RAMAPRASADA RAO J. - At the instance of Commissioner of Income-tax and under section 66(1) of the Indian Income-tax Act, 1922, section 27(1) of the Wealth-tax Act, 1957, and section 26(1) of the Gift-tax Act, 1958, the following questions have been referred to us by the Income-tax Appellate Tribunal for us render out answer thereto :
'1. Whether, on the facts and in the circumstances of the case, the status of the assessee was correctly determined as Hindu undivided family for the income-tax, wealth-tax and gift-tax assessments of 1959-60, 1957-58 and 1958-59 respectively ?
2. Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,60,00 transferred to the account of Muthukaruppan and Palaniappan in the previous year ending on April 13, 1958, was liable to assessment under the Gift-tax Act ?'
The reference under the Income-tax Act relates to the assessment year 1959-60, under the Wealth-tax Act to the assessment year 1957-58, the valuation date being April 12, 1957, and under the Gift-tax Act to the assessment year 1958-59. The assessee is one M. P. R. Perikaruppan Chattiar. The facts leading to the reference being common, the reference maybe dealt with together, One Muthukaruppan Chettiar, who had business in Ceylon and India, had four sons, Narayanan Chettiar, Ramaswami Chettiar, Periakaruppan Chettiar and Palaniappan. By two instruments dated April 26, 1932, marked as exhibits A and A-1, Muthukaruppan Chettiar, in consideration of natural love and affection towards his first three sons above named, gifted, granted and conveyed to them and their respective heirs, executors, administrators and assigns, all his Ceylon assets. To his last son, who was then a minor, he is said to have given cash and certain properties in India, as it is reported that this fourth son could not be a party to the deeds of gift as above, in accordance with the law as administered in Ceylon. It appears that the three sons who secured the Ceylon properties carried on business in Ceylon in partnership. Later, on December 20, 1950, and after the death of their father, the three brothers effected a partition, amongst themselves of the then available properties of the family. The permeable to this deed, inter alia, mentions that the Ceylon properties, movable and immovable, which were held in common by them were divided even during the lifetime of their father and the fourth sons was provided in lieu thereof with cash and that, therefore, no mentioned is being about those properties in the present partition deed. Thereafter, on September 12, 1954, Narayanan Chettiar and his sons effected a partition as between themselves as per exhibit B. The significant recital in the preamble to this indenture reads that the father of Narayanan Chettiar gave away the Ceylon properties to his three sons.
The assessee, who secured the Ceylon properties as above, filed returned in the status of an individual till the assessment year 1957-58. The sources of income were house properties and share income from various partnership firms. In the assessments year 1958-59 the assessee claimed the status of a Hindu undivided family, which by then consisted of himself and his two sons. This was rejected by the Income-tax Officer. Again in the assessment year 1959-60, the assessee renewed his claimed to be recognised as a Hindu undivided family. Again the claims was not accepted in the first instance. Even so, similar claimed of the assessee under the Wealth-tax Act for the assessment year 1957-58 was not countenanced. During the assessment year 1958-59, and in particular on May 14, 1957, and January 12, 1955, the assessee made entries in his accounts so as to effectively transfer a sum of Rs. 80,000 to each of his two sons and claimed that, as the source of the funds so transferred is ancestral assets and the benefit conferred on his sons was in the course of a partial partition in the family, no gift was involved. Here to his convention was not accepted was not accepted by the Income-tax Officer. But the assessees claim as to the status of the Hindu undivided family found favour with the Appellate Assistant Commissioner as well as the Tribunal. The Commissioner of Income-tax, aggrieved against the order of the Tribunal has, caused the above two questions to be referred to this court for being answered.
