The Judgment of the Court was delivered by

Rajagopalan, J.:— Kulandavelu Mudaliar, the father of the assessee, was an agent of Muller and Phipps (India) Ltd., and he handled the sale of their pharmaceutical preparations. He gave up that agency, and on July 1, 1937, the petitioner was appointed the company's agent.

2. Kulandavelu died on 27th July, 1938. The assessee, the only son of Kulandavelu, inherited from his father a house in Ayalur Muthiah Mudali St., a sum of Rs. 3,000, realised on insurance policies, and Rs. 600 refunded by the Income-tax Department. The cash went into his banking account. On the death of Kulandavelu, the assessee was the sole male member of his family.

3. In the assessment year 1938-1939 the assessee's claim was upheld, that his appointment as the agent of the company did not constitute any succession to any business of Kulandavelu and that the agency and the business that ensued constituted the separate requisition of the assessee independent of his father. The agency proved lucrative, and are assessee acquired properties, moveable and immovable. His first son was born on 11th August, 1944, and the second on 3rd September, 1945. Together they constituted a joint family. The only piece of ancestral immovable property was the house in Ayalur Muthiah Mudali Street. That was sold by the assessee in 1945, and with the sale proceeds another house No. 3, Varadarajulu Naidu Street, was purchased. The new house was thus the substituted ancestral joint family property of the assessee and his sons.

4. The assessee maintained only one set of accounts, which included the income—first from the house in Ayalur Muthiah Mudali Street and then the house in Varadarajulu Naidu Street. But that income was comparatively very small. The bulk of the income was from the agency business. Till the assessment year 1952-1953 the assessee was assessed in his status as an individual on his entire income, including the small amount which he derived from the ancestral immovable property.

5. On 19th December, 1952, the assessee effected a partition between himself and his minor sons. Provision was also made for the maintenance, education and marriage of his daughter Mahalakshmi, who was also a minor. The mother of the three minor children represented them in that transaction. The deed of partition has been appended as Annexure B to the statement of the case. In that deed of partition the assessee recorded:

“Whereas the party of the first part (assessee) has been earning commission and acquiring property and blending his money with the assets inherited from his father and treating the entire properties extant before and after the birth of the parties of the second and third parts (sons) till this date as joint family property without making any discrimination or distinction.”

The moveable and immoveable properties set out in Schedule A valued at Rs. 49,655 were allotted to the share of the assessee. The moveable and immoveable properties valued at Rs. 83,650 were allotted to the share of the elder son Selvakumar. The moveable and immoveable properties valued at Rs. 1,20,000 were allotted to the share of the second son, Rajkumar. The amount of Rs. 61,410 in fixed deposit was set apart for the maintenance, clothing, education and marriage expenses of the daughter Mahalakshmi. It should be noted that the agency business itself was not made the subject matter of the partition. It continued with the assessee, and continued to be his separate property.

6. In the assessment year 1953-1954 for the account year ending with March 31, 1953, the assessee claimed that the entire income of the properties dealt with in the partition deed belonged to the joint family of himself and his sons upto 19th December 1952, and that thereafter he was liable to be assessed only on the income from the properties that came to his share under the deed of partition.

7. The Income-tax Officer held that the only piece of joint family property was the house in Varadarajulu Naidu Street. The Income-tax Officer assessed the assessee in his status as an individual, as he had all along been assessed from 1938-1939. The income from the house in Varadarajulu Naidu Street, which was treated as ancestral joint family in the hands of the assessee, was excluded. On the rest of the income, the income from the business and the income from all the properties shown in Annexure B, the assessee was assessed. The Income-tax Officer was of the view, that there was no proof of any merger of the self-acquired properties of the assessee with the ancestral joint family property. The Income-tax Officer also took the view, that under the deed of partition there was really a transfer of the assets of the assessee to his minor children, and that the income from the transferred assets was assessable in the hands of the assessee under S. 10(3)(a)(iv).

