Jagannadha Rao, J.
1. These five R.Cs. raise a question of law relating to the assessment of a family governed by the Benaras school of Mitakshara Hindu law and can be disposed of together.
2. We shall first advert to the facts in R.C. No. 62/78. Sri Sardarilal's wife is Smt. Janaki Bai and they have a son. There was a registered partition, dated October 27, 1970, among them in which the joint family properties were divided and as the parties belong to the Benaras school of Mitakshara law, a share was given to Smt. Janaki Bai also, comprising of certain houses valued at Rs. 63,600 and she was taxed on the income therefrom. For the assessment year 1974-75, Sri. Sardarila filed a return as a HUF in respect of the property obtained by him at the partition, dated October 27, 1970. The ITO assessed his taxable income at Rs. 37,470 but chose to apply (a higher) rate of tax as per Sub-para. II of Para A of Schedule I to the Finance Act, 1974, as in his opinion there was at least one member of the HUF having an income exceeding the taxable limit, inasmuch as the petitioner did not fill in the particulars as per annex. I whether the family had at least one member whose total income exceeded the taxable limit.
3. The petitioner filed an appeal the AAc who allowed the appeal on August 16,1975, holding that there was a partition and the family consisted only of the petitioner and his wife, that his wife was not having any taxable income and, therefore, he directed the ITO to apply the rates as per Sub-para. I of para. A of Sch. I to the Finance Act, 1974.
4. The Department preferred an appeal, I.T.A. No. 1449/Hyd/75-76, before the Tribunal which allowed the appeal on November 17, 1976. Before the Tribunal, the petitioner raised a new question, namely, that the petitioner should have been assessed as an 'individual' and not as a HUF and the Tribunal allowed the said question to be raised. The petitioner then contended that after the partition, dated October 27, 1970, among the petitioner, his son and wife, of the joint family properties, there was no Hindu joint family in the eye of law even though the petitioner's wife might have been continuing to live with him, and even though the petitioner's wife is taxed in respect of the income from the houses valued at Rs. 63,600 allotted to her share.
5. The Tribunal, however, rejected the claim of the petitioner stating that the husband and wife continued to live together for purpose of coverture and consortium and that there continued to be a HUF consisting of the assessee and his wife, Smt. Janaki Bai, and that the petitioner cannot be assessed as an 'individual'. It held further that Sardarilal was the karta of the HUF and there was at least one member thereof whose total income exceeded Rs. 5,000, and that the ITO was right in adopting the higher rate of tax as per Sub-para. II of Para. A of Sch. I to the Finance Act, 1974. R.C. No. 62/78 is preferred at the instance of Sri Sardarilal.
6. R.C. No. 85/81 relates to the same assessee, Sardarilal, for the assessment year 1975-76, and the Tribunal followed its judgment in I.T.A.No. 1449/Hyd/75-76, dated November 17, 1976, out of which R.C. No. 62/78 has arisen.
7. R.C. No. 38/78, R.C. No. 9/80 and R.C. No. 84/81 arise in the case of Sri Premchand for the assessment years 1974-75, 1975-76 and 1976-77 respectively, and in all these cases the Tribunal held against the contention of Sri Premchand and followed its decision in ITA No. 1449/Hyd/75-76, relating to Sri Sardarilal. In R.C. No. 38/78 and R.C. No. 9/80, the Tribunal restored the orders of the ITO while in R.C. No. 84/81, the Tribunal affirmed the concurrent decision of the ITO and the AAC. The family composition in Sri Premchand's case is himself, his wife, Smt. Susheelabai, and his two sons who divided the joint family property by registered partition, dated October 26, 1970, and Smt. Susheelabai was also given a share in the partition. Sri Premchand filed returns in the respective years in the respect of the income from the property allotted to him in the partition. He also contended before the Tribunal that he should be assessed as an 'individual', and the said contention was permitted to be raised but rejected. Hence, these references were made at the instance of the assessee.
9. In R.C. No. 62/78, the following two questions have been referred to the High Court by the Tribunal :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the status of the assessee was Hindu undivided family
(2) In case the answer to the first question is in the affirmative, whether the Tribunal was justified in holding that the rates of tax applicable to the assessee are as per Sub-para. II of the Para A of the Schedule I to the Finance Act, 1974, and not as per Sub-paragraph I ?'
