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Kannaiyan And Another v. Asstt. Collector Of Central Excise, Erode And Others
Structured Summary of the Provided Opinion
Factual and Procedural Background
These writ petitions arise from notices issued by the Assistant Collector of Central Excise, Erode (the first respondent), to two brothers who were coparceners in a Joint Hindu Family. At a partition on 2 May 1963 each petitioner was allotted four power-looms out of a number of power-looms that had previously been used by the joint family for weaving. The licences for the power-looms originally stood in the name of the petitioners' father, who paid the excise duty. After partition the licence for each petitioner's four looms was transferred to his name by the authorities. On 26 June 1964 the first respondent served notices asserting that, because the petitioners had acquired the looms from their father (the licensee), they were liable to pay excise duty on the cotton fabrics produced on those looms and thus not entitled to exemption.
The petitioners filed writ petitions challenging the denial of exemption under a central Notification which exempts unprocessed cotton fabrics manufactured on up to four power-looms by the same person, subject to a proviso excluding manufacturers who commence production for the first time on or after 1 April 1961 by acquiring power-looms from any other person who is or has been a licensee of a power-loom factory. The petitions were heard together because the issues were identical. The court ultimately allowed the writ petitions and issued the writ of certiorari as prayed.
Legal Issues Presented
- Whether the petitioners, each allotted four power-looms on partition of a Joint Hindu Family, are entitled to exemption from excise duty for unprocessed cotton fabrics manufactured on those up to four power-looms under the Notification.
- Whether the partition by which the petitioners received their shares amounted to an "acquisition" of the power-looms "from any other person" within the meaning of the Notification's proviso (thereby disqualifying the petitioners from the exemption).
- Whether the Department may, at the hearing stage, raise a new factual/legal plea (that the father's act of throwing self-acquired property into the hotchpot occurred after 1 April 1961) which was not pleaded earlier and is unsupported by evidence, for the purpose of denying exemption.
Arguments of the Parties
Petitioners' Arguments
- The petitioners contended they were entitled to the exemption for unprocessed cotton fabrics manufactured on up to four power-looms because the exemption specifically covered such production by the same person in power-looms where less than five power-looms are installed.
- Implicit in their case was that the four looms allotted to each were not an "acquisition" from another person within the meaning of the Notification, but a division of coparcenary property on partition.
Respondent / Department's Arguments
- The Department's formal position in the counter-affidavit was that the partition deed should be construed as a mode of "acquisition" of power-looms from the father (the original licensee), and therefore the proviso would apply to deny the exemption. The Department urged that the word "acquire" in the Notification should not be strictly construed and that a narrow construction would discriminate against persons governed by Hindu law.
- During hearing, counsel for the respondents relied upon a decision of the Andhra Pradesh High Court (Commr. of Gift Tax v. Satyanarayana Murthi) and related authorities to argue that, if the father's act of throwing his self-acquired property into the hotchpot occurred after 1 April 1961, the petitioners could not claim the exemption because that change would constitute an effective "acquisition" for purposes of the proviso.
