1988 (4) TMI 127
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....bsp; ---------- Rs. 24,516 ---------- The Income-tax Officer completed the assessment for this yea on 30-10-1981 on a total income of Rs. 29.570 accepting the professional income returned by the appellant, but determining the income from property at Rs. 19,396 as against Rs. 14,346. The Income-tax Officer did not allow the assessee's claim for deduction of municipal taxes in full. The assessee preferred an appeal against this assessment order objecting to this disallowance originally. However, in the course of the appeal proceedings, the assessee raised additional grounds before the Appellate Asstt. Commissioner, contending that these properties belonged to his HUF and that therefore the income from properties should not be inclu....
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.... father. This inference is to some extent supported by the next succeeding sentence in the letter to the effect that a house was given to the assessee's brother against the monies given to the assessee. This point does not appear to have been examined by the lower authorities. We are also not able to conclude straight away one way or other as in our opinion further facts are necessary for such a conclusion. We would, therefore, restore this question to the AAC to determine the nature of the property gifted to the assessee in the hands of the father. The appeal is restored to the AAC on this point. This disposes of the main issue raised by the revenue in this appeal." The Tribunal, however, upheld the order of the Appellate Asstt. Commissioner on the question of the allowance of the municipal taxes and treated the department's appeal as partly allowed. 6. Pursuant to this order of the Tribunal, the Appellate Asstt. Commissioner again examined the issue raised by the appellant in Supreme Court in the case of C. N. Arunachala Mudaliar v. C. A. Muruganatha Mudaliar [1954] 5 SCR 243. The AAC held in para 4 of his order that it appeared to him that the sum that was transferred by late ....
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....s also not that as he had all along been disclosing the assets as belonging to him and for that purpose his affirmations in the returns of income of the respective assessment years were sufficient to show that the assessee never intended that the properties constructed in his name should be owned jointly by his family members. The AAC therefore disagreed with his predecessor on this point and rejected the appellant's contention and dismissed the assessee's appeal. 7. For the next assessment year 1981-82 the appellant filed his return admitting a total income of Rs. 12,980. In this he did not include the income from properties for the reason that the said income from properties belonged to his HUF. He pointed out that the assessee's father had provided funds for the construction of the property and that the said funds were being provided by him for the benefit of the joint family consisting of the assessee and his sons. The Income-tax Officer, however, did not accept this claim for the reason that the decision of the AAC for the year 1980-81 relied on by the appellant was not final, as the department had preferred an appeal to the Tribunal. He therefore included the income from pro....
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.... 14-12-1957, as could be seen from the letter of the appellant's father. Shri S. P. Subramaniam next relied on a letter dated 3-3-1970 written by the appellant's father to the appellant just before he was to be admitted in a nursing home for an operation and pointed out that this letter made it abundantly clear that the monies given to the appellant by his father were to be taken by him for the benefit of himself and his sons as members of a joint Hindu family. 11. On the above materials, Shri S. P. Subramaniam, the learned counsel for the appellant, submitted that the properties in question were acquired and constructed by the appellant with the aid of HUF funds and that therefore they would constitute only HUF property in the hands of the appellant. The learned counsel developed his case by submitting that the appellant had constructed the properties in stages as could be seen from his letter dated 15-1-1983 addressed to the AAC, that the properties in question consisted of three door numbers, as set out below : Sl.No. Old door No. New door No. 1.  ....
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....the utilisation of such individual funds along with the HUF funds would amount to blending of the individual funds of the appellant with his HUF properties with the intention of such blending on the part of the appellant. The learned counsel submitted that the blending of individual funds of the appellant in the HUF properties was proved by the very construction of the properties on land acquired with the help and aid of HUF funds as early as 1954. The learned counsel argued that these facts have not been correctly understood and appreciated in their proper perspective by the AAC when he rejected the appellant's claim that the properties in question did not belong to him in his individual capacity, but to his HUF and that therefore the income from these properties should be excluded from his individual hands. In this connection, Shri Subramaniam submitted that the earlier order of the AAC dated 22-12-1983 for the assessment year 1980-81 correctly understood the facts of the case and correctly applied the law bearing on the subject. He submitted that the present findings of the AAC in para 5 of his order were contrary to accepted principles of Hindu law and therefore deserved to be ....
