SRINIVASAN J. - The assessee was the karta of a Hindu undivided family and was assessed as such in the previous assessment years. On December 7, 1957, a document was executed, whereunder the assessee purported to become divided in status. The only other member of the joint Hindu family was, at the material date, his minor son. This document was registered on February 21, 1958. On that date, the assessee wrote to various companies, in which the family held shares, instructing the companies to alter the name of the owner on the books of the companies in respect of those shares according to the mode of division entered into on partition. The family owned 3,293 shares in Messrs, Southern Roadways Private Limited. Of these, 1,000 shares were transferred to the wife of the assessee and 500 shares to each of his two daughters. The company, in the course, registered the transfer in its books.
On March 27, 1958, the assessee intimated the Income-tax Officer of the division that had taken place in the family, and after an inquiry, the Income-tax Officer made an order under section 25-A of the Income-tax Act. For the assessment year 1959-60, the accounting year ending with March 31, 1959, the assessee filed a return in his status as an individual. By this date, however, a second son had been born to the assessee, with the result that, in respect of the property in the shape of shares which fell to the shares of the assessee on the date of partition referred to, a new Hindu undivided family consisting of the assessee and his second son came into existence. The income from the shares allotted to the assessee at the partition was accordingly claimed to be the income of this new Hindu undivided family. In respect of the 2,000 shares which had been given to the wife and the two minor daughters of the assessee at the time of partition, the assessee claimed that the dividend income therefrom was not assessable in his hands. The Income-tax Officer, however, thought that, by reason of the absence of any reference in the document of partition to the allotment of certain shares to the wife and the minor daughters and by reason of the further fact that the assessees instructions to transfer the ownership of those shares were made only on February 21, 1958, that is, subsequent to the partition on December 7, 1957, there was a transfer of the property after a declaration of the division in status, and that, therefore, the transfer of these shares had been effected by the assessee as an individual. He accordingly invoked section 16(3) of the Income-tax Act and proceeded to include the dividend income in respect of these 2,000 shares and the interest thereon in the income of the assessee as an individual. The assessee appealed to the Appellate Assistant Commissioner. He pointed out that the so-called transfer of the shares to the lady members of the family was effected by the Hindu undivided family on the eve of its disruption, and that this fact had been accepted by the Gift-tax Officer also in the gift-tax assessment. The Appellate Assistant Commissioner accepted this contention and directed deduction of the sum included by the Income-tax Officer.
The department carried a further appeal to the Tribunal. The contention of the department was that these shares had become the separate property of the assessee on December 7, 1957, and the transfer effected subsequent to the date of partition could only be of the property of the individual. The Tribunal accepted this contention and held that the Appellate Assistant Commissioner was in error in his view that section 16(3) of the Act did not apply, and allowed the appeal of the department.
On the application of the assessee under section 66(1) of the Act, the following question stands referred to us :
'Whether on the facts the inclusion of Rs. 59,758 representing the gross dividend and the sum of Rs. 2,496 representing the interest on the dividend amounts in respect of 1,000 shares belonging to the assessees wife and 500 shares each to the assessees minor daughters in the total income of the assessee under section 16(3) was lawful ?'
Section 16(3) of the Act, in so far as it is material, reads thus :
'16(3). In computing the total income of any individual for the purpose of assessment, there shall be included -
(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly - ...
(iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart; or
(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration....'
