JAGADISAN J. - The following question has been referred under section 66(2) of the Indian Income-tax Act :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the application of the provisions of section 16(3) (a) (iv) and in adding the interest income of the minor children of the assessee to the assessees assessable income ?'
The assessee and his sons were members of a Hindu undivided family but the family did not own any property in common. This was a joint family without property. The assessee, however, owned large extent of properties and was carrying on several businesses. On December 8, 1955, he executed a document styled as a deed of partition, in and by which wet and dry lands, houses and sites belonging to him exclusively as separate self-acquired properties were divided and specific items allotted to each one of his sons, one of whom was a major and the other three were minors. He himself did not take any share in that division. On December 31, 1955, he caused entries to be made in his capital account relating to his business by which credit of various sums of money was given to his wife, sons and daughters in the manner set out below :
Sankaran (major son)
Balasubramaniam (minor son)
Gomathi (Minor daughter)
The credit balance in his favour in the capital account on that date was Rs. 2,97,349. The sums allotted to the wife and children of the assessee were invested in the acquisition of 750 shares in a private limited company called 'Natesan and Co. Ltd.,' in respect of the sum of Rs. 1,90,000 transferred to the minor sons and daughters which were invested with the company. There was an interest payment of Rs. 8,340 by the company. This was during the year ended December 31, 1956, the previous year relevant to the assessment year 1957-58. Similarly, in the year ended December 31, 1957, the previous year relevant to the assessment year 1958-59, there was another interest payment of Rs. 1,576. The Income-tax Officer added these amounts to the assessable income of the assessee for these two years applying the provisions of sections 16(3) (a) (iv) of the Indian Income-tax Act. The assessee preferred appeals to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal objecting to these additions but was unsuccessful. His application to the Tribunal under section 66(1) of the Act for reference to this court having failed, he prepared an application under section 66(2) of the Act, and this court directed the Tribunal to refer the question set out above. In compliance with this order, the Tribunal has now drawn up a statement of case.
It will be convenient first to set out the provisions of section 16(3) (a) (iv) of the Act. That provision reads :
'(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 -......
(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration......'
In order to attract this provision of law, the assessee should be proved to have transferred his assets to the minor child (not being a married daughter) directly or indirectly. Was there such a transfer of assets is the only question that arises for decision in this case. According to the assessee, there was no transfer of assets as required by that section. Shortly put, his case is that the amount that stood to his credit in the business accounts on December 31, 1955, because impressed with the character of joint family asset, though the business was his separate business and the income earned therefrom was his separate property. It is contended that it acquired a joint family character by reason of the conduct of the assessee as evidenced by the partition deed dated December 8, 1955, and the entries in the account books which we shall advert to immediately. If the assessee is well founded in his submission that the transfer of credits in favour of his minor children was not really a transfer but was only the result of a partition of a joint family asset, it is obvious that he cannot be caught within the mischief of section 16(3) (a) (iv). It is now well settled that a partition under the Hindu law of joint family assets does not operate as a transfer inter vivos, as it is only the ascertainment of shares of coparceners, who at the time of the partition, are admittedly the persons having an interest in the properties. If, on the other hand, it were to be found that the business assets did not become joint family properties but remained only as separate and self-acquired properties of the assessee, it is equally clear that there was a transfer of assets within the meaning of section 16(3) (a) (iv) and that it would not cease to be a transfer merely because the assessee chose to describe it as the effect of a partition.
The partition deed dated December 8, 1955, was one between the assessee and his sons. One of his sons, Sankaran, was a major on that date. He represented his minor brothers in that partition arrangement. The following is the recital from that document :
'Whereas the wet and dry lands and houses and grounds mentioned hereunder and the business, etc., not mentioned hereunder are the self-acquired properties of the party of the first part and whereas we are desirous of effecting a partition of the immovable properties alone mentioned in the schedules hereunder and in the possession and enjoyment of the party of the first part as his self-acquisitions (party of the first part was the assessee).'