10. Answer to these two questions will, having regard to the above facts, govern the other R. Cs. also.
11. The first question referred to us is whether the petitioners in each of these cases have to be assessed as individuals or as a HUF
12. The learned counsel for the petitioner, Sri Rathi, contended that in view of the partition among the petitioner, his wife and son, the property allotted to the petitioner is at the absolute disposal of the petitioner, and as his wife has been given a share which is in lieu of maintenance, the petitioner has to be treated as an individual. In other words, the existence of his wife has to be ignored as she has, according to the petitioner, no right to maintenance in the property allotted to her husband.
13. On the other hand, the learned standing counsel for the Department, contended that the petitioner has been allotted property in a partition and as his wife was very much living with the petitioner, there is a HUF. He also submitted that there is at least one member in the HUF who has got taxable income above the prescribed limit and that the Tribunal's order is correct.
14. There is no direct case decided on this point. As the case deals mainly with a single coparcener and his wife, it is necessary to refer to the cases of the Supreme Court relating to sole surviving coparceners.
15. In Gowli buddanna's case : [1966]60ITR293(SC) , decided by the Supreme Court, there was a father, mother and two daughters and an adopted son. The property was ancestral even in the hands of the father and after the father's death, it devolved by survivorship on the son. Even though there was only a single male coparcener, living with his mother and two sisters, he was held liable to be assessed as a HUF as the property was held earlier by coparceners of a HUF before it devolved by survivorship upon one of them. The reduction of the number of coparceners was held not be a relevant factor.
16. Narendranath's case : [1969]74ITR190(SC) , was again a case of a sole coparcener living with his wife and two daughters. The assessee obtained the property at a partition of the joint family property with his brothers though not by survivorship as in Gowli Buddanna's case : [1966]60ITR293(SC) . It was held that that made no difference in principle as the property was held previously by coparceners as members of a HUF. The principle in Gowli Buddanna's case was applied.
17. We shall now advert to an exception to the rule in Gowli Buddanna's case. In Krishna Prasad's case : [1974]97ITR493(SC) , the assesses and his brother were holding the joint family property and in a partition, the assessee got his share. The question arose with regard to the income from that property.
18. The assessee was not married and there were no other female members who could claim a right of maintenance out of that property. The facts were similar to Narendranath's case : [1969]74ITR190(SC) , except for the total absence of female members. The Supreme Court held that the rule in Gowli Buddanna's case : [1966]60ITR293(SC) , did not apply even though the property was obtained at a partition. The assessment was to be made as an individual.
19. Suffice it to say that Krishna Prasad's case : [1974]97ITR493(SC) was treated as an exception to the rule in Gowli Buddanna's case : [1966]60ITR293(SC) . The absence of any female member was the fact which distinguished the case from the rule in Gowli Buddanna's case : [1966]60ITR293(SC) . We shall revert to this case a little later.
20. Gowli Buddanna's case and other cases were elaborately considered by the Supreme Court in Surjit Lal Chhabda's case : [1975]101ITR776(SC) . It was pointed out by the Supreme Court that in Gowli Buddanna's case, the property belonged to a sustaining undivided family before the sole coparcener came to own it (pp. 792-793). It was also pointed out that in Narendranath's case : [1969]74ITR190(SC) , the property was already impressed with the character of joint family property before coming into the hands of the single coparcener (pp. 792,793). Two other cases were then referred to. Referring to Gomedalli Lakshminarayan [1935] 3 ITR 367 it was held that there the property belonged to a HUF before it survived to the son and it was ancestral with the father and thereby the son had acquired a right by birth (p. 791). Veerappa Chettiar's case : [1970]76ITR467(SC) , was also explained by the Supreme Court as one where the property was originally owned by the HUF before it devolved on their widows (p. 793).
21. In all these cases, it was held that the rule in Gowli Buddanna's case : [1966]60ITR293(SC) , applied, namely, that the property was originally owned by the coparceners of a HUF and the character of the property did not changes on account of the temporary reduction of the coparceners as long as some at least of the female members continued in existence.
22. But in Chhabda's case : [1975]101ITR776(SC) , decided by the Supreme Court, though the property was held by a sole surviving coparcener as ancestral property along with his wife and daughter, the Supreme Court held that he had to be assessed as an individual and not as a HUF. Let us examine the reason as to why the rule in Gowli Buddanna's case : [1966]60ITR293(SC) , was held to be inapplicable.
