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PETITIONER: TOLARAM BIJOY KUMAR

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, ASSAM

DATE OF JUDGMENT14/02/1978

BENCH: BEG, M. HAMEEDULLAH (CJ) BENCH: BEG, M. HAMEEDULLAH (CJ) BHAGWATI, P.N. TULZAPURKAR, V.D.

CITATION:  1978 AIR  504            1978 SCR  (2) 834  1978 SCC  (2)  98

ACT: Hindu  Undivided  Family business,  Partition  of--Nature  & character of the share of the property of a coparcener after partition--Whether  assessable as individual property or  as H.U.F.--Income Tax Act. 1922.

HEADNOTE: The  income from the business of Nathmal Tolaram carried  on by Narmal was assessed as Hindu Undivided Family income till 1950.   After the death of Narmal in 1945, the business  was partitioned  w.e.f.  6th  April  1949  and  by  a  deed   of partnership executed on 7th April 1949, the business carried on at two places, Dhubri and Gauripore, was converted by his three  sons Srinivas, Nathmal & Tolaram, into a  partnership business.  In this deed, it wits admitted that the  business had  been  carried  on previous to the  partition  as  Hindu Undivided Family business.  On an application u/s 25A of the Income  Tax  Act, 1922 the said partition was  recorded  and registered in the files of the tax authority on 17th  August 1954.   On 28-3-1959, the firm of M/s.  Nathmal Tolaram  was dissolved and a new firm Nathmal Tolaram (Petrol Depot) came into  existence.   In the assessment year  1959-60,  Tolaram claimed  that his share in this partnership business  should be assessed separately as his individual income.  His  claim was rejected by the Income Tax Officer, but wag accepted  in appeal.  However a similar claim for the relevant assessment year 1960-61, to separate assessment of income derived  from the partnership business in petrol amounting to Rs. 21,746/- ,  was  rejected  by the Income  Tax  Officer.   On  further appeals,  the  Appellate  Assistant  Commissioner  and   the Tribunal affirmed the order of the Income Tax Officer.   The High Court also answered the reference in favour of Revenue. HELD  :  Partition only cuts off the claim of  the  dividing coparceners.   When a coparcener receives his share  of  the joint  family property on a partition, such property in  the hands  of  the  coparcener belongs to  the  Hindu  Undivided family as the share of the property is taken by him only  as representing  his branch.  The status of such coparcener  on partition is not that of an individual. [837 A-D] In the instant case, the share of Tolaram in the partnership which  came  into  being  on  the  partition  of  the  Hindu

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Undivided  Family  could  not be regarded  as  his  separate property.  It became the property of the Joint Hindu  Family of  Tolaram  and his sons since the business  prior  to  the partition  of  the Hindu Undivided family  was  assessed  as joint  family  business  and the partition  deed  signed  by Tolaram  and  others  itself contained  a  recital  to  that effect. [838 B-C] N.V.  Rarendranath  v. Commissioner of  Wealth  Tax,  Andhra Pradesh, 74 I.T.R.190; followed. Chiranjilal v. Commissioner of Income Tax, (1965) 56 I,.T.R. P. 715 @ 722 referred to.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1980  of 1972. Appeal  by Special Leave from the Judgment and  Order  dated 26-5-1972 of the Assam & Nagaland High Court in I.T.R. No. 6 of 1968. B. B. Ahuja and S. K. Nandy, for the Appellant. T. A. Ramachandran and R. N. Sachthey, for the Respondent. 835 The Judgment of the Court was delivered by BEG, C.J.-The appellant, a Hindu Undivided Family, is before us  by  special  leave  through  its  Karta  Tolaram.    The statement  of  the case shows that Narmal, who died  in  the year 1945, left three sons : Srinivas, Nathmal and  Tolaram. Narmal  had  carried on an Hindu undivided  family  business started  roundabout 1925.  It appears that the name  of  the business  was  changed to Nathmal Tolaram from  1936-37  and that  the income of the business was assessed as  Hindu  Un- divided  Family income since then.  The previous records  do not seem to be very clear, but, from the year 1942 to  1950, the income of this business was certainly assessed as  Hindu Undivided  Family  income.  It was partitioned  with  effect from  6th  April, 1949.  After the partition,  the  business carried  on  at  two  places,  Dhubri  and  Gauripore,   was converted into a partnership business evidenced by a deed of partnership  executed  by the three brothers on  7th  April, 1949.   In this deed, it was admitted that the business  bad been carried on previous to the partition as Hindu Undivided Family business. On  19th  September,  1950, an application  was  made  under section  25A  of  the Income-tax Act, 1922,  to  record  and register the partition.  This was done on 17th August, 1954. On  28th March, 1959, the firm of M/s. Nathmal  Tolaram  was dissolved  and a new firm Nathmal   Tolaram  (Petrol  Depot) came into existence. In the assessment year, 1959-60 Tolaram claimed that his share in the partnership business should be assessed separately as his individual income. His claim  was rejected  by  the. Income-tax Officer, but was  accepted  in appeal. We  then come to the relevant assessment year 1960-61,  when Tolaram  made  a  similar claim to  separate  assessment  of income derived  from  the partnership  business  in  petrol amounting  to Rs. 21,746/-, The Income-tax Officer  rejected this claim. The Appellate Assistant Commissioner also, on an appeal,  after  reviewing  the  entire  set  of  facts   and circumstances  in  the light of fresh materials  which  were available,  affirmed  the order of  the  Income-tax  Officer rejecting  the  claim  of  the  appellant.  The   Income-tax Tribunal  and  then  the  High  Court  also  affirmed   this position. The  appellant,  however, obtained special leave  to  appeal

