SRINIVASAN, J. - The facts leading to this reference require to be set out at some length. The estate of the Zamindar of Chunampet was all along assessed as a Hindu undivided family. The joint Hindu family consisted of the father and his three sons the last of whom was a minor. The two major sons commenced a partition suit, O. S. No. 64 of 1944, on the file of the Subordinate Judge, Chingleput, on the 11th September, 1944. In the course of that suit, a compromise was filed on the 16th September, 1948, whereby the two major sons, the plaintiffs in the suit, were appointed as joint receivers. Following this compromise, a preliminary decree was passed by the court on 5th October, 1948. It decreed that the admitted family properties set out shall be divided into four equal shares and that each of the two plaintiffs and the defendants (father and the minor son) be allotted a one-fourth share. It set out the common liabilities to be met by the entire family estate. It specified certain amounts to be provided for the fourth defendant, the sister of the plaintiffs, both for her marriage and settlement upon her. Several other payments to be made out of the estate were also provided. Clause 6 of the decree directed that the plaintiffs 'shall forthwith take possession of all the suit properties........ and manage them as receivers on behalf of the parties and that they shall also manage the salt pans belonging to the devasthanams as it has been administered all these years and that they should discharge and provide for the liabilities mentioned in paragraph 2. .....' Other clauses in the decree directed the plaintiffs as receivers to make certain allowances to the parties, that is, the plaintiffs and defendants Nos. 1 to 4, in specified sums. It is common ground that there were several final decrees in the suit, the first of which was on 27th November, 1951. It effected a division of the salt pans belonging to the family with effect from 1st January, 1952. The second final decree, dated 15th April, 1953, effected a division of the cardamom estate belonging to the family. The third and last final decree dated 18th January, 1954, brought about a complete division of all the remaining assets of the family.
Immediately following upon the appointment of the plaintiffs as receivers, an application seems to have been made to the Income-tax Officer under section 25A(1) of the Act claiming that by reason of the preliminary decree, a partition had taken place among the members of the family. This application was rejected for the reason that the preliminary decree was subsequent to the previous year in respect of which the assessment was under question at that time. In a similar manner, further applications seem to have been made in the succeeding years with the same result. In respect of the assessment year 1950-51, the Income-tax Officer, in dealing with a similar application under section 25A held that there had been no division of the various assets by metes and bounds and that the assessee continued to be a Hindu undivided family for the purposes of the Act. Assessments for the assessment years 1951-52 and 1952-53 were also made on the same basis. In respect of the assessment year 1953-54, however, since one of the items of the erstwhile joint family properties, viz., the salt pans, had been divided by metes and bounds by the first final decree dated 27th November, 1951, the profit from that source was left out from that assessment. There was, however, an assessment as on a Hindu undivided family in respect of the income from the other properties.
It has to be mentioned here that all of these assessments were made on the receivers as representing the Hindu undivided family.
Appeals were taken to the Appellate Assistant Commissioner, the contention being that since the beneficial ownership of the various properties had passed on to the receivers, the Hindu undivided family was no longer the owner thereof, and that on and after the 5th October, 1948, when the preliminary decree was passed, separate assessments should have been made on the various erstwhile coparceners in respect of their individual shares under section 41 of the Act. This claim was shortly disposed of on the ground that though the joint status had been put an end to by the express declaration of their intention to separate, the family properties were not divided by metes and bounds or in definite portions within the meaning of section 25A(1) of the Act. The Assistant Commissioner rejected the plea that the receivers were in possession of the properties on behalf of each and every one of the separated members of the family. A further appeal was taken to the Appellate Tribunal which came to a like conclusion and upheld the assessments in the status of the Hindu undivided family.
