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Pratap Narain v. Commissioner Of Income-Tax, U.P
Factual and Procedural Background
The Income-tax Appellate Tribunal referred two questions for the court's decision:
- Whether inclusion of interest of Rs. 3,000 in the assessment was legal and valid?
- Whether the view that properties received by an issueless male at a partition between coparceners would be his individual properties and not that of the Hindu undivided family of himself and his wife is correct?
The reference relates to the assessment year 1957-58, when the assessee, Pratap Narain, was assessed in the status of an individual. Pratap Narain is a partner in a firm carrying on business as Devidin Pusulal. He executed a deed dated 21 June 1965 purporting to record an agreement that Rs. 50,000 had been transferred from the amount standing to his credit in the partnership firm to his wife, Ramo Devi, who was to be the sole owner and entitled to deal with it; the firm issued a promissory note for Rs. 50,000 to Ramo Devi and made corresponding adjustment entries in the partners' accounts.
During the previous year relevant to the assessment year, the partnership firm credited Rs. 3,000 as interest on the Rs. 50,000 to Ramo Devi's account. The Income-tax Officer and the Appellate Assistant Commissioner held that the Rs. 3,000 was assessable to the assessee either because no transfer of the Rs. 50,000 had taken place or because, if a transfer had occurred, the provisions of section 16(3) of the Income-tax Act, 1922, applied. The Appellate Tribunal found that no gift had been made and that the money continued to belong to the assessee, making the interest his income.
The second question arises from a partition between the assessee and his brother Trijugi Narain of property held as a Hindu undivided family. Some properties fell to the assessee's share. At the time the assessee's branch comprised only himself and his wife (no male issue). The income from those properties was assessed to the assessee as an individual; the assessee contended it belonged to the Hindu undivided family and not to him individually. The income-tax authorities and the Appellate Tribunal rejected that contention, the Tribunal holding the property to be the assessee's separate/self-acquired property so long as he had no male issue or adopted son.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the inclusion of interest of Rs. 3,000 in the assessment was legal and valid?
- Whether the view that properties received by an issueless male at a partition between coparceners would be his individual properties and not that of the Hindu undivided family of himself and his wife, is correct?
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| I.T.R. No. 92 of 1963 (decided 3 November 1965) | The prior factual determination that Pratap Narain had transferred the sum of Rs. 50,000 to his wife, Ramo Devi. | The court relied on this earlier decision (based on the same material) to hold that the Rs. 50,000 had indeed been transferred to the wife; on that basis the Rs. 3,000 interest paid on it was not the assessee's income unless section 16(3) applied. |
| Attorney-General v. Arunachalam Chettiar (No. 2) [1958] 34 I.T.R. E.D. 42, 45 P.C. | The nature of the interest of a single surviving coparcener: that property in his hands remains joint family property and does not become separate property merely because only one coparcener remains; the birth or adoption of a son changes rights but does not convert the nature of the property from joint to separate. | The court cited and quoted this decision to support the proposition that a share obtained on partition remains coparcenary in nature and is not transformed into separate property of the coparcener simply because he is the sole surviving coparcener. |
| Krishnamurthi v. Vasudeorao Deshpande Dhruvaraj (Supreme Court) | That property in the hands of a sole coparcener remains defeasible on adoption of a son and that its character does not change to self-acquired so long as a widow capable of adopting a son exists. | The court relied on this authority to reinforce the principle that the character of coparcenary property is not altered merely because a sole coparcener exists; it remains subject to the rights of persons who may be born or adopted into the family. |
| Melagiriyappa v. Lalithamma (Mysore High Court) | This information was not available in the provided opinion. | The court cited the decision as having "very pertinent observations" supportive of its view, but the opinion does not set out the substance of those observations. |
Court's Reasoning and Analysis
On the first question (inclusion of Rs. 3,000 interest): the Appellate Tribunal had found that no gift of the Rs. 50,000 had been made by the assessee to his wife and therefore treated the interest as the assessee's income. This court, however, referred to its earlier decision in I.T.R. No. 92 of 1963 (decided 3 November 1965) where, on the same material, it held that Pratap Narain had transferred the Rs. 50,000 to his wife. Applying that finding to the present reference, the court held that the Rs. 50,000 was transferred to Ramo Devi and, consequently, the Rs. 3,000 interest paid upon that sum by the partnership firm was not the income of the assessee in ordinary circumstances.
