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Kirtidev Chinubhai (Huf) v. Commissioner Of Income Tax
Factual and Procedural Background
The assessee, a Hindu Undivided Family (HUF), challenged the inclusion of income from properties allotted to two of its members, Shri Kirtidev Chinubhai and his wife Smt. Meera Kirtidev Chinubhai, by a deed dated 30th December 1970. The deed purported to be a partial partition of the HUF properties, including land and shares in Godhra Electricity Co. Ltd., dividing these between the husband and wife. The assessee contended that the income from these partitioned properties should be assessed individually to the husband and wife, not included in the HUF's total income. The Income Tax Officer (ITO) rejected this contention, including the income in the HUF assessment. The assessee's appeal to the Assistant Commissioner of Income Tax (AAC) and subsequently to the Tribunal was unsuccessful, with both authorities holding that no partition was valid as the HUF consisted only of the husband and wife, and no other coparcener existed. The assessee further argued before the Tribunal that the deed should be construed as a gift deed, relying on the Supreme Court decision in Pushpa Devi vs. CIT, but the Tribunal declined to entertain this new argument, treating it as a new case not arising from the AAC's order.
Legal Issues Presented
- Whether the Tribunal was correct in holding that the income from the properties allotted to Shri Kirtidev Chinubhai and his wife under the document dated 30th December 1970 is includible in the total income of the assessee (HUF).
- Whether the Tribunal erred in not applying the ratio of the Supreme Court decision in Pushpa Devi vs. CIT (1977) 109 ITR 730 to the facts of the case.
- Whether the Tribunal was right in holding that there could be no partition of the HUF on the ground that it consisted only of the husband and wife and no other coparcener. (This question was not pressed by the assessee and therefore disposed of as not pressed.)
Arguments of the Parties
Assessee's Arguments
- The deed dated 30th December 1970 constituted a valid partial partition of the HUF properties between the husband and wife.
- The income from the partitioned properties should be assessed individually to the husband and wife, not included in the HUF income.
- Alternatively, even if the deed did not amount to a partition, it should be construed as a gift deed from the husband to the wife, so that income from the properties should be assessed in their individual hands, relying on the Supreme Court ruling in Pushpa Devi vs. CIT.
- The Tribunal erred in refusing to consider the gift deed argument on the ground that it was a new case, when it was merely a different legal construction of the existing deed already on record.
Revenue's Arguments
- The Tribunal rightly held that there could be no partition of an HUF consisting only of a husband and wife and no other coparcener.
- The Tribunal was within its discretion in disallowing the assessee from raising the gift deed argument for the first time before it, treating it as a new case.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Pushpa Devi vs. CIT (1977) 109 ITR 730 | Deed of gift resulting in income being assessable in the hands of the donee when separate property is blended into HUF by gift. | The Tribunal declined to apply this ratio because the assessee did not claim the deed was a gift, and disallowed the assessee from raising this argument as a new case. |
| CIT vs. George Henderson & Co. Ltd. (1967) 66 ITR 622 (SC) | Handling of obscure findings and their import when not determinable. | Referred to support the direction to the Tribunal to reconsider and give a clear finding. |
| CIT vs. Greaves Cotton & Co. Ltd. (1968) 68 ITR 200 (SC) | Cases involving defective findings. | Referred to emphasize the need for proper fact-finding by the Tribunal. |
| B. Muniappa Gounder vs. CIT (1976) 102 ITR 787 (Mad) : 1977 Tax LR 402 (Mad) | Cases where findings on relevant aspects were not available. | Supported the direction for the Tribunal to make clear factual findings. |
| Rajatha Contract Co. vs. CIT (1976) 105 ITR 627 (Ker) : 1976 Tax LR 942 (Ker) | Cases where relevant materials were not considered. | Used to justify remand for reconsideration of the deed with proper consideration of legal principles. |
Court's Reasoning and Analysis
The Court noted that the Tribunal had refused to consider the assessee's argument that the deed could be construed as a gift deed, dismissing it as a new case not arising from the AAC's order. The Court found that this refusal was inappropriate because the deed was already on record and the new argument was a different legal construction of existing facts rather than the introduction of new facts. The Court emphasized that the Tribunal, as the fact-finding authority, ought to have construed the deed and given a positive finding on whether a gift could be discerned, applying the relevant law. The Court acknowledged the Revenue's position that the Tribunal has discretion to disallow new cases, but held that in fairness, where no new facts are introduced and the question can be decided on the record, the Tribunal should have considered the gift argument. Since the Tribunal did not give any positive finding on this issue, the Court found it necessary to remit the matter back to the Tribunal for rehearing and final disposal after proper consideration of the deed and the law.
