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Miscellaneous Income‑tax Reference No. 13 of 1960, decided on 8th September 1964.
, whether applies to Hindu undivided family‑Gift of share in firm by karta to coparcener‑Income of coparcener whether can be included in total income of family‑Indian Income‑tax Act, 1922, S. 16(3) (a) (iv).
Section 16(3)(a)(iv) applies only to individuals and not to Hindu undivided families.
A gift by the manager of a joint Hindu family of coparcenaries property to a member or members thereof is avoidable and not void ab initio and such a gift can be challenged only by members of the family whose interests are affected thereby and not by strangers.
H was the karta of a Hindu undivided family consisting of himself and his five sons, one of whom had attained majority. In 1949, there was a complete partition of the family. After .the partition a firm was constituted, H and his major son being the partners and the remaining minor sons being admitted to the benefits of partnership. In 1950, another son, S, was born to H. Consequently, he was assessed as a Hindu undivided family. In 1952, H executed a gift deed transferring his share of capital in the firm to his minor son, S. The Income‑tax Officer subsequently, without any express order, sought to assess H as an individual and included the income arising to S after the transfer in the total income of H: During the hearing of the appeals the Department contended that, even if the assessee was treated as a Hindu undivided family, the share of S from the firm was assessable in the hands of the family consisting of H and S. The Tribunal held that the share in the firm belonged to. the Hindu undivided family, the gift by one coparcener to another was of no legal effect and that the income from the firm was liable to be taxed as that of the family. On a reference:
Held, that the gift was valid and as section (16) (3) (a) (iv) does not apply to Hindu undivided families, the share of S in the firm's income could not be included in the total income of the family.
Jagesor Pande v. Deo Dutt Pande A I R 1924 All. 51 and' Commissioner of Income‑tax v. Braham Dutt Bhargava (1962) 46 1 T R 387 fol.
By these applications, the assessee requires the Tribunal to refer certain questions of law said to arise out of the consolidated order of the Tribunal in I. T. As. Nos. 4143, 4144, 4145 and 4146 of 1957‑58. As certain questions of law do arise out of that order, we draw up a consolidated statement of the case as the facts are all common.
2. Hirday Narain was assessed up to the assessment year 1949‑50 by the income‑tax department in the status of a Hindu undivided family. This Hindu undivided family consisted of the following members
1. Hirday Narian (karta)
2. Yogendra Prakash
3. Surendra Prakash
4. Girjendra Prakash Sons of (1)
5. Devendra Prakash
6. Bhupendra Prakash
On February 12, 1949, the family applied for partition. The income‑tax authorities passed an order under section 25A recognising a complete disruption and partition of the family with effect from November 19, 1949. After the partition, Hirday Narain and Yogendra Prakash constituted a partnership by name Hirday Narain Yogendra Prakash. This partnership took over the business originally carried on by the Hindu undivided family. Surendra Prakash, Girjendra Prakash, Devendra Prakash and Bhu pendra Prakash who were then minors were admitted to the benefits in that partnership. This partnership was granted registration under section 26A. On April 6, 1950, Hirday Narain got another son, Satyendra Prakash. The assessments for the assessment years 1951‑52 and 1952‑53 were made on Hirday Narain in the status of a Hindu undivided family. The records, of the Department show that this status was changed to that of "individual" in the assessment form. No order under section 35 was passed by the Income‑tax Officer in regard to this nor was any fresh finding given before the‑status was so changed.
3. On July 11, 1952, Hirday Narain executed a deed of gift by which he transferred his share capital in the partner ship firm of Hirday Narain Yogendra Prakash to the last born son, Satyendra Prakash. One of the erstwhile sons by name Surendra Prakash became major. A‑ fresh partner‑ ship was entered into under which Satyenra Prakash was admitted into the benefits and Hirday Narain retired from that business. The constitution of the firm for the period up to July 11, 1952, and for the period July 12, 1952, to September 27, 1952, are given below:
Rs.