8. The assessee's appeal to the Assistant Commissioner failed. The Assistant Commissioner took the view, that the deed of partition could not be acted upon, and that the income from all the properties belonged only to the assessee. Once again we should emphasise that the assessed income excluded the income from the ancestral joint family property, the house in Varadarajulu Naidu Street. The Assistant Commissioner did not go into the question whether the deed of partition dated 19th December 1952, constituted a transfer, and whether the provisions of S. 16(3)(a)(iv) applied.

9. The assessee appealed to the Tribunal. In paragraph 2 of its judgment, after pointing out that the agency belonged to the assessee in his individual capacity from its commencement on 1st July 1937, and after also pointing out that no doubt a Hindu undivided family came into existence when the assessees first son was born in 1944, the Tribunal recorded:

“…….there is no evidence that all his assets and liabilities including the agency business were transferred to such family either then or later. The first time we hear of the family possessing the assets in question is the deed of dissolution in which there is a recital to the effect “(The Tribunal consistently referred to annexure B, the deed of partition, as the deed of dissolution) “This certainly cannot constitute an unequivocal declaration of the admitted individual investing his self-acquired properties with the character of joint family property referred to in R. Subramania Iyer…Applicant; v. The Commissioner Of Income-Tax, Madras…., Madras, 1955-28 ITR 352: ((S) AIR 1955 Mad 623)……”

10. The conclusions of the Tribunal recorded in paragraph 3 of its judgment ran:

“We hold that the agency business of the assessee belonged only to him in his individual capacity till 19th December 1952, after which he has by that document given away the shares therein to his three minor children. Such a mode of division comes within the ambit of S. 16.”

The assessment made by the Income-tax Officer and confirmed by the Assistant Commissioner was confirmed and the appeal was dismissed.

11. Even at this stage we have to point out that the assumption in paragraph 3 of the judgment extracted above, that shares were given to the three minor children in the business of the essessee, was wrong. The business as such, as we have pointed out, was not partitioned, and it continued to be the property, the self-acquired property, of the assessee.

12. At the instance of the assessee the Tribunal referred the following three questions to this court under S. 60(1) of the Act:

“1— Whether there was material for the Tribunal to reach the conclusion that the various assets in question belonged only to the assessee in his individual capacity till 19th December 1952.

(2) If the answer to the first question is in the affirmative, whether the deed annexure B aforesaid amounted to a transfer of assets to three minor children aforesaid so as to attract the provisions of Section 16(3)(a)(iv) of the Income-tax Act?

(3) If the answer to the first question is in the negative, the Income-tax Officer having rejected the claim of partition under S. 25-A and the assessee not having independently appealed, against such decision, whether the assessee is entitled in law to any modification of the assessment order other than the status alone?”

We have referred to the recital in the deed of partition, annexure B, that all along the assessee treated his properties as properties of the joint family of himself and his sons. He was the sole male member of the family before 1944. The accounts he maintained made no difference between the income from his ancestral property and the income from his self-acquired properties, which included the agency as well as the properties acquired with the accumulated income of that agency business. That system continued even after ids sons were born. The Department and the Tribunal, which agreed with them, were of the view, that there was no proof that antecedent to 19th December 1952, the assessee by his volition had blended his self-acquired properties with his ancestral joint family property. We are unable to hold that there was no material for that conclusion. There was no independent evidence to ??? the recital in the deed of partition, that all along the assessee had treated the property as the joint family property. His conduct before 19th December 1952, was quite consistent with the position, that upto then he had all along treated the property and the income therefrom, inclusive of his ancestral property, as his property. As this karta of the joint family his income from the ancestral property was also at his disposal.

13. The real question for determination under question (1) as it has been framed by the Tribunal is whether the assessee was liable to be taxed in his capacity as an individual and not in the capacity of the kartha of a Hindu undivided family on the income from the properties in the year of account upto 19th December 1952. Out of the total assessed income of Rs. 69,268, the income from the business itself, the agency claimed all along by the assessee from 1937 as his self-acquired property, and that was itself not dealt with or shared with his sons under the deed of partition. The rest of the assessed income, a little over Rs. 15000 represented the income from immoveable property, dividends and interests, all traceable to properties acquired by the assessee from out of his accumulated profits of his self-acquired property, the agency business. Since there was material on which the Tribunal could come to the conclusion, that there was no clear evidence of blending of self-acquired properties with ancestral joint family property till 19th December 1952, the Tribunal was entitled to reject the assessee's claim, that the income from all the properties including the agency should be treated upto 19th December 1952, as the income of the joint family of the assessee and his sons. That constitutes the real answer to question 1, though in form we answer the question in the affirmative and against the assessee.

