TaxTMI 
TaxTMI 
1962 (12) TMI 61
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....axmiramana (1953) Venkatalaxmi (daughter) (1956) The family, which was governed by the Mitakshara School of Hindu Law, owned certain house properties in the City of Madras besides a business in hardware and money-lending. Though the assessee was the karta of the family, he was describing his status as that of an individual and income-tax returns were being made by him for several years describing his status as such and assessments were completed on that footing up to and inclusive of the assessment year 1950-51. 3. On December 31, 1950, a memorandum of agreement was entered into between the assessee and his son, Namberumal, and the business assets in hardware including money-lending business were divided between them. Copy of the memorandum of agreement is annexed hereto as annexure "A" and forms part of the case. By a deed of partnership, dated January 1, 1951 (copy whereof is annexed hereto as annexure "B" and forms part of the case) entered into between them, the aforesaid business assets including money-lending were brought into as the assets of the partnership. 4. For the first time, in the assessment year 1951-52, the assessee made a return describing hi....
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....hedule were admitted to be ancestral properties, whereas those comprised in the second group were claimed to be the separate properties of Kannan. The properties comprised in the second schedule were inherited by Kannan from his deceased divided brother, Ethirajulu, who died issueless. This claim was, however, refused by the department by saying that though the properties were inherited in the manner aforesaid, they were thrown into the common stock of the Hindu undivided family by Kannan with the intention of abandoning all his separate claims thereto. By this settlement deed Kannan and Alamelumangaithayarammal were constituted trustees to hold and possess the said properties for the benefit of the children of Namberumal then in existence as also of such other children as may be born to him, subject nevertheless to the right of the enjoyment of the income from the said properties by Kannan during his lifetime and after his lifetime by Alamelumangaithayarammal during her lifetime. In other words, by this deed of settlement successive life estates have been conferred on both Kannan and after his death, on Alamelumangaithayarammal, with a vested remainder in favour of the children of....
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....g been conveyed by the two trust deeds and the settlement deed dated July 31, 1956; (ii) That the Income-tax Officer was wrong in holding that the outstandings due to the family have not been legally made over to the trust and that in any case the outstandings to the tune of Rs. 50,000 transferred to the trust did not represent the outstandings due to the family; that, therefore, the Income-tax Officer ought not to have assessed the sum of Rs. 4,479 representing the interest from outstandings in the hands of the appellant; (iii) That the Income-tax Officer ought to have noticed that property at No. 66, Narayana Mudali Street, as well as No. 86, Nyniappa Naicken Street, were got by inheritance by A. Kannan Chetty as the heir to his divided brother and they never formed part of the joint family property; (iv) That the Income-tax Officer had erred in including the income of the property from No. 8, Waddels Road, which had been conveyed to Sri A.K. Anandakrishna by a conveyance deed dated July 31, 1956; and &nbs....
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....aw, each son upon his birth takes an interest equal to that of a father in the ancestral properties whether it is movable or immovable. It is very important to note that the right which the son takes at his birth in the ancestral property is wholly independent of his father (see Mulla's Hindu Law. 12th edition, paragraph 224). It is also wellsettled under the Hindu law that the disposition of property which is inherently illegal, as where the estate which is given is not recognised by the Hindu law, cannot be made to take effect by the medium of a trust. That which cannot be done by a gift cannot be done by the intervention of a trust (see Mulla's Hindu Law, 12th edition, paragraph 391, citing, among other cases, Rajender Dutt v. Sham Chund Mitter(1) ). In the last mentioned case, there was an arrangement, the object of which was to settle the family properties in trust for the maintenance of the members of the family born and to be born and the Calcutta High Court held that this cannot be done by a gift and what cannot be done by a gift cannot be done by the intervention of a trust. Again, in an early Bombay case (Kahandas Narrandas, In re(2) ) it has been categorically ru....
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....the Hindu law every adult coparcener has a right to call for a partition of his coparcenery property and this right was not available to the sons of Namberumal even after attaining majority. Under the deed they will have to wait till after the attainment of majority of the youngest child of Namberumal, male or female, born or to be born. Similarly, the right of survivorship, which is another valuable right of every coparcener governed by the Mitakshara School of Hindu law, has been defeated by the provisions contained in the deeds. The provisions of these deeds, in so far as they are opposed to the ordinary rules of Hindu law, are void and inoperative. Indeed Sri Sethuraman, learned counsel for the assessee, did not seriously dispute this proposition. Being aware of this formidable difficulty in his way, he argued that the arrangement was beneficial to the children and it should be deemed to be valid until it is set aside by a competent court. We are unable to accept this contention. In the first place, we are of opinion that the arrangement was not beneficial to the minor sons. On the contrary it is detrimental to their interests. As already pointed out above, the sons would have ....
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....er marriage provided that the gift is customary. The Calcutta ruling, on which the Appellate Assistant Commissioner has placed reliance, turned on facts which are entirely different and is really no authority for the issue before us. We are accordingly of opinion that the income from the properties covered by the first trust and the settlement deed are taxable only in the hands of the Hindu undivided family. 8. Contention No. (iv):--This contention relates to the income from No. 8, Waddels Road, settled upon the children of Anandakrishna by the second trust. For the reasons already stated, we have no hesitation in upholding the Appellate Assistant Commissioner's decision that the deed is void as being opposed to Hindu law. We are of opinion that the income from this property has been correctly included in the assessment of the Hindu undivided family. 9. Contention No. (v):--This contention relates to the assessment of a sum of Rs. 17,310 mesne profits of No. 86, Nyniappa Naicken Street, which is covered by the settlement deed. Before us, the only contention of the assessee with regard to this sum (see ground No. 5 before the Tribunal) is that, as the amount represented th....