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from  the judgment of the High Court deciding the  following question framed before it against the appellant :               "   Whether   on   the  facts   and   in   the               circumstances  of the case, the  Tribunal  was               justified in holding that the share income  of               Rs. 21,746/- from Messrs Nathmal Tolaram               (Petrol Depot) was assessable in the hands  of               the assessee family"? The position seems to be clear in law. The following passage in Mulla’s Hindu Law, Fourteenth Edition, at p. 278 has  be- en quoted and relied upon by the High Court :               "228.  Property  jointly  acquired.-(I)  Where               property  has  been acquired  in  business  by               persons  constituting a joint Hindu family  by               their   joint  labour,  the  question   arises               whether  the  property so  acquired  is  joint               family property, or whether 836               it  is merely the joint property of the  joint                             acquirers,   or   whether   it   is    ordinar y               partnership property. If it is joint     family               property, the male issue of the acquirers take               an  interest in it by birth (s. 221,  sub.  s.               (1).  If  it  is the  joint  property  of  the               acquirers,  it will pass by survivorship,  but               the male issue of the acquirers does not  take               interest  in it by birth (s. 221, sub. s.  2).               If it is partnership property, it is  governed               by  the provisions of the  Indian  Partnership               Act, 1932, so that the   share of each of  the               joint acquirers will pass on his death to  his               heirs, and not by survivorship.               (2)  If the property so acquired  is  acquired               with  the  aid of joint  family  property,  it               becomes joint family property.               (3)  If the property so acquired  is  acquired               without the aid of joint family property,  the               presumption  is that it is the joint  property               of  the joint acquirers, but this  presumption               may  be  rebutted by proof  that  the  persons               constituting  the  joint family  acquired  the               property not as members of a joint  family,but               as  members of an ordinary  trade  partnership               resting   on  contract,  in  which  case   the               property will be deemed to be  partnership               property". In  the  case  before us the finding of fact  was  that  the property was   not acquired as partnership property under  a contract,  but  the partnership business     was  originally prior   to  partition  Hindu  Undivided   Family   business. Hence,  there  was no room for applying the  principle  that members  of  a  joint  Hindu family  had  not  acquired  the business  as  members of a joint family but  in  a  separate capacity as individual partners under a contract. The  High  Court rightly relied upon N. V.  Narendranath  v. Commissioner  of Wealth tax, Andhra Pradesh,(1)  where  this Court bad observed :               "In  the  present case the property  which  is               sought  to  be  taxed  in  the  hands  of  the               appellant  originally  belonged to  the  Hindu               undivided  family belonging to the  appellant,               his father and his brothers.  There were joint               family  properties  of  that  Hindu  undivided               family  when the partition took place  between

