RAJAGOPALAN, J. - The questions that were referred to this Court under section 66(1) of the Income-tax Act in Case Referred No. 46 of 1951 arose out of the proceedings of the assessment year 1943-44, and those referred in Case Referred No. 108 of 1953 arose out of proceedings for the succeeding years 1944-45 to 1950-51. The questions that were referred in Case Referred No. 46 of 1951 were :
'(1) Whether there was material on which the Tribunal could have come to the conclusion that the management and control of the firms affairs was not situate wholly outside British India.
(2) Whether on the facts and in the circumstances of the case the income from properties situate in Ceylon was assessable under the Indian Income-tax Act of 1922, as that of the Hindu undivided family notwithstanding that succession thereto was in accordance with Ceylon law which does not recognise such a legal entity for purposes of ownership of the estate.'
The questions that were referred to this Court in Case Referred No. 108 of 1953 were :
'(1) Whether the share income from the three tea estates situate in Ceylon are assessable under the Income-tax Act, 1922, in the hands of the assessee family notwithstanding that succession to the said estates was regulated by the Ceylon law.
(2) Whether the inclusion of the salary paid in the firm to S. T. P. Marimuthu Pillai for services rendered by him in the total income of the assessee family is legal and proper.
(3) Whether the assessee is entitled to the allowance under the proviso to section 4(1) (c).'
Despite the change in the wording, question 2 in Case Referred No. 46 of 1951 is substantially the same as question 1 in Case Referred No. 108 of 1953.
A genealogical table of the family was furnished at page 24 of the printed papers in Case Referred No. 46 of 1951. Mari Kangani migrated to Ceylon and acquired properties there, mainly tea estates known as the Marieland group of estates. The lex loci which governed succession and inheritance of immovable properties Ceylon did not recognise undivided Hindu families, though in India Mari and his descendants were governed by the Mitakshara. Though an individual was a member of a coparcenary in India, a share immovable properties situate in Ceylon, even if that share was undivided, could be held by that individual only on the basis that it was the separate property of that individual and did not constitute the property of the coparcenary of which he was a member. Maris three sons, Arunachala, Chidambara and Ramaswami, took the properties in equal shares under Maris will. Chidambara died before 1908 bequeathing his properties to his son Ponnuswami. Chidambaras son Ponnuswami died intestate in 1937. His widow and four sons S. T. P. Marimuthu, Deenadayalan, Ramanathan and Ponnuswami, inherited the deceased Ponnuswamis properties. The widow conveyed her share in these properties in Ceylon to her step son S. T. P. Marimuthu and to his three half-brothers in equal shares. So the position was that the four sons of Ponnuswami succeeded to his properties, which constituted a third share in the Marieland group of estates. Maris last son Ramaswami had two sons, Sellamuthu an Natesa, both of whom are dead. S. Srinivasan and S. Sellamuthu are the sons of Sellamuthu and these two together apparently constituted a coparcenary. Natesans sons, Ramanathan and Ganesa who are still minors, between them constitute another coparcenary. The Knightsdale group of estates, also in Ceylon, were acquired out of his income of the Marieland Estate, of which they formed a part till 1st January, 1942. The three coparcenaries between them held the Knightsdale Estate : and according to the law in Ceylon, each coparcener held his eighth share as his separate property. The estates are in Ceylon, but the present owners are residents of Murugur in Tiruchirapalli district.
It was common ground that the Knightsdale group of estates were managed by S. T. P. Marimuthu on behalf of these three families during the assessment years. A partnership agreement was entered into on 19th January, 1944, to provide for the management of the Marieland group of estates as well as of the Knightsdale group. To that agreement the descendants of Arunachala, the eldest of Maris sons, were also parties. But no further reference need be made to them. With reference to the Knightsdale group of estates alone a fresh partnership agreement was executed on 22nd March, 1947, which showed the adult members of the three families, S. T. P. Marimuthu, S. Srinivasan and S. Marimuthu, as the partners. The five minors were shown as having been admitted to the benefits of that partnership. Each of the eight of the co-owners of the estates had an eighth share in the assets and profits of the partnership.