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....ct of the appellant with the Income-tax Department and the outside world were in variance, as could be seen from the recitals in the various documents of sale executed by the appellant in the course of years, declaring the properties sold by him as his self-acquired properties. In this connection Shri Gopal relied on the assessee's letter dated 6-11-1969 written by the assessee to the Income-tax Officer in the assessment year 1969-70 explaining the additional constructions put up by him in No. 26, Mowbrays Road, as well as his resources for putting up the said constructions. He pointed out that in the letter the assessee had not claimed that the properties in question were his HUF properties. He next referred to the copy of the sale deed dated 14-12-1967 for Rs. 90,000 executed by the appellant for the sale of a property bearing Door Nos. 19A and 19B, Seethamma Colony, wherein the appellant had described these properties sold by him as his self acquired and separate properties. The learned departmental representative further pointed out that the appellant had described the property at 49-B Mowbrays Road, which he sold during the accounting year relevant for 1974-75 as his self acqu....
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....s. The intention of the appellant to blend his self-acquisitions represented by his professional earnings with his HUF properties received from his father would be clear from the construction of the various properties on HUF land without making any distinction between individual or HUF funds. Regarding the settlement deeds executed by the appellant in favour of his four daughters, the learned counsel placed before us a copy of the deed of confirmation dated 9-8-1985 executed by the appellant's two sons, Ashok and Suresh, and pointed out that the said settlements were made by the appellant as part of the family arrangements in favour of the daughters with the full concurrence of his sons and that no exception can be taken to the same. The learned counsel further submitted that the filing of the gift-tax returns by the appellant for the assessment years 1981-82 and 1982-83 also would not affect the appellant's present claim in these appeals, as in his gift-tax returns also the appellant had claimed that these properties belonged to his HUF and not to claim as an individual. 14. We have carefully considered the submissions urged on both sides in the light of the materials placed befo....
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..... I desired to write this to you on the eve of my being admitted in Ranga Nursing Home for an operation of 5th of this month. Your affectionately, Sd." 16. This letter shows that the assessee had received funs amounting to more that Rs. 80,000 for construction of the houses and marriage expenses of his daughter from time to time. This is further clear from the letter dated 14th December, 1957 written by the appellant's father from New Delhi enclosing a cheque for Rs. 2,000 as desired by the appellant. This letter further shows that the construction of the house bearing Door No. 26 was completed by December 1957....
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....his residential house at No. 81, Mowbrays Road to the appellant's elder brother T. V. Srinivasan, and his sons in lieu of his elder brother's share. Thus, it is apparent from a perusal of this letter that the appellant's father was making a division of his properties between his two sons, namely the appellant and his elder brother. Since he had already given cash amounting to more than Rs. 80,000 to the appellant, the appellant's father decided to give his residential house to the other son. This arrangement the appellant's father made just on the eve of his being admitted to a nursing home for an operation. The appellant's father has further stated in this letter that the monies given by him to the appellant should be taken by him for the benefit of himself and his sons as members of a joint family. 18. There are two ways of looking at this letter - (i) as a partition or division of his properties effected by the appellant's father between his two adult sons; or (ii) in the alternative as "gifts" made by the appellant' s father of his properties to his two sons. 19. We consider that it would be fair, just, legal and proper to hold on a fair and reasonable reading of this letter,....
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....available with the appellant for being utilised by the appellant for the latter constructions of the properties. 21. The second way of looking at the letter dated 3-3-1970 is that the appellant had received more than Rs. 80,000 as gifts from his father for the construction of the houses and marriage expenses of his daughter. Even if we so construe this letter the intention of the appellant's father in making the said gifts is very clear as expressed by him in his letter. He had intended that the monies given by him should be taken by the appellant for the benefit of himself and his sons as members of a joint family. It is therefore clear that the appellant had received these amounts from time to time from his father only for the benefit of his joint family and not as an individual for himself. 22. The appellant's case is directly covered by the ratio of the decision of the Madras High Court in CIT v. M..Balasubramaniam [1981] 132 ITR 529. In that case the assessee's father gave a gift of Rs. 10,100 out of his self-acquired property to the assessee expressing his intention that the benefit of the said sum should go to the assessee's wife and children also as and when he got marrie....
