Shrivallabhdas Modani v. Commissioner Of Income Tax

1. The Income-tax Appellate Tribunal, Indore Bench, has drawn up a statement of the case and referred to the High Court for decision the following questions of law :

" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income of the so-called HUF consisting of the assessee and his wife was liable to be assessed in the hands of Shri Shrivallabhdas, as an individual, and not in the hands of that HUF.

2. Whether the property which devolved on Shri Shrivallabhdas on the death of his father, Gokalchand, also constituted the HUF property consisting of his own branch including his sons.

2. Facts of the case, as stated by the Tribunal, are as follows : Assessment year in question is 1974-75. Assessee Shrivallabhdas Modani, originally represented his HUF, consisting of himself, his wife, sons and unmarried daughters (for reference "the bigger HUF"). In 1962 there was a partition of the family property between Shrivallabhdas Modani and his sons. After the said partition Shrivallabhdas Modani, his wife and unmarried daughters constituted an HUF, hereinafter described as " the smaller HUF". After partition in the year 1962 the assessee, Shrivallabhdas, representing the smaller HUF, invested the property received on partition, in the firm, M/s. Shrivallabhdas Govinddas. The share of profits received by the assessee, Shrivallabhdas, was assessed in the status of an HUF for some time. The assessee, Shrivallabhdas Modani, also owned some self-acquired property in respect of which he was assessed in the status of an "individual".

3. A new situation arose when in the year 1968 Shri Gokalchand, father of the assessee, Shrivallabhdas Modani, expired. Late Shri Gokalchand left some property. The assessee, Shrivallabhdas Modani, claimed that he had succeeded to his father's property but later he blended the same into the common hotchpot of the erstwhile HUF consisting of himself, his wife and sons. The property which passed on to the assessee, Shrivallabhdas Modani, after the death of his father was invested as capital in the firm, M/s. Gokalchand Modani & Sons. Shrivallabhdas Modani filed a return for this income in the status of an HUF (the bigger HUF). In this way, the assessee claimed to be assessed in respect of his income from three different items of property in three different status, i.e., as " individual ", as "HUF (smaller) " and as " HUF (bigger) ".

4. The ITO held that assessee, Shrivallabhdas Modani, could not constitute an HUF (smaller HUF) with his wife and unmarried daughters and, therefore, his income from the firm, M/s. Shrivallabhdas Govinddass was also liable to be assessed in his status as " individual ". The ITO further held that Shrivallabhdas Modani could not blend the property, to which he succeeded after his father's death, with the property of the bigger HUF consisting of himself and his sons because after the partition of 1962 the coparcenary had come to an end and it could not be re-created. Accordingly, the income from M/s. Gokalchand Modani & Sons was assessed in the hands of the assessee treating his status as " individual ".

5. On appeal, the AAC modified the assessment order holding that after partition between Shrivallabhdas and his sons in the year 1962, Shrivallabhdas, his wife and unmarried daughters constituted a smaller HUF and the income of the firm, M/s. Shrivallabhdas Govinddas, should have been assessed in the hands of the smaller HUF consisting of Shrivallabhdas Modani, his wife and unmarried daughters. Accordingly, he held that the income earned by the smaller HUF could not be included in the income of Shrivallabhdas Modani earned by him in his individual capacity. On the second question regarding the throwing of the property into the common stock, the AAC upheld the finding of the ITO that after the complete partition in 1962, the coparcenary consisting of Shrivallabhdas Modani and his sons had come to an end and the assessee could not blend any property received by him in succession with the property which was held earlier by the bigger HUF.

6. Against this order the assessee as well as the Department came in appeal before the Appellate Tribunal. The Appellate Tribunal dismissed the assessee's appeal and allowed that of the Department thus restoring the order of the ITO assessing the entire income returned by the assessee as his income in the status of an " individual ".

