R. Subramania Iyer v. Commissioner Of Income-Tax

Rajagopala Ayyangar, J.:— The question referred to us for decision under Section 66(1) of the Income-tax Act is:

“In the absence of any other evidence, is the recital in the partnership deed of 20-4-1947 in respect of the General Commercial Distributors enough for drawing the inference that the moneys invested by the assessee in the business carried on by him, came out of funds belonging to the undivided family consisting of the assessee and his minor son.”

2. The facts giving rise to the reference may be shortly stated. Subramania Iyer, the assessee, quarrelled with his father and came out of the family in or about April 1944. With some money given to him by his father after the separation, and by his mother, he started a concern called the General Commercial Corporation in September 1944. The partners in this concern, were Subramania Aiyar and one M.S Ramamoorthy Aiyar. This was wound up on 31-3-1947 and; and a new firm called the General Commercial Distributors came into being on and from 1-4-1947 with M.S Ramamoorthy Aiyar and his son, one Sundaram Aiyar, holding a quarter share each and the assessee Subramania Aiyar and his wife Lakshmi Ammal holding the other one-fourth, share each. Subramania Aiyar contributed a capital of Rs. 350 and his wife Rs. 600 while Ramamoorthy Aiyar and his son did not make any contribution of capital. A partnership deed was entered into in respect of this firm on 20-4-1947 and this Subramania Aiyar, the assessee, was described as “representing, his undivided family hereinafter called the party of the second part”. It might be mentioned that the undivided family at this date consisted only of the assessee and a minor son who was born in April 1944.

3. For the assessment year 1948–1949 assessee submitted two returns, one as an individual wherein he returned an income of Rs. 50 being sitting fee, received as a Director, and another return as the manager of the joint family and in this capacity he returned the fourth share of the income which he got from the General Commercial Distributors. The Income-tax Officer refused to accept these returns and treated the income returned as the, manager of the undivided Hindu family as part of the income of Subramania Aiyar, the individual assessee.

4. The assessee was called on to explain how-he treated himself as the manager of an undivided Hindu family in entering into this business. His explanation consisted of two parts. The first was that the sum of Rs. 350 which had been contributed by him as his share capital for the General Commercial Distributors was ancestral property-which had been obtained by him from his father.

5. The second was that the declaration contained in the recital in the partnership deed of April 1947, in which he had described himself as the manager of the joint undivided Hindu family, was sufficient to impress upon the business the character of a joint family business, such that its income would become the income of a Hindu undivided family. The Income-tax Officer did not accept the case put forward by the assessee as regards the source from which the Rs. 350 had been obtained by him and he was of the opinion that this sum represented at the best a portion of the gifts from the assessee's father and mother which would be self-acquired property in his hands.

6. Dealing with the effect of the declaration contained in the recital in the partnership deed of April 1947, the Income-tax Officer held that this was not sufficient to constitute the business as one belonging to an undivided Hindu family. The assessee filed an appeal to the Appellate Assistant Commissioner who rejected the appeal and this was confirmed by the Tribunal on further appeal.

7. In our opinion it is not open to the assessee to canvass the correctness of the finding reached by the Income-tax authorities and the Tribunal as regards the source from which the assessee was able to secure the Rs. 350 and whether his case that this represented his ancestral property has been proved. This, however, leaves for consideration the other point which is raised by the declaration embodied in the partnership deed. Under the Hindu law, there is no necessity for joint family property to exist in order that there may be a joint family.

8. The assessee and his son undoubtedly constitute members of a joint Hindu family. They might have started with no ancestral nucleus or other joint family property but there was nothing to prevent the assessee from impressing upon any 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.

9. 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.

10. In the present case the declaration is unambiguous in its terms & is to the effect that the assessee was entering into the partnership as the manager of the undivided Hindu family. The Tribunal makes a passing reference to this recital and states that the undivided Hindu family referred to in the declaration or recital might indicate the joint family consisting of the assessee, his father and brothers. This is really a contradiction of the fact narrated by the Tribunal earlier, where they have pointed out that the assessee had quarrelled with his father and separated from him and had come out of the family.

11. In the circumstances the reference to the undivided Hindu family in the deed of partnership must obviously refer only to the assessee & his minor son. The Tribunal did not anywhere point out what more was necessary besides the declaration in order to impress upon the assessee's share of the business the character of joint family property.

12. It is also in evidence that the partnership which was brought into existence by deed with this recital functioned, so that it is not merely a question of something being effected ‘in futuro’, but a case where effect has been given to the intentions contained in the declaration. In the circumstances the assessee must be held to have established that the profits derived by him from the General Commercial Distributors were received by him as the manager of the undivided Hindu family consisting of himself and his son. The answer to the reference therefore is that whether or not the money invested by the assessee in the business came out of the funds belonging to the undivided Hindu family consisting of the assessee and his minor son, the recital in the deed of partnership together with the fact that the partnership has functioned is sufficient to lead to the inference that the share of the profits was received by the assessee as the manager of a undivided Hindu family. The assessee is entitled to his costs. Counsel's fees Rs. 250.

13. C.M.P No. 8322 of 1952:— Since R.C No. 29 of 1952 has been disposed of to-day in favour of the assessee, counsel for the petitioner represents no further question need be referred at this stage. C.M.P No. 8322 of 1952 is dismissed. No costs.

K.S.B

14. Order accordingly.