Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, MADRAS
Vs.
RESPONDENT:
M. K. STREMANN, MADRAS
DATE OF JUDGMENT:
09/11/1964
BENCH:
SIKRI, S.M.
BENCH:
SIKRI, S.M.
SUBBARAO, K.
SHAH, J.C.
CITATION:
1965 AIR 1494 1965 SCR (2) 106
CITATOR INFO :
RF 1970 SC1722 (12)
ACT:
Income-tax Act, 1922 (11 of 1922)-Partition deed-containing
recival that self-acquired property already blended with
Joint Hindu family property--only evidence of blending
whether sufficient to show partition valid to justify an
order tinder s. 25A--Or deed merely a transfer to minors
under s. 16(3) (a) (iv).
HEADNOTE:
For some years until 1952-53, the assessee was assessed as
an individual in respect of income from a house that was
admittedly Joint Hindu family property and income from a
selling agency. He maintained only one set of accounts for
income from both these sources. On December 19, 1952, a
deed of partition was executed between the assessee and his
three minor children who were represented by their mother.
in the course of assessment proceedings for the year 1953-
54, the assessee claimed that an order under s. 25A be
passed and separate assessments made on each of the members
of the erstwhile family as from December 19, 1952.
The Income Tax Officer rejected this claim, holding that
merely because the income from ancestral property and self
acquired property was not separately accounted for, the
latter did not become part and parcel of Joint family
property; he further held that there was no partition by
virtue of the deed, but simply a direct or indirect transfer
made by the assessee of his own self-acquired property
within the meaning of s. 16(3) (a) (iv).
The Appellate Assistant Commissioner and the Appellate
Tribunal confirmed the view taken by the Income-tax Officer,
but, upon a reference made to it, the High Court held that
the deed executed in December 19, 1952, amounted to a valid
partition and was not a transfer within the meaning of s.
16(3) (a) (iv).
It was contended on behalf of Revenue that the only evidence
that all assets and liabilities including the agency
business were transferred to the joint Hindu family was a
recital in the partition deed itself and there was no
antecedent blending of the self-aquried property with
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ancestral property before it was partitioned among the
parties. All the clauses of the deed took effect on the
signature of the deed and no amount of time elapsed between
the alleged blending and partition.
HELD : From the time when instructions were given that the
selfacquired property was to be treated as joint family
property in the deed to be executed, the property assumed
the character of the Joint family property. On execution,
the deed became evidence of a pre-existing fact, i.e of
throwing a self-acquired property into the hotch-potch. [110
G]
The High Court was right in holding that the partition
proceeded on the basis that the self-acquired property was
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 property of the
assessee with his ancestral joint family property. The
result was that at least on December 19, 1952, antecedent to
the partition, the properties became impressed with
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the character of joint family property. There was a
partition on December 19, 1952. Thereafter, the properties
allotted to the shares of the assessee and his divided song
were held by them in severalty. [110 H; 111 A. C-D]
(ii) ’Me partition deed did not amount to direct or indirect
transfer to the minor children by the assessee within s.
16(3) (a) (iv).
C.I.T. Gujarat v. Keshavlal Lallubhai, [1965] 2 S.C.R. 99,
followed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1105 of
1963.
Appeal by special leave from the judgment dated August 30,
1960 of the Madras High Court in C. R. No. 49 of 1956.
K. N. RaJagopala Sastri and R. N. Sachthey, for the
appellant.
R. Ganapathy Iyer, for the respondent.
A. V. Viswanatha Sastri, T. A. Ramachandran, J. B. Dada-
chanji, O. C. Mathur and Ravinder Narain, for the
intervener.
The Judgment of the Court was delivered by
Sikri J. This is as appeal by special leave directed against
the judgment of the Madras High Court answering a question
referred to it by the Appellate Tribunal against the
Revenue. The Appellate Tribunal had referred the following
three questions
1. Whether there was material for the
Tribunal to reach the conclusion that the
various assets in question belonged only to
the assessee in his individual capacity till
19th December 1952 ?
2. If the answer to the first question is
in the affirmative, whether the deed, Annexure
’B’ aforesaid, amounted to a transfer of
assets to the three minor children aforesaid
so as to attract the provisions of Section
16 (3) (a) (iv) of the Income-Tax Act ?
3. If the answer to the first question is
in the negative,
the Income Tax Officer having rejected the
claim of partition under Section 25A and the
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assessee not having independently appealed
against such decision, whether the assessee is
entitled in law to any modification of the
assessment other than the status alone ?
Question No. 1 was answered by the High Court in favour of
the Revenue; question No. 2 against the Revenue, and
question No. 3 in favour of the assessee. The respondent,
M. K. Stremann, hereinafter referred to as the assessee, has
not filed any appeal against the answer given to question
No. 1, and this has become
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final. From the way the questions have been worded, we are
only concerned with the point whether the High Court rightly
answered question No. 2.
The facts relevant for the disposal of this appeal are as
follows. The father of the assessee, Kulandavelu Mudaliar,
was an agent of Muller & Phipps (India) Ltd., for the sale
of its pharmaceutical preparations in Madras. While he was
an agent, the assessee was employed as an assistant by the
said Company. Kulandavelu died on July 27, 1938, leaving a
house property at Ayalur Muthial Mudali Street, a few
insurance policies and income-tax refunds due to him. The
assessee realised a total amount of Rs. 26,600/- from these
and with these proceeds he purchased a house at No. 3,
Varadarajulu Naidu Street in December, 1945. There is no
dispute that this property was joint Hindu family property-
On the retirement of his father as agent of Muller and
Phipps Ltd., the assessee was appointed as agent in his
individual capacity. From 1938-39 till 1952-53, he was
assessed as an individual not only on the income from the
agency but also income from joint Hindu family property. He
maintained only one set of accounts both for his income from
the agency and from joint family property. In 1944, one son
was born, and another son was born in 1945.