The income from the Knightsdale group of estates, which was remitted to India where the owners lived, was treated as income from business to which apparently no objection was taken before the departmental authorities or before the Appellate Tribunal. The learned counsel for the assessee contended before us that it was not income from any business as such, but it was really income from the immovable properties held by the eight members of the three families in separable shares. Of course, if the income received in India had arisen directly out of the immovable properties held in Ceylon, the nature of that income should only be correlated to the right in which the immovable property was held in Ceylon. That each of the eight members held his share in the immovable properties in Ceylon as his separate property, despite his membership of a coparcenary in India, could admit of no doubt. It should therefore follow that the share in the income arising directly out of that immovable property in Ceylon could be received by each sharer only as his separate property. But these considerations will not be applicable where the income has all along been treated not as income directly arising out of the immovable properties in Ceylon but out of the business conducted in Ceylon. The business was no doubt management of the tea estates. Though the basic foundation of that business was the possession of immovable properties, tea estates, none the less, it was business, and the income received in India constituted profits of that business. It was not income directly arising out of the immovable properties in Ceylon. See Commissioner of Income-tax v. Diwan S. L. Mathias. The contention the learned counsel for the assessee put forward before us for the first time in these proceedings, that the income should be treated as income form the immovable properties held in Ceylon, has therefore to be rejected.
Each of the eight persons, who could between them constitute three coparcenaries, was entitled to and eighth share in the profits of the business which constituted the income therefrom. For purposes of assessment, however, the departmental authorities 'aggregated' the shares in the income and assessed it on the basis, that it was the income of the three joint families. The shares in the income of S. T. P. Marimuthu and his three half -brothers were 'aggregated', and they were taxed on the basis that they constituted the income of the joint family of S. T. P. Marimuthu and his three half-brothers. Similarly, the shares of S. Marimuthu and S. Srinivasan, the sons of Sellamuthu, were 'aggregated' for purposes of assessment. So also were the shares of Ganesan and Ramanathan, the sons of Natesan. The Tribunal confirmed that assessment. It is the validity of this aggregation that has been challenged by the assessee by the second of the questions in Case Referred No. 46 of 1951 and the first of the questions in Case Referred No. 108 of 1953.
These two questions, in our opinion, have really to be answered on the basis of the two partnership deeds dated 19th January, 1944, and 22nd March, 1947.
The contracting parties to the partnership evidenced by the document of 19th January, 1944, were (1) S. T. P. Marimuthu as kartha of the joint family consisting of himself and his half-brothers Deenadayalan, Ramanathan and Ponnuswami, (2) S. Srinivasan as the kartha of the joint family consisting of himself and his undivided brother S. Marimuthu, and (3) the coparcenary which consisted of the minors Ramanathan and Ganesan, represented by their guardian, S. T. P. Marimuthu. There were two brothers who were also partners, Somasundara and R. M. Srinivasan, who represented the line of Arunachala, the elder son of Mari Kangani. But they can be left out of further account. This was the partnership that continued practically till 22nd March, 1947. The assessee firm adopted the calendar year as the accounting year. So for the accounting years 1944, 1945 and 1946, corresponding to the assessment years 1945-46, 1946-47 and 1947-48, the partnership, as far as these three families were concerned, consisted only of S. T. P. Marimuthu as the kartha of his joint family, Srinivasan as the kartha of his joint family and S. T. P. Marimuthu in his capacity as the guardian of the coparceners Ramanathan and Ganesa. Such a partnership the kartha of the joint family was entitled to enter into in the circumstances of this case - the business being ancestral family business. That the business to a large extent was the management of immovable properties in Ceylon in no way affected the question of the competence of the kartha of the joint family to enter into a partnership which question has to be decided not with reference to any law in Ceylon but with reference to the law applicable to the parties in India, the country of their origin and domicile. Under the partnership deed of 19th January, 1944, only the contracting parties were entitled to share the profits, and the sharers were S. T. P. Marimuthu, S. Srinivasan, and S. T. P. Marimuthu as guardian and manager of the minors, Ramanathan and Ganesa. The income which each of them got belonged to the joint family which he represented. It is not a case of the coparceners pooling the income of the joint family with the income each of them got from his separate properties. It is not even a case of aggregation of the income of each of the coparceners, whether or not the Income-tax Officers were entitled to adopt such an aggregation as the basis of the assessment. It was just a case of the income being that of the kartha of the family, and after that income had been received by the kartha in his capacity as kartha, the income becoming a property of the joint family of which he was the kartha. Therefore, for the period during which the partnership evidenced by the document of 19th January, 1944, was in force, the income from the business in Ceylon was the income of the three joint families and is assessable to tax in India on that basis.
