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Padma Lal Chand Mirchandani Assessee v. The Commissioner Of Income Tax (Delhi Ii)

Delhi High Court

Apr 19, 1979

Judgment

Subsequent
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Summary of the Legal Opinion (Reference under Section 256(1) of the Income-tax Act, 1961)

Factual and Procedural Background

The Income-tax Appellate Tribunal referred the following question under Section 256(1) of the Income-tax Act, 1961: whether the Tribunal was right in holding that a female member of a Hindu undivided family (the assessee) has no right to throw her self-acquired property into the common hotchpot of the Hindu undivided family and in confirming assessment of the entire income from that property in the assessee's hands for assessment years 1968-69 and 1969-70.

The assessee, a female member of a Hindu undivided family, owned a house situated at 109/48, Chanakya Puri. By a declaration dated 30th March, 1967 she purported to throw one half of the property into the hotchpot of the Hindu undivided family. On that basis she filed returns showing 50% of the income from the property as her income and 50% as income of the Hindu undivided family. The Income-tax Officer held that the assessee, being a female member of a Hindu undivided family, was not competent to blend any part of her self-acquired immovable property into the hotchpot of the joint family. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal agreed with that view. The reference to the High Court followed.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee, being a female member of the Hindu undivided family, has no right to throw her self-acquired property into the common hotchpot of the Hindu undivided family.
Whether, alternatively, the declaration should be treated or deemed to be a gift so that half the immovable property would stand transferred to the Hindu undivided family and the income of that half would be assessable as the income of the Hindu undivided family.
Consequentially, whether the entire income from the property should be assessed in the hands of the assessee for the years 1968-69 and 1969-70.

Arguments of the Parties

Appellant's (Assessee's) Arguments

The assessee purported to blend half her immovable property into the common stock of the Hindu undivided family by a declaration dated 30-3-1967 and treated 50% of the income as that of the joint family.
Mr. M.B. Lal, counsel for the assessee, argued that because the transaction could not in law amount to blending (for reasons explained by authority), it should be deemed to be a gift. He relied on the Supreme Court's observation in Pushpa Devi's case that a declaration in that case “must be deemed to have made a gift” and contended that where blending fails the transaction should be treated as a gift by application of that observation.
The learned counsel invoked principles on the meaning of the word “deem” from precedents (Bhogilal Laherchand and Bombay Trust Corporation) to support the proposition that a legal fiction of deeming can be employed to treat the declaration as a gift.

Revenue's Arguments / View Taken by Lower Authorities

The Income-tax Officer held that the assessee, being a female member of the Hindu undivided family, could not blend any part of her self-acquired immovable property into the hotchpot of the joint family.
The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal concurred with the Income-tax Officer's view and confirmed the assessment of the entire income from the property in the hands of the assessee for the relevant years.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Pushpa Devi v. CIT, New Delhi, (1977) 109 ITR 730 (SC)	Explanation of the theory of "blending" under Hindu law (per Chandrachud J.); the Court observed that “blending” is inapposite for a Hindu female who puts her separate property into the joint family stock, and in the facts of that case a declaration was treated (deemed) as a gift because the requirements of a valid gift of movable property were satisfied.	The Court relied on the Pushpa Devi exposition to hold that a female cannot legally blend her separate property into joint family property; it also explained that in Pushpa Devi the Supreme Court deemed the blending-like declaration to be a gift only because the requirements for a valid gift of movable property (transfer of possession and acceptance) were present.
Commissioner of Income-tax v. Messrs Bhogilal Laherchand, AIR 1954 SC 155	Interpretation of the word “deem” in tax law — that a deeming provision can bring within chargeability income not actually accrued but notionally supposed to have accrued.	Cited by the assessee's counsel to support the idea that a transaction could be deemed to be a gift; the Court considered the case but held that those principles do not assist here because there is no legislative deeming provision treating the immovable-property declaration as a gift.
Commissioner of Income-tax v. Bombay Trust Corporation Ltd., AIR 1930 PC 54	On the meaning of "deemed" — when a person/transaction is deemed to be something, the law treats it as such though it is not in reality that thing.	The Court acknowledged the principle but observed that a deeming fiction requires statutory support; in the present case there is no statute deeming the immovable-property declaration to be a gift.
Goli Eswariah v. Commissioner of Gift-tax, A.P., (1970) 76 ITR 675	A unilateral declaration by a Hindu coparcener to throw immovable self-acquired property into the common stock did not amount to a transfer under Chapter VII of the Transfer of Property Act or under Section 2(xxiv)(d) of the Gift-tax Act, 1958; blending is unilateral and does not require acceptance, whereas gift is bilateral and requires transfer of possession and acceptance (and registration if immovable).	The Court used this authority to show that unilateral declarations in respect of immovable property do not automatically amount to gifts; the Court noted that in Goli Eswariah the declaration by a male coparcener amounted to blending, not gift, and registration would be necessary if it were treated as a gift of immovable property.
The Commissioner of Gift-Tax v. Munshi Lal, (1972) 85 ITR 129	The headnote stated no difference in principle whether separate property is impressed with joint-family character by a male or female member for applicability of the Gift-tax Act, but the court's actual consideration did not address the female coparcener's competency to blend.	The Court noted that Munshi Lal is not authority for the proposition that a female can blend her property or that an immovable property transaction which fails as blending could be deemed a gift without registration; the present Court distinguished Munshi Lal on that basis.

