Commissioner Of Income-Tax v. Bhikraj Jaipuria

Banerji, J.:— This consolidated reference under s. 66(2) of the Indian I.T Act, 1922, and s. 256(2) of the I.T Act, 1961, relates to the assessment years 1956–57, 1957–58 and 1959–60 to 1964–65.

2. The facts found and/or admitted in the proceedings are as follows:

For the assessment year 1956–57, Bhikraj Jaipuria, the assessee, submitted a return of his income in the status of a HUF as claimed in earlier years to the ITO, Central Circle II. In a covering letter he explained that on division of some of the assets of the Hindu joint family a portion had come to the assessee in his individual capacity and, therefore, he had also submitted a separate return as an “individual” to the ITO, District V(I).

3. The ITO, Central Circle II, however completed the assessment in the status of “individual”. On appeal, the AAC did not adjudicate on the question of status as according to him such status did not affect either the income or the tax. On further appeal, the Tribunal remanded the matter to the AAC with a direction to decide the question of status. Pursuant thereto the AAC in his turn set aside the assessment and directed the ITO to make a fresh assessment after adjudicating the status.

4. In making the fresh assessment the ITO again determined the status of the assessee to be an “individual”, inter alia, on the following grounds:

(a) Similar claim of the assessee in the assessment year 1952–53 had been negatived by the Tribunal and this was upheld by this court on a reference.

(b) A declaration dated the 18th June, 1955, which was relied on by the assessee to establish status as a HUF was not a genuine document.

(c) The said declaration did not record that the assessee had impressed his separate property with the character of joint family property.

(d) The alleged HUF kept no books of account prior to the 1st April, 1955.

5. On appeal, the AAC held that the declaration was only a reiteration of the earlier stand and, therefore, the status of HUF could not be accepted. But the transfer of shares recorded in the document was genuine.

6. The assessee preferred three appeals to the Income-tax Appellate Tribunal.

7. It was contended in the appeals that the said declaration dated the 18th June, 1955, recorded that the properties belonging to the assessee had been thrown into the common hotchpot of the joint family comprising the assessee, his wife and sons and that there had also been a partial partition of some of the assets. Even if the past history and claims of the assessee recorded in the deed were not accepted, it would not affect the prospective effect of the deed.

8. Further, by the deed a partial partition of the shares of the companies as between the members of the family had been effected. The said declaration had thus been acted upon and given effect to. The shares had been duly transferred in the names of the individual members.

9. It was contended on behalf of the revenue that the said declaration was bogus and had not been drawn up on 18th June, 1955, as alleged. In the assessment for the year 1952–53, when a similar case was agitated before the Tribunal in 1960 this declaration was not brought to light. In the later assessments including the one made on 29th March, 1961, for the assessment year 1956–57, after the Tribunal directed the AAC to determine the question of status, the declaration was produced. In the arbitration agreement dated 2nd July, 1957, filed in Suit No. 500 of 1961 in this court the assessee did not describe himself as a “karta”.

10. The original Notarial Certificate in respect of and the Notarial seals on the said declaration containing the signatures of P.K Roy, the Notary Public, was produced by the assessee before the Tribunal and the Tribunal accepted the declaration as a genuine document executed on that date and found that the assessee having taken the plea earlier that he had constituted a HUF in respect of his share in the firm since 1927, understandably did not rely on his later declaration. The assessee had referred to this declaration as early as in his letter dated the 6th March, 1961, to the ITO. The Tribunal found further that in the said arbitration agreement filed in Suit No. 500 of 1960 the assessee, his wife and his sons were parties which established that all the said persons had interest in the assets standing in the name of the assessee and supported the assessee's case that the assets had been thrown into a common hotchpot and were held jointly.

11. The Tribunal next considered the legal effect of the said declaration. The Tribunal held that the preamble thereto contained nothing operative. In any event, by reason of the earlier finding of the Tribunal confirmed by the High Court which was contrary thereto, the said recitals were of little consequence. But construing the operative clauses the Tribunal held that it was established thereby that (a) the assessee had thrown all his self-acquired properties in the common hotchpot of the HUF consisting of himself, his wife and sons and (b) that the shares of the companies were allotted to the members thereof in the course of partial partition and (c) that the remaining assets, that is, house property and share in firms continued to be joint family property and that the HUF was still in existence.

12. The Tribunal, accordingly, set aside the assessment directing the ITO to make the assessment in the status of a HUF in accordance with law.

13. The Tribunal passed another consolidated order in respect of the assessment years 1957–58 and 1959–60 to 1964–65 and, following its earlier order in respect of the assessment year 1956–57, set aside the assessments and directed the ITO to make fresh assessments in the status of HUF as in the earlier years.

14. At the instance of the CIT, this court directed the Tribunal to draw up a statement of the case and refer the following two questions:

“1. Whether, on the facts and in the circumstances of this case, the conclusion of the Tribunal that the declaration made by the assessee on the 18th day of June, 1955, was a genuine document and was fully acted upon was unreasonable or perverse?

