Arijit Pasayat, C.J.
1. All these cases involve questions relating to inclusion of income of spouse and minor child, etc., in the income of the individual concerned under Section 64 of the Income-tax Act, 1961 (in short 'the Act'), as well as the scope for inclusion of certain assets in the net wealth of an individual under Section 4 of the Wealth-tax Act, 1957 (in short 'the WT Act'). The assessed being the same, these issues are taken up together as they are closely interlinked. This judgment shall govern the references made by the Income-tax Appellate Tribunal, Delhi Bench (in short 'the Tribunal'), under Section 256(1) of the Act and Section 27(1), Wealth-tax Act.
2. The factual position needs to be noted in brief.
3. The assessed, his wife and minor daughter along with the assessed's brothers, their respective spouses and children constituted a Hindu undivided family (in short 'the HUF') known as M. M. Mohan and Sons. On December 22, 1970, the assessed threw his separate properties comprising shares in two companies into the common hotchpot of the Hindu undivided family. For the assessment years 1972-73 and 1973-74, the value of the shares representing the interest of the assessed, his wife and minor daughter, were included in his wealth under Section 4(1A) of the Act and income there from was included in the income. On March 30, 1974, there was a partition of M. M. Mohan and Sons and the assessed received certain shares of one of the companies. The assessed's claim was that the value of these shares received on partition cannot be included in his wealth, as they belonged to the smaller-HUF consisting of himself, his wife and minor daughter. Accordingly, the value of the these shares should be included in the wealth of the smaller-HUF. Similar was the claim in the income-tax proceedings so far as income is concerned. The assessed's stand was that on partial partition the converted properties ceased to be ancestral and became part of the smaller-HUF in view of Clauses (a) and (b) of section 4(1A) of the Wealth-tax Act before amendment in 1976 of Section 64(2)(a), (b), (c) of the Act will have no application. According to him, under Clause (c) of Section 4(1A) and Section 64(2)(c) only the value of the part of the converted property given or allotted to his wife and minor daughter or income arising there from could be included. It was in essence, the assessed's stand that the value of the part of the converted property given or allotted to the assessed on partition of the property or income arising there from cannot be included in the wealth or income of the assessed but it is to be included in the wealth or income of the smaller-HUF. The Assessing Officer did not accept this plea. The matter was carried in appeal before the Commissioner of Income-tax (Appeals) (in short 'the CIT(A)'). The said authority did not accept the assessed's stand and the matter was carried in further appeal before the Tribunal. Before the Tribunal the assessed's stand was that Section 64(2)(c) and Section 4(1A)(c) have no application to the facts of the present case. The stand was accepted by the Tribunal. According to it after the shares had become Hindu undivided family property of the bigger-HUF, there was a partition of the property in 1974, whereunder the assessed severed his joint connection and received shares. These shares, according to the Tribunal, did not come to him as individual property, but came as karta of the smaller-HUF. The income from these shares could not be taken to be the income of the individual but was to be taken as income of the smaller-HUF. Similar was the view taken in respect of wealth-tax proceedings.
4. On being moved for reference, the Tribunal has referred the question regarding applicability of Section 4(1A) of the Wealth-tax Act and Section 64(2) of the Act.
5. Learned counsel for the Revenue submitted that the true scope and ambit of the provisions has not been kept in view by the Tribunal. According to him, the factual position was not correctly noted by the Tribunal. It failed to note the factual position that the assessed's family which he described as the smaller-HUF, consisted of himself, his wife and minor daughter and there being no scope for partition thereof, the applicability of Section 64(2) does not arise. According to him the case was covered by Section 64(2)(b) and not 64(2)(c). According to him Section 64(2)(b), as it stood at the relevant point of time, pre-supposes a case of partition as otherwise, the language used could not have been 'the converted property or any part thereof'. According to him, the question of part of the converted property would arise only when there is a partition. According to learned counsel for the assessed, the case is covered by Section 64(2)(c) and not by other Clauses of Section 64(2) or Section 4(1A).