There is a categorical declaration in this document that the business run by the father (the assessee) was his separate and self-acquired property. In other words, the father openly declared that his sons had no manner of interest in the business. It is true that there was also a declaration to this effect in respect of the wet and dry lands, houses and grounds but they were divided not in accordance with the shares as prescribed by the Hindu law, but by allotment of specific items of properties as per the will of the father to each and every one of his sons. It is also clear from this document that there was no division of the business assets along with the division of other properties and that there was no declaration that the businesses were to be treated as joint family properties on and from the date of that document. We are unable to construe this document as bringing about a division in status between the father and his sons quoad the business assets. But learned counsel for the assessee relies strongly upon the entry in the capital account of the assessee which runs as follows :
To amounts due on partition amongst sons, Dr. Cr. Daughters and wife. Rs. 2,37,000
It is urged that the amount of Rs. 2,37,000 became due to the sons, daughters and wife only as a result of partition, that a partition presupposes the existence of a joint family asset and that, therefore, it must be presumed that the assessee declared his intention to treat the business also as joint family property either when he executed the partition deed dated December 8, 1955, or at some time thereafter between December 8, 1955, and December 31, 1955. Learned counsel further contends that even if the business were to be treated as his separate property, in as much as it was brought into the hotchpot or must be deemed to have been brought to the hotchpot or thrown into the common stock by the father consenting to effect its division as well, there was no transfer but only a partition under the Hindu law.
It is now well-settled that a separate property of a coparcener under the Hindu law can acquire the character of a joint family property of the coparcener by his own voluntary act of putting it in the common stock or blending it with joint family properties. The process of blending connotes that there are two sets of properties, separate and joint family, and they are pooled so that the exclusive rights of the coparcener holding the separate property are abandoned; then there emerges only one kind of property, the whole of it becoming joint family property. Where, however, there exists no joint family property and the coparcener owing separate property desires to have it treated as joint family property, it will be open to him to do so and the Hindu law does not require any formality to achieve this result. The act of the coparcener by which this conversion of separate property into joint family property takes place is described as throwing the property into the common stock or as treating the separate property as joint family property. It is, however, not necessary that there should be pre-existing common stock before it can be said that the separate property is thrown into it. In a case where the family has no joint family property, the 'common stock' is a mere fiction and throwing into the common stock is only a convenient phraseology to describe the process of conversion. A clear, unequivocal and unambiguous declaration by the holder of the separate property that it is joint family property would sufficiently impress that property with the joint family character. In Subramania Aiyar v. Commissioner of Income-tax, Rajagopala Aiyangar J., as he then was, set out the legal position in regard to this matter in these words at page 361 :
'.... but there was nothing to prevent the assessee from impressing upon self-acquired property belonging to him the character of joint family property. No formalities are necessary in order to bring this about and the only question is one of intention on the part of the owner of the separate property to abandon his separate rights and invest it with the character of joint family property. Where an inference of this sort is sought to be deduced from the conduct of the parties, there might be room for ambiguity and for difference of opinion. Where, however, it is the declaration of the owner of the separate property that is the evidence before the court or the Tribunal, the inference that the character of joint family property is impressed upon the separate property follows, unless the words are incapable of that construction or if it represents merely a future intention not yet given effect to.'
There can be no doubt that a separate property will retain its character as such unless and until there is some evidence to show, either by the course of conduct of the exclusive owner of that property or by an express declaration of such a person, that it was treated as joint family property. The mere fact that a separate property is divided between the members of the family would not be sufficient to establish that at the point of division it was treated as joint family property. Nothing prevents a coparcener from being generous to the other coparceners and allowing them to share his exclusive properties. This is possible even without a change in the nature of the property. There may be a case in which his separate property and the admitted joint family properties are all brought into hotchpot and divided and in such a case, the contention that the separate property also partook of the nature of joint family property is plausible; but where what is divided is only the separate property and there is no indication that at any point of time prior to its division or even at the moment of division, there was an alteration or change in the nature of the property, it would be very difficult to contend that the division amounts to a partition as the term is understood under the Hindu law.
