PATHAK, J. -
(1.)THE Income-tax Appellate Tribunal has referred two questions to this court for decision :
"(1) Whether, on the facts and in the circumstances of the case, the inclusion of interest of Rs. 3,000 in the assessment was legal and vali ?
(2) Whether the view taken by the Tribunal that the properties received by an issueless male at a partition between coparceners would be his individual properties and not that of the Hindu undivided family of himself and his wife, is correc ?"
(2.)THE reference relates to the assessment year 1957-58 for which the assessee was assessed in the status of an individual.
The assessee, Pratap Narain, is a partner of a firm carrying on business under the name an style of Devidin Pusulal. He executed a deed on June 21, 1965, purporting to record an agreement between himself and his wife, Ramo Devi, to the effect that a sum of Rs. 50,000 had been transferred by him out of the amount standing to his credit in the books of the partnership firm to her account in that firm and that she was the sole owner of that amount and entitled to deal with it as she pleased. It was also stated that the partnership firm had issued a promissory note to her for that amount. There is no dispute that, in respect of the sum of Rs. 50,000, the firm made adjustment entries in the account of the assessee and of Ramo Devi showing a movement of the sum from one account to the other and it also issued a promissory note in that sum to Ramo Devi. During the previous year relevant to the assessment year under consideration, the partnership firm credited a sum of Rs. 3,000, as interest upon the said Rs. 50,000, in the account of Ramo Devi. In the assessment of the assessee, the Income-tax Officer, and the Appellate Assistant Commissioner after him, held that the sum of Rs. 3,000 was liable to be included in the total income of the assessee because there was no transfer of the amount of Rs. 50,000 to the wife and, in any event, assuming there was such transfer, the provisions of section of section 16(3) of the Income-tax Act, 1922, were attracted. Upon appeal by the assessee, the Appellate Tribunal came to the finding that no gift had been made by the assessee to his wife and that the money continued to belong to him, and, therefore, consequently, the interest accruing upon the amount of Rs. 50,000 was the income of the assessee. In the circumstances, the Appellate Tribunal found it unnecessary to consider the application of section 16(3). The question whether the amount of Rs. 50,000 was transferred by way of gift by the assessee to his wife has been considered by us in I.T.R. No. 92 of 1963, decided on 3rd November, 1965, and we have held that Pratap Narain had transferred the amount to his wife, Ramo Devi. The material upon which we arrived at that decision is the same as is contained in the case before us and, for the reasons which have prevailed with us in that case, we hold that the sum of Rs. 50,000 was transferred by the assessee to his wife. Consequently, the sum of Rs. 3,000 paid as interest upon that sum by the partnership firm is not the income of the assessee. It may be another matter that the sum is liable to be included in the total income of the assessee by virtue of section 16(3). Mr. S. C. Das, on behalf of the Commissioner, has pressed us to decide whether section 16(3) applies, but, in view of the circumstance that the question was expressly left out of consideration by the Appellate Tribunals, we refrain from expressing any opinion in this matter. It would be for the Tribunal to decide whether the provisions of section 16(3) apply. We hold that the sum of Rs. 3,000 paid as interest by the partnership firm on the amount of Rs. 50,000 is not liable to be included in the assessment of the assessee unless the provisions of section 16(3) are attracted. We answer the first question accordingly.
As regards the second question, the facts are these. The assessee and his brother, Trijugi Narain, formed a Hindu undivided family holding certain properties as such. There was a partition between the brothers and some of the properties fell to the share of the assessee. At the time, the assessees branch consisted merely of himself and his wife. There was no male issue. The income from these properties was included in the assessment of the assessee as an individual. The assessee contended that the income belonged to the Hindu undivided family and could not be treated as his individual income. This connection was rejected by the income-tax authorities, and the Appellate Tribunal held that the property, upon partition, was held by him as his separate or self-acquired property so long as he did not beget a male issue or adopt a son. The correctness of this conclusion is the subject of the second question referred to us. At one stage, during the course of arguments, Mr. Das disputed the fact that the property partitioned between the brothers was Hindu undivided family property, but it seems that this dispute was never raised before the Appellate Tribunal nor before the Income-tax Officer and the Appellate Assistant Commissioner. All three authorities have proceeded on the basis that what was divided between the brothers was Hindu undivided family property.
