BANERJEE J. - This is a reference under section 27(1) of the Wealth-tax Act, made under circumstances hereinafter stated.
The assessee is one Narayandass (alias Naraindas) Sadani. He has a one-half share in three immovable properties in Calcutta. The other one half share belongs to his brother, Ramnarayan Sadani. The assessment years in question are 1957-58 and 1958-59 and the corresponding valuation dates are Akshaya Tritia day of 2014 and 2015 S. Y. The point in dispute is the status in which the assessee is to be assessed to wealth-tax.
The assessee is the son of one Amarchand and grandson of one Lachmandas. Lachmandas was a Hindu governed by the Mitakshara school. Amarchand was his only son. Amarchand had five sons, viz., (1) Sewnarain (2) Harnarain, (3) Ramnarain, (4) Naraindas and (5) Lachminarayan. The last-mentioned son was born in the year 1934.
Amarchand used to do business in the name of Lachmandas Amarchand, as the sole proprietor, and owned several properties in Calcutta and Bikaner. It is not disputed that the business and the properties were self-acquired in the hands of Amarchand. On May 4, 1927, when Amarchand had only four sons born to him, he executed three deeds - the first one giving some immovable properties in Calcutta and Bikaner to Sewnarain, the second one giving some properties in Calcutta and Bikaner to Harnarain and the third one giving to Ramnarain and Narayandass in two equal shares some immovable properties in Calcutta and Bikaner. In this reference we are concerned with the interpretation of the third deed only.
Amarchand also converted his proprietary business into a partnership, by a deed also bearing the date May 4, 1927. Under the deed of partnership he retained, for himself, 5 annas 4 pies share and gave to each of his four sons, then in existence, two annas eight pies share. He also divided the capital in the account standing in his name in the proprietary business between himself and his four sons so that each of his four sons mentioned above got Rs. 1,25,000 and he himself retained an amount of Rs. 2,50,000. We shall refer to the relevant terms of the deed of gift and the deed of partnership hereafter.
The assessee submitted returns for the assessment year 1957-58 and 1958-59 claiming that he represented a Hindu undivided family which owned the immovable properties and the share in the business. The Wealth-tax Officer rejected the claim with the following observation :
'It is submitted that there was a gift of 50% share in the properties at 107, Old China Bazar Street, Calcutta, and 15, Kamarpara Lane, Baranagar, to the assessee by his father some time in May, 1927, when the assessee himself was below the age of 10 years (the present age of the assessee being 39 years) and, hence, there could not be any question of the gift being made to the assessees family, the gift having been absolutely made to the assessee and to the assessee alone. As regards the cash gift of Rs. 1,25,000 no date has been furnished and as such it is not known if the assessee had by that date gathered a family. From the submission made in the petition dated March 25, 1958, it, however, appears that this was also a personal gift to the assessee only.
In such circumstances, I am afraid I cannot accept the status for purposes of the Wealth-tax Act as that of a Hindu undivided family.'
The assessee appealed before the Appellate Assistant Commissioner who agreed with the Wealth-tax Officer with the following observations :
'The properties immovable and movable were acquired by the assessee directly or indirectly from the gift made by his father who himself had acquired it by self earnings. In the hands of the assessee the property would fall to be considered as his individual estate acquired personally from a gift. It is not an ancestral property coming down to him under the law and he is competent to dispose it of at his own will. The wife and the sons of the assessee cannot acquire any right by birth in such a property. I, therefore, agree with the Wealth-tax Officer that the property belonged to the assessee in his individual capacity and he was perfectly justified in assessing him in the status of Individual'.