Holding and Implications
The Court directed the Tribunal to rehear the appeal and to construe the deed in question, taking into account the law governing the issue of gift and partition, and to record a clear and positive finding on whether the deed amounts to a gift or not.
The direct consequence of this decision is that the matter will be reconsidered by the Tribunal with an opportunity afforded to the assessee to make submissions on the gift issue. The Court did not set any new precedent but emphasized proper fact-finding and application of law by the Tribunal. The question regarding the validity of partition of an HUF consisting only of husband and wife was not pressed and thus remains undisturbed. No order as to costs was made.
1. The questions that stand referred to us for our consideration at the instance of the assessee (HUF) run as follows :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income from the properties allotted to Shri Kirtidev Chinubhai and his wife Smt. Meera Kirtidev Chinubhai being the two members of the assessee family by the document dt. 30th Dec., 1970 is includible in the total income of the assessee ?
2. Whether the Tribunal erred in not applying the ratio of the decision of the Supreme Court in the case of Pushpa Devi vs. CIT (1977) 109 ITR 730 : 1977 Tax LR 1396, to the facts of the case ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there could be no partition on the ground that the assessee HUF consists of the two members only, viz., Shri Kirtidev Chinubhai and his wife, Smt. Meera Kirtidev Chinubhai and no other coparcener ?"
Of the three questions, learned counsel for the assessee (HUF) taking note of the law speaking on the subject and against the assessee does not press question No. 3. Hence, as regards question No. 3, the reference is disposed of as not pressed.
2. With regard to the other two questions, the factual background has got to be broadly delineated. The assessment year is 1972-73. The assessee (HUF) would submit that, as per the registered document dt. 30th Dec., 1970 made between Kirtidev Chinubhai and his wife Smt. Meera Kirtidev Chinubhai and purporting to be a deed of partial partition, the land at M.R. Colony, Ahmedabad and 230 shares of Godhra Electricity Co. Ltd., belonging to the HUF of Kirtidev Chinubhai were partitioned between him and his wife, Smt. Meera Kirtidev Chinubhai; and on such partition Shri Kirtidev Chinubhai was allotted an extent of 6925 sq. yds. and the 230 shares of Godhra Electricity Co. Ltd., and his wife Smt. Meera Kirtidev Chinubhai was allotted the rest of the extent of 7,780 sq. yds. There was also payment of amounts by Smt. Meera Kirtidev Chinubhai to Shri Kirtidev Chinubhai to equalise the shares. The assessee (HUF) would contend that the income derived from the shares which were partitioned as aforesaid should not be included in the assessment of the HUF, and that such income was includible in the individual assessment of Shri Kirtidev Chinubhai or as the case may be of his wife. The ITO rejected the above contention and included in the total income of the HUF, the income derived from the properties which were the subject-matter of the deed of partial partition. The assessee preferred an appeal to the AAC and the AAC upheld the decision of the ITO upholding that there could be no partition of an HUF consisting only of a husband and his wife and of no other coparcener. The assessee (HUF) went further to the Tribunal and the Tribunal confirmed the order of the AAC. It was contended for the first time before the Tribunal that even eschewing the theory of partition, the deed of partition should be construed as a deed of gift and so construed, the income from the partitioned properties should be assessed in the hands of the husband and the wife as per the deed on the same analogy. For this purpose reliance was placed on the pronouncement of the Supreme Court in Pushpa Devi vs. CIT (supra). The Tribunal did not render any positive finding as to whether the deed could be construed as a deed of gift or not and on the other hand, the Tribunal declined to permit the assessee to raise this case on the ground that it would be a new case. How the question was approached by the Tribunal would stand better appreciated, if the relevant passage in its order stands extracted as follows :
"In our view, there is no substance in this contention of the assessee as this ground does not arise out of the order of the AAC. Even the same analogy is not available to the assessee in this case as the appellant in the case of the Supreme Court was the absolute owner of the property and the Court accepted that the declaration whereby she had blended her separate property to the HUF was in the nature of a gift deed and as such the income of the property gifted to the family had to be brought to tax accordingly. So far as the facts of the present case are concerned, it is not the case of the assessee that the Karta had made a gift of half of the HUF property to his wife and as such the income from the property alleged to have been given by partition deed should be treated as gifted property and the income of the said property should be consequently assessed in her hands. In our view, the assessee cannot be allowed to make out a new case at this stage and as such we confirm the order of the AAC."
