SETHURAMAN J. - These tax revision cases have been filed by the State of Tamil Nadu Agricultural Income-tax Appellate Tribunal, dated June 28, 1973. The four petitions relate to four partners of two firms, namely, Messrs. Waverly Estates and Caladonia Estates. There are two other partners in the said firm. The income from these firms was being assessed for agricultural income-tax in the hands of the four respondents as individuals. On the April 1, 1970, each one of them made a declaration before an advocate. Taking the case of Vimalan as typical of the four cases, it is stated in the declaration that he was the karta of the Hindu undivided family comprising of his wife, his minor son, his minor daughter and that he was a partner in the aforementioned firms holding one-sixth share. He stated in the declaration :
'On April 1, 1970, I had voluntarily relinquished and waived all my individual rights in the abovesaid 1/6th shares held by me in the two firms referred to above in favour of the Hindu undivided family.......... and the said share and the income derived from April 1, 1970, belongs only to the Hindu undivided family and is being received by me only as the karta of the Hindu undivided family.
To remove all doubts, I hereby declare that 1/6th shares held by me in the two firms, Messrs. Waverly Estates and Messrs. Caladonia Estates, belong to the Hindu undivided family from April 1, 1970.'
The other documents and declarations in respect of other respondents are not before us. In the case of the respondent in T.C. No. 459 of 1974, it is clear from the assessment order that he has neither a son nor a daughter and that the family consists of himself and his wife.
On the basis of the said declaration, the respondents sought exclusion, from their respective individual returns, of their share income from the two firms. During the relevant year, there was only a net loss in the two concerns. The Agricultural Income-tax Officer, while making the respective assessments, held that since the arrangement was not genuine and bona fide and was not enforced, but was made with a view to split up the income and evade tax, the claim was liable to be rejected. He, therefore, assessed the loss as in the earlier years in the hands of the individuals. On appeal, the Appellate Assistant Commissioner considered that the claim of the assessee was rightly rejected as the assessee was all along being assessed as an individual and that the case fell within the scope of section 9(2) of the Tamil nadu Agriculture Income-tax Act. It may be seen that if a case were to fall within the scope of the section 9(2) of the Act, so as to be a transfer in favour of minors, then the transaction has to be a real transaction. There is implicit in the order of the Appellate Assistant Commissioner the finding that the transaction was genuine. The matter thereafter was taken on appeal to the Agricultural Income-tax Appellate Tribunal. The Tribunal held that the declarations had to be taken at their face value and that the respective assessees had thrown their interests in the two estates into the hotchpots of their respective joint families. Thereafter, the Tribunal examined the question as to whether the provisions of section 9 applied to this case. After referring to the decisions cited before it, the Tribunal came to the conclusion that the throwing of the individual property into the common hotchpot could not be considered as transfer coming within the mischief of section 9(2)(a)(iii) of the Act and that there was no transfer involved in the process. It was, therefore, held that there was no justification for the inclusion of the losses in the hands of the respective respondents. The State of Tamil Nadu has challenged this order by applying for a revision thereof.
The question that arises for our consideration is whether, under the personal law applicable to the respective respondents, the share income from the two firms is to be processed in the assessment of the respective respondents in their individual capacity or in the hands of a Hindu undivided family of which they are the kartas. We have already pointed out that even the Appellate Assistant Commissioner had given an implied finding that the transaction was a genuine transaction. The Tribunal on the other hand, has given a specific finding that the transaction was a genuine transaction and has rejected the contentions taken before it to the contrary.
In the case of a genuine transaction in which a member of a Hindu undivided family throws his interest in the partnership firm into a common hotchpot, the problem that requires consideration is whether the provisions of section 9(2) of the Agricultural Income-tax Act have any scope for application. Section 9(2)(a)(iii) and (iv) are relevant in the context of the present case. The provision to the extent relevant reads as follows :
'9. (2) In computing the total agricultural income of any individual for the purpose of assessment, there shall be included, -
(a) so much of the agricultural 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.'
From the opening words of the provision, it is clear that it would apply only to the case of an 'individual'. Therefore, it the assessment is to be made in the hands of the Hindu undivided family in respect of share income of the firms, then section 9(2)(a)(iii) and (iv) have no scope for any application. Further, it has been held in Kandaswami Chettiar v. Commissioner of Agricultural Income-tax : 66ITR169(Mad) that the partition by which an interest of an undivided Hindu family resulting in the allotment of certain properties to the wife as well as the minor sons and daughter of an assessee does not come within the scope of section 9(2)(a)(iii) and (iv) of the Act. Though that is a case which arose as a result of a partition actually effected, and though the present case is one where the position is anterior to the partition, namely, at the point of conversion of the individual assets into joint family assets, there is no difference in principle between the two situations, and the provisions of section 9(2)(a)(iii) and (iv) would have no application. There is, it is well settled, no transfer at the time of an individual impressing his property with a joint family character. See Goli Eswariah v. Commissioner of Gift-tax : 76ITR675(SC) .