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             the  appellant , his father and  his  brothers               and these properties came to the share of  the               appellant  and  the  question  presented   for               determination  is whether they ceased to  bear               the  character of joint family properties  and               became   the   absolute  properties   of   the               appellant.   As  pointed out by  the  Judicial               Committee  in  Arunachalam’s case  (1957  A.C.               540) it is only by analysing the nature of the               rights of the members of the undivided family,               both those in being and those yet to be  born,               that  it can be determined whether the  family               property  can properly be described as  "joint               property  of the undivided  family.   Applying               this test it is clear, though in the absence (1) 74 I.T.R. 190. 837               of  male issue the dividing coparcener may  be               properly described in a sense as the owner  of               the  properties, that upon the adoption  of  a               son or birth of a son to him, it would  assume               a  different  quality.   It  continues  to  be               ancestral property in his hands as regards his               male  issue  for  their  rights  had   already               attached  upon it and the partition only  cuts               oft  the  claim of the  dividing  coparceners.               The  father  and his male issue  still  remain               joint.  The same rule would apply even when  a               partition  had been made before the  birth  of               the mate issue or before a son is adopted, for               the share which is taken at a partition by one               of   the  coparceners  is  taken  by  him   as               representing his branch.  Again, the ownership               of  the  dividing  coparcener  is  such  "that               female members of the family may have a  right               to maintenance out of it and in some  circums-               tances  to a charge for maintenance upon  it".               See  Arunachalam’s case.  It is  evident  that               these  are the incidents which  arise  because               the  properties have been and have not  ceased               to be joint family properties.  It is no doubt               true  that there was a partition  between  the               assessee, his wife and minor daughters on  the               one  hand and his father and brothers  on  the               ,other hand.  But the effect of partition  did               not affect the ’character of  these-properties               which  did  not  cease  to  be  joint   family               properties in the hands of the appellant.  Our               conclusion is that when a coparcener having  a               wife  and  two  minor  daughters  and  no  son               receives   his  share  of  the  joint   family               properties on partition, such property in  the               hands  of the coparcener belongs to the  Hindu               undivided  family  of himself,  his  wife  and               minor  daughter and cannot be assessed as  his               individual  property.   It is clear  that  the               present  case  falls within the ratio  of  the               decision  of  this Court in  Gowli  Buddanna’s               case   (60  I.T.R.  293)  and  the   Appellate               Tribunal was right in holding that the  status               of   the  respondent  was  that  of  a   Hindu               undivided   family   and  not   that   of   an               individual". Learned Counsel for the appellant had relied on Chiranji Lal v.  Commissioner  of Incometax, U.P.,(1)  where  a  Division

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Bench of the Allahabad High Court had observed (at p. 722)               "Once a partial partition is accepted as being               genuine   and   not  a  colourable   or   sham               transaction, the share of capital of each such               coparcener  thereafter  ceases  to  be   joint               family asset and becomes his individual  asset               de  hors the family, and thereafter it is  not               possible  to say that the nucleus for the  new               partnership  business  came  from  the   Hindu                             undivided  family  funds.   The  share   incom e               derived  by the investment of such funds in  a               partnership business cannot be included in the               assessment  of  the  Hindu  undivided  family,               unless  it  can be shown that  the  individual               members  who  derived  the  share  income  had               blended  it  with the income  of  the  smaller               Hindu  undivided  family or were  nominees  or               benamidars  for their family.  No attempt  has               been made by the department to (1) [1965] 56 I.T.R. p. 715 @ 722. 838               prove  any  such  thing.  There  was  thus  no               material  whatsoever  for the finding  of  the               Tribunal  that the nucleus in respect  of  the               capital which was duly divided in the books of               the   firm  after  partial   partition   still               continued  to  be  the nucleus  of  the  funds               belonging  to the larger or the smaller  joint               family". In the case before us there is no difficulty in  determining the  character  of  any nucleus of  divided  property.   The business  prior  to  the partition of  the  Hindu  undivided family was assessed as joint family business for a number of years  without any protest by Tolaram.  The  partition  deed signed by Tolaram and others itself contained a recital that the  business was a joint family business.  The  finding  of fact  reached by the Tribunal that the business  was,  until partition,  a joint family business could not be said to  be unreasonable  or  perverse.   If that be so,  the  share  of Tolaram  in  the partnership which came into  being  on  the partition  of  the  Hindu  Undivided  Family  could  not  be regarded  as his separate property.  It became the  property of the joint Hindu family of Tolaram and his sons.  This  is the  finding  of fact, quite reasonably arrived  at  by  the Tribunal, which the High Court had accepted. Consequently,  me  are unable to accept  the  arguments  put forward  by Mr. Ahuja with considerable  persistence  before us.   We dismiss this appeal.  But, in the circumstances  of the case, we make no order as to costs. S.R.                          Appeal dismissed. 839