2. Whether in any event on a proper construction of the said declaration dated the 18th day of June, 1955, the Tribunal was right in holding that the assessee had thrown all his self-acquired properties into the common hotchpot of the Hindu Undivided Family consisting of himself, his wife and his sons and that he was not the sole owner of assets income from which was included in his assessment for the assessment years 1956–57, 1957–58, 1958–59 (sic), 1960–61, 1961–62, 1962–63, 1963–64 and 1964–65 in the status of an individual?”

15. The relevant clauses in the said declaration are, inter alia, as follows:

“1. I, the said Bhikraj Jaipuria, declarant of the first part, declare that having become entitled to the partnership share in the said firm of Anand-ram Gajadhar as a result of division or partition of the joint family as received above I own the aforesaid share as a karta of the Hindu joint family consisting of the present declarants.

2. I, the said Bhikraj Jaipuria further declare that any and all the properties and assets owned or possessed by me as a partner of the said firm and/or otherwise and all acquisitions and accretions appertaining thereto belong to the joint family consisting of the present declarants, and my minor sons of Mahendra Kumar Jaipuria, Narendra Kumar Jaipuria, Surendra Kumar Jaipuria and Rajendra Kumar Jaipuria.

3. I, the said Bhikraj Jaipuria. further declare that after the release and distribution amongst its partners, in March, 1955, by the said firm of Anandram Gajadhar of some share thereof held by the said firm shares mentioned in parts 1, 2, 3, 4, 5, 6, 7 and 8 of the Schedule hereto came to be owned by me as karta of the Hindu joint family consisting of the present declarants and my minor sons.

4. We the declarants declare that by way of family arrangements and with intent to effect division thereof we have divided amongst ourselves and the said minors the said shares and the same have already been allotted and made over to each one of us respectively (the said Bhikraj) Jaipuria having accepted on behalf of the minors the shares allotted to them as set forth in parts 1, 2, 3, 4, 5, 6, 7 and 8 of the Schedule hereto and each one of us owns and has seized and possessed of shares respectively mentioned against his name in the aforesaid parts 1, 2, 3, 4, 5, 6, 7 and 8 of the Schedule and the others have no right claim or interest therein.

16. I, the said Bhikraj Jaipuria in exercise of all powers enabling me thereunto by way of further assurance do hereby confirm the division and transfer of shares as aforesaid”.

17. Mr. B.L Pal, learned counsel for the revenue, contended at the hearing that the recitals in the said declaration reiterated the original stand of the assessee as to the prior existence of a HUF consisting of the assessee and his other family members. This case of the assessee having been rejected in respect of the assessment year 1952–53 the said recitals could not be held to be correct or true. The other clauses of the declaration linked with the said recitals therefore must also be rejected.

18. Mr. Pal contended next that the declaration did not record transfer by the assessee of his individual properties to the joint family hotchpot. All that was recorded was that the properties belonged to the joint family, some of which had been divided between the members of the family.

19. Mr. Pal lastly contended that it was not recorded in the declaration that there was any existing nucleus of the joint family property. No overt act or unequivocal declaration of the assessee throwing his self-acquired properties into a hotchpot converting the self-acquired property to the joint family property or by ending the two different types of properties was recorded.

20. Mr. Pal, however, made it clear that he was not canvassing the extreme contention of the revenue that the said declaration was a forgery but he submitted that inasmuch as portion of the said document, namely, the recitals, has been found to be incorrect the document cannot be held to be genuine. He submitted further that the document was brought into existence for the purpose of creating evidence of a joint family.

21. In support of his contentions Mr. Pal cited a decision of the Supreme Court in the case of Commissioner Of Income Tax, Madras v. M.K Stremann , [1965] 56 ITR 62 for the following observation (p. 66):

“When instructions are given that the self-acquired property is to be treated as joint family property, in our opinion, at that moment the property assumes the character of joint family property. On execution, the deed becomes evidence of a pre-existing fact, i.e, of throwing the self-acquired property into the hotchpotch. The words ‘till this date’ are significant and must be given effect to. The High Court, in our opinion, was right in observing that 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 blending of the self-acquired properties of the assessee with his ancestral joint family property’”.

22. Dr. Debi Pal, learned counsel for the assessee, contended on the other hand that the said declaration dated the 18th June, 1955, was admittedly a genuine document. It had been admitted before the Tribunal by the revenue that the income from the assets stated to have been divided between the members of the joint family and recorded in the document had been excluded from the assessee's total income. There was sufficient evidence to show that the said document was duly executed before a Notary Public and had been acted upon by the assessee.