Court's Reasoning and Analysis

The Court proceeded by identifying relevant legal distinctions and authorities and applying them to the facts:

Distinction between two ways to deal with immovable property: (a) blending and (b) gift. The Court emphasized that these are different legal concepts with different consequences.
The Court relied on the Supreme Court's explanation in Pushpa Devi (per Chandrachud J.) describing the theory of blending: blending involves sharing one's own property by permitting joint-family members common ownership and enjoyment, but it does not involve surrendering one's interest to the exclusion of oneself. Crucially, the Supreme Court in Pushpa Devi held that the expression "blending" is inapposite in the case of a Hindu female who puts her separate property into the joint family stock because a Hindu female (not being a coparcener) lacks rights such as survivorship or a right to demand partition in the same way as a male coparcener.
Applying that exposition, the Court concluded that the assessee, being a female member of the Hindu undivided family, could not blend half of her self-acquired immovable property with the joint-family property.
The Court then considered the assessee's alternative argument that, because blending is not available, the declaration ought to be deemed a gift. It examined the meaning and use of "deem" in tax jurisprudence (Bhogilal Laherchand and Bombay Trust Corporation) and acknowledged that legislative deeming fictions can convert the legal character of transactions for taxing purposes.
The Court observed that in Pushpa Devi the Supreme Court deemed the declaration to be a gift because, on the facts there, the declaration concerned movable property where the requirements of a valid gift were satisfied (transfer of possession and acceptance) and registration was not necessary. Thus, in that case the legal characterization as a gift could be given.
In the present case, because the property is immovable, a gift of immovable property under Chapter VII of the Transfer of Property Act and Section 17 of the Registration Act requires a registered instrument. The Court held that a transaction which cannot be a gift in the absence of registration cannot be deemed to be a gift unless there is specific legislative provision overriding the Transfer of Property Act and the Registration Act by a deeming fiction. There is no such legislation here.
The Court examined Goli Eswariah and Munshi Lal. Goli Eswariah supported the proposition that a unilateral declaration by a coparcener relating to immovable property did not amount to a gift because blending is unilateral and gift is bilateral; had it been a gift, registration would have been necessary. Munshi Lal did not establish that a female could blend her property or that an immovable-property transaction that fails as blending could be deemed a gift without registration.
On these bases — incapacity to blend for a female member under the principles in Pushpa Devi, and inability to treat the immovable-property declaration as a gift in absence of registration or a statutory deeming provision — the Court concluded that the declaration did not transfer any part of the immovable property away from the assessee.

Holding and Implications

Holding: The reference is answered accordingly: the Court agreed with the Tribunal that the applicant, being a female member of the Hindu undivided family, had no right to blend half of her immovable property with the Hindu undivided family property, and the transaction could not amount to a gift because the property was immovable and no gift of it could be made without registration. Consequently, the immovable property remained with the applicant and its entire income was rightly assessed in her hands for the assessment years 1968-69 and 1969-70.

Implications:

Direct effect on the parties: the entire income from the immovable property in question is to be assessed in the assessee's (the female owner's) hands for the specified assessment years.
The Court clarified the applicable legal principles distinguishing blending from gift for immovable property and emphasized the need for registration for gifts of immovable property; it applied existing precedent to the facts rather than creating a new legal principle. The opinion does not discuss or establish any broader rule beyond application to the facts before the Court.
Procedural note recorded in the opinion: "No order as to costs."

Answered accordingly.

Show all summary ...