6. In order to appreciate the rival submissions, it is necessary to take note of the provisions of Section 64(2) and Section 4(1A) as they stood at different points of time.
7. Section 64 as per the Taxation Laws (Amendment) Act, 1970, with effect from 1-4-1971 :
'(2) Where, in the case of an individual being a member of a Hindu undivided family any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family (such property being hereinafter referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1971,--
(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly ;
(b) the income derived from the converted property or any part thereof, in so far as it is attributable to the interest of the individual in the property of the family, shall be deemed to arise to the individual and not to the family ;
(c) the income derived from the converted property or any part thereof, in so far as it is attributable to the interest of the spouse or any minor son of the individual in the property of the family and where the converted property has been the subject-matter of a partition (partial or total) amongst the members of the family, also the income derived from such converted property as is received by the spouse or minor son on partition shall be deemed to arise to the spouse or the minor son from assets transferred indirectly by the individual to the spouse or minor son and the provisions of Sub-section (1), shall, so far as may be, apply accordingly :
Provided that the income referred to in Clause (b) or Clause (c) shall, on being included, in the total income of the individual, be excluded from the total income of the family or, as the case may be, the spouse or minor son of the individual.
Explanation-- For the purposes of Sub-section (2),--
(1) 'property' includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property ;
(2) 'interest of the individual in the property of the family' and 'interest of the spouse or any minor son of the individual in the property of the family' mean, respectively, the proportion in which the individual or, as the case may be, the spouse or minor son would be entitled to share the property of the family if there had been a total partition in the family as on the last day of the previous year of the family relevant to the assessment year for which the individual is to be assessed under Sub-section (2).'
8. After amendment by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976, the provision read as follows :
'(b) the income derived from the converted property or any part thereof shall be deemed to arise to the individual and not to the family ;
(c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse or minor child on partition shall be deemed to arise to the spouse or minor child from assets transferred indirectly by the individual to the spouse or minor child and the provisions of Sub-section (1) shall, so far as may be, apply accordingly :
Provided that the income referred to in Clause (b) or Clause (c) shall, on being included in the total income of the individual, be excluded from the total income of the family or, as the case may be, the spouse or minor child of the individual.
Explanation.--FOR the purposes of Sub-section (2),--
'Property' includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property.'
9. Provision as it stood in 1980 in terms of the Finance Act, 1979, operative from 1-4-1980 :
'(b) the income derived from the converted property or any part thereof shall be deemed to arise to the individual and not to the family ;
(c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse or minor child on partition shall be deemed to arise to the spouse or minor child from assets transferred indirectly by the individual to the spouse or minor child and the provisions of Sub-section (1) shall, so far as may be, apply accordingly :
Provided that the income referred to in Clause (b) or Clause (c) shall, on being included in the total income of the individual, be excluded from the total income of the family or, as the case may be, the spouse or minor child of the individual .
Explanation l.-For the purposes of Sub-section (2),--
'Property' includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property ;
Explanation 2.--For the purposes of this section, 'income' includes loss.'
10. So far as the Wealth-tax Act is concerned the position is as follows : Section 4 of the Wealth-tax Act, 1957, as introduced by the Finance (No. 2) Act, 1971, with effect from 1-4-1972 :
'4. Net wealth to include certain assets.--. . .
(1A) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family (such property being hereinafter referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computing the net wealth of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1972,--
(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly ;
(b) the converted property or any part thereof, in so far as it is attributable to the interest of the individual in the property of the family, shall be deemed to be assets belonging to the individual and not to the family ;
(c) any part of the converted property in so far as it is attributable to the interest of the spouse or any minor child of the individual in the property of the family and where there is a partition (partial or total) amongst the members of the family, the converted property or any part thereof which is received by the spouse or minor child on such partition shall be deemed to be assets transferred indirectly by the individual to the spouse or minor child and the provisions of Sub-section (1) shall, so far as may be, apply accordingly :
Provided that the property referred to in Clause (b) or Clause (c) shall, on being included in the net wealth of the individual, be excluded from the net wealth of the family or, as the case may be, the spouse or minor child of the individual....
