ORDER
A.M. Sapre, J.
1. This is an IT reference made under Section 256(1) of the IT Act at the instance of assessee by the Income-tax Appellate Tribunal (for short hereinafter called as 'Tribunal') in R.A. No. 77/78/Ind/1996, which in turn arise out of an order, dt. 30th Sept., 1996 passed by Tribunal in ITA No. 498/Ind/1992 and ITA No. 806/Ind/1994 and later amended by Tribunal in Misc. Appln. Nos. 33/Ind/1996 and 34/Ind/1996, dt. 31st Jan., 1997 by invoking the powers of rectification under Section 254 of the Act for answering following two questions of law said to arise out of the two orders referred supra:
(1) Whether on the facts and in the circumstances of the case, the Tribunal was right in setting aside the order of the CIT(A) and restoring the matter to the file of the AO to decide the issue to assess the income from the bequeathed property in the proper hands instead of deleting the said income from the hands of the assessee as there was no connection of the assessee HUF with the bequeathed property?
(2) Whether on the facts and in the circumstances of the case, the learned Tribunal was right in holding that the property bequeathed by Smt. Radhabai did not belong to the different smaller HUFs?
2. In order to enable this Court to answer the aforementioned two questions of law referred by the Tribunal, it is necessary to mention the material facts from the statement of case sent by Tribunal to this Court.
3. One Satya Narayan son of Kanhaiya Lal was a Karta of an HUF known as 'Satya Narayan Kanhaiya Lai Gagrani'--'assessee' herein. This HUF consisted of his wife--Smt. Sushila Bai and three sons namely--Sharad Kumar, Harish Chandra and Sanjiv Kumar. So, assessee i.e. (HUF) consisted of following family members:
(i) Satya Narayan as Karta : father/husband(ii) Smt. Sushila Bai : wife/mother(iii) Sharad Kumar : son(iv) Harish Chandra : son(v) Sanjeev Kumar : son
4. On 9th Nov., 1981, one Radha Bai widow of...executed a Will in respect of her moveable and immovable properties whereby she (Radha Bai) bequeathed her Rs. 2 lakhs and jewellery to three smaller HUFs consisting of members of aforementioned bigger HUF in equal share i.e., 1/3rd to each HUF. The creation or we may say formation of these 3 smaller HUFs who got the aforesaid properties in 1/3rd equal share under the Will, from Radha Bai is described in Will as follows:
I(HUF)(i) Satya Narayan (Karta) : father/husband(ii) Sushila Bai : wife/mother(iii) Sharad Kumar : sonII(HUF)(i) Satya Narayan (Karta) : father/husband(ii) Sushila Bai : wife/mother(iii) Harish Chandra : sonIII(HUF)(i) Satya Narayan (Karta) : father/husband(ii) Sushila Bai : wife/mother(iii) Sanjeev Kumar : son
5. In other words, Radha Bai executed a Will, dt. 9th Nov., 1981 in respect of her properties (described above) and bequeathed the same 1 /3rd to each aforementioned 3 HUFs.
6. On 10th Jan., 1990, the AO while examining the case of assessee for asst. yr. 1988-89 and asst. yr. 1989-90 asked the assessee to explain as to why the income of aforementioned three HUF's received from the Will in question be not clubbed in the hands of assessee because according to AO the creation of these 3 HUFs was not as per principles enunciated in Hindu Law applicable to formation of HUF. The AO was not satisfied with the reply of assessee. In his opinion, the creation of 3 HUFs did not satisfy the requirement enunciated in Hindu Law for formation of any lawful HUF and hence, the properties must be taxed in the hands of assessee. In his view, the HUF was always created by nature and not by the intention of testator of the Will or donor. He thus rejected the case of assessee and proceeded to tax the properties in the hands of assessee.