V.S Deshpande, C.J:— The question referred to us for opinion under Section 256(1) of the Income-tax Act, 1961, (the Act) by the Income-tax Appellate Tribunal in this case is as follows:—

“Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee being female member of the Hindu undivided family has no right to throw her self-acquired property into the common hotchpot of the Hindu undivided family and confirming the assessment of entire income from the said property in the hands of the assessee for the assessment years 1968-69 and 1969-70?”

2. The assessee, who is a female member of a Hindu unidvided family, is the owner of a house situated at 109/48, Chanakya Puri. She purported to throw one half of the property into the hotchpot of the Hindu undivided family by a declaration made on 30th March, 1967. On that basis she filed returns of her income showing 50 per cent of the income from the said property as her income, while the other 50 per cent of the income from the said property as being the income of the Hindu undivided family. The Income-tax Officer, however, held that the assessee being a female member of a Hindu undivided family was not competent to blend any part of her self-acquired property into the hotchpot of the Hindu undivided family. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal have both agreed with the view expressed by the Income-tax Officer. Hence, this reference.

3. In considering the question referred to us the following considerations are relevant:

(1) The property half interest in which the assessee purported to transfer by a declaration to the Hindu undivided family is immovable. There are two different ways in which such immovable property can be dealt with. They are (a) blending and (b) gift.

(a) Blending: Blending is very felicitously explained by the Supreme Court per Chandrachud J. (as his lordship then was) in Pushpa Devi v. Cit, New Delhi. , (1977) 109 ITR 730(1) at 738, in the following words:—

“The theory of blending under the Hindu law involves the process of a wider sharing of one's own properties by permitting the members of one's joint family the privilege of common ownership and common enjoyment of such properties. But while introducing new shares in one's exclusive property, one does not by the process of blending efface on self by renouncing one's own interest in favour of others. To blend is to share along with others not to surrender one's interest in favour of others to the exclusion of oneself. If a Hindu female, who is a member of an undivided family, impresses her absolute, exclusive property with the character of joint family property, she creates new claimants to her property to the exclusion of herself because, not being a coparcener, she has no right to demand a share in the joint family property by asking for a partition. She has no right of survivorship and is entitled only to be maintained out of the joint family property. Her right to demand a share in the joint family property is contingent, inter alia, on a partition taking place between her husband and his sons (see Mulla's Hindu Law, 14th edition page 403, para 315). Under Section 3(2) and (3) of the Hindu Women's Right to Property Act, 1937, her right to demand a partition in the joint family property of the Mitakshara joint family accrued on the death of her husband. Thus, the expression “blending” is inapposite in the case of a Hindu female who puts her separate property, be it her absolute property or limited estate, in the joint family stock”.

Hence the assessee is a female member of the Hindu undivided family she could not blend half of her self-acquired property with the property of the Hindu undivided family for the reasons explained by the Supreme Court above.

(b) Gift: Mr. M.B Lal, learned counsel for the assessee argued that since the transaction purported to be one of blending cannot in law amount to blending, it should be deemed to be a gift. The result would be the same, namely, half of the immovable property of the assessee would remain transferred to the Hindu undivided family and, therefore, the income of that half of the property would be assessable as the income of the Hindu undivided family. He relies on the observation of the Supreme Court in Pushpa Devi's case at page 739 of the report that “there is no serious controversy that by the declaration dated Sep. 1, 1961, the appellant must be deemed to have made a gift of the items mentioned therein to the undivided family of which she was a member”. The learned counsel contends that because of these observation of the Supreme Court any transaction which fails to be blending in law must be deemed to be a gift in law. He stresses the meaning of the word “deem” to mean that what is not really a gift must, however, be deemed to be a gift because the Supreme Court has said so.

4. The decisions which the learned counsel cited in support of his argument are Commissioner of Income-tax v. Messrs Bhogilal Laherchand, AIR 1954 SC 155(2), and Commissioner of Income-tax v. Bombay Trust Corporation Ltd. AIR 1930 PC 54(3). In Bhogilal Laherchand's case (AIR 1954 SC 155) the term “deem” used by Section 4 of the Income-tax Act, 1922 brought within the net of chargeability income not actually accrued but which is supposed notionally to have accrued. In Bombay Trust Corporation case (AIR 1930 PC 54), it is said that when a person is deemed to be something the only meaning possible is that whereas he is not in reality that something the law treats him as if he were such. We agree that the legislature can by fiction confer a certain legal character on a transaction even though the real nature of that transaction is different. We think that the learned counsel need not have gone beyond the Gift-tax Act, 1958 for an apt illustration of such a deeming provision. In Section 4 of the said Act transactions which are for consideration and would not, therefore, be gifts under Chapter VII of the Transfer of Property Act are nevertheless deemed to be a gift for the purposes of the Gift-Tax Act. But this reasoning and these decisions have no application to the present case. When the learned counsel argues that the declaration by the assessee should be treated as a gift he is not relying on any legislative provision which deems it to be a gift. He relies on the observation of the Supreme Court in Pushpa Devi's case.

