TaxTMI 
TaxTMI 
1964 (10) TMI 107
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....ndivided family, continued the two appeals. During the two assessment years, the Hindu undivided family consisted of the said Surendra, his second wife, Pratimaben, three sons and three daughters. Over and above the properties belonging to the Hindu undivided family, the deceased Surendra also held self-acquired and separate properties. It was found that from the income of his said separate property, he spent gross amounts of Rs. 3,34,259 in 1957 and Rs. 3,16,499 in 1958. The Expenditure-tax Officer computed the taxable portion of this expenditure at Rs. 28,683 and Rs. 19,285. The first wife of the said Surendra died in 1947, leaving the said Darshan and two daughters, Ranna and Rajeshri, all the three of them being then minors. The family of Surendra Mangaldas had received in all 4,587 shares of the Jubilee Mills Co. Ltd. on a partial partition of the parent Hindu undivided family of Mangaldas Girdhardas. On receipt of these shares, they were allotted as follows: Surendra Mangaldas 587 shares; Darshan 1,000 shares; Ranna 1,000 shares; Rameshchandrika (the first wife of Surendra) 2,000 shares. On the death of the said Rameshchandrika in 19....
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....account year 1957 and Rs. 7,951 for the account year 1958. While computing the taxable expenditure of the Hindu undivided family for the account year 1957, the Expenditure-tax Officer included the said two sums of Rs. 28,683 and Rs. 10,321 relying upon section 4 (i) and (ii) as it stood at that time. Section 4 was subsequently amended by the Finance Act, 1958, and the amended section came into operation as from April 1, 1959. The amount of Rs. 28,683 was the personal expenditure incurred by the said Surendra from out of the income of his separate properties and the other sum of Rs. 10,321 consisted of the amounts expended by the children partly from income derived from the trust properties and partly from income derived by them from properties belonging to them. As regards the first item of Rs. 28,683, the Expenditure-tax Officer relied on section 4(i) read with the definition of "dependant" under section 2(g)( ii)(b) of the Act as also on the ground that all the expenses incurred by a karta, whether as the karta or in his personal capacity, must be regarded as expenses incurred by the Hindu undivided family. For the inclusion of the second item of Rs. 10,321 he depended upon cl....
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....furnished by the family to the Expenditure-tax Officer. In spite of these rival contentions, the Tribunal does not appear to have gone into the record or made any enquiry, nor was any finding given on the question whether, as claimed by the assessee, the expenditure was incurred by Surendra on himself. On behalf of the assessee, however, a specific question was raised before the Tribunal, namely, that even though the expenditure incurred by the said Surendra can be said to be an expenditure incurred for personal requirement, the second condition in clause (i) of the unamended section 4, namely, that the expenditure was such which, but for the expenditure having been incurred by that other person, would have been incurred by the assessee-family, was not established by the department and that, therefore, for that reason the aforesaid amount of Rs. 28,683 could not be included in the taxable expenditure of the assessee-family. In dealing with that question, the Tribunal appears to have taken the view that every expenditure incurred by the karta for his personal requirement would inevitably cover the aforesaid second requirement and upon that footing rejected the contention raised on b....
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....pable of holding property as a separate entity. The family as a unit can be possessed of property which can be distinguished from the property of which the owner is an individual, though that individual may happen to be a member of such family. According to him, however, these considerations would apply only to the question of holding of the property and possession of the income, but the question of expenditure has to be considered independently of the source of income for the purposes of the Expenditure-tax Act and, therefore, the only question that could arise would be about the meaning of the expenditure incurred by a Hindu undivided family and the expenditure of the family must mean the total of the expenditure incurred by each and every member of the family. According to the President, section 4 provides for the inclusion of certain amounts in computing the expenditure of an assessee liable to tax and the section being inclusive, the legislature intended that section to enlarge the scope of section 3 and provided for inclusion of certain amounts which, but for the section, would not have been included in the taxable expenditure of the Hindu undivided family. The President held....