7. The assessee felt aggrieved of this order passed by AO filed an appeal before CIT(A). The CIT(A) concurred with AO and dismissed the appeal. The assessee then filed further appeal before the Tribunal. By order dt. 30th Sept., 1996 out of which this reference arises, the Tribunal while affirming the orders of AO and CIT(A) came to a conclusion that no gift and/or Will can be made in favour of some members of bigger HUF to the exclusion of remaining members on the ground that beneficiaries have formed their smaller HUF. It was held that smaller HUFs are not visible in this case in the absence of any offspring of any of the sons of Satya Narayan. In this view of the matter, the Tribunal too did not uphold the creation of HUFs to be legal. However in the operative paras 10 and 11 of the original appellate order of Tribunal which was rectified by invoking the powers of rectification under Section 254(2) ibid at the instance of assessee, the Tribunal gave following direction to AO for holding an inquiry as to in whose hands now these properties be taxed:
10. During the course of argument, the learned Counsel for the assessee has raised an alternative plea that if the property is not assessed in the hands of the smaller HUFs then it should be assessed in the name of the AOP or it should be reverted back to the testator and to be devolved by way of succession. In any case, the property cannot be assessed in the hands of the assessee as it was bequeathed by Smt. Radhabai, who was stranger to the main HUF headed by Shri Satyanarayan. Since there is no observation on this point in either order of the authorities below, we are of the view that these arguments were not specifically raised before the lower authorities. However, it is for the Revenue to assess the income property in proper hands. It is an undisputed fact that Smt. Radhabai testator of the Will is not related to the HUF in any manner. Three Wills were executed in favour of some of the members of the assessee HUF. Since, we have already observed that the smaller HUFs as alleged by the assessee have not been properly constituted in accordance with the Hindu Law the property received by them by virtue of the Will cannot be assessed in the hands of the smaller HUP'. Now, the question arises in whose hands so called bequeathed property is to be assessed. There is no observation on this issue by any of the authorities below. Hence, we are of the view that this aspect should be properly looked into by the Revenue. Accordingly, we set aside the order of the CIT(A) and restore the matter to the file of the AO with the direction to adjudicate the issue that in whose hands the bequeathed property is to be assessed in the light of the existing provisions of law.
11. In the result, the appeal of the assessee is partly allowed.
8. It is against this order, the assessee felt aggrieved and sought reference to this Court under Section 256(1) from the Tribunal. As stated supra, the Tribunal acceded to the prayer so made by the assessee and accordingly, made the reference to this Court on the two questions, referred supra for answer.
9. Heard Shri G.M. Chafekar, learned senior Counsel with Shri D.S. Kale, learned Counsel for the applicant (assessee) and Shri R.L. Jain, learned senior Counsel with Ku. Veena Mandlik, learned Counsel for the non applicant (Revenue).
10. Learned Counsel for the assessee at the outset conceded and in our view rightly that question No. 2 referred to this Court has to be answered against the assessee and in favour of Revenue. Learned Counsel urged that legal position dealing with the issue which is subject matter of question No. 2 appears to be against the assessee and hence, view taken by the Tribunal on question No. 2 cannot be faulted with. Be that as it may, since the reference is made to this Court on the stated question (2) for its answer on merits, we consider it proper to deal with the issue for its answer on merits after taking into consideration the legal principles governing the field in question.
11. The question as to whether members of branches of a joint Hindu Family can constitute a subordinate Hindu Family under the Hindu Law came up for judicial debate for the first time before the Indian Courts in one of the oldest but celebrated case way back in the year 1901 before Madras Court viz. Sudarsanam Maistri v. Narasimhulu Maistri ILR 25 Mad 149. In this case one 'V' and his three elder sons lived apart from his two younger sons and were in possession of some ancestral property. The two younger sons acquired property from the funds of a business which had been carried on by them jointly. One of the questions that came up for consideration before the Court was whether they acquired the property as members of the joint Hindu Family. The learned Judge--Bashyam Ayyanger, J. speaking for the Bench while rejecting the contention proceeded to discuss the first principles governing the constitution of joint families and the properties acquired by the said families. The learned Judge made following subtle observations:
The Mitakshara doctrine of joint family is founded upon the existence of an undivided family, as a corporate body...and the possession of property by such corporate body. The first requisite therefore is the family unit; and the possession by it of property is the second requisite...the conception of a Hindu Family is a common, male ancestor with his lineal descendants in the male line, and so long as that family is in its normal condition, viz., the undivided state-it forms a corporate body. Such corporate body with its heritage, is purely a creature of law and cannot be created by act of parties, save insofar that, by adoption, a stranger may be affiliated as a member of that corporate family.
Adverting to the nature of the property owned by such a family, the learned Judge proceeded to state;
As regards the property of such family, the 'unobstructed heritage' devolving on such family, with its accretions, is owned by the family as a corporate body, and one or more branches of that family, each forming a corporate body within a larger corporate body, may possess separate unobstructed heritage which, with its accretions, may be exclusively owned by such branch as a corporate body.