The assessee, thereafter, appealed before the Appellate Tribunal. The Tribunal, however, took a different view on the following line of reasoning :
'Now, it is the contention of the learned counsel for the appellant that each one of them received this gift as an essential part of a family arrangement and that it was impressed with the quality of a Hindu undivided family property and became coparcenary property on birth of sons to each of them. Great emphasis was placed on quality of shares given by the father to each of the sons, pointed reference was made to the father retaining two shares making provisions for unborn child and it was argued that the whole scheme left no doubt in ones mind that Sri Amarchand wanted the gift to his sons to be treated by them as properties of their respective Hindu undivided families and that in no other light can the distribution made by him be viewed. Reference was also made to paragraph 13 of the partnership deed which provided that if a partner shall die intestate, his male descendants will step into his place and should he die without male issue, then his widow will get maintenance not exceeding Rs. 250 per month and the capital and the assets of the deceased partner shall go to his brothers. Reliance was also placed on paragraph 14 of the partnership deed according to which any adult partner could dispose of his share in his business by a deed of gift only to a desirable person or persons of his own family. It was argued that these provisions clearly showed that Sri Amarchandji was anxious to distribute his assets, broadly speaking, in accordance with the requirements of the Mitakshara School of Hindu Law and wanted the properties in question to be impressed with the quality of Hindu coparcenary property. The departmental representative, on the other hand, contended that the properties gifted by Sri Amarchand were his self-acquired properties and he was free to dispose it of in any manner he liked. He gifted certain properties to his sons and there was no trace of Hindu undivided family property at the source. He relied on the Supreme Court decision in Arunachala Mudaliar v. Muruganatha Mudaliar, which was concerned with the transfer of self-acquired property by a father to his sons through a will and the question was the same as the one which is agitated before us. The Supreme Court held that the question was primarily one of the intentions of the donor or the testator to be gathered from the terms of the deed of gift or will and that if there were no clear words describing the king of interest intended to be given, the court would have to collect the intention from the language of the document taken along with the surrounding circumstances in accordance with the established canons of construction. The question before us also is whether the grantor, Amarchand, really wanted to make a gift of the property to his sons or the apparent gift was only an integral part of the scheme to partition the property. Now, in the case before them, the Supreme Court took the view that the property transferred was intended to be a separate property in the hands of the donee on the ground that the testator wanted to make a distribution of properties in a way different from what would take place in case of intestacy, that there was no indication in the will that the properties bequeathed were to be held by the sons for their families or male issues and that the subsequent modifications of the will by the testator before his death suggested that the testator did not want to confer upon the sons the same rights as they would have on the intestacy. On the other hand, in the case before us, as the general scheme of distribution by Amarchand corresponds roughly to the distribution in accordance with the principles of intestacy succession under Mitakshara Law, there are provisions in the partnership deed which indicate that at least he wanted the shares in the partnership to be held by his sons not only for their benefit but for the benefit of their families and there is no fact brought on record by the department which in incongruous with the appellants claim that they received gifts which were impressed with Hindu undivided family character.'
In the result, the Tribunal set aside the order both by the Wealth-tax Officer and by the Appellate Assistant Commissioner and directed that the appellant be treated as a member of a Hindu undivided family as claimed by him.
Aggrieved by the order made by the Tribunal, the Commissioner of Wealth-tax applied for and obtained reference of the following question of law to this court, namely :
'Whether, on the facts and in the circumstances of the case, and on a proper construction of the deed of gift executed by Amarchand on May 4, 1927, and the partnership deed dated May 4, 1927, the assessment of net wealth in the hands of Narayandass Sadani could properly be made in the status of a Hindu undivided family for the assessment years 1957-58 and 1958-5 ?'
It is necessary for us at this stage to set out the relevant provisions of the deed of gift and the deed of partnership referred to above. The relevant portion of the deed of gift, dated May 4, 1927, reads as follows :
'Whereas the donor in consideration of natural love and affection which he bears towards his sons, the donees, is desirous of making an absolute gift to them of the said properties particularly described in the said Schedule Now this indenture witnesseth that to effectuate the said desire and in consideration of natural love and affection which he the said donor bears towards his said sons the donees he the said donor both hereby give grant and convey unto and to the use of the said donees absolutely and for ever and in equal shares all those hereditaments and premises particularly described in the said schedule..... to have and to hold the said massage tenements lands hereditaments and premises and all and singular other the premises hereinbefore expressed to be hereby granted unto and to the said donees for ever in equal shares and for their absolute use and benefit with full power and absolute authority to them the said donees to deal with the said properties hereby granted in any way they like without any claim and demand or interruption whatsoever on the part of the said donor or any person or persons claiming by from, through under or in trust for him and the said donor for himself his heirs representatives and assigns covenants with the said donees their heirs, representatives and assigns that he the said donor heath not done or committed any act deed or thing where by or reason whereof he is prevented from granting and transferring the said messuages, lands, hereditaments and premises to the said donees.'