On an application under section 66(1) of the Act, the following questions have been referred to us :
(1) Whether section 41 is mandatory or only an alternative available to the income-tax authorities in certain special cases
(2) On a proper construction of annexure 'A' and 'B' whether the receivers aforesaid can be said to have been appointed by or under any order of court and received the income on behalf of each of the beneficiaries for the aforesaid years as required by section 41, in the absence of the division of the family by metes and bounds as required by section 25A
(3) Whether the assessment of the family in the hands of the receivers on the income accruing after 6th October, 1948, till 30th June, 1952, in the assessments 1950-51, 1951-52, 1952-53 and 1953-54 are valid
The three questions together call for the determination of two problems :
(1) Even if the order under section 25A(1) has not been made by the Income-tax Officer, is it permissible to make separate assessments on the erstwhile members of a joint Hindu family, or should the assessment be in the character of a Hindu undivided family
(2) Does section 41 permit, in circumstances as in the present case, assessments being made directly on the person on whose behalf income, profits or gains are receivable and are received by receivers, or is it mandatory that the assessment should be on the receivers alone
There is no doubt that there was a joint family comprised of certain persons who were being assessed in the status of a Hindu undivided family. It is also beyond dispute that the status of the family as a joint Hindu family was disrupted by the filing of the partition suit in 1944. Whether or not the properties were actually divided by metes and bounds, the joint Hindu family as such had ceased to exist and as long as the properties of the family remained undivided there is no doubt that the erstwhile coparceners became tenants-in-common. What appears to be contended by the learned counsel for the assessee is that in the light of the compromise that was entered into and the preliminary decree that was passed by the court, though the Hindu undivided family may be an assessable entity, it ceased to own any property or to derive any income, and that notwithstanding that no order was passed under section 25A(1), each erstwhile coparceners, since he was directed to be paid his proportionate share of the income, and since his share of the family properties was also definite, should be assessed separately. It is argued that on and after the filing of the suit, the erstwhile coparceners own the property only as tenants-in-common; the tenants-in-common through the agency of the receivers derive the income from the property; and it is not the Hindu undivided family that derived the income but each individual tenant-in-common.
For this starting proposition that notwithstanding section 25A(3) of the Act, each divided member should be assessed separately, and that an assessment in the status of a Hindu undivided family is not valid, the learned counsel is frankly unable to rely upon any authority. While he no doubt concedes that the property was not divided by metes and bounds, he seeks to rely upon the provision in the preliminary decree, which, according to him, practically results in each tenant-in-common receiving his share of the income referable to a definite portion of the family property. He relies upon clause 6 of the preliminary decree which directs the receivers to manage the properties on 'behalf of all the parties'; to clause 8, which provides for the payment of monthly allowances to each of the parties and which directs further 'at the end of the year, if on looking into the accounts the first defendants one-fourth share of the net income, after payment of interest on all family debts, is in exceed of the aggregate allowance paid to him, he shall receive the excess or repay the overdrawing, if deficit occurs'; and to clause 9 which provides 'that the plaintiffs and defendants Nos. 2 to 4 shall have allowances as heretofore viz., plaintiffs and second defendant each Rs. 1,000 per month, third defendant Rs. 500 per month, fourth defendant Rs. 250 per month with conditions similar as in the case of the first defendant.' On the basis of these clauses, together with the declaration that each of the parties is entitled to a fourth share, the argument appears to be that the property had been partitioned among the various members in definite portions, leading to the claim, that the various members should be assessed individually.
As we said, this proposition derives support from no decided authority, and in fact both the section itself and the cases decided thereon are opposed to this argument. The mere circumstance that a declaration of the fractional interest of the several coparceners has been given in the preliminary decree does not amount to a partition in definite portions that is contemplated in section 25A. Some reliance has been placed upon Meyyappa Chettiar v. Commissioner of Income-tax. There the principal question was whether it was open to the Department to question the mode of division of the properties among the various members of the family and whether a partition, even if it is unequal and unfair, could be avoided by the income-tax authorities on the ground of such inequality. What was decided therein was that while it was open to the coparceners to repudiate such an unequal partition, a partition made by the father is not void and will be good until it is set aside. It was not for the Income-tax Department to declare the partition to be ineffective for such a reason. It was also decided in this case that though the requirement of section 25A was that the partition should be in definite portions, physical division or division by metes and bounds could not be demanded in the case of property which does not admit of such a mode of division. But so long as the property is of such a nature that it could be divided by metes and bounds and it is not so divided, there could not be said to be a partition within the meaning of section 25A, and in the absence of such a partition, the Hindu undivided family could be deemed under section 25A(3) to continue to exist for purposes of assessment. In Charandas Haridas v. Commissioner of Income-tax the effect of a partial partition was examined by the Supreme Court. The family in that case possessed certain managing agencies as family property and an oral partition was entered into giving a share of the commission to the members of the family. It was contended by the Department that it was not a partition which could be accepted under section 25A. Their Lordships held, however, that while the Hindu law required a division of the properties to be effective so as to bind the members, it did not further require that the property must in every case be partitioned by metes and bounds, if separate enjoyment could otherwise be secured according to the shares of the members. They took into consideration the nature of the asset concerned in the case, which was a managing agency, and held that for an asset of that kind, there was no other mode of partition open to the parties if they wished to retain the property and yet hold it not jointly but in severalty, and that the law did not contemplate that a person should do the impossible. The contention of the Department that it was open to the members of the family to have allotted different managing agencies to different members of the family as a reasonable mode of division consistent with the requirement under section 25A(1) was repelled. The nature of the property was taken into consideration for determining whether the mode of division adopted by the parties fulfilled the requirements of the income-tax law.
