1935 (10) TMI 1 - HC - Income Tax

Court: Survivorship acquisition under Hindu Law not taxable under Section 26(2)

JUPUDI KESAVA RAO Versus COMMISSIONER OF INCOME TAX, MADRAS

JUPUDI KESAVA RAO Versus COMMISSIONER OF INCOME TAX, MADRAS - [1935] 3 ITR 339 (Mad) Issues Involved:1. Whether the petitioner is liable to be assessed under Section 26(2) of the Indian Income Tax Act.2. Whether the petitioner and his wife constitute a Hindu undivided family for tax purposes.Issue-wise Detailed Analysis:1. Liability to be Assessed under Section 26(2) of the Indian Income Tax Act:The primary question referred to the court was whether the petitioner is liable to be assessed under Section 26(2) of the Indian Income Tax Act. The circumstances were that the petitioner and his deceased father constituted a Hindu undivided family deriving income from a money-lending business. After the father's death, the petitioner continued the business and was assessed to income tax. The Assistant Commissioner later considered that the petitioner should be assessed as an individual and not as a Hindu undivided family, leading to the levy of super tax.Sub-section (2) of Section 26 states: 'Where, at the time of making an assessment under Section 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profits for that year.'The petitioner contended that he could not be said to have 'succeeded' to the business within the meaning of the section because he got the entire business by survivorship under Hindu Law. The court agreed with this argument, stating, 'It appears to us that the word 'succession' as used in the section connotes a transfer of ownership... the undivided Hindu family which was carrying on business has not been 'succeeded' in such capacity by the petitioner as the petitioner was himself in part the owner of the property already.' Therefore, the court concluded that the petitioner is not liable to be assessed under Section 26(2).2. Constitution of Hindu Undivided Family:Although the primary issue was resolved in favor of the petitioner, the court also briefly addressed whether the petitioner and his wife constitute a Hindu undivided family. The petitioner argued that he and his wife together would certainly come within the description of a Hindu undivided family. The court noted, 'Strictly speaking, it is not difficult to conceive of the petitioner singly as a member of an undivided Hindu family... But it is not necessary to pursue this line of thought as, already stated, the petitioner has his wife living, and do they not taken together constitute an undivided Hindu familyRs.'The court acknowledged the argument that potentially there is an undivided family now in existence because if a son is born to them, there would be an undivided Hindu family. However, it also noted the counter-argument that when the original undivided family is reduced to a single member, the property loses its character of joint family property. The court referred to an observation by Ramesam, J., in Vedathanni v. Commissioner of Income Tax, Madras, which suggested that even where the family is reduced to a single male member, there is still a joint family at any rate where there are persons entitled to maintenance.Ultimately, the court did not decide on this point as it was unnecessary for the resolution of the case, given the decision on the first issue.Conclusion:The court concluded that the petitioner is not liable to be assessed under Section 26(2) of the Indian Income Tax Act. The petitioner was awarded costs of Rs. 250 and the refund of Rs. 100 deposited by him.