Then dealing with the problem whether two or more members of different branches, or of one and the same branch, of family can acquire a property with the incidents of a joint family property, such as right by birth etc., the learned Judge observed thus at p. 155:
But so long as a family remains as undivided unit, two or more members thereof--whether they be members of different branches or of one and the same branch of the family--can have no legal existence as a separate independent unit; but if they comprise all the members of a branch, or of a sub-branch, they can form a distinct and separate corporate unit within the larger corporate unit and hold property as such.
12. The above passage of law in clear terms lay down the principle that lies behind the rule applicable to formation and creation of HUF by every Hindu Family. This decision which is a 'locus classic' was rendered a century ago (1901). It was having consistently followed by all High Courts in our country and later in course of time finally approved by the apex Court. To begin with in 1916 it was first considered and followed by the Full Bench of Madras High Court in Chakra Kanan v. Munti Pokkar ILR 39 Mad 317 : AIR 1916 Mad 392 (FB). In this case, the similar question arose amongst the members of a local community called 'Tavazhi'. This community corresponded to branch of joint Hindu Family under Hindu Law. The learned Judge Srinivas Ayyanger speaking for the Bench ruled as under:
These groups cannot of course be created by agreement of parties. The tavazhis or the subordinate groups constituting the tarwad are, I think, capable of holding properties as corporate units with the incidents of tarwad property, at the same time retaining their joint interest in the properties of the main tarwad, just as branches and sub-branches in a Mitakshara joint Hindu Family are capable, of holding properties with the incidents of joint Hindu Family property. I am also of opinion that some only of the members of a tavazhi cannot form a corporate unit capable of holding property as such.
13. Again in 1933, the Madras High Court considered this very issue by placing reliance on the first decision of Sudersanam Maistri (supra) in a case reported in Official Assignee Madras v. Neelambal Ammal AIR 1933 Mad 920. In this case, the Division Bench following the principle of law enunciated in Sudersanam's case (supra) ruled that it is not possible for two members of an HUF to deal with the property acquired by them in such a way as to impress upon it the incidents of a joint family property for themselves and their descendants. Reilly J. observed as under:
As I understand the matter, a Hindu joint family firm is a special form of partnership, the members of which must be either the whole of a joint family, or the whole of a branch of a joint family.
14. It was then followed by Allahabad High Court in Himmat Bahadur v. Bhawani Kumar ILR 30 All 352. Later even the Privy Council in two decisions reported in Yogeshwar Narain Deo v. Ramchandra Dutt 23 IA 37 (PC) and in the case of Bahu Rani v. Rqjendra Bakhal Singh restated these principles. Their Lordships ruled in substance as follows:
If two or more members of different branches or of the same branch of a joint family cannot acquire a joint family property impressed with the incidents of a joint family property and if the Hindu Law does not otherwise sanction acquisition of property by them as joint tenants as understood in English law, their rights and liabilities can only be governed by terms of agreement under which they purchased the property.
(See from AIR 1962 SC 303)
15. Then came finally our Supreme Court decision. Taking note of all the decisions cited supra, their Lordships in the case reported in Bhagwan Dayal v. Reoti Devi : [1962]3SCR440 approved the law laid down in Sundersanam Maistri supra by Bashyam Ayyangar, J. Speaking for the Bench, the learned Judge Subba Rao made following observations:
Hindu Law recognizes only the entire joint family or one or more branches of that family as a corporate unit or units and that the property acquired by that unit in the manner recognized by law would be considered as joint family property. But in the case of two or more members of a joint Hindu Family belonging to different branches or even to the same branch, they do not acquire the property as a corporate unit or for the corporate unit and therefore, they are only governed by the terms of the contract, express or implied, whereunder they have acquired the property.
Their lordships then further held:
This decision also recognizes the legal conception that only a joint family and its branches or sub-branches can be corporate units capable of acquiring property, and that only two or more members belonging to different branches or even to one and the same branch cannot constitute such a unit and, therefore, cannot acquire property with the incidents of joint Hindu Family property.
16. The above principle of law, and in particular law laid down by Bhashaym Ayyanger, J. in Sudersanam Maistri's case (supra) was then applied by Bombay High Court in a case relating to income-tax in CIT v. M.M. Khanna : [1963]49ITR232(Bom) . It is in this case, the question had arisen as to what is the true status of HUF and whether by agreement some of the members of HUF can form separate HUF at a time when original HUF remains intact? Their Lordships after discussing the law on the subject held as follows (p. 241):
Thus, if a family consists of a father and four sons and their children, it is not possible, for instance, for the father and one or two of his sons to say that they will form another joint family so long as the original or main family remains intact. Such a family, if sought to be constituted by them, can have no legal existence. Similarly, if one or two sons of the father think of constituting a separate joint family as of themselves alone such an HUF also can have no legal existence.