On December 19, 1952, the assessee executed a deed of parti-
tion and on its basis claimed before the Income Tax Officer,
in the course of assessment proceedings for the assessment
year 1953-54 (accounting year ending March 31, 1953) that an
order under s. 25A be passed and separate assessments made
on each of the members of the erstwhile family as from
December 19, 1952. The Income Tax Officer held that ’the
mere existence of any ancestral property, however small,
would not render all self-acquired property part and parcel
of the joint Family assets by the mere fact that the incomes
are not separately accounted for’. He held that there was
no partition but simply a case of donation made by the
assessee of his own self-acquired property and s. 16 (3) (a)
(iv) was attracted. In the alternative, he held that
assuming that the assessee’s assets have been "thrown into
the common stock and after becoming assets of the joint
family was divided between him and minor children, Section
16(3)(a)(iv) is again attracted because the said section
applies to both the direct and indirect transfers of the
assets to minor children.... It would have been an indirect
transfer to make (minor) children if the transfer is
effected by the interposition of a joint family by a legal
fiction."
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On appeal, an additional point was sought to be made by the
assessee that the commission business was ancestral business
in his hands, but the Appellate Assistant Commissioner did
not accede to this contention. He further held that the
Income Tax Officer was justified in ignoring the partition
deed.
The Appellate Tribunal held that there was no evidence that
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all assets and -liabilities including the agency business
were transferred to the JHF in 1944, when his first son was
born, or later. It further observed :
"The first time we hear of the family
possessing the assets in question is the deed
of dissolution in which there is a recital to
that effect. This certainly cannot constitute
an unequivocal declaration of the admitted
individual investing his self-acquired
properties with the character of joint family
property referred to in the judgment in 28
I.T.R. 352 (R. Subramania Ayyar v.
Commissioner of Income Tax)".
Accordingly, it held that the partition deed came within the
ambit of s. 16. As stated above, the Appellate Tribunal
referred three questions to the High Court. The High Court
answered the questions in the manner mentioned above.
Mr. Rajagopala Sastri, the learned counsel for
the Revenue, has urged the following points :
(1)That question No. 2 did not arise out of
the order of the Appellate Tribunal and the
High Court should have refused to answer the
question.
(2)That before the partition there was no
antecedent blending of self-acquired
properties with ancestral property.
(3)That the partition deed effects a direct
transfer of assets to the minor children
within s. 16(3) (a) (iv).
The first point was not raised before the High Court, or in
the statement of the case in this Court. We accordingly
cannot allow this point to be raised at this stage.
The second point depends on the interpretation of the parti-
tion deed, dated December 19, 1952. This deed was executed
between the assessee, his two minor sons and minor daughter,
the latter three being represented by their mother. It
recites that the father of the assessee died on July 27,
1938, leaving a house and other movable investment and cash
and that the assessee succeeded to
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the said property and the agency of Messrs Muller & Phipps.
Then follow two clauses which are important and they are :
"Whereas the party of the first part has been
earning commission and acquiring properties
and blending his money with the assets
inherited from his father and treating the
entire properties extant before and after the
birth of the parties of the second and (third)
parts till this date as joint family property
without making any discrimination or
distinction;
Whereas the party of the first part is
desirous of making the legal character of the
assets that exist now and the legal
relationship between the parties definite and
to make an arrangement of partition of the
parties of the first, second and third parts
and also to provide for making jewels,
maintenance and marriage for the party of the
fourth part, in exercise of his powers as a
Hindu father, in order to ensure peaceful
enjoyment and friendly relationship between
the parties and to keep his own future
earnings separate with powers to deal with
them in any manner he liked."
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Mr. Sastri contends that as the recital in the first clause
reproduced above has been found to be false, there is no
antecedent blending of the self-acquired property with
ancestral property before it is partitioned among the
parties. He says that all the clauses took effect on the
signature of the deed, and no moment of time elapsed between
the alleged blending and partition. We are unable to accede
to this contention. In the first clause above, it is
recited that the assessee has been blending his money with
inherited assets till this date. In other words, it asserts
a continuous course of conduct ending with the day when the
deed was executed. The deed seems to be carefully drafted
and the assessee must have given instructions as to the
contents of the draft. 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 preexisting fact,
i.e. of throwing the self-acquired property into the hotch-
potch. 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 this
basis that the selfacquired properties were made available
for partition alongwith the only item of joint family
property. That itself constituted
111
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."
We agree with the High Court that "whether the averment in
relation to the past was supported by other evidence or not,
it certainly was unequivocal that the properties dealt with
at the partition were treated by the volition of the
assessee as the properties available for partition between
the members of the joint family. It was certainly an
unequivocal declaration that all the properties dealt with
under that partition had been impressed with the character
of joint family properties, properties belonging to the
joint family of the assessee and his sons. The genuineness
of the transaction itself was never in issue. The result
was that at least on 19th December, 1952, antecedent to the
partition, the properties became impressed with the
character of joint family property. There was a partition
on 19th December, 1952. Thereafter, the properties allotted
to the shares of the assessee and his divided sons were held
by them in severalty."
We have just pronounced judgment in The Commissioner of
Income Tax, Gujarat v. Keshavlal Lallubhal(1), and following
that judgment we hold that there is no force in the third
point raised by Mr. Sastri.
Agreeing with the High Court, we hold that there was no
direct or indirect transfer of assets to the minor children
by the assessee within s. 16 (3) (a) (iv).
The appeal accordingly fails and is dismissed with costs.
Appeal dismissed
(1) [1965] 2 S.C.R. 99.
112