| Sri Hirday Narain (father) | 52,772 |
| Sri Yogendra Prakash (major son) | 52,772 |
| Sri Surendra Prakash (minor son) | 52,772 |
| Sri Girjendra Prakash | 52,772 |
| Sri Devendra Prakash | 52,772 |
| Sri Bhupendra Prakash | 52,772 |
|
| 3,66,631 |
Rs.
| Sri Yogendra Prakash (major son) | 13,193 |
| Surendra Prakash | 13,193 |
| Girjendra Prakash (minor son) | 13,193 |
| Devendra Prakash | 13,193 |
| Bhupendra Prakash | 13,193 |
| Satyendra Prakash | 13,193 |
For the assessment years 1953‑54 to 1956‑57, Hirday Narain submitted returns of income in the status of individual. The relevant accounting years are the year ending March 31; 1953, March 31, 1954, March 31, 1955, and March 31, 1956. The Income‑tax Officer completed these assessments in the status of an "individual". For the assessment year 1953‑54, the Income tax Officer included the share income of all the minors under section 16 (3) (a) (ii). Since by virtue of the gift deed already referred to, Hirday Narain had transferred his share capital to Satyendra Prakash as from July 11, 1952, and he himself was no longer a partner in that firm, the Income‑tax Officer included the share income of Satyendra Prakash for part of the period under section (16) (3) (a) (iv), the assessment years 1954‑55 to 1956‑57, the share income of Satyendra Prakash alone was included with that of the assessee under section 16 (3) (a) (iv) of the Act.
4. The assessee. took the matter in appeal to the Appellate Assistant Commissioner and contended that inasmuch as the provisions of section 16 (3) (a) (ii) and section 16 (3) (a) (iv) were applicable only to "individuals" and as Hirday Narain with his son, Satyendra Prakash, formed a Hindu undivided family, the inclusion of the share income of the minor sons was not justified. The Appellate Assistant Commissioner rejected his contention and upheld the status of the Hindu undivided family as determined by the Income‑tax Officer. But having regard to the fact that one of the sons of Hirday Narain had become major in the previous year for the assessment year 1953‑54, he directed the exclusion of that share income. He also directed the exclusion of the share income of Satyendra Prakash which had been included by the Income‑tax Officer under section 16 (3) (a) (iv) with that of the assessee. In doing so, he observed:
"It is true that a formality of writing a gift deed was undergone in this case, but actually Sri Satyendra Prakash got his share of joint family property in his own right as coparcener. The share of joint family property, which one gets at the time of partition does not constitute the transfer of assets by the father. As such the provisions of section 16 (3) (a) (iv) cannot be applied here."
The Appellate Assistant Commissioner's order is Annexure "A" and forms part of the case.
5. The assessee appealed to the Tribunal contending that the Appellate Assistant Commissioner erred in holding the status of the assessee as that of "individual" and in holding that section 16 applied to the circumstances. The Department also came in appeal before the Tribunal against the exclusion of the share income of Satyendra Prakash for part of the accounting year relevant to the assessment year 1953‑54 and for the subsequent assessment years, viz., 1954‑55 to 1956‑57.
6. The Tribunal accepted the contention of the assessee as to the status in which the assessee should be assessed and in view of that finding held that the inclusion of the minor sons' share who were no longer members of the family of Hirday Narain was not justified. In the course of the hearing, the Departmental Represen tative took up an additional ground that "even if the contention of the assessee as to the status was accepted still the share of Satyendra Prakash was assessable in the hands of the Hindu undivided family consisting of Hirday Narain and Satyendra Prakash. The assessee's learned counsel objected to the admission of this ground urging that the lower authorities had no oppor tunity to consider the question. The Tribunal overruled this contention and, admitted the fresh ground. It accepted the contention of the Departmental Representative that the property belonging to the Hindu undivided family governed by the Mitakshara School of Hindu law could not be gifted by a coparcener unless he was the only sole surviving coparcener and accordingly it held that the gift made by Hirday Narain was infructuous and since the capital of the smaller family both for 1953‑54 as well as for the subsequent years was being utilised in earning income arising to Satyendra Prakash by virtue of his admission to the benefits of partnership, the income had to be included in the assessments of the Hindu undivided family headed by Hirday Narain. The order of the Tribunal is Annexure "B" and forms part of the case.