7. We have reproduced the questions referred to us by the Tribunal. Question No. 1 presents no difficulty because the same stands concluded by the decision of the Supreme Court in N.V. Narendranath v. CWT [1969] 74 ITR 190. In Narendranath, their Lordships of the Supreme Court followed the law as stated by the Judicial Committee in Arunachalam's case [1958] 34 ITR (ED) 42 ; 3 EDC 825 and the earlier decision of the Supreme Court in Gowli Buddanna's case [1966] 60 ITR 293. The ratio of these decisions fully applies to the facts of the present case. The Appellate Tribunal fell into an error by holding that merely because after partition Shrivallabhdas Modani's power to alienate the property was untrammelled, the property became his absolute property. The Tribunal ignored the law laid down by the Supreme Court in the cases referred to above. We, therefore, answer question No. 1 in the negative as follows ; The Tribunal was wrong in holding that the income of the assessee returned in the status of an HUF, consisting of himself and his wife, was liable to be assessed in his hands as " individual " and not in the hands of the HUF.

8. Question No. 2 presents some difficulty because there is a sharp cleavage of opinion between different High Courts on this issue. The Appellate Tribunal was right in holding that since no coparcenary subsisted between the assessee, Shrivallabhdas Modani, and his sons, the property received by Shrivallabhdas Modani on his father's death could not be legally blended with the property which had been allotted to his sons on partition in the year 1962. This view is supported by Goli Eswariah v. CGT [1970] 76 ITR 675 (SC), Malesappa Bandeppa Desai v. Desai Mallappa [1961] 3 SCR 779 and Vijay Kumar Kedia v. CED [1976] 104 ITR 302 (All). There is no difficulty so far.

9. However, learned counsel for the assessee contended that in any case the property received by the assessee, Shrivallabhdas, on the death of his father, Gokalchand, constituted an HUF property of his own branch, i.e., the family consisting of himself and his sons. It appears that this question was specifically raised before the AAC and has been discussed by him in para. 13 of his order. The Appellate Tribunal has not in clear terms dealt with this contention but in view of the fact that this question had been raised before the authorities below and has been referred to us in a comprehensive form, we will deal with this alternative contention also.

10. It was argued on behalf of the assessee that notwithstanding anything contained in the Hindu Succession Act, 1956, the basic character of a Mitakshara Hindu joint family did not undergo any change as regards the devolution of property and the position which existed before the passing of the Succession Act, continued to be operative after the Act. According to the learned counsel, the property inherited by the assessee from his father in the year 1968 was ancestral property wherein his sons had a right by birth in accordance with the precepts of the Hindu law.

11. Learned counsel for the Department, however, repelled this argument and contended that the position about intestate succession on the death of a Hindu has undergone a sea change after the coming into force of the Hindu Succession Act, 1956, and succession to the estate of a Hindu dying intestate will be governed by Section 8 of the Act and not by the earlier Hindu law.

12. We have, therefore, to examine whether the Hindu Succession Act has made a dent in the Hindu law about succession as it stood before the coming into force of the Act. There are conflicting authorities on the point but before we deal with the decisions of different High Courts, we will refer to the provisions of the Hindu Succession Act itself. The preamble of the Act is as follows :

"An Act to amend and codify the law relating to intestate succession among Hindus."

13. With regard to Codification Acts, the classic observations of Lord Herschell in Bank of England v. Vagliano Brothers [1891] AC 107 (HL) are as follows :

" ...the proper way to deal with such a statute...is in the first instance to examine the language of the statute, and to ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with enquiring how the law previously stood and then assuming that it was probably intended to leave it unaltered."

(see Maxwell on the Interpretation of Statutes, 11th Edn. at p. 23 ; Craies on Statute Law, 6th Edn. at p. 363).

" The essence of a codifying statute ' is to be exhaustive on the matters in respect of which it declares the law and it is not the province of a judge to disregard or go outside the letter of the enactment according to its true construction ?"

(see Gokul Mandar v. Pudmanund Singh [ 1902] ILR 29 Cal 707 (PC); G.P. Singh's Principles of Statutory Interpretation, 2nd Edn., p. 184).