- However, the court noted that the Department had not taken the timing point earlier and had not pleaded or produced evidence on when the father had converted self-acquired property into coparcenary property; the timing argument first arose at hearing.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner of Income Tax, Gujarat v. Keshavlal Lallubhai Patel (1965) 55 ITR 637; AIR 1965 SC 866 | Explains that when coparcenary property is divided among coparceners in partition there is no transfer of title inter vivos from the coparcenary to individual coparceners; partition converts coparcenary enjoyment into separate ownership without an element of transfer. | The court relied on this Supreme Court decision to hold that the petitioners did not "acquire" the looms from their father by partition; the division merely converted joint coparcenary rights into separate rights and did not amount to a transfer within the Notification's language. |
| Cutta Radhakrishnayya v. Cutta Sarasamma (1950) 2 Mad LJ 338; AIR 1951 Mad 213 | States that each sharer had antecedent title; partition does not involve conveyance or conferment of a new title. | The court cited this High Court decision (approved by the Supreme Court in the Keshavlal Patel case) to support the proposition that partition does not constitute acquisition or transfer and thus does not trigger the proviso of the Notification. |
| M.K. Stremann v. Commissioner of Income-tax (1961) 41 ITR 297; AIR 1962 Mad 26 | Holds that separation in status (partition) does not amount to transfer of assets; the property held by coparcenary is held thereafter by separate members and there is no transfer from the body of tenants-in-common to the individual tenants-in-common. | The court relied on this authority to reinforce that partition merely effects separation of status and not a transfer, undermining the Department's claim that the petitioners 'acquired' the looms from their father for purposes of the Notification. |
| Commr. of Gift Tax v. Satyanarayana Murthi (1965) 56 ITR 353; AIR 1965 Andh Pra 95 | Interpreted Section 2(xxiv)(d) of the Gift Tax Act broadly to include transactions intended to diminish the value of one's own property and increase another's; held that vesting self-acquired property in the joint family may constitute a transfer/gift under that definition. | The respondent relied on this decision to argue that when a father threw his self-acquired property into the hotchpot the act could amount to a transfer for tax purposes, and that the timing of that act (relative to 1 April 1961) might affect entitlement to exemption; the court observed this argument was not raised earlier and that the record did not permit deciding the timing question in the writ petitions. |
| Earlier decision of the Gujarat High Court (unnamed; referred in text) | Held that vesting self-acquired property in a joint Hindu family (throwing into the hotchpot) can amount to a transfer (gift) for the purposes of the Gift Tax Act's wider definition of "transfer". | The Andhra Pradesh decision followed that Gujarat High Court view; the court here noted these authorities were invoked by respondents but found that the Department had not pleaded or adduced evidence on the critical timing question, and therefore the point could not be decided in the writ petitions. |
Court's Reasoning and Analysis
The court's reasoning proceeds from statutory/textual interpretation of the Notification and from established principles concerning the nature of partition in a Joint Hindu Family:
- Interpretation of the Notification: The court examined the exemption provision (item 7) and its proviso which disqualifies persons who commence production on or after 1 April 1961 by "acquiring power-looms from any other person who is or has been a licensee of power-loom factory." The court read the word "acquire" together with "from any other person" as implying an inter vivos transfer of title from one person to another.
- Nature of partition and "acquisition": The court analyzed the partition deed recitals which disclosed that the looms were originally the father's self-acquired properties that had been thrown into the hotchpot and thereafter treated and enjoyed as coparcenary property for a long time prior to the partition. Relying on authoritative decisions (including the Supreme Court in Keshavlal Patel and earlier Madras decisions), the court stated that partition of coparcenary property does not amount to a transfer of title; rather it converts joint coparcenary enjoyment into separate ownership without conferment of a new title. Thus the act of partition by the coparceners does not constitute an "acquisition" from another person within the meaning of the Notification.
- On Department's broader construction: The court rejected the Department's contention (as set out in the counter-affidavit) that the term "acquire" should be read broadly to include transfers resulting from partition, noting that such a construction is "wholly erroneous" and inconsistent with the long line of authorities about coparcenary partition.
- Timing argument and procedural fairness: The respondents' counsel, during argument, sought to rely on Gift Tax authority to contend that the crucial point might be when the father threw the self-acquired property into the hotchpot (whether before or after 1 April 1961). The court observed that this precise contention had not been taken earlier by the Department or in the counter-affidavit, and that there was no evidence before the court to decide when the hotchpotting occurred. The court declined to entertain the new plea raised belatedly at hearing and noted that the record (recitals in the partition deed) indicated the properties had long been enjoyed as coparcenary property prior to partition.
- Conclusion of analysis: Because partition did not constitute an acquisition from another person within the meaning of the Notification and because the Department had failed to raise and support the alternate timing-based argument earlier, the respondents' orders denying exemption could not be sustained.
Holding and Implications
Holding: The writ petitions are allowed and a writ of certiorari is issued quashing the respondents' orders denying the benefit of the exemption.
Direct consequences for the parties:
- The orders of the respondents denying exemption to the petitioners for the unprocessed cotton fabrics produced on their four power-looms cannot be sustained and are set aside. The petitioners are entitled to claim the exemption applicable up to four power-looms under the Notification, on the basis of the reasoning in this opinion.
- There will be no order as to costs (the court expressly so ordered).
Broader implications: The opinion applies established case law on the nature of partition in a Hindu joint family to construe the term "acquire" in the Notification narrowly (as an inter vivos transfer) and rejects the Department's broader construction for the facts before the court. The opinion does not announce a new legal doctrine beyond applying existing authorities; it declines to decide or recharacterize the separate factual question (timing of throwing property into the hotchpot) because that issue was not pleaded or supported by evidence before the court.