7. The assessee seeks to raise the following four questions
(1) Whether the Tribunal could allow, the income‑tax department to urge an additional ground of appeal which did not arise out of the orders of the Appellate Assistant Commis sioner and the Income‑tax Officer under appeal
(2) Whether the Tribunal could allow the additional ground of appeal involving questions of fact which had not been found by the income‑tax authorities at all and in respect of which the assessee and/or the Department had no opportunity to lead evidence
(3) Whether when Hirday Narain and Satyendra Prakash (father and minor son) were the only coparceners of the Hindu undivided family, a part of the property belonging to such family governed by the Miiakshara school of Hindu law could be gifted by the father to the only other coparcener, his minor son
(4) Whether the Tribunal bad any material to or could arrive at the finding that the income arising to Satyendra Prakash by virtue of his admission to the benefits of partnership was the income of the Hindu undivided family headed by Hirday Nairan
8. We consider that the following question of law arises out of the Tribunal's order "Whether on the facts and circumstances of the case, the inclusion of the share income of Satyendra Prakash with that of Hirday Narain was justified in law "
9. The draft statement of the case was placed before the parties. The assessee's learned counsel requires all the four questions to be referred; but, in our opinion, the question as framed b us fully covers the points in issue. Therefore, this suggestion is rejected. The Departmental Representative had made the following suggestion:
The statement beginning "no order under section 35" and ending with "was so changed" be suitably amended in view of the Income‑tax Officer's order under section 35 for the assessment years 1951-52 and 1952‑53 both dated the 10th December 1956.
The Tribunal in its order had given the finding that "no order under section 35 had been passed for the two assessment years 1951‑52 and 1952‑53 raised as Hindu undivided family" In view of this finding, we decline to modify the statement as required by the Departmental Representative. The statement is finalised.
P. N. Pachauri for the Assessee.
R. L. Gulati for the Commissioner.
‑The assessee is a Hindu undivided family, Hirday Narain being the karta. .
Before the year 1949 Hirday Narain was the karta of a Hindu undivided family consisting of himself and five sons, one of whom Jogendra Prakash had‑ attained majority. This Hindu undivided family carried on business, and up to the assessment year 1949‑50, the income from that business was assessed in its hands.
On February 12, 1949, the Hindu undivided family applied to the Income‑tax Officer for an order under section 25A of the Income‑tax Act, 1922, claiming that there was a complete partition of the family. An order under section 25‑A was made, recognizing the complete disruption of the family on and from November 19, 1949.
After the partition of the family a partnership firm, Hirday Narain Jogendra Prakash was constituted, Hirday Narain and Jogendra Prakash being the partners and the remaining minor sons of Hirday Narain being admitted to the benefits of the partnership. The partnership took over the business which had hitherto been carried on. by the Hindu undivided family. The partnership firm was registered under section 26A of the Income tax Act.
On April 6, 1950, Hirday Narain was blessed with another son, Satyendra Prakash. The assessment for the assessment years 1951‑52 and 1952‑53 were made on Hirday Narain in the status of Hindu undivided family, but subsequently it appears that, without any express order being passed, the status was altered to that of an "individual".
On July 11, 1952, Hirday Narain executed a gift deed transferring his share capital in the partnership firm, Hirday Narain Jogendra Prakash, to his minor son, Satyendra Prakash. Meanwhile, one of the other minor sons, Surendra Prakash, had also attained majority. In the circumstances, a fresh partnership was constituted, comprising of Jogendra Prakash and Surendra Prakash, the major sons of Hirday Narain, as partners and admitting the minor sons, including the infant, Satyendra Prakash, to the benefits of the partnership. Hirday Narain, after gifting his share capital to Satyendra Prakash, ceased to be a member of the new partnership firm.