The relevant portion of the deed of partnership bearing the same date, namely, May 4, 1927, reads as follows :
'And whereas the said Amarchand Sadani was the sole proprietor of the said business which was carried on at 43, Clive Street, and also at No. 13 and 13/1, Jackson Lane, till Chait Sudi 8, Samvat year, 1984, and whereas the said Amarchand Sadani having agreed to divide the capital and assets of the said business between himself and his sons the said Sewnarain Sadani, Harnarain Sadani, Ramnarain Sadani and Naraindas Sadani as on Chait Sudi 9th, Samvat year 1984, paid to each of his said sons rupees one lakh and twenty-five thousand in the shape of stock, shares, hundi, Government securities, war bonds and cash money, etc., and whereas the said Amarchand Sadani has agreed to take and admit his said four sons in his said business as partners thereof on the terms, conditions and stipulation hereinafter mentioned Now this indenture witnesseth that the said parties here to have mutually agreed to become and be partners upon the terms conditions and stipulations hereinafter contained, that is to say :
2. The partnership business shall be carried on under the name and style of Messrs. Lachmandass Amarchand.....
4. The capital of the partnership business shall be rupees seven lakhs and fifty thousand subscribed by the partners in the manner following, namely :
13. If any partner shall die intestate during the continuance of the said partnership his male descendants will step into his place and should he die without male issue then his widow shall get a proper maintenance not exceeding Rupees Two hundred and fifty per month during the term of her natural life and the capital and assets of the deceased partner shall go to his brothers.
14. Any adult partner may dispose of his share in the business by a deed of gift to a desirable person or persons of his own family only.'
Mr. Sabyasachi Mukharji, learned counsel for the Commissioner of Wealth-tax, submitted, in the first place, that the Tribunal was in error in interpreting the deed of gift and the deed of partnership and in inferring therefrom that both the documents were executed by Amarchand in pursuance of a general scheme to divide his self-acquired properties amongst his sons. He submitted, in the next place, that there was no compelling reason why the deed of partnership must be treated as the dominating document under the scheme and why an interpretation put upon that deed should also Colours the interpretation to be put upon the deed of gift. He submitted, in the last place, that considering the internal evidence supplied both by the deed of gift and the deed of partnership and the surrounding circumstances the conclusion was irresistible that Amarchand wanted to make a gift or donation of his self acquired property to his sons and heirs, not necessarily intending thereby that they should take the property as representing their respective branches of the Hindu undivided family. He strongly emphasised upon the fact that the donees under the deed of gift, dated May 4, 1927, were both minors of tender years at the time when the gift was made in their favour; they did not at that time gather a family around themselves; it was inconceivable that, at that time, the father would be anticipating the age when they would gather a Hindu undivided family around themselves and enjoy the gifted property as family property.
There is no dispute on the point of law that Mitakshara father is not only competent to sell his self-acquired immovable property to a stranger without the concurrence of his sons, but that he may make a gift of such property to one or more of his own sons to the detriment of others and that he may also make an unequal distribution amongst his heirs. At one time, however, there was controversy of opinion amongst different High Courts as to what amount of interest a particular son would take in a self-acquired property of his father, received by way of gift or testamentary bequest from him vis-a-vis his own male issues. The controversy has now been settled by the decision of the Supreme Court in C. N. Arunachala Mudaliar v. C. A. Muruganatha Mudaliar, in the following language :
'In view of the settled law that a Mitakshara father has absolute right of disposition over his self-acquired property to which no exception can be taken by his male descendants, it is in our opinion not possible to holes that such property bequeathed or gifted to a son must necessarily, and under all circumstances, rank as ancestral property in the hands of the donee in which his sons would acquire co-ordinate interest....
As the law is accepted and well settled that a Mitakshara father has complete powers of disposition over his self-acquired property it must follow as a necessary consequence that the father is quite competent to provide expressly, when he makes a gift, either that the donee would take it exclusively for himself or that the gift would be for the benefit of his branch of the family.'
The Supreme Court was not oblivious of the fact that a deed not couched in proper language may raise doubt as to whether the donee was to take the donated property exclusively for himself or that the gift would be treated as for the benefit of his branch of the family. The Supreme Court therefore, laid down the following rule for interpretation of such deeds :
'If there are express provisions to that effect either in the deed of gift or a will, no difficulty is likely to arise and the interest which the son would take in such property would depend upon the terms of the grant. If, however, there are no clear words describing the king 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 constructions. 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 son 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 son was really the share of the property which would normally be allotted to him and his branch of the family on portion. In other words, the question would be whether the grantor really wanted to make a gift of his properties or to partition the same. As it is open to the father to make a gift or partition of his properties as he himself chooses, there is, strictly speaking, no presumption that he intended either the one or the other.'