Both the learned counsel for the revenue and the assessee press into service the ratio in Arunachala Mudaliar v. Muruyganath Mudaliar in support of their respective contentions. The facts in that case as found in the report may be useful referred to. The case dealt with a will :
It recites that the testator is aged 65 and his properties are all his own which he acquired from on nucleus of ancestral fund. He had three sons, the eldest of whom was defendant No. 1. In substance what the will provides is that after his death, the A Schedule properties would go to his eldest sons, the B Schedule, properties to his second sons and the properties described in Schedule C shall be taken by the yongest. The sons are to enjoy the properties alloted to them which with absolute rights and with power of alienation such as gift, exchange, sale etc., from sons to grandson hereditarily. The testator, it seems, had already given certain properties to the wives of his two brothers and to his own wife also. They were to enjoy these properties during the terms of their natural lives and after their in their death, they would vest in one or the other of his sons, as indicated in the will. The D Schedule property was set apart for the marriage expenses of his third son and an unmarried daughter. Authority was given to his wife to sell this property to defray the marriage expenses with its Courts observed :
On those facts, the Supreme Court observed :
'It seems to us to us on reading the document in the light of the surrounding circumstance that the dominant intention of the testator was to make suitable provisions for those of his near relations whom he consider to have claims upon his affection and bounty. He did not want simply to make a division of his property amongst his heirs in the same way as they them selves would have done after his death, with a view to avoid disputes in the future,..... The testator certainly wanted to make to a distribution of his properties in a way different from what would take place in case of intestacy. But what is really material for out present purpose is his intention regarding the kind of interest which his sons were to take i the properties devised to them. Here the will is perfectly explicit and it expressly vests the sons with absolute rights with full power of alienation by way of sale, gift and exchange. There is no indication in the will that the properties bequeathed are to be held by the sons for their families or male issued and, although the will mentions various other relations, no reference is made to sons sons at all. This indicates that the testator desired that his sons should have full ownership in the properties bequeathed to them and he was content to leave entirely to his sons the case of their own families and children.'
No doubt, in that case, there were two deeds of revocation whereby the testator modified the legacies according to the changed circumstances in his family. The ultimate conclusion reached by the Supreme Court was :
'... on reading the will as a whole the conclusion becomes clear that the testator intended the legates too take the properties in absolute right as their own self-acquisition without being fettered in any by the rights of their sons and grandsons.'
The general principle of law, which was by them not uniform was well set by the Supreme Court in the same decision and it is opposite to quote the same :
'If, however, there are no clear words describing the kind of interest which the donee is to take, the question would be one of construction and the court would have to collect the intention of the donor from the language of the document taken along with the surrounding circumstances in accordance with the well-known canons of construction. Stress would certainly have to be laid on the substance of the disposition and not on its mere form. The material question which the court would have to decide in such cases is, whether taking the document and all the relevant facts into consideration, it could be said that the donor intended to confer a bounty upon his sin exclusively for his benefit and capable of being dealt with by him at his pleasure or that the apparent gift was an integral part of a scheme for partition and what was given to the some was really the share of the property which would normally be allotted to him and in his breach of the family on partition In other words, the question would be whether the grantor really wanted to make a gift of his properties to partition the same As it is open to the father make a gift or partition of his properties as he intended chooses, there is, strictly, speaking, no presumption that he intended either the one or the other.'
Thus understood, the law is that there is no presumption that a Hindu father wanted to partition his properties of gift the same to his sons. If such a 'giving away' of the absolute properties of the father is evidenced by a deed, testamentary instrument or other writing, then it is essentially a matter of interpretation. The circumstance surrounding, the execution of the document, the intrinsic value of the recital wherein, the conduct of the partners and such other relevant events may be usefully brought to bear on a given set of facts to find the intention of the donor or testator, as the case may be. If really what the donor wanted was to give a cumulative benefit to the family of the donee including the donee as well, then the bounty ought not to be understood as one to the donee in person. On the other hand, if the circumstances clearly lend support to the view that the donee was the object of the bounty, no other consideration being repugnant to such a conclusion, it should be held that the donee secured the same as his own property over which he had absolute and unfettered dominion. In the Supreme Court, case even though there was a reference to 'son to grandson' earlier in the text of the judgment, yet their Lordship think that, in the absence of a specific reference to 'sons' 'sons' in the text of the will, there is no indication in the will that the properties bequeathed were to be held by the sons for their families or male issues. In fact, Mr. Balasubrahamanyan referred to us a decision of the Supreme Court in a later case in Thyagasundarados Thevar v. Sevuga Pandia Thevar to fortify the position. In that, case the relevant clause containing the disposition ran as follows :
'Our son Sevuga Pandia Dorai avergal shall take the properties set out in A schedule wherein after out lifetime and hold and enjoy the same with absolute rights and from son to grandson and so on in succession,'
Interpreting the above, clause, Subba Rao J., as he then was, tersely observed :
'If the testator intended to bequeath an absolute interest to the legatee, he could not have done so in word clearer than the said words.'
Taking this as the law, we are unable to hold that in the instant case the bounty conferred under exhibits A and A-1 was for the family of the assessee.