(3.)IT seems to us that it is now well settled, that when Hindu undivided family property is partitioned between the members of a Hindu undivided family, and a share is obtained on such partition by a coparcener, it is ancestral property as regards his male issue. They take an interest in it by birth, whether they are in existence at the time of partition or are born subsequently. We are of opinion that it is not correct to say that the share of the property, upon partition, constitutes the separate property of the coparcener and that it is only subsequently when a son is born that the property becomes ancestral property or Hindu undivided family property. The birth of the son does not alter the nature of the property. The property all along continues to be coparcener belong to that son, and the enlarged rights hitherto enjoyed by the sole coparcener are now abridged within their normal compass. In Attorney-General v. Arunachalam Chettiar (No. 2), the Judicial Committee of the Privy Council expounded the law relating to the nature of joint family property in the hands of a single coparcener as follows :
"The nature of the interest of a single surviving coparcener was the subject of exhaustive evidence by expert witnesses and their Lordships were referred to and studied numerous authorities in which in reference to his interest language was used not incompatible with his being regarded as the owner of the family property. But though it may be correct to speak of him as the owner, yet it is still correct to describe that which he owns as the joint family property. For his ownership is such that upon the adoption of a son it assumes a different qualit : it is such, too, that female members of the family (whose members may increase) have a right to maintenance out of it and in some circumstances to a charge for maintenance upon it. And these are incidents which arise, notwithstanding his so-called ownership, just because the property has been and has not ceased to be joint family property. Once again their Lordships quote from the judgment of Gratiaen J : To my mind it would make a mockery of the undivided family system if this temporary reduction of the coparcenary unit to a single individual were to convert what was previously joint property belonging to an undivided family into the separate property of the surviving coparcener. To this it may be added that it would not appear reasonable to impart to the legislature the intention to discriminate, so long as the family itself subsists, between property in the hands of a single coparcener and that in the hands of two or more coparceners. IT was urged that already the difference is there since a single coparcener can alienate the property in a manner not open to one of several coparceners. The extent to which he can alienate so as to bind a subsequently adopted son was a matter of much debate. But it appears to their Lordships to be an irrelevant consideration. Let it be assumed that his power of alienation is unassailable; that means no more than that he has in the circumstances the power to alienate joint family property. That is what it is until he alienates it and, if he does not alienate it, that is what it remains. The fatal flaw in the argument of the appellant appeared to be that, having labelled the surviving coparcener owner, he then attributed to his ownership such a congeries of rights that the property could no longer be called joint family property. The family, a body fluctuating in numbers and comprised of male and female members, may equally well be said to be owners of the property, but owners whose ownership is qualified by the powers of the coparceners. There is in fact nothing to be gained by the use of the word owner in this connexion. IT is only by analysing the nature of the rights of the members of the undivided family, both those in being and those yet to be born, that it can be determined whether the family property can properly be described as joint property of the undivided family. Judging by that test, their Lordships have no doubt that the Supreme Court came to the right conclusion."
That coparcenary continues to subsist even when there is in existence merely a widow of a coparcener but one capable of bringing a son into existence by adoption is borne out by the following observations of Supreme Court in Krishnamurthi v. Vasudeorao Deshpande Dhruvaraj :
"In the present case, Krishnabai owned the property as full owner on the death of her father, Narasappa Gouda, according to the Hindu law in the area in which the property in suit lay. But her title was defeasible on Tungabai, widow of Bandegouda, adopting a son to her husband, Vasappa, and, after him, his sons, inherited this property of Krishnabai and thus the appellants claimed under Krishnabai. Their such claim is, therefore, defeasible on the adoption of a son by Tungabai. The fact that Krishnabai inherited the property of her father absolutely, does not affect this question of title being defeated on the adoption of a son by Tungabai. The character of the property does not charge, as suggested for the appellants, from coparcenary property to self-acquired property of Krishnabai so long as Tungabai, the widow of the family, exists, and is capable of adopting a son, who becomes a coparcener."