It is well recognised that the object of this provision is to circumvent the attempts of assessees to place properties belonging to them nominally in the names of members of the assessees family, and except in the circumstances provided for in the section, the income from the properties so transferred is treated for the purpose of levy of income-tax as the income of the individual himself. It is obviously a question of fact to be determined in the instant case, whether a transaction is hit by this section. The basis upon which the Tribunal proceeded in the present case is that, on the date of the partition, the entirety of 3,293 shares in Messrs. Southern Roadways Private Ltd., had become allotted to the assessee, and, it was only by a subsequent act of his, 1,000 shares were transferred to the assessees wife and 500 each to the assessees two minor daughters. The Tribunal thus thought that there was a transfer by the assessee of his individual property, and, since it was not excluded by the relevant part of section 16(3), the income therefrom had to be included in the total income of the assessee. The Tribunal declined to accept the contention of the assessee that the so-called transfer was contemporaneous with the division in the family and that this fact was brought to the notice of the Income-tax Officer by means of a tabular statement showing the allocation of properties which was filed before the Income-tax Officer on the date when the disruption of the Hindu undivided family was brought to his notice. It virtually rested its conclusion, in denying the claim of the assessee, on the fact that in the deed of division no particulars of allocation were mentioned. The deed of division merely purported to say that the assessee and his son had become divided in status from each other with effect from 7th December, 1957. Along with the letter dated 27th March, 1958, which the assessee addressed to the Income-tax Officer informing him that the Hindu undivided family of which the assessee had hitherto been the karta had ceased to exist, a copy of the deed of partition and a schedule were sent. The schedule purported to set out the mode of division of the properties. Before the Tribunal, this fact was urged by learned counsel for the assessee who stated that a tabular statement had been filed before the Income-tax Officer. The Tribunal did not examine whether or not this tabular statement represented the mode of division effected at the time of partition. It did not even call for this tabular statement. In the statement of the case also, the Tribunal records :
'Along with this letter, a copy of the deed to evidence division in the status dated December 7, 1957, was enclosed. A schedule, a copy of which is annexure 'A' and forms part of the case, was also stated to have been enclosed.'
It is unfortunate that, when the entire case of the assessee hinged upon this particular document, i.e., the schedule, the Tribunal fought shy of examining the question as to when this document came into existence : it was apparently not even inclined to believe that this schedule was enclosed to the letter referred to. Since a copy of the schedule, however, forms part of the case according to the statement of the case by the Tribunal, we asked learned counsel for the department to examine the records and inform us, whether this schedule was in fact submitted to the Income-tax Officer. Mr. V. Balasubramaniam confirmed the statement of the assessee that that schedule was really submitted and it is among the records.
We have no doubt in our minds that this schedule represents an allocation of the properties among the various members of the family as an incident to the partition. We are satisfied that, on the date of the partition, it was decided among the members of the family that of the 3,293 shares in Messrs. Southern Roadways Private Limited, 1,293 were to be allotted to the assessee, 1,000 to his wife and 500 to each of his two minor daughters. This is the only item of property in which the minor son of the assessee was not given a share. But, of course, he was given adequate shares in all the remaining properties of the family. If, therefore, the allotment of the shares to the wife and the two minor daughters was contemporaneous with the partition, would it be a case of transfer of assets directly or indirectly by an individual which will come within the mischief of section 16(3) of the Act ?
The Tribunal observed, without really any material to support it, that the claim of the assessee is an after-thought. If this observation has any meaning, it presumably suggests that the assessee thought of making this claim only at the time of the submission of his individual return. The sequence of the dates clearly proves the contrary. On December 7, 1957, there was a division in status. The document in that regard was registered on February 21, 1958. On that very day, the assessee addressed letters to the several companies to record certain shares (the numbers of which were presumably furnished) in the names of his minor son, his wife and his two minor daughters. It has to be remembered that, even when the family was joint, these shares stood in the name of the assessee on the books of the company. It could hardly be otherwise for the assessee was the karta of the family. On March 27, 1958, the assessee addressed a letter to the Income-tax Officer for the purpose of section 25A of the Act and attached thereto a schedule which set out the mode of division of the various items of properties. It may be stated that, in order to effectively put an end to any future assessment of the Hindu undivided family, the assessee has to establish, to the satisfaction of the Income-tax Officer, that the property of the family had been actually divided by metes and bounds among all the members entitled thereto. It was, therefore, essential that the exact mode of division had to be communicated to the Income-tax Officer. On February 16, 1959, an order under section 25A was passed. On January 31, 1959, the Wealth-tax Officer passed an order accepting the return of the assessee. On March 30, 1959, the wife of the assessee had submitted her individual return for income-tax and had been assessed in respect of 1,000 shares which had become her property as a result of the partition. In respect of the shares made over to the wife and the two minor daughters, the Hindu undivided family as such had been assessed under the Gift-tax Act for the assessment year 1958-59, the return for which was filed on March 26, 1959. It was after all these proceedings initiated had come to an end that the assessee had submitted his own return for the assessment year 1959-60. It can hardly be said that, for the first time on this occasion, the assessee thought, of a device of pleading allocation of the properties at the partition. The dates are significant and show that this allocation should have been made even on December 7, 1957, and the schedule submitted to the Income-tax Officer on March 27, 1958, represents a transaction which was contemporaneous with the partition in the family.