23. The facts in Chhabda's case are as follows : The assessee had his own separate property. He and his wife were living with their unmarried daughter. The assessee, by a solemn declaration, before a Magistrate, converted the property as joint family property. From then onwards, he held the property as joint family property. He was to be assessed as an individual according to the Supreme Court. The reason given are as follows :
The property was ancestral in the hands of the the assessee, but the assessee had no son who could acquire an interest by birth (p. 788). The property, before it came into the assessee's hands, was not impressed with the character of joint family property (p. 793). The property was not an asset of a pre-existing joint family of which the assessee was a member. It became an item of joint family property for the first time when the assessee threw his separate property into the family hotchpot. It was not of the nature of property which devolved by survivorship on a sole surviving coparcener. Until a son was born, it was the assessee's property. He could deal with it as a full owner, unrestrained by considerations of legal necessity or benefit to the estate. The income was his income (pp. 795-796).
24. The Supreme Court stated that, therefore, the rule in Gowli Buddanna's case : [1966]60ITR293(SC) , did not apply but that the rule in Kalyanji Vithaldas's case [1937] 5 ITR 90 applied. What then was the rule in Kalyanji's case
25. Though the facts in Kalyanji's case are rather too many, they have been critically analysed for us in Chhabda's case : [1975]101ITR776(SC) . For the purpose of highlighting the true basis of that case, we shall confine ourselves to two of the six branches in that case. They are the branches of Kanji and Sewadas. There was partition between the father, Moolji and his two sons. The two sons were partners in a firm. Kanji's family comprised of his wife and daughter while Sewadas' family comprised of himself and his wife. Neither Kanji nor Sewadas had a son. The Property invested in the firm was property which was gifted to each of them by their father, Moolji. Before the gift, Moolji owned it as his separate property. It was assumed by the privy Council that Moolji intended that the gifted property should be ancestral in the hands of Kanji and similarly in the hands of Sewadas. That is to say, if a son should be born to either, he would have a right by birth in the gifted property. The Privy Council held that Kanji and Sewadas had each to be assessed as individuals. The reason was this. The gifted property was not the ancestral or joint family property of a subsisting HUF consisting of Moolji, Kanji and Sewadas (p 791) in Chhabda's case : [1975]101ITR776(SC) . Even though the property was ancestral, the income was separate property-as neither of them had a son who could have a right by birth (p. 788). Before it came into their hands, it was not impressed with the character of Joint family property (page 793).
26. Thus, in Gowli Buddanna's case : [1966]60ITR293(SC) , the assessment had to be made as HUF or the property was originally owned by coparceners of an undivided family and on the death of one of them, the property devolved on the sole surviving coparcener. Its character as Hindu joint family property did not change notwithstanding the temporary reduction of coparceners. The said principle was extended to Narendranath's case : [1969]74ITR190(SC) , where the property obtained by a coparcener in a partition was also held liable to be assessed as a HUF.
27. On the other hand in Kalyanji's case [1937] 5 ITR 90 the property was not owned by coparceners of a HUF before it came to be owned by the assessee. The character of the property changed only for the first time in the hands of the assessee-by reason of the intention of the donor that the donee should hold it as joint family property as in Kalyanji's case. As the assessee had no son, he had to be assessed as individual for, till a son was born, no other coparcener had a share therein.
28. That being the decisive test, the other common facts, namely-that the property was ancestral, that the assessee was a sole coparcener entitled to alienate as his own property, that female members were in existence-had no consequence.
29. The legal position can be summarised as follows :
(1) Where the property 'was originally' owned by coparceners of a HUF and later devolved on a sole surviving coparcener who had female members in his family, the character of the property as HUF does not change in spite of the temporary reduction of the number of coparceners, and the sole surviving coparcener has to be assessed as a HUF as in Gowli Buddanna's case : [1966]60ITR293(SC) . Similarly, where the property of a HUF is partitioned, the property so allocated to a single coparcener who has female members in the family has to be assessed as HUF, on the principle of Gowli Buddanna's case as applied in Narendranath's case : [1969]74ITR190(SC) . Where, however, there is physical absence of female members entitled to maintenance on the property, the sole surviving coparcener in possession of the abovementioned property has to be assessed as an individual till such time that he gets married. That is the exception to the rule in Gowli Buddanna's case : [1966]60ITR293(SC) , made in Krishna Prasad's case : [1974]97ITR493(SC) .