Keeping in view the law as laid down by the Supreme Court, we have to examine the circumstances under which the deed of gift and the deed of partnership were executed by Amarchand and also to interpret the scope and purport of the two deeds as supplied by the internal evidence therein contained.
In the year 1927, Amarchand was a self-made man running a successful business of his own. Out of the income of the business, he acquired several properties. He had four sons by that time and was still in that state of health as to build a larger family. His youngest son, Lachhmi Narayan, was born in 1934, that is to say, seven years after he made the deed of gift and the deed of partnership. The purpose which actuated him to make the deed of gift does not appear from the deed itself. It may just be that, in the instant case, Amarchand wanted to make an absolute gift of some of his self-acquired properties to his several sons.
We have quoted the material portion from the deed of gift. There is nothing contained in the language of the deed of gift which goes to indicate that an absolute gift was not intended. That is one circumstance against the assessee. Then again, there being power in Amarchand to make an absolute gift of his properties to his sons, there is no reason why it should be taken for granted that he never intended to exercise that power for the benefit of his sons. It may be that he intended to confer upon his sons the same right which he expressed in the deed of gift and without more it is difficult to infer that he intended to confer upon his sons properties which they should take and enjoy for the benefit of their respective undivided families that they may; develop in future. We cannot forget that at the point of time when the gift was made in favour of the assessee and his brother, Ramnarain, they were respectively aged 6 and 9 years, a point in mans life when it was difficult to anticipate that so young a person would survive, marry and would have a family consisting of sons and daughters.
In respect of the deed of partnership, Mr. Mukharji contended that this deed also did not indicate that it was intended to bring about something like a joint family partnership in which each partner would hold his share for the benefit of the family to be developed by him in future. We are not, however, convinced by this argument. We have already noticed that Amarchand gave equal shares in the partnership to his sons. He divided the capital of the partnership amongst his sons equally, he himself retaining twice as much as each of his son got. The line of succession in case of death of sons was laid down in clause 13 of the deed to the effect that his male descendants would step into his place. In case a partner died without a male issue, the deed of partnership contemplated payment of maintenance to the widow, up to a fixed limit, during her natural life. If a partner died without a male issue, then the deed of partnership further provided that his brothers would succeed him. The above facts are indicative of a state of affairs in which possibly Amarchand wanted to partition the business between himself and his sons. This is also reinforced by the fact that disposition of a share in the partnership by a partner was limited to the desirable person or persons of the family of the partners only. Thus the deed of partnership only was, as the Tribunal held, in reality a document of partition.
But because it is so, we do not and cannot go to the length of holding that the deed of gift also was part of the same scheme. We have no evidence that Amarchand launched upon a general scheme of partition of all his properties including properties which he had gifted away to his sons. It is far more reasonable to hold that he wanted to make a gift of some of his immovable properties to his sons absolutely and to delimit the partnership business only amongst the sons so that they may hold assets of that business to the benefit of themselves and their respective families.
Thus the Tribunal was not right in treating both the deeds of partnership and the deed of gift as conferring upon the sons of Amarchand property burdened with joint family character. We hold that the deed of gift was an absolute gift and in respect of properties covered by the deed of gift, the assessee must be assessed in his capacity as an individual. We, however, differ from the Tribunal that the business assets covered by the deed of partnership must also be treated as the individual property of the assessee. There is no sufficient material before us to differ from the Wealth-tax Officer and the Appellate Assistant Commissioner to come to a different conclusion.
In the result, we hold that in respect of the properties which are covered by the deed of gift, the contention of the assessee should not be upheld and he should be taxed in his capacity as an individual. In respect of the properties which are the subject-matter of the deed of partnership, the assessees contention shall succeed and in respect of such properties he may be taxed in his status as a Hindu undivided family.
The question which was referred to us must, therefore, be answered in the following manner :
(a) In the negative in so far as the properties covered by the deed of gift executed by Amarchand on May 4, 1927.
(b) In the affirmative in so far as the properties covered by the partnership deed dated May 4, 1927.
Since the success is divided, we direct that each party shall bear its own costs.
MASUD J. - I agree.