As, in the present case, there were certain losses debited to the joint families of the respondents and as the respective families had minors, we entertained certain doubts as to whether it was possible for any member of the Hindu undivided family to convert his individual interest in the firm and throw it into the joint family hotchpot. In the case of a minor it is settled law that his share in the joint family property is liable for payment of debts contracted by a manager in the course of family business (See Mullas Principles of Hindu Law, 14th edition paragraph 234, pages 288 and 291). However, a minor cannot be made personally liable. The minor is liable only to the extent of his interest in the family property and his separate properties are not liable for payment of the debted contracted by the manager unless the minor accepted the partnership on attaining majority. The doubt that arose in our minds was whether a member of a joint family could try to share his liabilities for these losses by throwing the property into the common hotchpot. The Supreme Court has pointed out in Goli Eswariah v. Commissioner of Gift-tax : 76ITR675(SC) as follows :
'As observed by this court in Mallesappa Bandeppa Desai v. Desai Mallappa : 3SCR779 , the doctrine of throwing into the common stock inevitably postulates that the owner of separate property is a coparcener who has an interest in the coparcenary property and desires to blend his separate property with the coparcenary property. The existence of a coparcenary is absolutely necessary before a coparcener can throw into the common stock his self-acquired properties. The separate property of a member of a joint Hindu family may be impressed with the character of joint family property if it is voluntarily thrown by him into the common stock with the intention of abandoning his separate claim therein. The separate property of a Hindu ceases to be separate property and acquires the characteristics of joint family or ancestral property not by any physical mixing with his joint family or his ancestral property but by his own volition and intention by his waiving and surrendering his separate rights in it as separate property. The act by which the coparcener throws is separate property in the common stock is a unilateral act. There is no question of either the family rejecting or accepting it. By his individual volition he renounces his individual right in that property and treats it as a property of the family...... When a coparcener throws his separate property into the common stock, makes no gift under Chapter VII of the Transfer of Property Act. In such a case there is no donor or donee. Further, no question of acceptance of the property thrown into the common stock arises.'
Thus, if there is no question of any acceptance of the property thrown into the common stock, then the problem is whether any member of a joint family can try to throw his liabilities into the common hotchpot so that he no longer has to pay the liabilities by himself, but could pass on the liabilities to the other members of the family, including himself. As the respondents were not represented, we asked Mr. J. Jayaraman, advocate, to assist us in this case. He readily gave his assistance and we are greatly indebted to him for the illuminating arguments that he advanced in relation to the propositions mentioned above. After hearing the arguments we consider that it is not necessary for our present purpose to go into this nice question as the matter has not been gone into in the earlier stages, and the matter may be reserved for consideration on a suitable occasion.
As far as the present case is concerned, we have already pointed out that the finding is that the transaction is a genuine transaction. We have already ruled out the application of section 9(2) of the Act. The learned Additional Government Pleader entertained some doubt as to whether even in a case where the interest of a particular individual partner in a firm is impressed with a joint family character, the family has to be assessed. According to him, the individual could be assessed and for this purpose, he brought to our notice the decision of the Supreme Court in Surjit Lal Chhabda v. Commissioner of Income-tax : 101ITR776(SC) . In that case, the assessee had a wife and an unmarried daughter. On January 26, 1956, the assessee made a declaration that he had thrown an immovable property called Kathoke Lodge, which was his self-acquired property, into the family hotchpot in order to impress that property with the character of joint family property and that he would be holding that property as the karta of the joint Hindu family consisting of himself, his wife and his unmarried daughter. The question before the Supreme Court was whether the income received by the assessee in that case, after the said document of 1956, should be assessed to income-tax in the status of a Hindu undivided family. It was held that 'since until the birth of a son the personal law of the assessee, namely, the Hindu law, regarded the assessee as owner of the said immovable property and the income therefrom as his income even after the property was thrown into the family hotchpot, the income was chargeable to income-tax in the assessees hands as his individual income and not as the income of the family.' We do not consider that the said case has any application to the facts of the case before us. It may be seen that in the said case, the assessee had only a wife and an unmarried daughter. There was no coparcenary. In the case before us, there is minor son with whom the respondents form a coparcenary. The principle applicable to the sole surviving coparcener could not be applied to a coparcenary having another male member. We have, therefore, to examine the position in the light of the other decisions brought to our notice by Mr. Jayaraman.