1. The scope of these writ petitions is a limited one. The petitioner in W.P No. 4407 of 1965 was a member of a joint Hindu family consisting of himself, his two brothers and father. This joint Hindu family had a number of power-looms in their possession, which they were using for the purpose of weaving. On 2nd May, 1963, they effected a partition, and the petitioner was allotted for his share four of these power-looms. Originally, the licence for these power-looms stood in the name of the father, and he was paying the excise duty levied on cotton fabrics produced by the power-looms. After the partition, the licence, for the four power-looms, which were allotted to the petitioner's share, was transferred to his name by the authorities. On 26th June, 1964, the petitioner received a notice from the Assistant Collector of Central Excise, Erode, the first respondent herein, stating that, since he had acquired the aforesaid four looms from his father, who was the licensee of the power-loom factory, the petitioner was liable to pay duty on the cotton fabrics produced on the power-looms irrespective of the number of looms installed by him.
2. The petitioner in W.P No. 4553 of 1965 is another brother of Kannaiyan, the petitioner in W.P No. 4407 of 1965. He is also similarly situated, and he got at the partition four power-looms and just like the petitioner in W.P No. 4407 of 1965, he too received a notice from the first respondent saying that he would be liable to pay excise duty on the cotton fabrics produced in his four looms.
3. Since the points in controversy in these two writ petitions are identical, I will deal with them together. Both the petitioners contend that they are entitled to exemption from excise duty on the unprocessed cotton fabrics manufactured in their power-looms. The exemption is available upto a maximum of four power-looms. The terms of the grant of exemption which is provided in the Notification, of which item 7 is relevant for our purpose, run thus:
“Unprocessed cotton fabrics manufactured by or on behalf of the same person in one or more factories commonly known as power-looms (without spinning plants) in which less than 5 power-looms in all but no roller rocker machine installed.
Provided that this exemption shall not be applicable to a manufacturer who commences production of the said fabrics for the first time on or after the 1st April, 1961 by acquiring power-looms from any other person who is or has been a licensee of power-loom factory.”
4. The view of the Department for denying the exemption to the petitioners is that the partition deed under which they were allotted four power-looms each must be construed as a document under which they “acquired” the power-looms from their father V.K Raju. In regard to this method of interpreting the aforesaid item in the Notification, the view of the Department as stated in the counter affidavit is succinctly this:
“……………having regard to the scope and intendment of the notification and the application of the said notification to the Hindus and non-Hindus as well inheritance of power-looms consequent to a partition in a Hindu Joint Family also a mode of acquisition of power-looms……… even assuming that under the Hindu Law properties obtained on partition of a Hindu joint family may not amount to acquisition thereof, such notion cannot be read into the provisions of the notification and the word ‘acquire’ in the said Notification cannot be so strictly construed. I submit if such a construction is made it is likely to result in discrimination of persons who are governed by Hindu law and those who are governed by other personal laws.”
5. It appears to me that this view of the meaning of the word ‘acquire’ in the Notification extracted above is wholly erroneous, and is against a long trend of decisions governing the nature of the title and possession enjoyed by coparceners of Joint Hindu Family properties. The partition deed relied upon by the petitioners, of which a copy has been supplied to me, recites:
“Whereas all of us, Nos. 1 to 4 parties herein have been members of a joint family, parties 2 to 4 being the sons of No. 1 party and the under-mentioned schedule properties have hitherto been owned, held and enjoyed by all the parties even though the same have been the self-acquired properties of the party No. 1 (father) and whereas because of differences amongst ourselves we find ourselves unable to continue to own, hold and enjoy the said properties jointly as before and therefore, we have agreed to partition the said properties and allot the same amongst ourselves in pursuance of the decision of a Panchayat.”