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....hetty was assessed as the karta of a Hindu undivided family. It may be mentioned that those other properties were not divided by metes and bounds. On July 31, 1956, three deeds of trust were executed. The parties who executed these trust deeds were Kannan Chetty, his son, Namberumal Chetty, and also Kannan Chetty's wife, Alamelumangaithayarammal. It would be sufficient to state at this stage that by means of these documents the members of the family purported to create trusts in respect of the items of immovable properties owned by the family. One or more of the executants of the documents were themselves the trustees thereunder. On foot of these documents, the claim was put forward in the assessment proceedings of the year 1957-58 that the income from the properties covered by these trust deeds should be excluded from the assessment of the Hindu undivided family. The Income-tax Officer rejected this claim and made the assessment upon Kannan Chetty as the karta of the Hindu undivided family. But, on appeal, the Appellate Assistant Commissioner accepted the contention that the items covered by the trust deeds had ceased to be the property of the joint family and the income th....
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....permitted the assessment being made as on a Hindu undivided family. On appeal, the Appellate Assistant Commissioner accepted the validity of the first and second of these trusts, principally on the ground that the members having become divided in status participated in the benefits of the trusts not as members of a Hindu joint family but as beneficiaries of the trust. He therefore held that the income from the properties covered by these two trusts should be excluded from the total income of the Hindu undivided family. In the case of the third trust, in the absence of evidence that the funds which went into the creation of the trust formed the separate property of Kannan Chetty, the income therefrom was held assessable as the income of the Hindu undivided family, but to the extent to which any portion of the property covered by this trust was settled upon a stranger to the family, that settlement was held to be void as opposed to Hindu law. He also declined to accept the contention that two items of properties did not form part of the joint family properties having been inherited by Kannan Chetty from his divided brother, the late Ethirajulu Chetty. He held that the income from the....
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....been divided and distributed between them, it provided that the movable properties were to be placed under trust to be held by the parties referred to as the trustees for the use and the benefit of the children of Namberumal Chetty. The income from the properties was to be utilised for the education, upkeep and maintenance of the children, then alive and to be born in future, and to be divided and distributed in equal shares to such children on the attainment of the age of majority of the youngest child. The other parts of the trust deed are not immediately relevant. The second document also executed on the same day by the same parties dealt with four items of immovable properties. Two items set out in Schedule A thereto were joint family properties, the other two items set out in Schedule B were properties which exclusively belonged to Kannan Chetty having been inherited by him from his divided brother, Ethirajulu Chetty, after a division in status had come into existence between Kannan Chetty and his son, Namberumal Chetty. The provisions of this document were that Kannan Chetty should have a life interest in all the items of properties and that after him his wife, Alamelumang....
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....ncome-tax Officer accepting the partition under section 25A(1), the family shall be deemed to continue to exist as a Hindu undivided family and be assessed in that capacity. This section however does not prohibit alienations by a divided or undivided member of a joint Hindu family. What it enables the taxing department to do in the absence of an actual division of the properties among the members of the family is to treat the family as continuing to exist for the purposes of assessment and levy of income-tax. It places no prohibition upon the capacity of the joint family or the members of the joint family to deal with their properties in accordance with the principles of Hindu law as may be applicable thereto. For instance, if the karta of a family effects an alienation or even makes a gift, in so far as the taxing department is concerned it is the income of the members of the Hindu undivided family that can be assessed, and if by reason of an alienation, whether it is binding upon the members of the joint family or not, an item of property ceases to be in the hands of the joint family, it would not be open to the department to say that they would ignore such an alienation, notwith....
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....e joint Hindu family has come to an end, it be found that its property has not been partitioned in definite portions, then the family is to be deemed to continue--that is, to be an existent Hindu family upon which assessment can be made on its gains of the previous year." Dealing with this case, Kania C.J. pointed out in Waman Satwappa Kalghatgi v. Commissioner of Income-tax [1946] 14 I.T.R. 116: "The Board held that it was open to the members of a joint Hindu family to separate one of its assets, so as to make it not to belong to the joint family and in respect of which they can enter into an agreement of partnership. If that asset was a business, the income derived from carrying on such a business thereafter would not form part of the joint family income and section 25A would not come in the way of such an arrangement.......It must be remembered that section 25A is a machinery section. It is not a charging section. Much less it can be construed as altering the Hindu law as such." Again in Sulakhe v. Commissioner of Income-tax [1960] 39 I.T.R. 394, it was observed that the legal eff....
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....cudgels on behalf of the affected sons, whether they themselves choose to question the transaction or not. The very fact that a transaction is only voidable sufficiently establishes that it is valid for all purposes till it is set aside according to law, and if that is so, till such an event takes place, the income-tax department is equally not entitled to question the validity of such a transaction. With particular reference to the facts that obtain in this case, Kannan Chetty was a divided member of the family, but the properties had not been divided by metes and bounds. The right of a divided member to alienate his ascertained share in the family properties can hardly be questioned. It may no doubt be that an alienee from such a divided member can only sue for actual division by metes and bounds of the share of his alienor in the family properties and may not be in a position to obtain joint possession of the properties with other members of the family. But if the other members of the family consent to separate the portion that would fall to that member on partition and give possession thereof to the alienee and honour the commitment entered into by the member of the family, ....