Explanation.--For the purposes of this section,--
(a) the expression 'transfer' includes any disposition, settlement, trust, covenant, agreement or arrangement ;
(b) the expression 'irrevocable transfer' includes a transfer of assets which, by the terms of the instrument effecting it, is not revocable for a period exceeding six years or during the lifetime of the transferee, and under which the transferor derives no director indirect benefit, but does not include a transfer of assets if such instrument--
(i) contains any provision for the re-transfer, directly or indirectly, of the whole or any part of the assets or income there from to the transferor, or
(ii) in any way gives the transferor a right to re-assume power, directly or indirectly, over the whole or any part of the assets or income there from ;
(c) the expression 'property' includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property ; and
(d) the expressions 'interest of the individual in the property of the family' and 'interest of the spouse or any minor child of the individual in the property of the family' mean, respectively, the proportion in which the individual or, as the case may be, the spouse or minor child would be entitled to share the property of the family if there had been a total partition in the family as on the valuation date of the family relevant to the assessment year for which the individual is to be assessed under Subsection (1A).'
11. Section 4 of the Wealth-tax Act, as introduced by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976 :
'4. Net wealth to include certain assets.--. . .
(1A) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family (such property being hereinafter referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computing the net wealth of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1972,--
(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly ;
(b) the converted property or any part thereof shall be deemed to be assets belonging to the individual and not to the family ;
(c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the converted property or any part thereof which is received by the spouse or minor child of the individual on such partition shall be deemed to be assets transferred indirectly by the individual to the spouse or minor child and the provisions of Sub-section (1) shall, so far as may be, apply accordingly :
Provided that the property referred to in Clause (b) or Clause (c) shall, on being included in the net wealth of the individual, be excluded from the net wealth of the family or, as the case may be, the spouse or minor child of the individual. . .
Explanation.--For the purposes of this section,--
(a) the expression 'transfer' includes any disposition, settlement, trust, covenant, agreement or arrangement ;
(aa) the expression 'child' includes a step-child and an adopted child ;
(b) the expression 'irrevocable transfer' includes a transfer of assets which, by the terms of the instrument effecting it, is not revocable for a period exceeding six years or during the lifetime of the transferee, and under which the transferor derives no direct or indirect benefit, but does not include a transfer of assets if such instrument--
(i) contains any provision for the re-transfer, directly or indirectly, of the whole or any part of the assets or income there from to the transferor, or
(ii) in any way gives the transferor a right to re-assume power, directly or indirectly, over the whole or any part of the assets or income there from ; and
(c) the expression 'property' includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property ;
(d) the expressions 'interest of the individual in the property of the family' and 'interest of the spouse or any minor child of the individual in the property of the family' mean, respectively, the proportion in which the individual or, as the case may, the spouse or minor child would be entitled to share the property of the family if there had been a total partition in the family as on the valuation date of the family relevant to the assessment year for which the individual is to be assessed under Sub-section (1 A).'
12. Section 4 of the Wealth-tax Act, as introduced by the Finance Act, 1979, with effect from 1-4-1980 :
'4. Net wealth to include certain assets.--
(1A) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computing the net wealth of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1972,--
(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly ;
(b) the converted property or any part thereof shall be deemed to be assets belonging to the individual and not to the family ;
(c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the converted property or any part thereof which is received by the spouse or minor child of the individual on such partition shall be deemed to be assets transferred indirectly by the individual to the spouse or minor child and the provisions of Sub-section (1) shall, so far as may be, apply accordingly :
Provided that the property referred to in Clause (b) or Clause (c) shall, on being included in the net wealth of the individual, be excluded from the net wealth of the family or, as the case may be, the spouse or minor child of the individual. . .