With reference to the accounting years commencing from 1947, the position was different. The parties were governed by the terms of the deed of partnership dated 22nd March, 1947. The contracting parties were the three adult members, S. T. P. Marimuthu, S. Marimuthu and S. Srinivasan, but each of the five minors was severally admitted to the benefits of the partnership, each with an eighth share. Under the terms of this deed of partnership of 1947, the share in the income from the business in Ceylon which each of the eight persons was entitled to and obtained was his separate income. It was not any the less separate, though the sharers were members of coparcenaries. Membership of a coparcenary is quite consistent with an individual member holding profits in his own separate right and treating the income therefrom as his separate property, and that was the position each of the eight members occupied under the deed of 22nd March, 1947. There is no question of any coparcener blending his income with the income of the joint family. That was certainly impossible in the case of the minor coparceners. there was not even any evidence that S. Marimuthu and S. Srinivasan, who were adults and who constituted a coparcenary, pooled their separate income with the income of the properties which they held as a joint family. The income-tax law does not authorise 'aggregation' of the separate income of the members of a coparcenary for purposes of a assessment to income-tax. So, with reference to 1947 and the subsequent accounting years, the apportionment of the income of the registered firm could only be on the basis that the share in the income which each of the eight persons was entitled to was his separate income and assessable only on that basis.
On 22nd March, 1947, simultaneously with the execution of the deed of partnership for the management of the business connected with the Knightsdale group of estates, another partnership agreement of the Marieland group of estates.
In the larger group Somasundara and Srinivasan, who represented the line of Arunachala, were also partners. But so far as the minor coparceners of the three joint families with which we are concerned in this case, who had their respective shares in the Knightsdale group of estates, the provisions of the two documents executed on 22nd March, 1947, were in no way inconsistent with each other. The minors were specifically admitted to the benefits of each of the two partnerships.
The accounting years 1942 and 1943 fall outside the scope of even the first of the two partnership deeds dated 19th January, 1944. In each of the assessment years, corresponding to the accounting years 1942-1943 the assessee was a registered firm. No document to furnish the basis of assessment in these two years has been placed before us. In this assessment order for the assessment year 1943-44, corresponding to the accounting year 1942, the Income-tax Officer referred to an award of 1940 to which effect was given only after 1st January, 1942, and recorded that from 1st January, 1942, the proprietors of the Knightsdale group of estates were (1) S. T. P. Marimuthu, (2) R. M. S. Marimuthu Pillai, and (3) Minors Ramanathan and Ganesan. We have held, and this is indeed not a matter for dispute, that under the law of Ceylon by which title to the immovable property was governed, Marimuthu and his half-brothers held their shares in the Knightsdale Estates separately as co-owners. Property belonging to co-owners might be managed for or on their behalf and the income resulting from the management might be income from business, but by itself and in the absence of any evidence in that behalf, the income received would still be an incident of the co-ownership and would consequently be received by them in separate shares. There is however nothing to prevent the sharers from conducting the business as partners and in that event the resultant profit would be attributable to their character as partners and not to their original co-ownership, though the property which is exploited belongs to the partners in common. We rested our decision with reference to the accounting years 1944, 1945 and 1946 on the terms of the deed of partnership dated 19th January, 1944. But for the specific provisions in that document, the position would have been that each of the eight co-owners of the Knightsdale group of estates was entitled to treat his share in the income even from the business which consisted of the management of the immovable properties which constituted the Knightsdale group of estates as his separate property. It is on that basis that the income of each of these eight co-owners should be assessed for the income for each of the accounting years 1942 and 1943. The Appellate Tribunal recorded in its judgment in the appeal preferred to it that the auditors report which the assessee firm produced before the departmental authorities, itself apportioned the income from the Knightsdale estate between the three family units. The Tribunal observed : 'This clearly shows that the parties themselves had no doubt in their minds that it was the three groups of families which were enjoying the income from the estate. There is not whisper in this report that the property or the income was that of the individual coparceners and not of the family. Then again, the partnership deed, dated 17th January, 1944, was executed by the three groups of families, and not by the individual members thereof and the shares of the three families were specified as one-half, one-fourth and one-fourth respectively.'