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.... of this Act is required to be included in the taxable expenditure. Lastly, "taxable expenditure" as defined by clause (o) means the total expenditure of an assessee liable to tax under this Act. Clause (g) was amended by the Finance Act, 1958, but no change was made in that part of the definition of the word "dependant" vis-a-vis a Hindu undivided family. Section 4, as it stood prior to the amendment, provided as follows: "4. Unless otherwise provided in section 5, the following amounts shall be included in computing the expenditure of an assessee liable to tax under this Act, namely: (i)any expenditure incurred, whether directly or indirectly by any person other than the assessee in respect of any obligation or personal requirement of the assessee or any of his dependants which, but for the expenditure having been incurred by that other person, would have been incurred by the assessee, to the extent to which the amount of all such expenditure in the aggregate exceeds Rs. 5,000 in any year; (ii)any expenditure incurred by any dependant of the assessee for the benefit of the assessee or any of his dependants out of any gift, donation or settlement on trus....
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....f the income derived by him from his self-acquired and separate properties. The expenditure-tax recognises this position, for section 3, which is the charging section in the Act, provides that expenditure-tax shall be charged at the rates specified in the schedule to the Act in respect of expenditure incurred by an individual or a Hindu undivided family. Therefore, the Act recognises two assessable entities, an individual and a Hindu undivided family. It is common ground that apart from section 4, there is no other provision in the Act under which the amounts in question could be brought to tax. It is also an undisputed fact that the joint family possessed properties of considerable value and the karta was also possessed of self-acquired and separate properties of considerable value from the income out of which he spent large amounts. Taking the item of Rs. 28,683 incurred during the account year 1957, it would be section 4, as it stood prior to the amendment, which would apply. If that were to be included in the taxable expenditure of the Hindu undivided family, it would be necessary for the department to show that: (1) it was incurred by a person other than the assessee, i.....
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....e of any of his dependants, and (2) if the assessee is a Hindu undivided family, in respect of the marriage of the karta or any other member of the family. It will be noticed that clause (2) here does not use the word "dependant", for the legislature wanted to grant deduction in respect of marriage expenses of all the members of a Hindu undivided family, whether they are coparceners or not, and, therefore, the legislature, wishing to grant deduction for marriage expenses of all the members of the Hindu undivided family, refrains from using the word "dependant". The expenses of marriage of the karta also had to be expressly provided for, for otherwise he not being a dependant, the family would not be entitled to a deduction. A similar provision is made in clause (f) of section 6(1) for the karta not being a dependant, expenditure made for him by the family had to be expressly provided for. Clause (g) is yet another illustration which shows that the legislature was conscious of the fact that a karta not being a dependant of a Hindu undivided family, his educational expenses had to be expressly provided for deduction. In clause (h) of section 6(1) also, the basic allowance of Rs. 30,0....
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....it intended to regard the karta as a dependant, it would not have obviously excluded him as a dependant under (a) and there would have been no necessity of dividing the constituents of the family into coparceners and other members. It would have been sufficient in that case to have said that all the members of the Hindu undivided family are dependants of the family. The learned Advocate-General then argued that clause (i) of section 4 includes expenditure incurred by a person other than an assessee, in the present case, the Hindu undivided family, for the personal requirement of the family or any of its dependants. The contention was that since the expenditure for the personal requirement of the other coparceners is made includible, there was no reason why the expenditure incurred for the personal requirement of the karta should have been excluded, and, therefore, the words "any of his dependants" must in the context include the karta. But the Act provides an artificial definition of the word "dependant" and since the definition expressly excludes the karta from its scope, it would not be possible to give a go-bye to the definition for the purpose of section 4 unless, as we have sa....
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....ture incurred for such conveyance is possibly regarded as an expenditure for the personal requirement of the family and is, therefore, not excluded from deduction. But clause (c) of section 6(1) clearly brings out that the legislature applied the definition of a "dependant" as provided in section 2(g) to this section also. Clause (c) grants a deduction of marriage expenses and expressly provides that in the case of a Hindu undivided family, deduction is applicable to expenditure incurred in the marriage of the karta and every member of the family, whether such member is a coparcener or not. If the learned Advocate-General were to be right in his contention that sub-clause (b) of section 2(g) includes a karta as a dependant, obviously it would not have been necessary to make a separate provision for the expenses of the marriage of a karta. The same thing is to be found in clause (f) of section 6(1). Clause (g) of section 6(1) also brings about the same result, for it provides for deduction in respect of education for all the members of the family. If that clause had used the word "dependants", a karta would have been excluded, but as the legislature wanted to provide for the educati....