The court expressly noted that it had not determined whether the provisions of section 16(3) of the Income-tax Act, 1922, applied. Although the Commissioner (through Mr. S.C. Das) sought a ruling on the applicability of section 16(3), the court refrained from expressing any opinion because the Appellate Tribunal had explicitly left that question out of consideration. The court left it to the Tribunal to decide whether section 16(3) applies. Accordingly, the court limited its conclusion: the Rs. 3,000 interest is not liable to be included in the assessee's assessment unless section 16(3) is attracted.
On the second question (nature of properties received on partition by an issueless coparcener): the court reviewed and applied settled principles of Hindu joint family law. It stated that when HUF property is partitioned and a coparcener obtains a share, that share remains ancestral/coparcenary property as regards his male issue; those male issue acquire an interest by birth whether in existence at the time of partition or born thereafter. The court rejected the view that the share on partition becomes the separate property of the coparcener which only later becomes ancestral upon the birth of a son. Citing the Privy Council decision in Attorney-General v. Arunachalam Chettiar (No. 2) and the Supreme Court in Krishnamurthi v. Vasudeorao Deshpande Dhruvaraj (as well as observations of the Mysore High Court in Melagiriyappa v. Lalithamma), the court concluded that the character of the property does not change merely because the coparcenary unit is temporarily reduced to a single male; the property continues to be coparcenary and susceptible to the rights of future or adopted sons.
Applying these principles to the facts before it, the court held that the properties received by the assessee on partition and the income from those properties were not liable to be included in the assessee's assessment as an individual.
Holding and Implications
Holding:
- First Question: The court held that the sum of Rs. 50,000 was transferred by the assessee to his wife and therefore the Rs. 3,000 interest paid on that sum by the partnership firm is not the income of the assessee except where the provisions of section 16(3) of the Income-tax Act, 1922, are attracted. The court refrained from deciding the question of the applicability of section 16(3) and left it to the Tribunal to decide.
- Second Question: The court held that the properties received by the assessee upon partition of Hindu undivided family property and the income from those properties were not liable to be included in the assessment of the assessee as an individual. The court answered the second question in the negative.
Implications:
- Direct effect on the parties: The Rs. 3,000 interest is not assessable to the assessee on the ground that the Rs. 50,000 was transferred to his wife, unless section 16(3) applies (a matter left to the Tribunal). The income from the properties received on partition is not to be included in the assessee's individual assessment.
- The court did not express a determination on the applicability of section 16(3), and expressly left that legal question to the Tribunal; thus no definitive ruling on section 16(3) was made in this opinion.
- The court applied and relied upon earlier judicial authorities and its own earlier decision; the opinion does not purport to create a novel legal principle beyond the application of established authorities.
- Administrative directions: A copy of the judgment is to be sent to the Income-tax Appellate Tribunal under the seal of the court and signature of the Registrar as required by section 66(5) of the Act. The assessee was awarded costs of Rs. 200 and counsel fee of Rs. 200.
Pathak, J.:— The Income-tax Appellate Tribunal has referred two questions to this court for decision:
“(1) Whether, on the facts and in the circumstances of the case, the inclusion of interest of Rs. 3,000 in the assessment was legal and valid?
(2) Whether the view taken by the Tribunal that the properties received by an issueless male at a partition between coparceners would be his individual properties and not that of the Hindu undivided family of himself and his wife, is correct?”
2. The reference relates to the assessment year 1957-58 for which the assessee was assessed in the status of an individual.