For the assessment years 1953‑54 to 1956‑57 (the relevant previous years being the financial years 1952‑53 to 1955‑56) the Income‑tax Officer assessed Hirday Narain as an individual. For the assessment year 1953‑54, he included the share in the firms income of all the minors except Satyendra Prakash, in the total income of Hirday Narain under section 16 (3) (a) (ii). Satyendra Prakash having become entitled to‑ the benefits of partnership from July 12, 1952, his share in the firm's income was included in the assessment of Hirday Narain under section 16(3) (a) (iv). In the respective assessments of Hirday Narain for the assess ment years 1954‑55 to 1956‑57, the share of Satyendra Prakash alone in the firm's income was included, the inclusion being justi fied by reference to section 16 (3) (a) (iv). Against the assessments for the assessment years 1953‑54 to 1956‑57 upon Hirday Narain in the status of an individual, he appealed to the Appellate Assistant Commissioner, contending that he constituted a Hindu undivided family with his son, Satyendra Prakash, and that, therefore, the provisions of section 16(3) (a) (ii) and of section 16 (3) (a), (iv), which. were applicable only to the assessment of an individual, could not be invoked and, consequently, the inclusion in his assessments of the share of the minor sons in the firm's income was not justified. The contention was rejected by the Appellate Assistant Commissioner, who held that Hirday Narain was rightly assessed in the status of an individual. However, as one of the sons of Hirday Narain had attained majority in the previous year relating to the assessment year 1953‑54, he directed the exclusion of his share of income. He also found that the Income tax Officer had erred in including the share of Satyendra Prakash in the firm's income under section 16(3)(a)(h) because, he said, Satyendra Prakash enjoyed a share in the joint family property in his right as a coparcener, and that any transfer by the father to a coparcener of the latter's share in the joint family property was an empty formality. Hirday Narain, the assessee, moved the Income‑tax Appellate Tribunal in appeal challenging the finding of the Appellate Assistant Commissioner that the income belonged to an individual and not to a Hindu individual family and that section 16(3)(a) applied to the case. The Income‑tax Officer appealed against that part of the Appellate Assistant Commis sioner's order which directed the exclusion of the share of income belonging to Satyendra Prakash from the assessments for the years 1953‑54 to 1956‑57. The Tribunal found that the income fell to be assessed in the hands of Hirday Narain in the status of a Hindu individual family and not as an individual and that, therefore, section 16(3)(a) did not apply. During the hearing of the appeals, the Departmental Representative raised an additional ground that, even if the status of the assessee be treated as that of a Hindu undivided family, the share of Satyendra Prakash was assessable in the hands of the family consisting of Hirday Narain and Satyendra Prakash. Objection was taken by the assessee to the admission of this, ground, on the plea that the Income tax Officer and the Appellate Assistant Commissioner had no opportunity to consider this question, but the objection was overruled by the Tribunal which admitted the ground and on the merits held that the property belonged to the Hindu undivided family governed by the Mitakshara School of Hindu law, that it could not be gifted by a coparcener unless he was the sole surviving coparcener and, therefore, the gift made by Hirday Narain was of no legal effect and accordingly the share in the firm's income falling to Satyendra Prakash on account of his admission to the benefits of partnership constituted the income of the Hindu undivided family and was liable to be taxed as such.
The assessee applied for a reference to this Court and suggest ed that the following four questions should be referred:
(1) Whether the Tribunal could allow the income‑tax depart ment to urge an additional ground of appeal which did not arise out of the orders of the Appellate Assistant Commissioner and the Income‑tax Officer under appeal
(2) Whether the Tribunal could allow the additional ground of appeal involving questions of fact which had not been found by the income‑tax authorities at all and in respect of which the assessee and/or the Department had no opportunity to lead evidence
(3) Whether when Hirday Narain and Satyendra Prakash (father and minor son) were the only coparceners of the Hindu undivided family, a part of the property belonging to such family governed by the Mitakshara School of Hindu law could be gifted by the father to the only other coparcener, his minor son
(4) Whether the Tribunal had any material to or could arrive at the finding that the income arising to Satyendra Prakash by virtue of his admission to the benefits of partnership was the income of the Hindu undivided family headed by Hirday Na rainy"
The Tribunal has made the instant reference and invited our decision on the following question:
"Whether, on the facts and circumstances of the case, the inclusion of the share income of Satyendra Prakash with that of Hirday Narain was justified in law "
It considered that it was not necessary to refer ‑the four questions suggested by the assessee as the question framed by it fully covered the points in issue. Learned counsel for the assessee sought to make two points before us. He contended that it was open to Hirday Narain to make a gift of his share capital in the firm to his son, Satyendra Prakash, and the finding of the Tribunal to the contrary was erroneous. He further urged that it was not open to the Tribunal to allow the Income‑tax Officer to challenge the validity of the gift for the first time in the appeal before it. Having heard learned counsel for the parties, we are of opinion that the first contention must prevail and, in the circumstances, it is not necessary to express any opinion on the‑ second.
