It would be difficult to hold today the property which devolved on a Hindu under section 8 of the Hindu Succession would be HUF in his hand.
[Case Brief] Pankaj COMMISSIONER OF WEALTH TAX. KANPUR ETC. V/s CHANDER SEN ETC.
Case name - COMMISSIONER OF WEALTH TAX. KANPUR ETC. V/s CHANDER SEN ETC.
Citation: 1986 AIR 1753, 1986 SCR (3) 254
Court – The Supreme Court of India
Bench - Mukharji, Sabyasachi (J)
Decided on - 16/07/1986
Relevant Act/Sections: Hindu Succession Act,1956. Wealth Tax Act, 1957. Income Tax Act, 1961 /Income Tax Act, 1922.
➢BRIEF FACTS AND PROCEDURAL HISTORY:
1. One Rangi Lal and his son Chander Sen constituted a Hindu undivided family. This family had some immovable property and the business carried on in the name of Khushi Ram Rangi Lal. On October 10, 1961, there was a partial partition in the family by which the business was divided between the father and the son, and thereafter, it was carried on by a partnership consisting of the two. The firm was assessed to income-tax as a registered firm and the two partners were separately assessed in respect of their share of income. The house property of the family continued to remain joint.
2. On July 17, 1965, Rangi Lal died leaving behind his son, Chander Sen, and his grandsons, i.e. the sons of Chander Sen. His wife and mother predeceased him and he had no other issue except Chander Sen. On his death there was a credit balance of Rs.1,85,043 in his account in the books of the firm.
3. For the assessment year 1966-67 (valuation date October 3, 1965), Chander Sen, who constituted a joint family with his own sons, filed a return of his net wealth. The return included the property of the family which on the death of Rangi Lal passed on to Chander Sen by survivorship and also the assets of the business which devolved upon Chander Sen on the death of his father. The sum of Rs.1,85,043 standing to the credit of Rangi Lal was not included in the net wealth of the family of Chander Sen (hereinafter referred to as 'the assessee-family') on the ground that this amount devolved on Chander Sen in his individual capacity and was not the property of the assesseefamily. The Wealth-tax officer did not accept this contention and held that the sum of Rs.1,85,043 also belonged to the assessee-family.
4. At the close of the previous year ending on October 22, 1962, relating to the assessment year 1967-68, a sum of Rs.23,330 was credited to the account of late Rangi Lal on account of interest accruing on his credit balance. In the proceedings under the Income-tax Act for the assessment year 1967-68, the sum of Rs. 23,330 was claimed as deduction. It was alleged that interest was due to Chander Sen in his individual capacity and was an allowable deduction in the computation of the business income of the assessee-family. At the end of the year the credit balance in the account of Rangi Lal stood at Rs.1,82,742 which was transferred to the account of Chander Sen. In the wealth-tax assessment for the assessment year 1967-68, it was claimed, as in the earlier year, that the credit balance in the account of Rangi Lal belonged to Chander Sen in his individual capacity and not to the assessee-family.
5. The Income-tax officer who completed the assessment disallowed the claim relating to interest on the ground that it was a payment made by Chander Sen to himself. Likewise, in the wealth-tax assessment, the sum of Rs.1,82,742 was included by the Wealth-tax officer in the net wealth of the assessee-family.
6. On appeal the Appellate Assistant Commissioner of Income-tax accepted the assessee's claim in full. The revenue felt aggrieved and filed three appeals before the Income-tax Appellate Tribunal, two against the assessments under the Wealth-tax Act for the assessment years 1966-67and 1967- 68 and one against the assessment under Income-tax Act for the assessment year 1967-68. The High Court in its judgement under appeal accordingly answered the questions in favour of the assessee in context of the assessment of wealth-tax and income-tax.
➢ISSUES BEFORE THE COURT :
1. Whether the income or asset which a son inherits from his father when separated by partition the same should be assessed as income of the Hindu undivided family of son or his individual income?