3. The assessee, Pratap Narain, is a partner of a firm carrying on business under the name and style of Devidin Pusulal. He executed a deed on June 21, 1965, purporting to record an agreement between himself and his wife, Ramo Devi, to the effect that a sum of Rs. 50,000 had been transferred by him out of the amount standing to his credit in the books of the partnership firm to her account in that firm and that she was the sole owner of that amount and entitled to deal with it as she pleased. It was also stated that the partnership firm had issued a promissory note to her for that amount. There is no dispute that, in respect of the sum of Rs. 50,000, the firm made adjustment entries in the account of the assessee and of Ramo Devi showing a movement of the sum from one account to the other and it also issued a promissory note in that sum to Ramo Devi. During the previous year relevant to the assessment year under consideration, the partnership firm credited a sum of Rs. 3,000, as interest upon the said Rs. 50,000, in the account of Ramo Devi. In the assessment of the assessee, the Income-tax Officer, and the Appellate Assistant Commissioner after him, held that the sum of Rs. 3,000 was liable to be included in the total income of the assessee because there was no transfer of the amount of Rs. 50,000 to the wife and, in any event, assuming there was such transfer, the provisions of section of section 16(3) of the Income-tax Act, 1922, were attracted. Upon appeal by the assessee, the Appellate Tribunal came to the finding that no gift had been made by the assessee to his wife and that the money continued to belong to him, and, therefore, consequently, the interest accruing upon the amount of Rs. 50,000 was the income of the assessee.
4. In the circumstances, the Appellate Tribunal found it unnecessary to consider the application of section 16(3). The question whether the amount of Rs. 50,000, was transferred by way of gift by the assessee to his wife has been considered by us in I.T.R No. 92 of 1963, decided on 3rd November, 1965, and we have held that Pratap Narain had transferred the amount to his wife, Ramo Devi. The material upon which we arrived at that decision is the same as is contained in the case before us and, for the reasons which have prevailed with us in that case, we hold that the sum of Rs. 50,000 was transferred by the assessee to his wife. Consequently, the sum of Rs. 3,000 paid as interest upon that sum by the partnership firm is not the income of the assessee. It may be another matter that the sum is liable to be included in the total income of the assessee by virtue of section 16(3). Mr. S.C Das, on behalf of the Commissioner, has pressed us to decide whether section 16(3) applies, but, in view of the circumstance that the question was expressly left out of consideration by the Appellate Tribunals, we refrain from expressing any opinion in this matter. It would be for the Tribunal to decide whether the provisions of section 16(3) apply. We hold that the sum of Rs. 3,000 paid as interest by the partnership firm on the amount of Rs. 50,000 is not liable to be included in the assessment of the assessee unless the provisions of section 16(3) are attracted. We answer the first question accordingly.
5. As regards the second question, the facts are these. The assessee and his brother, Trijugi Narain, formed a Hindu undivided family holding certain properties as such. There was a partition between the brothers and some of the properties fell to the share of the assessee. At the time, the assessee's branch consisted merely of himself and his wife. There was no male issue. The income from these properties was included in the assessment of the assessee as an individual. The assessee contended that the income belonged to the Hindu undivided family and could not be treated as his individual income. This contention was rejected by the income-tax authorities, and the Appellate Tribunal held that the property, upon partition, was held by him as his separate or self-acquired property so long as he did not beget a male issue or adopt a son. The correctness of this conclusion is the subject of the second question referred to us. At one stage, during the course of arguments, Mr. Das disputed the fact that the property partitioned between the brothers was Hindu undivided family property, but it seems that this dispute was never raised before the Appellate Tribunal nor before the Income-tax Officer and the Appellate Assistant Commissioner. All three authorities have proceeded on the basis that what was divided between the brothers was Hindu undivided family property.