The conduct of the assessee firm, evidence of which was furnished by the auditors report, cannot affect in this case the legal rights and liabilities of each of the eight co-owners including the two adults referred to, S. T. P. Marimuthu and S. Marimuthu. Any subsequent dealing by them of the income so received would be wholly irrelevant to ascertain the character of the receipts in their hands, which was that of co-owners owning separate shares. As we have pointed out, there was no evidence that even as between S. Marimuthu and his undivided brother Srinivasan, there was any pooling of incomes from the business in Ceylon, which in law was the separate property of each of them. The others were minors, and no question of pooling by their own volition could arise in their case. We have also pointed out that apart from such pooling there can be no basis for any aggregation of the separate income of each of the members who constituted a coparcenary. The Tribunal was not entitled to apply to the conditions that prevailed in accounting years 1942 and 1943 the terms of the deed of partnership dated 17th January, 1944. Therefore with reference to the accounting years 1942 and 1943, the position is that, in the absence of any evidence on record to prove any partnership between the co-owners or the terms of any partnership, the liability to assessment in no way differs from that which should be the basis in the accounting year 1947 and thereafter.
In our opinion except with reference to the income of the accounting years 1944, 1945 and 1946 the departmental authorities had no legal basis on which they could aggregate the shares in the income from the business of each of the coparceners. For the years other than 1944, 1945 and 1946 the share in the income from the business which each of the eight co-owners obtained must be treated as his separate income, and it could be taxed only on that basis.
The first question in Case Referred No. 46 of 1951 ran :
'Whether there was material on which the Tribunal could have come to the conclusion that the management and control of the firms affairs was not situate wholly outside British India.'
This question arose only with reference to the assessment year 1943-44 and the corresponding accounting year 1942. Admittedly S. T. P. Marimuthu, who was in management, resided at Murugur. As the Tribunal rightly pointed out, the burden lay upon the assessee firm to prove that no part of the control of the management of the Knightsdale group of estates of Ceylon was exercised by S. T. P. Marimuthu from India. If S. T. P. Marimuthu had any evidence to prove that the control over the management of the business was exercised all through the year 1942 only by his power-of-attorney agent in Ceylon, the assessee should have placed that material on record. In the absence of such material the decision of the Tribunal will have to be accepted as correct.
Question 2 in Case Referred No. 108 of 1953 ran :
'Whether the inclusion of the salary paid in the firm to S. T. P. Marimuthu Pillai for services rendered by him in the total income of the assessee family is legal and proper.'
That salary earned by S. T. P. Marimuthu by his own efforts was obviously his separate property. It could not be said that the income that he received as remuneration for the services he rendered as in any way acquired by expenditure detrimental to the property of the joint family of which he was the kartha. The Tribunal, which confirmed the decision of the departmental authorities on that point, was not right in aggregating this item of what in law was the separate income of S. T. P. Marimuthu with the income of the joint family of which he was the kartha : See commissioner of Income-tax v. S. N N. Sankaralinga Ayyar and Murugappa Chetty and Sons v. Commissioner of Income-tax.
The third question in Case Referred No. 108 of 1953 was :
'Whether the assessee is entitled to the allowance under the proviso to section 4 (1) (c).'
We find it a little difficult to understand what exactly was the claim made before the Tribunal. In the statement of the case the Tribunal recorded in paragraph 12(3) that the claim was :
'The allowance of Rs. 4,500 under the third proviso to section 4 (1) (c) of the Income-tax Act should have been made in respect of the share income from each of the three estates in Ceylon.'
Whether by that they meant that the allowance could be claimed by each of the three joint families is not quite clear. But whether the claim was advanced as it was before us with reference to each of the eight co-owners of the Knightsdale group of estates, or with reference to the three family units, it is equally untenable. It was the registered firm that was assessed in all the relevant assessment years. The allowance provided for by the third proviso to section 4 (1) (c) of the Income-tax Act could be claimed only by the assessee, that is, in this case by the registered firm and not by each of the partners of the firm or by any of the minors admitted to the benefits of that partnership. See Mohanlal Hiralal v. Commissioner of Income-tax, C. P. and U.P., and Commissioner of Income-tax, Bombay v. Valiram Bherumal.
Our answers to the questions referred to us in Case Referred No. 46 of 1951 are as follows. The first question is answered in the affirmative and against the assessee. The second question is answered in the negative and in favour of the assessee.
Our answers to the questions referred to this Court in Case Referred No. 108 of 1953 are as follows. The first question is answered in the affirmative with reference to the accounting years 1944, 1945 and 1946 and in the negative with reference to the other assessment years. The second question is answered in the negative and in favour of the assessee. Our answer to the third question is that the assessee is entitled to no more than one allowance of Rs. 4,500 under the third proviso to section 4(1) (c) of the Income-tax Act.
Since neither side could claim to have succeeded in either of the cases we direct that there should be no order as to costs in either case.
Reference answered accordingly.