B. Seetharama Pillai Vs. Commissioner of Agricultural Income-tax and anr. - Court Judgment

Ramanujam, J.

1. The petitioner herein was originally assessed on an extent of 20.08 acres of wet lands and 26.86 acres of dry lands in the year 1971-72, under the Travancore-Cochin Agricultural Income-tax Act. Subsequently for the assessment year 1972-73, the petitioner has filed a composition application for 13.34 acres of wet lands only, after excluding Certain lands settled by him in favour of his wife and daughter. The Agrl. ITO,however, issued a notice on July 18, 1972, calling upon the petitioner to give consent for being assessed for the entire holding. The petitioner did not give his consent on the ground that the lands settled in favour of his wife and daughter have to be excluded from his holding. The Agrl. ITO however, held that since the lands settled in the name of his wife and daughter still continue to be in his enjoyment it should be included in his holding. In that view, he rejected the application for composition filed by the petitioner by an order dated May 26, 1974.

2. Against that order, the petitioner filed a revision petition to the Commr. of Agrl. I.T. under Section 34 contending that the settlement effected in favour of his wife and daughter is valid, and that the lands settled on them have to be excluded from his holding. The Commr. of Agrl. I.T., by his order dated October 10, 1974, dismissed the revision petition stating that though the settlement made in favour of his wife is a valid one, so long as the wife continues to live with the petitioner and the lands are enjoyed by him, the income should be included in his assessment. In respect of the lands settled in favour of his daughter, the Commissioner held that she continues to be under the petitioner's guardianship and that there was; there-fore, no real necessity to settle the property on her. The above order of the Commissioner dated October 10, 1974, has been challenged in this writ petition on two grounds :

3. The Commissioner has erroneously proceeded on the basis that the petitioner's daughter, in whose favour the settlement has been effected, was a minor during the year of assessment and, therefore, the direction for inclusion of the lands settled on the daughter in the petitioner's holding so long as the daughter continues to be a minor, is wrong. According to the petitioner, his daughter had become a major on June 27, 1970, her date of birth being June 27, 1952, If, really, the petitioner's daughter was a major during the year of assessment, there is no question of invoking Section 9(2) of the Act and including the daughter's holding in the petitioner's holding. So far as the date of birth is concerned, there is no dispute. Even assum-ing that Section 9(2) is applicable to the property settled on his daughter by the petitioner, after she had attained majority that provision in Section 9(2) will cease to apply. Therefore, in any event, the settlement of lands made in favour of the daughter by the petitioner cannot be clubbed with the holding of the petitioner as has been done in this case. Therefore, those properties which have been settled on the petitioner's daughter will stand excluded from the petitioner's holding.

4. The second ground is that the Commissioner is in error in treating the lands settled on the wife and daughter by the petitioner as his property, overlooking the fact that the property which fell to his share in a partition between himself, and his father and his brothers on September 15, 1938,continues to have the joint family character in his hands, and that such property cannot be taken to be the property settled on his wife and daughter directly or indirectly by the petitioner so as to attract Section 9(2). The submission of the learned counsel for the petitioner in this regard is that the property even though obtained by the petitioner on partition between himself, his father and brothers in the year 1938, cannot be treated as his absolute property, but has to be treated as the property of the joint family of himself, his wife and daughter, and that as the property does not lose the character of the joint family property the settlements of that property made by him in favour of his wife and daughter cannot be treated as a transfer of his property directly or indirectly to them. It cannot be disputed that once the property bears the character of coparcenary property in the hands of the petitioner even after 1938 when the partition took place, the settlement made by him in favour of his wife and daughter, can only be that of the joint family property. In support of his contention that the property settled in favour of his wife and daughter is of a joint family character, learned counsel for the petitioner refers to the decisions of the Supreme Court in Gowli Buddanna v. CIT : [1966]60ITR293(SC) and N. V. Narendranath v. CWT : [1969]74ITR190(SC) , and the decision of a Full Bench of the Allahabad High Court in Narendra Lal v. CIT : [1974]93ITR534(All) .