6. It seems to us that it is now well settled 1, that when Hindu undivided family property is partitioned between the members of a Hindu undivided family, and a share is obtained on such partition by a coparcener, it is ancestral property as regards his male issue. They take an interest in it by birth, whether they are in existence at the time of partition or are born subsequently. We are of opinion that it is not correct to say that the share of the property, upon partition, constitutes the separate property of the coparcener and that it is only subsequently when a son is born that the property becomes ancestral property or Hindu undivided family property. The birth of the son does not alter the nature of the property. The property all along continues to be coparcenary property. It may be that the sole coparcener is entitled to alienate the property. But upon the birth of a son all the rights which belong to a coparcener belong to that son, and the enlarged rights hitherto enjoyed by the sole coparcener are now abridged within their normal compass. In Attorney-General v. Arunachalam Chettiar (No. 2) [1958] 34 I.T.R E.D 42, 45 P.C., the Judicial Committee of the Privy Council expounded the law relating to the nature of joint family property in the hands of a single coparcener as follows:
“The nature of the interest of a single surviving coparcener was the subject of exhaustive evidence by expert witnesses and their Lordships were referred to and studied numerous authorities in which in reference to his interest language was used not incompatible with his being regarded as the ‘owner’ of the family property. But though it may be correct to speak of him as the ‘owner’, yet it is still correct to describe that which he owns as the joint family property. For his ownership is such that upon the adoption of a son it assumes a different quality: it is such, too, that female members of the family (whose members may increase) have a right to maintenance out of it and in some circumstances to a charge for maintenance upon it. And these are incidents which arise, notwithstanding his so-called ownership, just because the property has been and has not ceased to be joint family property. Once again their Lordships quote from the judgment of Gratiaen J.3: ‘To my mind it would make a mockery of the undivided family system if this temporary reduction of the coparcenary unit to a single individual were to convert what was previously joint property belonging to an undivided family into the separate property of the surviving coparcener.’ To this it may be added that it would not appear reasonable to impart to the legislature the intention to descriminate, so long as the family itself subsists, between property in the hands of a single coparcener and that in the hands of two or more coparceners. It was urged that already the difference is there since a single coparcener can alienate the property in a manner not open to one of several coparceners. The extent to which he can alienate so as to bind a subsequently adopted son was a matter of much debate. But it appears to their Lordships to be an irrelevant consideration. Let it be assumed that his power of alienation is unassailable; that means no more than that he has in the circumstances the power to alienate joint family property. That is what it is until he alienates it and, if he does not alienate it, that is what it remains. The fatal flaw in the argument of the appellant appeared to be that, having labelled the surviving coparcener ‘owner’, he then attributed to his ownership such a congeries of rights that the property could no longer be called ‘joint family property’. The family, a body fluctuating in numbers and comprised of male and female members, may equally well be said to be owners of the property, but owners whose ownership is qualified by the powers of the coparceners. There is in fact nothing to be gained by the use of the word ‘owner’ in this connexion. It is only by analysing the nature of the rights of the members of the undivided family, both those in being and those yet to be born, that it can be determined whether the family property can properly be described as ‘joint property’ of the undivided family. Judging by that test, their Lordships have no doubt that the Supreme Court came to the right conclusion.”
7. That coparcenary continues to subsist even when there is in existence merely a widow of a coparcener but one capable of bringing a son into existence by adoption is borne out by the following observations of the Supreme Court in Krishnamurthi v. Vasudeorao Deshpande Dhruvaraj:
“In the present case, Krishnabai owned the property as full owner on the death of her father, Narasappa Gouda, according to the Hindu law in the area in which the property in suit lay. But her title was defeasible on Tungabai, widow of Bandegouda, adopting a son to her husband, Vasappa, and, after him, his sons, inherited this property of Krishnabai and thus the appellants claimed under Krishnabai. Their such claim is, therefore, defeasible on the adoption of a son by Tungabai. The fact that Krishnabai inherited the property of her father absolutely, does not affect this question of title being defeated on the adoption of a son by Tungabai. The character of the property does not change, as suggested for the appellants, from coparcenary property to self-acquired property of Krishnabai so long as Tungabai, the widow of the family, exists, and is capable of adopting a son, who becomes a coparcener.”
8. Reference may also be made to the very pertinent observations of the Mysore High Court in Melagiriyappa v. Lalithamma.
9. We are of the view that the properties received by the assessee upon partition of the Hindu undivided family property and the income from those properties were not liable to be included in the assessment of the assessee as an individual. The second question is, therefore, answered by us in the negative.
10. We direct that a copy of this judgment shall be sent under the seal of the court and the signature of the Registrar to the Income-tax Appellate Tribunal as required by section 66(5) of the Act. The assessee is entitled to his costs, which we assess at Rs. 200. Counsel fee is assessed at Rs. 200.
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