Explanation.--For the purposes of this section,--
(a) the expression 'transfer' includes any disposition, settlement, trust, covenant, agreement or arrangement;
(aa) the expression 'child' includes a step-child and an adopted child ;
(b) the expression 'irrevocable transfer' includes a transfer of assets which, by the terms of the instrument effecting it, is not revocable for a period exceeding six years or during the lifetime of the transferee, and under which the transferor derives no direct or indirect benefit, but does not include a transfer of assets if such instrument--
(i) contains any provision for the re-transfer, directly or indirectly, of the whole or any part of the assets or income there from to the transferor, or
(ii) in any way gives the transferor a right to re-assume power, directly or indirectly, over the whole or any part of the assets or income there from ; and
(c) the expression 'property' includes any interest in any property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property.'
13. First we shall deal with the question relating to the scope and ambit of Section 64(2), as it stood after amendment in 1975. Clauses (a) and (b) of Section 64(2) deal with different situations. Clause (a) provides that separate property being impressed with the character of property belonging to family, or being thrown in the common stock of the family. The same has to be treated as converted property and such converted property shall be deemed to have been transferred through the family to the members of the family for being held by them jointly. In other words, the provisions relate to holding of property by the family, by the members jointly. This does not really deal with the question as to how the income derived from the property has to be treated. That is spelt out in Clause (b) which provides that income derived from any converted property, or any part thereof shall be deemed to arise to the individual and not to the family. We do not agree with the stand of learned counsel for the Revenue that the expression 'or any part thereof' brings in the concept of partition of the property. On a plain reading of the provisions, it means that income derived from the whole of the converted property or any part thereof has to be treated as the individual's income and not that of the family. The expression 'or any part thereof' cannot be construed to mean that there must be a partition. Income may have been derived from whole of the property or any part thereof and this meaning is attributable to the provisions and any other meaning would bring absurd result.
14. Next comes the crucial provisions, i.e., Clause (c) which deals with the converted property, meaning the property which was the separate property of an individual and has been impressed with the character of property belonging to the family or has been thrown to the common stock of the family. The said property is described as converted property. When the converted property is the subject-matter of partition, be it partial or total, amongst members of the family, any income which is derived from such converted property, by the spouse or minor children of the individual, as it deemed to have arisen to the spouse or minor children of the individual provisions of Clause (c) apply to such cases. The proviso is also of considerable significance. It deals with the question of including income of spouse or a minor child, etc., when the income has arisen, directly or indirectly, by way of transfer of assets on or after the specified date. The proviso, as indicated above, stipulates that where the income of the spouse or minor child is included in the total income of the individual it shall be excluded from the total income of the family or as the case may be of the spouse or minor child of the individual.
15. In order to bring in application of the proviso relating to inclusion under Section 64(2) the pre-condition is that income has to be derived from the converted property by the spouse or minor child on partition. Obviously, partition has to be of the common stock of the family to which the separate property had been thrown or had been impressed with the character of belonging to the family. If the spouse or minor child has not received any income from the converted property or from partition, the question of inclusion of any income in the income of the individual does not arise. It has to be thereforee found as a fact that (a) there was converted property ; (b) there was a partition ; and (c) on such partition, the spouse or minor child of the person who impressed his separate property, as the property belonging to the family or had thrown it to the common stock of the family. These conditions are cumulative. If these conditions are not satisfied, Section 64(2)(c) would have no application. Similar is the situation so far as Section 4(1A) of the Wealth-tax Act is concerned.
16. In order to attract the application of Section 4(1A) of the Wealth-tax Act, the following are the requisite conditions :
(a) The individual concerned must be a member of the Hindu undivided family, (b) the individual must be possessing separate self-acquired property ; (c) such property is assessable in his hands ; (d) he converts at any time after December 31, 1969, such separate property into property belonging to the family either through the act of impressing the property with the character of the family property or throwing it into the common stock of the family or by transferring the same directly or indirectly otherwise than for adequate consideration.
17. The legal fictions created are on similar lines as Section 64(2) regarding (a) being held by the members, (b) being belonging to the individual and not the family, (c) regarding tagging of property received by spouse or minor child with that of the individual.
18. Coming to the facts of the case, we find that the aforesaid relevant factors have not been kept in view by the fact-finding authorities. It would be in the interest of the parties concerned, if the Tribunal re-hears the appeals and takes decision on the factual aspects keeping in view the legal position indicated by us above. The references are accordingly disposed of.