(2) But where the property was not owned by a HUF before it came to be owned by a sole surviving coparcener living with female members of the family entitled to maintenance, the assessment has to be made as individual. The reason is that before it got converted as joint family property it was not owned by coparceners of a HUF. After conversion too the assessment remains so till a son is born. Such a conversion as joint family property occurred for the first time in the hands of the sole surviving coparcener by reason of the gift by the father in Kalyanji's case [1937] 5 ITR 90 and by reason of the sole coparcener throwing his separate property into family hotchpot in Chhabda's case : [1975]101ITR776(SC) . The property would have to be assessed as an individual even in spite of the existence of female members, until a son was born who could have a right by birth. That is the rule in Kalyanji's case [1937] 5 ITR 90 .
30. Now the question is - which of the above rules applies to the facts in R.C. No. 62/78. Admittedly, the property was obtained by the coparcener-assessee at a partition with his son and wife. It was, therefore, property which was previously held by coparceners of a HUF before the partition. After the partition, the quality of the property as joint family property continued, even though the number of the coparceners was reduced. In our opinion, obviously, the rule in Gowli Buddanna's case : [1966]60ITR293(SC) , as applied in Narendranath's case : [1969]74ITR190(SC) , must be applied and is attracted.
31. The next question is - does the fact that the assessee's wife was governed by the Benaras School and was also given a share in the partition of the property of the HUF make any difference
32. We do not think it makes any difference. There is no change in the joint family character of the property received by the husband at the partition, even though a portion was given to his wife. Though the quantum was reduced, its quality as joint family property did not change. The rule in Gowli Buddanna's case still applied to the reduced share of the assessee. If the reduction in the number of coparceners made no difference, equally the reduction in the quantum of property made no difference either.
33. But then it is contended for the assessee that the share given to the wife was in lieu of maintenance according to the Benaras School and, hence there was no maintenance claim on the husband's share and that the assessee fell under the rule in Krishna Prasad's case : [1974]97ITR493(SC) , which was an exception to the rule in Gowli Buddanna : [1966]60ITR293(SC) .
34. We are of the opinion that this contention is not correct. The status of the assessee did not get altered to the status of the assessee in Krishna Prasad's case. The marital bond between the husband and wife continued and was not snapped in spite of the share given to the wife. She continued to be a 'sapinda'. We shall revert back to this aspect in detail while dealing with the second point.
35. It is true that in Krishna Prasad's case, where the assessee was a bachelor who obtained ancestral property at a partition, Khanna J. observed (p.497) :
'...... the appellant at present is the absolute owner of the property which fell to his share as well as a result of partition and that he can deal with it as he wishes. There is admittedly no female member in existence who is entitled to maintenance from the above mentioned property......'
36. But the said passage cannot be divorced from the facts that case. The emphasis is more on the existence of the wife than on her right. The share given to the assessee's wife in the present case may be is lieu of maintenance. But the female here is very must 'in existence' in the family even after partition, as the assessee's wife, and that distinguished the case from Krishna Prasad's case : [1974]97ITR493(SC) , where no female at all was in existence.
37. Unlike the son who goes out of the family after partition or, the daughter on marriage, the wife continues to be a member of the Hindu joint family of her husband as long as the martial tie lasts, in spite of taking a share in the partition. We are, therefore, of the opinion that Krishna Prasad's case - the exception to Gowli Buddanna-applied only to a sole surviving coparcener who is without any other female member in the family. He must be all alone-solitary.
38. It is then argued that in Kalyanji's case [1937] 5 ITR 90 Kanji and Sewadas received the property as their separate property and that that was why the property was treated as 'individual'. We are afraid that this is not factually correct. In Chhabda's case : [1975]101ITR776(SC) , the Supreme Court explained, at more than one place, that in kalyanji's case the Privy Council proceeded on the basis that the gifts in the hands of Kanji and Sewadas were each to be held as ancestral (vide pp. 787 and 788 of Chhabda's case).
39. Similarly, the submission that in Chhabda's case : [1975]101ITR776(SC) , the conversion by the assessee of his separate property into joint family property by a declaration did not become effective as there was no other male coparceners at the time of conversion and that that was why the assessee was held entitled to be treated as an 'individual' is also not correct. At more, than one place their Lordships of the Supreme Court accepted and proceeded on the basis that the conversion of Kathoke Lodge as joint family property was effective (vide pp. 785, 788 and 795 of Chhabda's case : [1975]101ITR776(SC) . In fact, the Department's contention in the Supreme Court that the conversion was not effective was rejected (p. 785).