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....s as follows :- "If in the present case the property had been obtained on partition, then as a result of the daughter, it would have been possible to hold that the income belonged to the HUF or that the assets belonged to an HUF as in Narendranath's case [1969] 74 ITR 190 (SC). But that is not the position here. The property had been obtained only under a gift. The legal incidence of the property obtained may change on the birth of the son, but until that event happened, the assessee would have to be assessed only as an individual." 23. Respectfully following and applying the ratio of this decision, we would hold that the funds received by the appellant from his father from time to time the construction of the properties were for the benefit of himself and his sons as members of a joint Hindu family. It therefore follows that the income from these properties should be held to belong to the HUF of the appellant and not to him as an individual. 24. We are unable to agree with the revenue that merely because the assessee had declared the income from these properties as his individual income in all the earlier years, it would stand in the way of the acceptance of the appellant's cla....
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....s from the deed of confirmation, it is clear that these settlement deeds were executed by the appellant in favour of his daughters with the full concurrence of his two sons as part of a family arrangement. There is no dispute before us that the settlement deeds executed by the appellant in favour of his four married daughters and the deed of confirmation executed by the two sons of the appellant on 9-8-1985, are all genuine documents and that they have been acted upon by all the parties. On the authority of latest decision of the Madras High Court in the case of CIT v. R. Ponnammal [1987] 164 ITR 706, we have the to accept all these documents, namely valid family arrangement made by the assessee and his two sons out of their HUF properties in favour of the four married daughters of the family. Therefore, these settlement deeds or the recitals therein also would not stand in the way of the acceptance of the appellant's claim that the properties in question belonged to his HUF. 25. The only other contention that remains to be examined is the one relating to blending of the properties in the HUF hotchpot. In view of our conclusion reached above regarding the HUF nature of these prope....
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....P 145. Decisions thus establish that the two essential requisites for the conversions are : (1) the existence of a coparcenery, and (2) the deliberate intention formed by the coparcener owning separate property to treat the same as joint family property. This intention may manifest itself in any form, such as by a statement in a deposition, an affidavit, execution of a document as a declaratory deed, or by course of conduct. What transforms the separate property into joint family property is not the outward act or the conduct or the public declaration of the coparcener owning the separate property, but his intention to so treat it - the intention of the coparcener who owns the separate property to waive and surrender his special rights in the property as separate property. The outward acts are merely evidence of the intention and by themselves they do not change the character of the property. As pointed out in Mayne's Hindu Law, 11th edition, at page 349, separate property does not cease to be as such and become joint family property by any physical act, but the acquirer's own volition and intention to surrender his exclusive right. In bringing about the metamorphosis in the charac....
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.... succeed the inheritance as to them is unobstructed"). The description is extremely misleading, because it is neither heritage nor is it obstructed. The misconceptions prevailing in this branch of the Hindu law are mostly due to the mistake of equating the right by birth (Jenmanaiva swatwa) with equal ownership (sadrisam swamyam). Though it is true that the son has a right by birth in all kinds of property belong to the father, the amplitude of his ownership differs according to the nature of the property.... In property variedly described as paithamaha, pithamahopatha, kramagatha, all the epithets connoting the same species of property, the son has an equal right with the father. In property described as swarjitha or swaymopatha, the son's ownership is dormant and subordinate to the father's. But it is certainly not notional. It is as real as the right of junior members to an impartible estate, which is the property of the joint family (Shiba Prasad Singh v. Rani Prayag Kumari Debi AIR 1932 PC 216 though the father in the one case and the holder for the time being in the other case have absolute power of disposition and though there is no right of partition'." Earlier, the emine....
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....into the joint family account or by bringing joint family property into his separate account'-Rajanikanta Pal v. Jagamohan Pal AIR 1923 PC 57. In the latter case, the manifested act is a disposition from the family to individual; but the result is the same. The change can be brought about by the father without any negotiation, consent, co-operation or bilateral dealings with other members of the family. The discussion leads us to the conclusion that when a Mitakshara father determines upon treating his self-acquired property as the property of the family in whatever form he manifests the intention, there is no transfer or disposition of the property under the main part of the definition of 'transfer of property' in section 2(xxiv) of the Act." Finally, his Lordship answered the question referred in favour of the assessees in the said case. 27. As a matter of fact, the conflict of decisions among the various High Courts, on this issue under the Gift-tax Act, was finally resolved by the Supreme Court in Goli Eswariah v. CGT [1970] 76 ITR 675. At pages 678 and 679 of the Reports, the Supreme Court held as follows : "To pronounce on the question of law presented for our decision, we....