5. The facts in Pushpa Devi's case were as follows: The declaration made by the female assessee in that case related to her share in the business of running a cinema house and in the capital investment made in that business. At page 734 of the report the very question referred by the Tribunal to the High Court for opinion was whether there was a gift of the appellant's capital investment and her share in the business in favour of the Hindu undivided family. By its order dated 31-1-1977 the Tribunal took the view that there was a gift by the appellant in favour of the Hindu undivided family and that the latter had accepted the gift. At page 739 reference is made to the finding of the Tribunal that the declaration dated September 1, 1961 must be deemed to have been made of the items mentioned therein to the Hindu undivided family. The finding of the Tribunal was one of fact in so far as the donor made a gift the donee accepted it. It was also one of law because the gift being of movable property was valid without a registration instrument. The gift as such was, therefore, valid as a gift. Why did the Supreme Court then ‘deem’ it to be a gift? Why did it not say that in fact there was an actual gift? The reason is clear from the facts of the case. The declaration of September 1, 1961, was not one of gift. On the other hand, it was one of blending. The facts not being in dispute the Supreme Court could take the view along with the Tribunal that the legal nature of the transaction was one of gift, though the assessee purported to make it one of blending. The meaning of the word “deem” used by the Supreme Court in that context was that though the assessee intended the transaction to be of blending in law it amounted only to a gift. This legal finding could be given because the requirements of a valid gift were satisfied. These requirements were (1) transfer of possession by the donor, (2) acceptance by the donee, and (3) a mere declaration about the true gift without the necessity of registration because the property was movable.

6. In the present case, however, the property is immovable. A gift of immovable property under Chapter VII of the Transfer of Property Act and Section 17 of the Registration Act can be made only by a registered instrument. A transaction which is incapable of being a gift in the absence of registration cannot be deemed to be a gift unless the legislation overrides Chapter VII of the Transfer of Property Act and Section 17 of the Registration Act to deem it as a gift by a fiction. There is no such legislation to support the contention of the counsel for the assessee.

7. In Goli Eswariah v. Commissioner of Gift-tax, A.P, (1970) 76 ITR 675(4), the unilateral declaration of a Hindu coparcener whereby he purported to throw his immovable self-acquired property into the common stock of joint family property did not amount to a transfer either under Chapter VII of the Transfer of Property Act or under Section 2(xxiv)(d) of the Gift-tax Act, 1958 for the simple reason that while blending is unilateral act in which the acceptance is not necessary, a gift is a bilateral act in which the donor has to give possession and the donee has to accept it. In Goli Eswariah's case the property was immovable. Because the unilateral declaration was made by a male coparcener the transaction amounted to blending. It did not amount to a gift because it was not a bilateral transaction. Had it not been blending and had it been a gift then the necessity of registration also would have arisen.

8. In The Commissioner Of Gift-Tax… v. Munshi Lal…, (1972) 85 ITR 129(5) the Head Note says that it would make no difference in principle so far as the applicability of the Gift-tax Act, 1958 is concerned whether the separate property is impressed with the character of joint family property by male member of the family or by a female member of the family and the act of either of them amounts to blending and, therefore, did not amount to gift. But a reading of the judgment shows that the distinction between the competency of male coparcener and the incompetency of a female coparcener in respect of blending was not a question which was considered by the Delhi High Court in that case. This has been pointed out by the Supreme Court in Pushpa Devi's case in considering this judgment of the Delhi High Court. This judgment is not an authority to show that the female assessee could blend her property with the property of the Hindu undivided family. Nor is it an authority that the transaction in respect of immovable property could be deemed to be a gift without registration merely because it fails to qualify to be blending.

9. We, therefore, agree with the Tribunal that the applicant being a female member of the Hindu undivided family had no right to blend half of her immovable property with the Hindu undivided family property. We further clarify that this transaction could not amount to a transaction of gift as the property was immovable and no gift of it could be made without registration. The result is that the immovable property which was subject of the declaration, dated 30th March, 1967 remained with the applicant assessee and its entire income was rightly assessed in her hands for the year 1968-69 and 1969-70. The reference is answered accordingly. No order as to costs.

S.N.C Answered accordingly.