. On August 31, 1896, Sada Kuar adopted Sohanmull. He died in the month of July, 1915. On April 14, 1918, Sada Kuar gave the business and its assets to her daughter-in-law Udai Kuar. In the month of May 1918 Udai Kuar adopted Mohanmull, the assessee in this case. Mohanmull married Naini Kuar and by her has two sons (Ratanchand and Parasmal) and two daughters (Lord Kuar and Kamal Kuar). Sada Kuar died in 1923. In October 1930, Udai Kuar gave to each of her grandsons Rs. 1,50,000/ and to their mother, Naini Kuar, Rs. 1,00,000 Udai Kuar died in 1939. Mohanmull, his wife and children are still alive. With the moneys given to them by their grandmother the businesses now carried on under the style of M. Ratanchand, and M. Parasmal, respectively were started and with the Rs. 1,00,000 which Naini Kuar received the business now standing in her name was launched. Mohanmull succeeded to the main business of Sha Agarchand Manmull on the death of Udai Kuar in 1931.
From 1931 until the assessment year 1939-40 the four businesses were assessed separately to income tax. In that year the Income-tax Officer held that the four businesses were really one and carried on by the joint family of which Mohanmull was the head. The Income-tax Officer formed the conclusion that with a view to the evasion of taxation at the appropriate rate Mohanmull had started three subsidiary businesses and had kept separate sets of books in respect of each of them though they were in reality parts of the main business. This finding was reversed on appeal by the Appellate Assistant Commissioner.
The Appellate Assistant Commissioner was of the opinion that it was not a matter of attempting to evade payment of tax at the appropriate rate. The businesses were separate and they had been rightly assessed separately from 1931 onwards. The Commissioner of Income-tax appealed to the Income-tax Appellate Tribunal which agreed with the Appellate Assistant Commissioner. The finding of the Tribunal are summarised in paragraph 7 of the statement of the case as follows :-
(a) The respondent though a Jain was governed by the Hindu Law.
(b) Sada Kuar when she got her husbands property on his death took it as her absolute property and that when she adopted Sohanmul her estate was divested and vested in the adopted son.
(c) The ante-adoption agreement of August 25, 1896 taking away the rights of the adopted son in the estate was void.
(d) After the adoption of Sohanmul, Sada Kuar not being the absolute owner of the property had no right to make a gift of it to Udai Kuar and that after the death of Sohanmal, Udai Kuar herself in her own right as the widow of Sohanmal became entitled to the property.
(e) On the adoption of Mohanmal he became the owner of the property and divested Udai Kuar of the estate that was vested in here before his adoption.
(f) Sohanmal during his lifetime and Mohanmal from the date of the adoption to the date of Udai Kuars death in April, 1931 accepted the position that Sada Kuar and Udai Kuar were each in their turn the absolute owners of the property and acted accordingly.
(g) Though it may be said that the properties belonged to a Hindu undivided family yet inasmuch as the parties have themselves accepted their rights on the basis of the gifts, it is not possible to say now that the property is the joint family property.
(h) The Income-tax Department cannot claim or allocate the rights of the parties after a lapse of 45 years in a manner which the parties themselves do not claim.
It is unnecessary to inquire to inquire whether the law which applies to this commodity of Jains is as stated by the Tribunal. What the Court is concerned with is whether the gifts made by Sada Kuar and Udai Kuar were bona fide transactions and were accepted by the members of the family. The finding of the Tribunal is that is that they were bona fide transactions and that they have been accepted as being valid by the family. It follows from what the Tribunal has said in its order on the appeal from the Appellate Assistant Commissioner that the business carried on in the names of the two grandsons and the daughter-in-law of Udai Kuar are genuine business and are not parts of the business carried on by Mohanmal.
It was open to the members of the family to accept the gifts made by SAda Kuar and Udai Kuar as being valid and binding on them. Mohanmall, the person most concerned does not challenge the validity of the gifts and it is not open to a third party to do so. If the three minor businesses were in fact parts of the main business and had been merely started with a view to evade taxation, the position would have been different, but that is not the position as found by the Tribunal, which is the final arbiter on questions of fact. The Tribunal found that the action of the Department up to the year 1938-39 was on the facts correct and therefore decided the appeal against the Commissioner. In these circumstances the question referred must be answered in the negative.
The respondent is entitled to his costs which we fix at Rs. 250.
Reference answered in the negative.