14. Question 2: The transaction evidenced by annexure B, the document dated 19th December 1952, was in form and substance a partition between the assessee and his two minor sons, with a provision for the daughter as well for her maintenance, education and marriage. All the properties dealt with at that partition — the agency itself was excluded, but the ancestral immoveable property was included were expressly treated as the properties which belonged to the coparcenary, which consisted of the father and his two sons. A partition of joint family property itself does not constitute a transfer of assets, direct or indirect, within the scope of S. 16(3)(a)(iv) of the Act. A partition is based on the antecedent rights of the separating members of the family in the properties of that family.

15. We have emphasised the feature of the transaction, that the bulk of the properties partitioned were the self-acquired properties of the father, the assessee. The only joint family property which was also ancestral was the house in Ayalur Muthiah Mudali Street, for which was later substituted the house in Varadarajulu Naidu St. Nonetheless the transaction evidenced by Annexure B was one of partition. As pointed out in Kisansing v. Vishnu, AIR 1951 Bom 4:

“The transaction by which a father makes a division of his self-acquired property between his sons is a transaction by which he, in the first instance, effects a severance of status between his sons; in the second instance, he notionally throws into the hotchpot his self-acquired property, and then divides it between his sons, whether fully or unequally in accordance with his pleasure.”

The learned Judges also held that such a transaction did not amount to a gift and did not require a registered document to evidence it.

16. Though we have held in answering the first question that the Tribunal was entitled to find that there was no proof of blending of the self-acquired properties of the assessee with his ancestral property at any time before 19-12-1952, was there any proof of blending antecedent to the partition itself on 19-12-1952 still remains to be answered. The partition proceeded on the basis that the self acquired properties were made available for partition along with the only item of joint family property. That itself constituted proof that antecedent to the partition, however short the interval, there was a blending of the self-acquired properties of the assessee with his ancestral joint family property. We are in respectful agreement with the principle laid down by the Bombay High Court in AIR 1951 Bom 4.

17. In 1955-1928 ITR 352: ((S) AIR 1955 Mad 623), this court observed at page 361 (of ITR): (at p. 624 of AIR);

“The assessee and his sons 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. 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.” These principles were quoted with approval and applied by a Division Bench of the Andhra Pradesh High Court in Duggirala Sadasiva v. Bolla Rattin, 1957-2 Andh WR 16 : (AIR 1958 Andh Pra 145).

18. The Tribunal, it should be observed, was of the view that the recital in the deed of partition “did not constitute an unequivocal declaration of the admitted individual investing his self acquired properties with the character of joint family property.” Whether the averment in relation to the past was supported by other evidence or not, it certainly was unequivocal, that the properties dealt with at the partition were treated by the volition of the assessee as the properties available for partition between the members of the joint family. It was certainly an unequivocal declaration that all the properties dealt with at the partition were treated by the volition of the assessee as the properties available for partition between the members of the joint family. It was certainly an unequivocal declaration that all the properties dealt with under that partition had been impressed with the character of joint family properties, properties belonging to the joint family of the assessee and his sons. The genuineness of the transaction itself was never in issue. The result was that at least on 19-12-1952, antecedent to the partition, the properties became impressed with the character of joint family property. There was a partition on 19-12-1952. Thereafter the properties allotted to the shares of the assessee and his divided sons were held by them in severalty.