3. It is contended by Mr. M.G. Doshit, learned counsel for the assessee (HUF) that properly construed, the deed would lead to a case of gift as such by the husband to the wife in respect of the property allotted to the wife under the deed and this exercise has been wrongly omitted to be done by the Tribunal on the ground that the assessee (HUF) is pleading a new case on facts for the first time. Learned counsel for the assessee (HUF) wants us for the first time to construe the deed and hold it to be a gift so far as devolution of the property in favour of the wife under it. Here, we find a case where the Tribunal has not given us the factual finding for us to pronounce on a question of law. The Tribunal has practically declined to go into the question and render a positive finding one way or the other over it and dispose of the appeal accordingly. It is not as if new set of facts is being brought in, to cover a decision over them for the first time. The deed was there from the inception and that had been pressed into service from a different angle. Now, here is a request in the alternative to construe the deed to arrive at the concept of a gift. The Tribunal would have done well by construing the deed as demanded to find out as to whether a gift could be spelt out, keeping in mind the law governing the question and expressed a positive view one way or the other and disposed of the appeal accordingly. Mr. M.J. Thakore, learned counsel for the Revenue would submit that the Tribunal has got the discretion to disallow a new case for the first time put forth before it and there is no warrant for this Court to interfere with the exercise of that discretion in this case. The Tribunal has jurisdiction to allow a new question to be raised for the first time in appeal, and in fairness it should allow such a question to be raised, if it is a question which can be decided on the facts already on record, and no new facts are being brought in. As we have already noted, it is not a case of introduction of new set of facts but it is a case of construing a deed already placed on record and arrive at a conclusion one way or the other, of course taking note of the law governing the question. This is an exercise which in our view ought to have been done at the level of the Tribunal because it is the fact finding forum on the basis of whose finding we have to pronounce the law as per the question referred to us for our consideration. This has obviously not happened in the present case.
4. In the above view, the best course we should adopt is to direct the Tribunal to rehear the appeal to construe the deed as demanded taking note of the law governing the question and record a clear and a positive finding as to whether any gift is discernible and made out or not after affording an opportunity to the assessee (HUF) to make his submission on the question and dispose of the appeal finally. In this view, we cannot answer questions Nos. 1 and 2 which alone survive, since question No. 3 has not been pressed forth by the learned counsel for the assessee (HUF). We direct the Tribunal to rehear the appeal and dispose of the same finally in accordance with law and in the light of what we have observed as above. We must record that the course which we have adopted is not alien to Courts dealing with references of the present nature. If citations are required, the following pronouncements may be referred to :
1. CIT vs. George Henderson & Co. Ltd. (1967) 66 ITR 622 (SC) (A case of obscure finding and its import not determinable);
2. CIT vs. Greaves Cotton & Co. Ltd. (1968) 68 ITR 200 (SC) (A case of defective finding);
3. B. Muniappa Gounder vs. CIT (1976) 102 ITR 787 (Mad) : 1977 Tax LR 402 (Mad) (A case of finding on the aspect not available);
4. Rajatha Contract Co. vs. CIT (1976) 105 ITR 627 (Ker) : 1976 Tax LR 942 (Ker) (A case of relevant materials not having been considered).
5. We make no order as to costs in this reference.
5. Order accordingly.
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