There is no dispute that the share capital of Hirday Narain in the firm constituted coparcenaries property of himself and Satyendra Prakash. Hirday Narain was karta of the family consisting of himself and his minor son, and was entitled under the Hindu law to manage the coparcenaries property. As a manager he was entitled to alienate the coparcenaries property within the well‑settled limits, and for the specific purposes prescribed by the Hindu law. As manager he could alienate the coparcenary property for legal necessity or for the benefit of the estate. An alienation made by him without legal necessity and without the consent of the other coparceners was not void but viodable at the option of the other coparceners, who could subsequently affirm it or repudiate it. As a Hindu father, Hirday Narain enjoyed certain special powers of alienating coparcenary property. Included in these special powers was the authority to make a gift of ancestral movable property within reasonable limits for the purpose of performing "indispensable acts of duty, and for purposes prescribed by texts of law, as gifts through affection, support of the family, relief from distress and so forth." Mitakshara, Chap. 1, sec. 1, p. 27. He could also make a gift of ancestral immovable property within reasonable limits for pious purposes.
If the gift be treated an alienation made by Hirday Narain as a mere manager of the family, there could be little doubt that the gift having been made in favour of the only other coparcener, and, therefore, to his benefit, there could be no objection by the latter. It is difficult to contemplate that Satyendra Prakash would repudiate the transfer made in his favour. Even if the gift be treated as a transaction made without legal necessity. The transaction not being void but only voidable at the option of Satyendra Prakash, there is nothing to show that the latter had ever expressed himself against the making of the gift. A Bench of this Court held in Jagesor Pande v. Deo Datt Pande (A I R 1924 All. 5) that an alienation by the manager of a joint Hindu family without necessity is not absolutely void but is voidable at the instance of the persons whose interests are affected by it namely the copar ceners in the property. This decision was followed by the High Court of Rajasthan in Commissioner of Income‑tax v. Braham Dutt Bhargava ((1962) 46 I T R 387), where the law on the subject has been elaborately expounded and it was held that a gift by the manager of a joint Hindu family of coparcenary property to a member or members thereof is voidable and is not void ab initio and that such a gift could be challenged only by the members of the family whose interests are affected thereby and not by strangers. We are in respectful agreement with the learned judges of that Court. We are accordingly of the view that, in the circumstances of this case, the gift made by Hirday Narain in favour of Satyendra Prakash was valid, and the finding of the Tribunal to the contrary is not correct.
Learned counsel for the Commissioner contends that the consent of Satyendra Prakash to the gift cannot be implied because he was a minor and, therefore, incapable of giving his consent. There is no force in this contention. The transaction was in favour of the minor and to his benefit.
Learned counsel for the Commissioner finally contended that the provisions of section 16(3)(a)(iv) applied to the case, even though the Tribunal determined the status of the assessee as that of a Hindu undivided family. Upon a plain reading of‑section 16(3)(a)(iv), which applies only to the computation of the total income of an individual, this argument is untenable.
We are, therefore, of the view that the gift by Hirday Narain in favour of Satyendra Prakash being a valid transaction, the share of Satyendra Prakash in the firm's income could not be included its the assessment of the Hindu undivided family, of which Hirday Narain was the karta. We, therefore, answer the question in the negative.
We direct that a copy of this judgment under the seal of the Court and the signature of the Registrar shall be sent to the Income‑tax Appellate Tribunal.
The assessee shall get its cost from the Commissioner of income‑tax, which we assess at Rs. 200. Counsel's fee is also assessed at Rs. 200.
Question answered in the negative
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