17. In yet another landmark decision of Supreme Court reported in T.S. Srinivasan v. CIT : [1966]60ITR36(SC) and which has bearing on the issue involved in this case, the question arose as to whether an unborn (son/daughter as the case may be) can be a member of HUF and if so, whether he/she can have interest in the property assessed in the hands of HUF under the IT Act? Answering the question in negative, their Lordships ruled that such boy/daughter has no right nor he/she can become member of HUF while in womb of mother. In other words, their Lordships held that in order to be a member of HUF and to claim interest in the property held by HUF, he/she must be a 'born human being' and not a boy who is yet to be born. Their Lordships ruled on the subject:
The question that arises is whether this doctrine of Hindu Law can be applied for the purpose of determining the coming into being of a HUF as an assessable entity. As this Court held in C.B.C. Deshmukh v. Mallappa Chanbasappa, the doctrine is not of universal application and it applies mainly for the purpose of determining rights to property and safeguarding such rights of the son. It seems to us that this doctrine does not fit in with the scheme of the Act, and it could not nave been the intention of the legislature to have incorporated the special doctrine into the Act. Section 3 of the Act charges the total income of the previous year of every individual, IIUF, company and local authority, and of every firm and other AOP or the partners of the firm or the members of the association individually. Section 4 includes in the total income of any person all income, profits and gains, inter alia, if such person is resident, which accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year. Income can accrue or arise day-to-day or at the end of the year, and it would be surprising to say that for the purpose of the Act it is not known at a particular time to which entity income is accruing or arising. At the relevant time, under Section 22 of the Act, the ITO was required to give notice by publication in the press and by publication in the prescribed manner, requiring every person whose total income in the previous year exceeded the maximum amount which is not chargeable to income-tax to furnish within such period, not being less than sixty days as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner, setting forth his total income and total world income during that year. Under Sub-section (2), the ITO could serve a notice upon a particular person requiring him to furnish within a period, not less than 30 days, a return in the prescribed form. The person had then to file a return. If the contention of Mr. Sastri is right, in many cases an assessee would not have been able to file a return. Suppose the wife of an assessee conceived in February, 1954, and his accounting year was the year ending 31st March, 1954. By June/July, 1954, the assessee would not know whether he should file the return as an individual or as HUF because he would not know whether the child was going to be a son or a daughter. However, if a conditional return was filed, the ITO would have to hold his hands and not assess till the child was delivered. Part IIIA of the prescribed form required the following particulars to be filled up in the case of an HUF:
______________________________________________________________________________Serial Names of members Relationship Age at the RemarksNo. of the family at the end of theend of the previous previous yearyear who were entitled to claimpartition______________________________________________________________________________This form clearly proceeds on the basis that all members were in existence at the end of the previous year. Has a son in the womb at the end of the previous year and born in the assessment year any age at, the end of the previous year? Would it have a name at the end of the previous year? We find it extremely difficult to reconcile this doctrine of Hindu Law with the aforesaid provisions of the Act. We could not be justified in introducing uncertainties and anomalies in the working of the Act by introducing this doctrine for the purpose of Section 3 of the Act.
18. When we apply the aforesaid principles of law to the facts of the case as taken note of from the statement of case, then we have no difficulty in holding that the view taken by the Tribunal on question No. 2 that creation of 3 smaller IIUFs for bequeathing the properties by Will alleged to have been executed by Radha Bai was not in accordance with the principle applicable to formation of HUF under the Hindu Law was a correct view being in accord with the law laid down by Courts of our country on the subject.