Learned counsel for the assessee did not refer to any specific recital in the deeds of 1932, executed by the propositus to sustain that the substance of the disposition was in the nature of a devise for a partial partition of his properties. In our view, the reference to 'heirs, executors, administrators and assigns' appended to the word 'donees' in the deed under consideration does not further the intention of the donor to make the legacy a family bounty. They are perhaps adopted in the deed as words of art quite commonly used and adopted by skilled draftsmen. It is difficult to refer to them alone, in the absence of any presumption, and construe the documents as conferring a benefit on the family of the assessee and not absolutely on him. The language employed does not support the view that it was a devise to partition. Thus, the language in the documents and the text therein cannot help the assessee.
There are indeed no surrounding circumstances either in this case which, read in the light of the usual norms of construction, can be said to raise such an intention on the part of the donor to confer a bounty on the family of the assessee. No doubt, the word 'partition' appears in the document dated December 20, 1950. But in the fasciculus of events narrated in this deed, the original of which is in Tamil, it is clear that the parties took it for granted that the Ceylon properties were ancestral properties. This is bare assumption and unsupportable. The donor in exhibits A and A-1 claimed that these properties were his properties and that he had the right to grant and donate the same as proposed by him. That cannot happen if it is ancestral property. Therefore, the self-serving statements in the partition deed dated December 20, 1950, on which strong reliance is placed by Mr. Parasaran, cannot help the assessee. A fortiori the recitals in exhibit B cannot at all further the case of the assessee. It may be that Narayan Chettiar (another brother of the assessee) partitioned his properties as between himself and his sons. That circumstance is not clinching to impress the property obtained by Narayanan or the assessee from their father with the character of ancestral property.
One other contention of Mr. Parasaran is that the legacies in exhibits A and A-1 were only to the sons and not to strangers and, therefore, it should be deemed to be an instrument of partial partition. But the words employed by the father militate against this theory. He claims that the properties bequeathed are his properties and that he was conferring a benefit only on his sons eo nomine and not collectively on the family of his sons.
Thus, there being no clear describing the kind of the interest taken by the assessee under exhibit A or exhibit A-1, and as it cannot be reasonably stated that the intention of the donor, taken along with the available surrounding circumstances, was that the bounty conferred should benefit the family of the assessee, we are unable to accept the conclusion of the Tribunal that the claim of the assessee to be assessed as Hindu undivided family is well founded.
We are equally unable to find any good reason in the order of the Tribunal to support their view. One knows not what were the procedural difficulties in Ceylon in dividing Ceylon assets. But, yet, this is the paramount reason given by the Tribunal to find that the document was a devise to enforce partition. We searched in vain to find the basis for the observation of the Tribunal that the Ceylon properties were family assets. The inference drawn by the Tribunal appears to be not legitimate. We are unable to appreciate the force of their opinion 'what is to be seen is whether the donee would have got it otherwise than by a deed of gift. In our opinion, he would have.' It is not known how, unless the Ceylon properties are ancestral properties when in fact they are not. We are, therefore, unable to agree with the reasoning and conclusion of the Tribunal that the claim of the assessee to be assessed as Hindu undivided family is justified. The first question is, answered in the negative and against the assessee.
The answer to the second question follows from the answer to the first. As we are of the view that what was given and taken by the assessee under exhibits A and A-1 is his self-acquired property and is to be treated as such, the sum of Rs. 1,60,000 transferred to the account of Muthukaruppan and Palaniappan (the sons of the assessee) in the previous year ending on April 13, 1958, is a gift pure and simple and is liable to assessment under the Gift - tax Act. The second question is, therefore, answered in the affirmative and against the assessee. The tax case is allowed with costs. Counsels fee Rs. 250.
Tax Case No. 326 of 1964.
In the view expressed by us in Tax Case No. 325 of 1964 that one of the brothers, Muthukaruppan Chettiar, cannot claim the status of a Hindu undivided family, it follows that Ramaswami Chettiar, the assessee in this reference, cannot under similar circumstances, claim such a status. The only question that has been referred for our answer is :
'Whether, on the facts and circumstances of the case, the assessees status is that of a Hindu undivided family for the assessment year 1959-60 and 1960-61 ?'
Adopting the reason and ratio of our judgment in T. C. No. 325 of 1964, this question is answered in the negative and against the assessee. The tax case is allowed. No costs.