09 November 1964
Supreme Court


Case number: Appeal (civil) 1105 of 1963






DATE OF JUDGMENT: 09/11/1964


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



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 107 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



             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 108 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." 109 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



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 110 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."



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