Vibhaga, the Sanskrit equivalent to the English word 'partition', has been defined by Vigneshwara as 'the adjustment of diverse rights regarding the whole by distributing them in particular portions of the aggregate (Mitakshara placitum I(i) (iv)). In Viramitrodaya the meaning is expanded as follows at page 550 :
'For partition is made of that in which proprietary right has already arisen, consequently partition cannot properly be set forth as the means of proprietary right. Indeed what is effected by partition is only an adjustment of the proprietary right into specific shares.'
It does not follow from the texts of Mitakshara that the concept of partition is merely the division of the assets into specific shares. Partition includes the ascertainment of the respective rights of the shares who claim joint heritage in the subject matter of the division. A distribution of separate property by its sole owner to others who happen to be the members of the coparcenary to which he himself belongs does not carry with it the implication that the recipients of the shares had any antecedent rights in the property.
The decision of this court in M. K. Stremann v. Commissioner of Income-tax has discussed the question whether separate or self-acquired properties should be deemed to have become joint family properties by reason of the factum of an alleged partition. In that case the assessee, a Hindu governed by the Mitakshara law, inherited from his father a dwelling house and certain sums of money. He had also acquired the agency of a company which was his separate property. From and out of income from the agency business, he acquired movable and immovable properties. In August, 1944, and September, 1945, sons were born to him. The assessee maintained only one set of accounts in which he included the income from the house inherited by him and later from the house which was purchased out of the sale proceeds of the former, and until the assessment year 1952-53, he was assessed on the entire income, from the agency as well as the house, in the status of an individual. On 19th December, 1952, the assessee effected a partition between himself and his minor sons, and in the deed of partition it was recorded as follows : 'Whereas the assessee has been earning commission and acquiring property and blending his money with the assets inherited from his father and treating the entire properties extant before and after the birth of the sons till this date as joint family property without making any discrimination or distinction...' The agency business itself was not made the subject of partition and remained his separate property. For the assessment year 1953-54 he claimed that the entire income from the properties dealt within the partition up to 19th December, 1952, belonged to the family and was assessable in its hands and that as regards the income from the properties after that date he was assessable only on the income from the property that came to his share under the partition. It was held that these facts were not sufficient to prove a case of blending of self-acquired properties with joint family properties, but that the declaration in the partition deed treating the properties as available for partition being unequivocal was sufficient to impress them with joint family character. It was further held that a partition of joint family property itself did not constitute a transfer of assets, direct or indirect within the scope of section 16(3) (a) (iv) of the Income-tax Act. At page 309, Rajagopalan J. observes thus :
'Where the self-acquired properties of a coparcener - in this case the coparcener was the father of the other coparceners and the karta of the coparcenary - are pooled with joint family property and partitioned, there are three distinct stages. First the self-acquired property of the coparcener is impressed with the character of the joint family property of the coparcenary. The next stage is the disruption of the coparcenary. The members thereafter become divided in status. The next stage after that is the actual division between the divided members of what had been the property of the joint family. Each of these stages may be separated from the succeeding one by an interval of time, considerable or otherwise. The length of the interval, however, does not affect the principle in deciding the question, was there a transfer of property at any stage.'
That was a case in which what was attempted to be proved by the assessee was a blending or mingling of separate and joint family properties. What would be the position if the father were to treat his self-acquired properties as being available for partition between himself and his sons, the learned judge does not consider as it was not necessary for him for the purpose of that case. At page 312, the learned judge observes :
'We need not deal in this case with the right of a Hindu father governed by the Mitakshara to partition his self-acquired properties alone between himself and his sons, even without taking the initial step of making it all the property of the joint family of himself and his sons. In this case, antecedent to the partition between the assessee and his sons, he merged his self-acquisitions with the ancestral property of the joint family, which the assessee had the undoubted right to do.'