6. This would show that the looms in question were originally the self-acquired, properties of the father. At some anterior period, he had thrown them into the hotchpot, and thereafter they were owned, held and enjoyed by himself and his sons as coparcenary properties, until the date of the partition when they proposed to divide their properties as coparcenery properties. There can be no doubt in the above circumstances that the four power-looms which fell to the share of each petitioner were at the time of the partition coparcenery properties, in which the other coparceners had title and ownership. The word ‘acquire’ used in the Notification, taken in conjunction with the words “from any other person”, clearly implies a transfer of title inter vivos from one person to another. It is well established by several decisions that, in the case of a property, which was enjoyed by the members of a coparcenery and which they divided among themselves in a partition there is no transfer of the property from coparcenery as a unit to the individual coparceners who divide it. It is only a case of converting what had been enjoyed by the coparceners with coparcenery rights into property enjoyed by them with separate rights. There is not element of transfer in such a division. The decision of the Supreme Court in Cornmr. of Commissioner Of Income Tax, Gujarat v. Keshavlal Lallubhai Patel ., (1965) 1 SCJ 103 : (1965) 1 ITJ 1 : (1965) 55 ITR 637 : AIR 1965 SC 866, which arose under Section 16(3)(a) of the Indian Income-tax Act, has explained this position with clearness. The Supreme Court approved the decision of this Court in Cutta Radhakrishnayya v. Cutta Sarasamma, (1950) 2 Mad LJ 338 : ILR (1951) Mad 607 : (AIR 1951 Mad 213), where it has been observed:
“Each one of the sharers had an antecedent title and, therefore, no conveyance is involved in the process, as a conferment of a new title is not necessary.”
The Supreme Court also approved the following observations of this Court in M.K Stremann v. Commr. of Income-tax, (1961) 41 ITR 297 at p. 309 : AIR 1962 Mad 26 at p. 29:
“……… 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 coparcenery is held thereafter by the separate 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.”
The Supreme Court in the decision cited made a passing reference to the difference of opinion among the High Courts as to whether the act of throwing the self-acquired property into the hotchpot was a transfer or not. Their Lordships expressed the view that it was not necessary, in their opinion, to settle the controversy about that point.
7. Learned Counsel Sri G. Ramaswami who appears for the respondents referred to a decision of the Andhra Pradesh High Court in Commr. of Gift Tax v. Satyanarayana Murthi, (1965) 1 ITJ 76 : (1965) 1 Andh WR 69 : 56 ITR 353 : AIR 1965 Andh Pra 95. That decision was concerned with Section 2(xxiv)(d) of the Gift Tax Act which, besides the usual definition of transfer of property added also in the category of transfers for the purpose of levy of gift tax any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person. The Andhra Pradesh High Court held that this definition of transfer of property for the purpose of gift tax is wider than the one contained in the Transfer of Property Act. That High Court held following an earlier decision of the Gujarat High Court that, when a member of the joint Hindu family divests himself of his self-acquired property and vests it completely in the joint Hindu family, there is a transfer of ownership amounting to a gift in the above definition. Learned counsel for the respondent wanted to rely on this decision and contend that, in this case, since the partition deed refers to the power-looms having been the self-acquired properties of the father, which he subsequently threw into the hotch-pot for being treated as the joint Hindu family property, there will be need to find out whether this throwing of the property into the hotch-pot was before 1st April, 1961 or after 1st April 1961. If, according to learned counsel, it was after 1st April, 1961, the petitioners could not take advantage of the exemption.
8. Unfortunately, the Department has not taken such a stand, at any time before the filing of the writ petitions. The stand was not even taken in the counter-affidavit. It was taken, for the first time, during the course of the arguments when the writ petitions were heard. It is not possible to decide, within the scope of the writ petitions, the exact point of time when the father decided to convert his self-acquired properties into joint Hindu family properties. But the recitals in the partition deed which I have extracted above show that the properties had for a long time prior to the partition deed, been treated by the members of the coparcenery as joint coparcenery properties and they have been enjoying them in that capacity, when they decided to partition the properties among themselves. It is, therefore, not possible to decide in these writ petitions that the father threw the self-acquired properties into the hotchpot after 1st April, 1961 and therefore the exemption in the Notification will not be available to the power-looms owned by the petitioners. In my opinion, it is not also advisable to permit the Department to raise a new plea, which it had not taken earlier, and when it has also not secured any evidence to support an inference that the father threw the self-acquired properties into the hotchpot after 1st April, 1961. In the above circumstances, I am of the opinion that the orders of the respondents denying the benefit of the exemption to the petitioner cannot be sustained.
9. The writ petitions are allowed and a writ of certiorari will be issued as prayed for.
10. There will be no order as to costs.
11. Petition, allowed.
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