40. On the first point, several cases were cited by counsel on either side, but it was conceded that there was no direct case on the point. We, therefore, feel it unnecessary to refer to all of them except the following :
The judgment of the Orissa High Court in CIT v K Satyanarayana Murthy [1984] 147 ITR 140 has been relied on by both sides for different purposes.
41. There the assessee had two major and three minor sons and there was a partition of the business held by them as HUF. The assessees' wife was in existence at the time of partition (during account year 1968-69). The dispute related to the assessment year 1974-75, when the wife was alive. The assessee filed a return as an individual. The ITO added the share income of the minor sons to that of the assessee. But in the appeal, the assessee took the stand that he should be assessed as a HUF. The Tribunal by a majority of two to one held that the status is one of HUF and that the share income of the minor sons was not includible in the assessee's for computation of tax. The High Court, after referring to the various rulings of the Supreme Court, took a different view and held that the assessment should be as an 'individual'.
42. With respect, we are not able to agree with the above view taken by the Orissa High Court. When the property was held by the HUF of a father and five sons, i.e., six coparcener, simultaneously and there was then a partition, the case squarely fell within the rule in Gowli Buddanna's case : [1966]60ITR293(SC) , as applied in Narendranath's case : [1969]74ITR190(SC) , as the property was owned by the HUF before partition.
43. Therefore, on the first question, we are of the opinion in R.C. No. 62/78, that the assessee had to be assessed as a HUF in respect of the income obtained from the property allotted to him in partition, notwithstanding the fact that his wife has been given a share threat according to the Benaras School of Hindu law.
44. The second question is whether the assessee's wife is a member of the assessee's family so as to attract the higher rate of tax applicable under Sub-para. II of Para A of Schedule I to the Finance Act, 1974, in view of the partition in which she took a share
45. While dealing with the question whether the case fell within the rule in Gowli Buddanna's case : [1966]60ITR293(SC) , we have considered the question whether it can be brought within the exception to that rule as made in Krishna Prasad's case : [1974]97ITR493(SC) . In that context, we have already held that the partition at which the assessee's wife was given a share did not snap the marital tie. For the purpose of the second point arising in the R.C. we shall elaborate further.
46. Firstly, the wife was very much, 'in existence' as a wife, notwithstanding the partition. Secondly, the existence of the 'sapinda' relationship is the test for deciding who is a member of the Hindu joint family.
47. Chandrachud J. (as he then was) observed in Chhabda's case : [1975]101ITR776(SC) :
'The joint Hindu family is thus a large body consisting of a group of persons who are united by the tie of sapindaship arising by birth, marriage or adoption. The fundamental principle of the Hindu joint family is the sapindaship... It is the family relation, the sapinda relation, which distinguishes the joint family and is of its very essence... The appellant's wife became his sapinda on her marriage with him. The daughter too, or her birth, became a sapinda and until she leaves the family by marriage, the tie of sapindaship will bind her to the family of the birth.'
48. On the second point we are, therefore, of the opinion that the partition at which the wife was given a share did not have the effect of wiping out her 'sapinda' relationship. She, therefore, continued to be a member of the family of her husband notwithstanding the fact that under the Benaras School of Mitakshara law she was given a share.
49. The ITO and the Tribunal were, therefore, right in holding against the assessee and in applying the higher rates of tax as per Sub-para. II of Para A of Schedule I to the Finance Act, 1974.
50. In the result, we answer the question in favour of the Department and against the assessee. R.C. No. 62/78 is, therefore, disposed of as follows :
(1) The Tribunal was justified in holding the status of assessee was HUF.
(2) The Tribunal was also justified in holding that the rates of tax applicable to the assessee are as per Sub-para. II of Para A of Schedule I to the Finance Act, 1974, and not as per Sub-para. I.
51. The answers are against the assessee and in favour of the Department. R.C. No. 85/81 is answered in the affirmative and against the assessee and in favour of the Department. In R.C. No. 38/78, the two questions are answered in the affirmative and in favour of the Department. The question in R.C. No. 9/80 and R.C.No. 84/81 are also answered in the affirmative and in favour of the Department.