In our opinion, a separate property of a coparcener cannot be fragmented into shares and disposed of by allotment to shares under the guise of a partition without the element of transfer of property. Unless and until the separate property becomes invested with the character of a joint family property, there cannot be a partition in the real sense of the term because partition would not comprehend in its scope a transference of right from one member to another. An assignment of separate property is essentially a transfer and is not the less so because the parties choose to call it a partition. A division simpliciter of a separate property or even a distribution of the share between the members of a Hindu undivided family without anything more would be only consistent with the exclusive owner transferring the property to other members unless there be proof, cogent and positive, of the property having acquired the character of a joint family property by reason of an overt act or unequivocal conduct on the part of the owner.
On the assumption that the business asset of the assessee became impressed with the joint family character, can it be said that the credit entries made in the account books on December 31, 1955, operate as a partition A partition can only be between members of a Hindu undivided family or the coparcenary. In the present case, amounts have been credited in favour of the minor daughters and the wife. Are the daughters and the wife entitled to share in the partition is the question which has to be considered. If they have no right to call for a partition or be allotted a share on partition, the assessees case that there was a real and valid partition should necessarily fail. The Hindu law texts, no doubt, recognise the interests of certain women members of the family to take a share in a partition under certain circumstances. Yajnavalkya says : 'If he (father) makes the allotment equal, his wives to whom no stridhana has been given by the husband or the father-in-law must be made partakers of equal portions.' This text is explained in the Mitakshara as follows at page 529 :
'When the father, by his own choice, makes all his sons partakers of equal portions, his wives, to whom peculiar property had not been given by their husband or by their father-in-law, must be made participants of shares equal to those of sons. But if separate property has been given to a woman, the author subsequently directs half a share to be allotted to her : or if any had been given, let him assign the half.'
But whatever that be, in Southern India owing to the influence of the Smritichandrika and the Saraswathi Vilasa, the rules of Mitakshara allotting a share on partition to wives, mothers and grandmothers have long since become obsolete (Maynes Hindu Law, 11th edition, page 531; Subramania Chetty v. Arunachalam Chetti; Thangavelu v. Court of Wards Madras). But so far as the daughters are concerned, there is no text of Hindu law nor any judicial precedent recognising their rights to have a share in a partition. It is true that the Hindu Womens Right to Property Act, 1937, brought about changes in this state of the law and that the Hindu Succession Act, 1956, has altered the law governing inheritance and succession. But they have no bearing on the present question in issue.
Learned counsel for the assessee, however, drew our attention to the observations of the Supreme Court in Arunachala Mudaliar v. Muruganatha Mudaliar. The Supreme Court held that property gifted by a father to his son would not become ancestral property in his hands only by reason of the fact that he got it from his father. The father is quite competent when he makes a gift to provide expressly either that the donee would take it exclusively for himself or that the gift would be for the benefit of the branch of his family. If there are express provisions to that effect in the deed of gift or will, the interest which the son would take in such property would depend upon the terms of the grant. At page 256, Mukherjea J. observed as follows :
'It seems to us on reading the document in the light of the surrounding circumstances that the dominant intention of the testator was to make suitable provisions for those of his near relations whom he considered to have claims upon his affection and bounty... Had the testator contemplated a partition as is contemplated by Hindu law, he would certainly have given his wife a share equal to that of a son and a quarter share to his unmarried daughter.'
We do not understand the observation of the learned judge as laying down the proposition that in a partition amongst the members of a Hindu undivided family governed by the Madras School of Mitakshara law the wife and unmarried daughter have any right to be allotted a share.
We are clear that the materials on record do not justify or warrant an inference that the assessee impressed his business asset with the character of the joint family property and that in fact and in truth he merely gifted various amounts by purporting to effect a division, crediting them in the hands of his sons, daughters and his wife on December 31, 1955. This is a case in which there is a transfer of assets by the assessees, falling within the mischief of section 16(3) (a) (iv) of the Income-tax Act.
The question is answered against the assessee, who will pay the costs of the department. Counsels fee Rs. 250.