19. The real question we have to decide is, was there a transfer of assets within the meaning of S. 16(3)(a)(iv) when the father, the assessee, pooled his self-acquired properties with the ancestral joint family property for subsequent division between the members of the coparcenary. If there was a transfer at all, the transferee could only be coparcenary of which the father was the kartha, and not the minor sons, who at that time were still undivided in status. It should be remembered that the pooling or blending of the self-acquired properties with the joint family property preceded in status and the partition of the properties on 19-12-1952.

20. Where the self-acquired properties of a coparcener — in this case the coparcener was the father of the other coparceners and the kartha of the coparcenary — are pooled with joint family property and partitioned, there are three distinct stages. First the self-acquired property of the coparcener is impressed with the character of the joint family property of the coparcenary. The next stage is the disruption of the coparcenary. The members thereafter become divided in status. The next stage after that is the actual division between the divided members of what had been the property of the joint family. Each of these stages may be separated from the succeeding one by an interval of time, considerable or otherwise. The length of the interval however does not-affect the principle in deciding the question, was there a transfer of property at any stage. Obviously no question of transfer of assets can arise when all that happens is separation in status though the result of such severance in status is that the property hitherto held by the coparcenary is held thereafter by the separated members as tenants-in-common. Subsequent partition between the divided members of the family does not amount either to a transfer of assets from that body of the tenants-in-common to each of such tenants-in-common. We therefore come back to the question “Was there a transfer to the coparcenary from the coparcener, that is, in this case was there a transfer from the assessee of his self-acquired properties to the coparcenary of which he was the kartha?

21. Severance in status with the resulting change in the nature of the ownership of the property is one of the incidents of a coparcenary. The property held by the coparcenary vests in the separated members as tenants-in-common after the severance in status. That result can be brought about by the unilateral exercise of the volition of the separating member or members of the family. At that point of time the property, which had upto then been impressed with the character of joint family or coparcenary property, becomes impressed with the character of property held in severalty by the tenants-in-common. The change does not itself constitute a transfer. Nor even does it result from any transfer of assets.

22. Similarly, when the separate property of a coparcener ceases to be his separate property and becomes impressed with the character of coparcenary property there is no transfer of that property from the coparcener to the coparcenary. It becomes joint family property because the coparcener, who owned it upto then as his separate property, has by the exercise of his volition impressed it with the character of joint family or coparcenary property, to be held by him thereafter along with the other member of the joint family. It is by his unilateral action that the property has become joint family property.

23. Coparcenary property ceasing to be joint family property of the coparcener on a division in status between them and becoming thereafter the property held in severalty by the divided members, and the property of a coparcener ceasing to be his and becoming the property of the coparcenary of which he continues to be a member, are both incidents of a coparcenary governed by the Mitakshara school. Either can be brought about by the unilateral action of the coparcener concerned. Neither transaction amounts to a transfer of property from one juristic entity to another. A transfer is essentially a contract, a bilateral transaction. The transaction by which a property ceases to be the property of a coparcener and becomes impressed with the character of coparcenary property does not itself amount to a transfer. No transfer need precede the change. No transfer ensues either. As pointed out in 1955-28 ITR 352: ((S) AIR 1955 Mad 623), 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. Annexure B afforded clear evidence of an unequivocal manifestation of intention on the part of the assessee to treat his self-acquired properties as the properties of the joint family and to divide them on that basis.

24. When a change in the character of even immoveable property is achieved without a transfer and any need for a transfer of that property, no question can obviously arise whether such a change, viewed as a transfer would be invalid if it is not evidenced by a registered deed.

25. The learned counsel for the department contended that, where a coparcener throws his self acquired properties into the hotchpot for purposes of partition, there is an element of transfer within the meaning of Sec. 16(3)(a)(iv). The learned counsel referred to the observations of Manohar Lall, J. in Indra Singh v. Commissioner of Income-tax, 1943-11 ITR 16 at p. 33 : (AIR 1943 Pat 169 at p. 174):

“The property of an individual cannot become the property of a joint Hindu family by mere expression of intention unless the property is transferred to the joint Hindu family by some means recognised by law, for instance if it is moveable property then it should be handed over to the joint family and its subsequent possession or enjoyment should be shown to be on behalf of the joint Hindu family, or if it is immoveable then it must be transferred by a registered document if its value is more than Rs. 100.”