We are unable to see how these decisions assist the argument of the learned counsel for the assessee. It is undeniable that in this case the properties of the family consisted of moveables, house properties, leasehold right of salt pans and cardamom estate, all of which are capable of actual division by metes and bounds. The circumstance that there was a declaration of the interest of each of the members of the family in the properties as one-fourth share therein does not carry us any further. After all, immediately there is a declaration of the intention to separate on the part of any member of the joint family, fractional interest in the family becomes ascertained. But that is not to say that he becomes entitled to any definite portion of the family estate. Nor does the fact that, pending an actual division of the properties, the income is divided in the ratio of the shares amount to such a division in definite portions. As the decisions cited above lay down, it is only in the case of properties which by their very nature are incapable of physical division that the absence of actual division thereof is held not to offend against section 25A.
It has further been contended that even if in the absence of the division as required by section 25A, the Hindu undivided family has to be deemed to continue to exist as an assessable entity when once receivers have been appointed not as representatives of the Hindu undivided family but only as representatives of the tenants-in-common, the receivers do not realise the income on behalf of the undivided Hindu family but on behalf of the individual members of that family. Reliance is placed on clause 6 of the decree which directs the receivers to manage the properties on behalf of the parties. Forgetting for the moment the intervention of the receivers, when once it is found that there has been no partition of the joint family property among the various members or groups of members in definite portions, it follows that for the purpose of assessment such a family shall be deemed to continue to be a Hindu undivided family. When once that conclusion is reached, we find it difficult to follow the further argument that the intervention of the receivers makes any difference to the validity of the assessment on the Hindu undivided family.
Some reliance appears to be placed upon decisions which deal with the question of an association of persons, and the present case is attempted to be brought into line with certain observations made in these decisions. In Estate of Khan Sahib Md. Oomer Sahib v. Commissioner of Income-tax the receivers appointed by court pending a suit for partition carried on the business of the deceased owner of the property who died intestate. An assessment was made of the profits of the business in the hands of the receivers on the basis that the profits accrued to an association of persons consisting of the heirs. The decision principally went upon the consideration of what constituted an association of persons. It was held that neither the fact that the heirs inherited the business and owned it thereafter as co-shares in defined shares and the income belonged to the group of heirs with defined share, with the earning of which income they had nothing to do, nor the fact that they were entitled to and did receive their share of the profits, either each separately or both taken together, constituted the an association of persons. It was further decided that to constitute an association of persons as a taxable unit, the objects of the association must be to produce income, profits or gains and that a volition to that effect should proceed from those who formed the association. In that case, it was found that all the heirs all through wanted the receivers to be appointed to conduct the business; there was the unity of purpose and objective between them which was sufficient to constitute them an association of persons. In another case, Indira Balkrishna v. Commissioner of Income-tax, a similar question came up for consideration. There, three co-widows of a deceased Hindu received income from the assets which they jointly inherited from their husband. The Department assessed them as an association of persons in respect of the entire income which arose from property, dividends, shares in a registered firm, interest on deposit and ground rent. It was decided therein that except in so far as the income from property was concerned, which property they enjoyed and managed jointly and in respect of which they should be treated as having earned the income as an association, with regard to the rest of the income, there were no acts of management on the part of the widows and they could not be regarded as an association of persons. We shall refer to this decision again when it comes to dealing with the immovable properties and income therefrom. But here it would be sufficient to state that in so far as an assessee can be held to be liable to assessment as an association of persons, there should be definite acts of management on the part of the members constituting that association, leading to the income from the properties. The principle laid down in Indira Balakrishna v. Commissioner of Income-tax has been affirmed by the Supreme Court in Commissioner of Income-tax v. Indira Balakrishna.