23. On question No. 2, Dr. Pal contended that the declaration consisted of two parts. In the recitals the declaration sought to record past facts and events, whereas the operative part recorded the present position as regards the assets and the intention of the assessee as to the future user of the same. That the stand taken by the assessee in respect of the assessment year 1952–53 stood wholly rejected was irrelevant in determining the prospective position in the subsequent assessment years.

24. It was unequivocally declared in the document that the properties and assets standing in the assessee's name in fact belonged to HUF. It was also recorded that the assessee had transferred and allotted certain assets to the members of his family.

25. Dr. Pal contended that pre-existence of joint family properties or a nucleus thereof were not necessary to convert self-acquired property into joint family property. By declaration and overt acts the assessee could impress self-acquired properties with the character of joint family properties.

26. In support of his contentions Dr. Pal cited the following decisions:

(a) R. Subramania Iyer…Applicant; v. The Commissioner Of Income-Tax, Madras…., [1955] 28 ITR 352 (Mad). This decision was cited for the following observations of the Division Bench of the Madras High Court:

“Under the Hindu law in order that a joint family may exist it is not necessary that there should be joint family property. A father and his son constitute members of a joint Hindu family and even if there was no ancestral nucleus or other joint family property there is nothing to prevent the father 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 father 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, there is a declaration by the father that a certain property is joint family property 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 they represent merely a future intention not yet given effect to.”

(b) Commissioner Of Income-Tax, Bombay City I v. M.M Khanna., [1963] 49 ITR 232 (Bom). Here the question before the Bombay High Court was whether a member of a joint family without separating from the joint family could throw his self-acquired property to any hotchpot other than that of the main joint family property. The Bombay High Court observed as follows (pp. 239, 242):

“……a joint Hindu family springs from a Hindu male and every Hindu male can be the stock of a fresh descent constituting a joint Hindu family, or a Hindu coparcenary. Where from a Hindu male a joint Hindu family springs into existence, this family goes on having its different branches and sub-branches. Each branch starts with the male descendant of the common ancestor and each sub-branch with the male descendant of the head of the branch. While the entire group proceeding from the common ancestor with its several branches and sub-branches in the normal undivided state is a Hindu joint “family, each of the branches and each of the sub-branches again is a Hindu joint family according to the concept of a joint family under the Hindu law. It is, therefore, possible for a main Hindu undivided family to be composed of a large number of branch families, each of the branches itself being a Hindu joint family and so also the sub-branches of those branches….’ There is nothing in the Hindu law or in the concept of a joint family under the Hindu law which prevent him from throwing his property in the hotchpotch of the smaller unit to which he belongs, while the larger unit remains intact. The ability of the smaller unit to possess property of its own implies that it can have its own hotchpotch and into that hotchpotch can fall properties just in the same manner in which they can fall in the hotchpotch of the main family. Thus, there can be no legal obstruction whatsoever in the way of the assessee, who was possessed of his self-acquired property which he could deal with or dispose of in any way he liked, to give that property not to the entire joint family but to the branch consisting of himself and his children.”

(c) Commissioner Of Income-Tax… v. Smt. Pushpa Devi…, [1971] 82 ITR 7 (Delhi), the Delhi High Court construed the meaning of the word “blending”.

27. Dr. Pal, lastly, submitted that the decision of the Supreme Court in the case of M.K Stremann, [1965] 56 ITR 62 (SC), cited by Mr. Pal on behalf of the revenue, supported the case of the assessee rather than that of the revenue.

28. In view of the evidence on record it is not possible to hold that the finding of the Tribunal that the said declaration dated the 18th June, 1955, is a genuine document, was an unreasonable or a perverse finding. The case of forgery was abandoned by the revenue. The document must, therefore, be held to be genuine though the recitals therein may have been found to have recorded something which was not factually correct.

29. From the operative part of the document it appears that the properties and assets owned or possessed by the assessee as the partner of the firm were described as belonging to the joint family. It is also recorded that some of the said properties had been divided and distributed between the members of the joint family. In our view, this appears to be an unequivocal declaration by the assessee touching his properties and assets whereby they have been impressed with the character of joint family property. This is further supported by the recorded overt act, viz., that of division of a part of the said properties between the members of the family. The joint family and also the properties can be identified from the declaration. Following the decision of the Madras High Court in the case of R. Subramania Iyer, [1955] 28 ITR 352 (Mad), we hold that any preexisting nucleus of a joint family property is not necessary so that self-. acquired property can be thrown into the hotchpot and, following the decision in M.K Stremann, [1965] 56 ITR 62 (SC), we also hold that when the assessee proceeded to draw up the declaration at that point of time the properties in question assumed the character of joint family property and when the deed was actually drawn up it recorded a pre-existing fact that the assessee threw his properties into his joint family hotchpot.

30. For the reasons as aforesaid, we answer question No. 1 in the negative and in favour of the assessee. We answer question No. 2 in the affirmative and also in favour of the assessee. In the facts and circumstances there will be no order as to costs.