➢RATIO OF THE COURT :
1. There is no dispute among the commentators on Hindu Law nor in the decisions of the Court that under the Hindu Law as it is, the son would inherit the same as karta of his own family The Hindu Succession Act, 1956 lays down the general rules of succession in the case of males. The first rule is that the property of a male Hindu dying intestate shall devolve according to the provisions of Chapter II and class I of the Schedule provides that if there is a male heir of class I then upon the heirs mentioned in class I of the Schedule. Class I of the Schedule reads as follows:
a. "Son; daughter; widow; mother; son of a pre- deceased son; daughter of a
predeceased son; son of a pre-deceased daughter, daughter of a predeceased daughter; widow of a pre-deceased son; son of a pre-deceased son of a pre-deceased son; daughter of a pre-deceased son of a predeceased son; widow of a pre-deceased son of a pre-deceased son."
2. The heirs mentioned in class I of the Schedule are son, daughter etc. including the son of a predeceased son but does not include specifically the grandson, being a son of a son living. The decision which the High Court had in mind and on which in fact the High Court relied was a decision in the case of Commissioner of Income-tax, U. P. v. Ram Rakshpal, Ashok Kumar, 67 I.T.R. 164. In the said decision the Allahabad High Court held that in view of the provisions of the Hindu Succession Act, 1956,the income from assets inherited by a son from his father from whom he had separated by partition could not be assessed as the income of the Hindu undivided family of the son. The High Court relied on the commentary in Mulla's Hindu Law, Thirteenth Edition page 248. The High Court also referred to certain passages from Dr. Derret's "Introduction to Modern Hindu Law". The Court before giving its judgement analysed and interpreted the Sections 4,6,8,19 and 30 of the Hindu Succession Act,1956.
3. The Court noted the divergent views expressed on this aspect by the Allahabad High Court, Full Bench of the Madras High Court, Madhya Pradesh and Andhra Pradesh High Courts on one side and the Gujarat High Court on the other. The Court took cognizance of the Preamble to the Hindu Succession Act, 1956. The Preamble states that it was an Act to amend and codify the law relating to intestate succession among Hindus.
4. In view of the preamble to the Act, i.e., that to modify where necessary and to codify the law, in our opinion it is not possible when Schedule indicates heirs in class I and only includes son and does not include son's son but does include son of a predeceased son, to say that when son inherits the property in the situation contemplated by section 8 he takes it as Karta of his own undivided family. The Gujarat High Court's view, if accepted, would mean that though the son of a predeceased son and not the son of a son who is intended to be excluded under section 8 to inherit, the latter would by applying the old Hindu law get a right by birth of the said property contrary to the scheme outlined in section 8.
5. Furthermore, as noted by the Andhra Pradesh High Court that the Act makes it clear by section that one should look to the Act in case of doubt and not to the pre-existing Hindu law. It would be difficult to hold today the property which devolved on a Hindu under section 8 of the Hindu Succession would be HUF in his hand vis-a-vis his own son; that would amount to creating two classes among the heirs mentioned in class I, the male heirs in whose hands it will be joint Hindu family property and vis-a-vis son and female heirs with respect to whom no such concept could be applied or contemplated.
6. The express words of section 8 of The Hindu Succession Act, 1956 cannot be ignored and must prevail. The preamble to the Act reiterates that the Act is, inter alia, to 'amend' the law, with that background the express language which excludes son's son but included son of a predeceased son cannot be ignored. In the aforesaid light the views expressed by the Allahabad High Court, the Madras High Court, Madhya Pradesh High Court, and the Andhra Pradesh High Court, appear to us to be correct. With respect we are unable to agree with the views of the Gujarat High Court noted hereinbefore.
➢DECISION HELD BY THE COURT :
1. In the premises the judgment and order of the Allahabad High Court under appeal is affirmed and the appeals Nos. 1668-1669 of 1974 are dismissed with costs. Accordingly Appeal No. 1670 of 1974 in Income-tax Reference which must follow as a consequence in view of the findings that the sums standing to the credit of Rangi Lal belongs to Chander Sen in his individual capacity and not the joint Hindu family, the interest of Rs. 23,330 was an allowable deduction in respect of the income of the family from the business. This appeal also fails and is dismissed with costs.
2. The Special Leave Petition No. 5327 of 1978 must also fail and is dismissed. There will be no order as to costs of this.