14. We have, therefore, to examine the issue in the context of the Hindu Succession Act, 1956, without referring to the Hindu law which governed succession before the passing of the Act. Section 4 of the Hindu Succession Act is the overriding provision. It clearly lays down that

"save as expressly provided in the Act, any text, Rule or interpretation of Hindu law or any custom or usage as part of that law in force immediately before the commencement of the Act shall cease to have effect with respect to any matter for which provision is made in this Act"

.

15. Section 8 of the Hindu Succession Act lays down the scheme of succession to the property of a Hindu dying intestate. The schedule classifies the heirs on whom such property shall devolve. Those specified in class I take simultaneously to the exclusion of all other heirs. A son's son is not mentioned as an heir under class I of the Schedule and, therefore, he cannot get any right in the property of his grandfather under this provision. The right of a son's son in his grand father's property during the lifetime of his father which existed under the Hindu law as in force before the Act, is not saved expressly by the Act and, therefore, the earlier interpretation of Hindu law giving a right by birth in such property "ceased to have effect".

16. In CIT v. Ram Rakshpal Ashok Kumar [1968] 67 ITR 164 (All) the effect of Section 8 of the Hindu Succession Act was considered at great length by the Allahabad High Court and it was held thus (headnote):

" In view of the provisions of the Hindu Succession Act, 1956, the income from assets inherited by a son from his father from whom he has separated by partition cannot be assessed as the income of the Hindu undivided family of the son."

17. Ram Rakshpal's case was followed later by the same High Court in CWT v. Chander Sen [1974] 96 ITR 634. The Mysore High Court in CIT v. Smt. Nagrathnamma [1970] 76 ITR 352, in a different context, took the same view.

18. The question came up before the Madras High Court in two cases, namely, Addl. CIT v. V.R.A. Manicka Mudaliar [1978] 114 ITR 521 and Addl. CIT v. P.L. Karuppan Chettiar [1978] 114 ITR 523 [FB]. Manicka Mudaliar's case was decided by the Division Bench of the High Court on November 17, 1978. The Bench was not aware of the contrary view taken by the Gujarat High Court in CIT v. Dr. Babubhai Mansukhbhai [1977] 108 ITR 417, which was decided on September 19, 1975. Therefore, when the same question again came up before the Madras High Court in Karuppan Chettiar's case [1978] 114 ITR 523 [FB] it was referred to the Full Bench of the court. The court dissented from the Gujarat view and, following the Allahabad High Court's decision in Ram Rakshpal's case [1964] 67 ITR 164 (All), held that by the reason of Section 8 of the Hindu Succession Act, 1956, the son's son gets excluded and the son alone inherits the property to the exclusion of his son.

19. The Gujarat High Court in Babubhai's case [1977] 108 ITR 417, dissented from the view of the Allahabad High Court in Ram Rakshpal case [1968] 67 ITR 164 (All) and observed thus (p. 422 of 108 ITR):

"......it is impossible to read into the words of Section 8 any provision which interferes with the scheme of Hindu law as it prevailed prior to the enactment of the Hindu Succession Act. Neither Section 6 nor Section 8 nor Section 30 affect this principle of Hindu law as to in what capacity or in what character the son would enjoy the property once he received it from his father in succession."

20. With respect, we are unable to accept the Gujarat High Court's view on this question. As already observed, in construing a codified Act, we have to ignore the law which was in force earlier and confine ourselves to the language used in the new Act. So construed, Section 8 of the Hindu Succession Act should be taken as a self-contained provision laying down the scheme of devolution of the property of a Hindu, dying intestate. Further, the weight of judicial authority is in favour of the law as stated and explained by the Allahabad, Madras and Mysore High Courts.

21. We, therefore, answer question No. 2 as follows : The property which devolved on the assessee, Shrivallabhdas on the death of his father, Gokal-chand, did not constitute the HUF property consisting of his own branch including his sons. The answer is in the negative and against the assessee.

22. There will be no order as to costs.