19. It is not in dispute that original HUF (assessee herein) which consists of father, mother and three sons continues to remain intact and exists for all purposes. It is also not in dispute that none of the 3 sons of Satyanarayan had their own families consisting of their wives, sons and daughters. In other words, all the three sons of Satyanarayan as the statement of case shows were unmarried at all relevant time. In these circumstances, the members of HUF (5 in numbers) had no right by agreement or otherwise to form their own 3 smaller HUF and that too by retaining the status of original HUF intact. As has been held by judicial precedents quoted supra, the formation of HUF is purely a creature of law and not a creature by act of parties exception being that of adoption. In the present case 3 smaller HUFs who claimed to have received the properties by Will were not formed by creation of law but were formed by acts of parties or were allowed to be formed by virtue of execution of Will by Radha Bai in their favour. It was in our humble view, bad in law. The position would have been different if 3 sons had their own families consisting of their respective wives and children. In such state of affairs, each son could have become a Karta of his own branch and form his own HUF and at the same time could remain a member of original HUF of which his father was Karta. It is permissible because once son in his legal right creates his own family by nature then he too acquires all legal rights available to a Hindu under the Hindu Law to form his own HUF by becoming a Karta of his HUF and at the same time continue to remain a member of his original HUF along with his father who is a Karta of original HUF. Such is not the case here.
20. In the light of foregoing discussion, we answer the question No. 2 in favour of Revenue and against the assessee. In other words, we answer the question by holding that Tribunal was right in holding that property bequeathed by Smt. Radha Bai did not belong to the different smaller HUFs.
21. This takes us to the next question i.e. question No. 1 for answer on merits. It reads as under:
(1). Whether on the facts and in the circumstances of the case, the Tribunal was right in setting aside the order of the CIT(A) and restoring the matter to the file of the AO to decide the issue to assess the income from the bequeathed property in the proper hands instead of deleting the said income from the hands of the assessee as there was no connection of the assessee HUF with the bequeathed property?'
22. In substance, the issue that arises for consideration for answering question No. 1 is, when the Tribunal held that formation of 3 HUFs was not as per law and further that assessee (HUF) had no connection whatsoever with these properties sought to by, bequeathed by Will then, whether Tribunal was justified in remanding the case to AO for determining the question by holding an inquiry as to in whose hands Now the bequeathed property should be assessed?
23. Having heard learned Counsel for the parties and having perused record of the case, we are inclined to answer the question No. 1 in favour of assessee and against the Revenue.
24. In our considered opinion, once the Tribunal recorded a definite finding in favour of assessee that the income (property) which is subject matter of Will cannot be taxed either in the hands of assessee or in the hands of three smaller HUFs because of their illegal formation then in such event, there was no occasion for the Tribunal to have remanded the case again to AO in the assessment case of assessee (HUF) for holding fresh inquiry as to who will now be the person in whose hands the property which is subject matter of Will be taxed? In our view, this inquiry was neither permissible, nor contemplated in the case of assessee. Once it was held that a particular income cannot be taxed (may be for any reason) in the hands of assessee, then such issue must come to an end there. Any fresh inquiry thereafter as to in whose hands now it should be brought to tax namely--whether in the hands of 'A' assessee or 'B' assessee or in what capacity i.e., whether in the capacity of individual or AOP or co-owner or joint owner, must be initiated by AO by taking recourse to separate proceedings as provided under the IT Act. In other words, the AO cannot then hold an inquiry in the assessment case of 'A' for finding out as to particular income belongs to 'B' assessee or 'C' assessee or 'D' assessee. In the case of 'A' assessee, the AO has to only hold an inquiry as to whether particular income can be brought to tax in the hands of 'A' assessee or not? If yes, then it has to be taxed accordingly in the hands of 'A' assessee. If not then it has to be deleted while computing his total income. However while excluding the said income from 'A's', total income, the AO cannot simultaneously start fresh inquiry in assessment case of 'A' again for finding out as to in whose hands now the said excluded income can be taxed.
25. The powers of remand by Tribunal while hearing appeal under Section 254 ibid can be exercised for holding any inquiry in relation to assessee's own case, but not of some other assessee. The expression 'pass such orders thereon as it thinks fit' [appearing in Section 254 ibid] means an order which is necessary for determining the rights of assessee qua a particular income. It does not however empower the appellate authority to travel beyond the case of assessee thereby enlarging the scope of appeal and also of assessment out of which appeal arises.
26. In other words, power to remand the case can be exercised for deciding the case of assessee and not of some other person/assessee by the appellate authority.
27. In view of foregoing discussion, we answer the question No. 1 in favour of assessee and against the Revenue. In other words we hold that Tribunal was not right in restoring the matter to the file of AO for deciding the issue as to the assessment of the income from bequeathed property in the proper hands instead of deleting the said income from the hands of assessee as there was no connection of assessee (HUF) with the bequeathed property. No costs.