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....erson for whom he spends is either the assessee or any of his dependants and, therefore, unless the expenditure in question is one incurred for an assessee or any of his dependants, it would not be includible under section 4(i). This position is clear from the fact that under clause (i), all expenditures are not includible. The only expenditure which can be included is the one which is in respect of an obligation or personal requirement of an assessee or any of his dependants. If the department desires to include an expenditure incurred by a person other than an assessee, it is for the department to show that it was incurred by the karta in respect of an obligation of the Hindu undivided family or any personal requirement of any of its dependants. The learned Advocate-General argued that the assumption underlying this construction that the spender and the person in respect of whom the expenditure is incurred must be different persons is not warranted by section 4, for if such a construction were adopted, it would be adding words in clause (i) of section 4, namely, "any of the dependants other than the dependant incurring such expenditure". The argument is of course based on the foo....
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....ed family, the donor, as the expenditure is incurred for the personal requirement of the son who is one of the dependants of the Hindu undivided family under section 2(g). Therefore, he argued, that the mere fact that double taxation might result would not necessarily mean that we should accept the construction of Mr. Palkhivala that the spender must be different from the person for whom he incurs that expenditure. In the illustration given by the learned Advocate-General, the person who incurs the expenditure no doubt is different from the dependant of the Hindu undivided family for whom the expenditure is incurred and, if section 4(i) were to be the only provision in the Act, the result would be double taxation in respect of the same expenditure. But the legislature seems to have realised the consequences which would follow in such a case from the provisions of section 3 and section 4(1) and, therefore, has provided in clause (j) of section 5 an exemption in cases where an expenditure is incurred by an assessee by way of a gift, donation or otherwise for the benefit of any other person. As a further argument, Mr. Palkhivala argued that so far as the amount of Rs. 28,683 is con....
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....e expenditure is that though the assessee has made or created a gift, donation or trust, if the expenditure from out of such gift is incurred by the dependant donee for the benefit of the assessee or any of his dependants, it is the assessee who derives the benefit of such expenditure and it is again but fair that the assessee should bear the burden of the tax. It must also have been appreciated by the legislature that an assessee might desire to reduce his expenditure or the expenditure for his dependants by creating a trust or by making a gift in favour of his dependants and by spending from the income arising from such gift or trust for his benefit or his dependants and thus seek to reduce the incidence of tax upon him. Clause (ii), therefore, seems to have been enacted to prevent such a loophole. Therefore, it is clear that the expenditure contemplated under clause (ii) is one which enures to the benefit of the person other than the one who spends. If the dependant incurring an expenditure spends it on himself or for his personal requirement, there is obviously no saving of the expenditure by the family and, therefore, there is no valid reason why that expenditure should be inc....
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....he requirement that it must be in respect of any obligation or personal requirement of an assessee or any one of his dependants is still retained and, therefore, that requirement has to be shown as having been fulfilled. The clause remaining as it was before it was amended except for the deletion of the words above quoted, the reasons which we have given would apply with equal force to this item also, the deletion not affecting those reasons. Clause (ii) of section 4, as amended, also would not apply, firstly, because the expenditure having been incurred by the karta, is not by a dependant, and, secondly, because it is not out of the income or property transferred by the Hindu undivided family to such a dependant of the family. As regards the item of Rs. 7,951, clause (i) in our view would not apply, for the person expending the amount did not spend it for the assessee-family or any of his dependants, but the dependants spent it on themselves and for their requirement. Clause (ii) also would not apply, for the trust properties cannot be said to have been transferred, directly or indirectly, to the three children. Clause (ii) contemplates a transfer either of the income or of proper....