It is difficult to see how these decisions render any assistance to the argument advanced. It is true that the income from properties is derived on behalf of the members of the erstwhile coparcenary. But it is not the contention of the assessee that there should be an assessment on the basis of an association of persons. Nor can we see how, so long as section 25A mandatorily directs the assessment to be made as if the Hindu undivided family continued to exist, there could be an assessment in the status of an association of persons. The Income-tax Act clearly distinguishes between these two classes of assesses, an association of persons and Hindu undivided family. It may be that if there has been an actual division among the members of the family subsequent to which they for purposes of easy management prefer to manage the properties as an association, such a result, viz., the assessment in the status of an association of persons, may be possible. But so long as an actual division has not taken place, section 25A(3) comes into play and cannot be avoided on the basis of any such argument as advanced above.
It is next contended that at least in so far as the immovable properties are concerned, there can and should be an assessment on the individual members. The decisions referred to above are relied upon in this regard. Section 9(3) of the Act reads :
'Where property is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with this section shall be included in his total income.'
The argument is that on and after the passing of the preliminary decree, the respective shares of the members of the family become properties at least should be assessed in the hands of the members individually. It does not appear to us that this provision is attracted in the case of a Hindu undivided family. If it were, it should be applicable irrespective of whether there was a division or not, for each coparceners is entitled to a definite and ascertainable share in the property according to the Hindu law. This provision seems to our minds to have relevance to a case where two or more persons acquire a property jointly and their shares therein are definite and are ascertainable. In the case of joint family property, however, though the share of the coparceners may be defined according to the Hindu law, he cannot be said to own any definite part of the property. The position is no different even when there is a severance in status, but the Hindu undivided family continues to be the assessee. It is the assessee, the Hindu undivided family, that is the owner of the property for the purposes of the assessment to tax of the income from that property. There is no plurality of owners to attract section 9(3) of the Act. Section 9(3) cannot to our minds override the special provision relating to the Hindu undivided family which is contained in section 25A.
There is no doubt that the receivers in this case were appointed by the court. The fact that it was based on a compromise does not matter. Under section 41 of the Act, where a receiver or receivers is or are appointed by or under any order of court and is or are entitled to receive on behalf of any person any income, profits or gains, 'the tax shall be levied upon and recoverable from such.... receive..... in the like manner and to the same amount as it would be livable upon and recoverable from the person on whose behalf such income, profits or gains are receivable, and all the provisions of this Act shall apply accordingly.' The learned counsel seeks to interpret the expression 'person' found herein as relating to the several individual parties who made up the joint Hindu family. It is true that clause 6 of the decree provides that the receivers shall manage the properties on behalf of all parties. It is quite clear, however, that notwithstanding the use of this expression, the receivers were in fact managing only the undivided family properties on behalf of the members of the disrupted joint family. In fact, not only have they been directed to realised the income from the properties but they had to do all the various things which had to be done, such as meeting the liabilities of the family debts, making provision for marriages and other expenses, making monthly allowances to the divided members of the family and such other acts. Clearly, then, they were not acting on behalf of each individual member of the divided family but on behalf of what may be called the family estate. The receivers were accordingly appointed for the purpose of receiving the income, profits and gains of the persons, who for purposes of assessment to income-tax constituted a Hindu undivided family. Despite the disruption in status, the 'person' within the meaning of that expression in section 41(1) of the Act whom the receivers represented in this case was that Hindu undivided family. The intervention of persons who were no longer liable to be assessed as a Hindu undivided family but were entitled to be assessed to tax each in his individual status. Section 41(1) in express terms directs that the tax shall be levied on the receivers 'in the like manner and to the same amount as it would be livable upon and recoverable from the person on whose behalf such income, profits or gains are receivable.' In this case the 'person' to be assessed, the person whom the receivers represented, was the Hindu undivided family, and that was the only legal basis available in this case for the assessment levied on the receivers.
We answer the first question against the assessee. Section 41(1) is mandatory. Our answer to the second question also is against the assessee; despite the division in status the members continued under a liability to be assessed as a Hindu undivided family. We answer the third question in the affirmative and against the assessee.
The assessee will pay the cost of this reference. Counsels fee Rs. 250.
Reference answered accordingly.