The observations of Manohar Lall, J. were similar to those of Srinivasa Aiyangar, J. in Thayalambal v. Krishna Pattar, 32 Ind Cas 955 at p. 960 : (AIR 1917 Mad 706 at p. 711):

“Whether a member of a joint Hindu family who owns immoveable property as his self-acquisition can convert it into joint family property without an instrument in writing registered in the provinces where the Transfer of Property Act is in force, I think, admits of doubt…. I find some difficulty in understanding the conversion of individual property into joint family property except by way of a transfer. That transfer may be by way of a gift, or it may be by way of an exchange; it is also possible that it may be by way of a sale. It is no doubt true that the Transfer of Property Act does not provide for all kinds of transfers; but on analysis it will be found that such a conversion would partake of a character of one or the other of those transactions.”

The learned Judge however stated:

“But I do not think it necessary to come to a final determination of either of these two questions.”

The observations of Srinivasa Aiyangar, J. cannot therefore be viewed even as obiter dicta. The correctness of these observations was doubted by Odgers, J. in Ramaswami Nayakar v. Raju Padayachi, 51 Mad LJ 167 : (AIR 1926 Mad 963). Odgers, J. too did not record any concluded opinion of his on the question, whether conversion of individual property into joint family property could be effected only by a transfer.

26. No case has been brought to our notice where this court has decided that there is a transfer when a coparcener merges his separate property with the property of the joint family. With all respect to the learned Judges of the Patna High Court we are unable to share their view, that the property of a coparcener can become the property of the joint family only if there is an antecedent valid transfer of that property. As we have pointed out, the change is effected by the unilateral action of the coparcener, and that right of his to make his property the property of the joint family is one of the incidents of a co-parcenary.

27. We need not deal in this case with the right of a Hindu father governed by the Mitakshara to partition his self-acquired properties alone between himself and his sons, even without taking the initial step of making it all the property of the joint family of himself and his sons. In this case, antecedent to the partition between the assessee and his sons, he merged his self-acquisitions with the ancestral property of the joint family, which the assessee had the undoubted right to do. There was a partition of all the properties thereafter. Neither transaction, neither the pooling nor the subsequent partition, constituted a transfer of assets, direct or indirect, within the mischief of Section 16(3)(a)(iv) of the Income-tax Act.

28. The result is that after 19-12-1952, the income from the properties allotted to the minor children including the daughter belonged only to them, and it was not the income of the asses-see. The transaction by which that property became the property of the minors, evidenced by the deed of partition annexure B, did not amount to a transfer of assets to any of the minor children within the meaning of Sec. 16(3)(a)(iv). The assessee was therefore entitled to exclude with effect from 19-12-1952 the income from the properties allotted to the minors under annexure B from his assessable income.

29. We answer the second question in the negative and in favour of the assessee.

30. The third question does not really call for an answer, because that in no way affects the tax liability of the assessee in the assessment year 1953-1954. It was true that the assessee's attempts to have the income assessed upto 19-12-1952 as income of the joint family failed. So did the attempt to secure a declaration under Sec. 25-A that the joint family had cease to exist, and that all the properties had been divided. The correctness of the order under Sec. 25-A itself is not the subject matter of this reference. As we have pointed out wider question 1, the assessee was liable to be taxed on the entire income upto 19-12-1952 in his status as an individual. That was independent of the order under Section 25-A. In answering the second question we have pointed out that after 19-12-1952 the assessee was entitled to exclude from his assessable income the income from the properties allotted to the minor children under annexure B. That again was independent of any order under Sec. 25-A.

31. In form we answer the third question in the affirmative and in favour of the assessee. The assessee will be entitled to the costs of this reference. Counsel's fee Rs. 250.

32. C.M.P No. 127 of 1960: The documents produced by the assessee were really unnecessary for the determination of the questions at issue between the department and the assessee. It is on that ground that we direct that the petition be dismissed.

33. No order as to costs.

CE/C.

34. Questions answered accordingly.