The view taken by the Tribunal that as a result of severance in status the entirety of these 3,293 shares had become the property of the assessee and that there was a transfer subsequently by the assessee to his wife and two daughters finds no support from the facts. How the Tribunal came to the conclusion may be briefly indicated.
The Income-tax Officer overlooked the fact that a schedule had been submitted even on March 27, 1958, and asked the assessee to furnish replies to certain questions. On the 11th of November, 1958, the assessee submitted replies to the questionnaire sent to him. Herein he stated that all the assets and liabilities relating to the family had been completely partitioned among the members of the family in definite proportions as per the statement enclosed. While referring to the shares in Messrs. Southern Roadways (P) Ltd., he stated :
'I have transferred 1,000 shares to my wife and 500 shares each to my two daughters'.
It is the statement that has been relied upon by the department to hold that there was a transfer by the assessee in his individual capacity to his wife and two daughters. We do not agree with the department or the Tribunal that this reply given by the assessee on the 11th of November, 1958, can be read isolated from the earlier correspondence or the earlier statements made by the assessee. Indeed, when the assessee stated 'in respect of the shares held by me in Southern Roadways (P) Ltd.', it did really mean that the shares had been held by him as the karta of the Hindu undivided family. Factually also, those shares stood in the name of the assessee, and this statement that he had transferred 1,000 shares read in the context is only an affirmance of what has taken place at the partition and nothing more.
Where there is a severance in status in a Hindu undivided family till the properties of the family are reduced to the individual ownership of the several members of the family entitled thereto, the properties still belong to the group of individuals each of whom has only a definite share in those properties. The actual division of the properties of the family may take, in some cases, a considerable length of time. It is not unusual to find that the properties of the Hindu undivided family stand in the name of one or the other member of the family. Solely because division in status has taken place, it does not follow that the properties standing in the name of one or the other members of the family became his individual property, so that, if there is a subsequent allocation of those items among the members of the family, one can postulate a valid transfer by one member to another.
We may refer to a decision of the Supreme Court in Commissioner of Income-tax v. Stremann (Civil Appeal No. 1105 of 1963). The appeal arose out of a decision of this court rendered in an income-tax reference, where the question was whether a transfer of assets to three minor children attracted the provisions of section 16(3) of the Income-tax Act. In that case, the father blended his self-acquired property with the ancestral property and purported to partition the entire property among his sons. This court upheld the right of a father to so throw into the hotchpot his separate property and took the view that it became joint family property by such an act. This court further took the view that the process of division and allocation of joint family properties at a family partition did not imply a transfer which could be brought within the scope of section 16(3) of the Income-tax Act. Their Lordships of the Supreme Court observed :
'When instructions are given that the self-acquired property is to be treated as joint family property, in our opinion, at that moment, the property assumes the character of joint family property.'
Their Lordships also agreed with the view expressed by this court that whether there was an earlier blending of the self-acquired properties of the assessee with the ancestral joint property or not, 'it certainly was unequivocal that the properties dealt with at the partition were treated by the volition of the assessee as the properties available for partition between the members of the joint family.' They also agreed with this court that there was no direct or indirect transfer of the assets to the minor children in the circumstances of that case.
It seems to us that this decision fully applies in so far as the latter part is concerned. It was never in dispute that these shares were ancestral properties of the joint family consisting of the assessee and his minor son.
It was at the partition that took place between the members of the joint family that certain shares were allotted to the assessees wife and to the two minor daughters. That such an allotment could be validly made and is not opposed to the principles of Hindu law is beyond question. Nor, as we have found, was it a transfer of an assets of these shares after these shares had become the individual property of the assessee on allotment. As their Lordships of the Supreme Court have affirmed, the allocation of properties to various members of the family at a partition does not amount to a transfer direct or indirect, so as to attract the application of section 16(3) of the Income-tax Act.
We accordingly answer the question in favour of the assessee. The assessee will be entitled to his costs. Counsels fee Rs. 250.
Question answered in favour of the assessee.