5. In the first case, the Supreme Court held that the property of the joint family did not cease to belong to the family merely because at a particular point of time the property was held by a single or sole coparcener, that, therefore, the income received therefrom by the coparcener was taxable as income of the HUF and not as his individual income, that under the Hindu system of law a joint family may consist of a single male member and widows of deceased male members, and that the I.T. Act does not indicate that a HUF as an assessable entity must consist of at least two male members.

6. In N. V. Narendranath v. CWT : [1969]74ITR190(SC) , the Supreme Court had to deal with the nature of certain properties, which were allotted at a partition of the Joint family properties in favour of a coparcener-assessee. It was contended by the assessee in that case that the property allotted to his share continued to have the joint family character and that, therefore, -the property in his hands can be assessed on the HUF of himself, his wife and minor children. That contention was accepted by the Supreme Court. There it was found that the property sought to be taxed in the hands of the asses-see, originally belonged to a HUF consisting of the assessee, his father and brothers, that on a partition between them, the properties came to the share of the assessee. The Supreme Court held that, though in the absence of a male issue the dividing coparcener may be properly described in asense as the owner of the property, as upon the adoption of a son or birth of a son to him, it would assume a different character, the property in his hands should continue to be ancestral property as regards his male issues, for their rights had already attached upon it, that the partition only cuts off the claims of the dividing coparceners, that the ownership of the dividing coparcener is such that female members of the family may have a right to be maintained out of it and, in some circumstances, to a charge for maintenance upon it, and that, in view of these incidents, the partition between the assessee, his father and brothers cannot be taken to affect the character of the property, which did not cease to be joint family property in the hands of the assessee. The Supreme Court had expressed its view thus (p. 198):

'Our conclusion is that when a coparcener having a wife and two minor daughters and no son receives his share of the joint family properties on partition, such property in the hands of the coparcener belongs to the Hindu undivided family of himself, his wife and minor daughters and cannot be assessed as his individual property. It is clear that the present case falls within the ratio of the decision of this court in Gowli Buddanna's case : [1966]60ITR293(SC) and the Appellate Tribunal was right in holding that the status of the respondent was that of a Hindu undivided family and not that of an individual.'

7. The above two decisions have been followed by a Full Bench of the Allahabad High Court, referred to above, while construing the scope of Section 4(1)(a)(i) and (ii) of the W.T. Act, 1957. In that case, there was a partition in a HUF. In that partition certain assets of the family were allotted to the wife and minor child of one of the coparceners. The WTO sought to include these assets in the individual assessment of the coparcener invoking the provisions of Section 4(1)(a)(i) and (ii). This was objected to by the assessee and ultimately the matter went to the court, and the court held that as the transfer was effected by the HUF, Section 4(1)(a)(i) and (ii) could not apply and that the assets of the family allotted to his wife and minor child could not be included in the net wealth of the individual coparcener. Though in that case the transfer was effected by the HUF the principle laid down in that decision has to apply to the facts of this case.

8. Section 9(2) permits inclusion in the husband's income, the income of a wife and minor child arising out of properties transferred by the husband directly or indirectly to the wife and the minor child otherwise than for consideration. Therefore, that Section will apply only when the assessee transfers his assets to his wife and minor daughter. If the property transferred is not that of the petitioner's absolute property but of the joint family property, then there is no room for the application of Section 9(2),This conclusion flows from the decision of the Allahabad High Court, referred to above.

9. As already stated, in this case, the CIT has found that the settlement deeds executed by the petitioner in favour of his wife and minor daughter are valid. But he held, notwithstanding the fact that the settlements are valid, still, in view of Section 9(2), the income from those properties will have to be clubbed with the income of the petitioner. Now, that the property transferred in favour of the wife arid the daughter is found to be the joint family property and not his absolute property, Section 9(2) cannot apply.

10. In this view, the impugned order of the Commissioner has to be and is hereby set aside and there will be a direction to the second respondent to deal with the petitioner's composition application on merits, in accordance with law. Accordingly, the writ petition is allowed. No costs.