In Commissioner of Income-tax v. Kalu Babu Lal Chand : 37ITR123(SC) , the karta of a Hindu undivided family by name Rohatgi was one of the promoters of a company. He took over a business, which was later transferred to the company as a going concern and carried on the business on behalf of the company until its incorporation in December, 1930. Under the articles of association, he was to be the first managing director with specified remuneration, and there was an agreement between him and the company with reference to the said managing directorship. It was found by the Appellate Tribunal that the shares held by the said karta and his brother were acquired with funds belonging to the joint family and the family was in enjoyment of the dividends paid on the said shares. In the course of the assessment for the relevant year, it was claimed by the assessee that the whole of the managing directors remuneration constituted the personal earnings and should not be added to the income of the family. It was held that the managing directors remuneration received by Rohatgi was, as between him and the Hindu undivided family, the income of the family and should be assessed in his hands. At page 127-128, Das C.J., speaking for the court, stated that :
'It is now well settled that a Hindu undivided family cannot as such enter into a contract f partnership with another person or persons. The karta of the Hindu undivided family, however, may and frequently does enter into partnership with outsiders on behalf and for the benefit of his joint family. But when he does so, the other members of the family do not, vis-a-vis the outsiders, become partners in the firm...... If for the purpose of contribution of his share of the capital in the firm, the karta brought in monies out of the till of the Hindu undivided family, then he must be regarded as having entered into the partnership for the benefit of the Hindu undivided family and as between him and the other members of his family, he would be accountable for all profits received by him as his share out of the partnership profits and such profits would be assessable as income in the hands of the Hindu undivided family.'
Again, in Charandas Haridas v. Commissioner of Income-tax : 39ITR202(SC) , the Supreme Court was concerned with the assessment of a Hindu undivided family of which one Charandas was the Karta. The family consisted of his wife, his unmarried daughter, his three minor sons and himself. He was a partner in certain managing agency firms. There was an oral partition between him and the other members of his family as a result of which one pie share was allotted to his unmarried daughter and the balance of the interest of the family was partitioned between himself, his three minor sons and his wife. The question was whether the share income from the firm was liable to be taxed in the hands of the family or in the hands of the respective members. Hidayatullah J. (as he then was), speaking for the court, observed at page 209 :
'While it was joint, the department could treat the income as that of the family; but after partition, the department could not say that it was still the income of the Hindu undivided family, when there was none. In the face of the finding that this was a genuine document and not a sham, and that it effectually divided the income and, in the circumstances, the assets the question answers itself in the negative, that is to say, that there were no materials to justify the finding that the income in the share of the commission agency of the mills was the income of the Hindu undivided family.'
Subsuequently also in V. D. Dhanwatey v. Commissioner of Income-tax : 68ITR365(SC) , the question as to whether the remuneration paid to a partner of a firm was the subject of consideration. The partner was the karta of a Hindu undivided family and the family assets had been embarked in the partnership. The question was whether the remuneration paid to him by the partnership was liable to be taxed in his individual hands or in the hands of the Hindu undivided family. In the judgment pronounced by Ramaswami J., on behalf of the majority, it was pointed out at page 374 :
'In our opinion, the remuneration paid to Shri V. D. Dhanwatey was directly related to investments from the assets of the Hindu joint family in the partnership business. In other words, there was a real and sufficient connection between the investment from the Hindu joint family funds into the partnership business and the remuneration paid to Shri V. D. Dhanwatey under clause (16) of the deed of partnership. It follows therefore that the remuneration of Shri V. D. Dhanwatey was not earned without detriment to the Hindu joint family funds and the case falls directly within the principle laid down by this court in Commissioner of Income-tax v. Kalu Babu Lal Chand : 37ITR123(SC) and in Mathura Prasad v. Commissioner of Income-tax : 60ITR428(SC) .'
Thus, when once it is found that the individual respondents had thrown their respective shares in the firm into the common hotchpot of the respective families, it would follow that the partnership interest held till then by the individuals became joint family property. When the assets had become the joint family assets, the income flowing therefrom has to be taken as the income of the joint family and not of the respective individuals. In the case of the respondents in T.C. Nos. 460, 461 and 462 of 1974, the above discussion would go to show that the income has to be assessed in the hands of the respective Hindu undivided families and in the case of T.C. No. 459 of 1974, there being no son, the decision of the Supreme Court in Surjit Lal Chhabda v. Commissioner of Income-tax : 101ITR776(SC) would govern and he will have to be assessed as an individual with reference to the share income as far as this assessment year is concerned. The revision petitions are accordingly dismissed. There will be no order as to costs as the respondents are not represented. We place on record our appreciation of the assistance of Mr. J. Jayaraman.