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1941 Supreme(SC) 22
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD ATKIN, LORD RUSSELL OF KILLOWEN, LORD ROMER, SIR SIDNEY ROWLATT AND SIR GEORGE RANKIN.
COMMISSIONER OF INCOME-TAX, PUNJAB, NORTH-WEST FRONTIER AND DELHI PROVINCES, LAHORE - Appellant
Versus
DEWAN BAHADUR DEWAN KRISHNA KISHORE, RAIS LAHORE - Respondents
On appeal from the High Court at Lahore.
Decided On : July 4, 1941.
Solicitor for appellant :Solicitor, India Office. Solicitors for respondent: Stanley Johnson & Allen.
In an impartible estate, the corpus and house property are treated as joint family property for tax purposes under Section 9, but the income (such as interest) is the absolute property of the holder and taxable as individual income.
Headnote:(A) Indian Income-tax Act, 1922 - Sections 3, 8, 9, 12, 14 and 55 - Impartible estate - Taxability of income - Individual vs. Hindu Undivided Family - For the purposes of Section 9, the owner of buildings and lands appurtenant thereto in an impartible estate is the Hindu undivided family, as the estate retains its character of joint family property despite the rule of primogeniture. The holder as an individual cannot be charged in respect of such property under Section 9. (Paras 57-58)
(B) Indian Income-tax Act, 1922 - Sections 8 and 12 - Income from interest - The income of an impartible estate, specifically interest, is not the income of the undivided family but is the absolute property of the present holder, notwithstanding the existence of a joint family or the sons' right to maintenance. The right to maintenance is a custom-based right and does not confer co-ownership of the income or create a co-parcenery in the income. (Paras 59-63)
Facts of the case:
The assessee, the holder of an impartible estate succeeded to by primogeniture, formed a Hindu undivided family with his sons. The income of the estate primarily consisted of rents from house property and interest from securities. The assessee also had personal income from dividends and directors' fees. A dispute arose as to whether the income from the impartible estate should be assessed as that of an individual or as that of a Hindu undivided family, which had significant implications for the graduation of super-tax.
Findings of Court:
As regards house property under Section 9 of the Act, the assessee is not chargeable as an individual because the property is owned by the Hindu undivided family. As regards interest income under Sections 8 and 12 of the Act, the assessee is chargeable as an individual as such income is his absolute property.
Issues: (1) Whether the income of an impartible estate, to which the assessee succeeded by rule of primogeniture, is chargeable in his hands in the status of an "individual" while being the head of a family consisting of himself and his sons? (2) If the answer to the first question is affirmative, whether income derived other than from the impartible estate and assumed as "personal" is to be clubbed together for a combined assessment?
Ratio Decidendi: The court reasoned that while an impartible estate remains joint family property for the purposes of succession and ownership of the corpus (making it HUF property under Section 9), the income received from it, such as interest, is the absolute property of the holder. The right of junior members to maintenance is a right arising from custom and does not equate to the unity of ownership and possession found in partible joint family property. Therefore, the holder is not a manager on behalf of the family regarding the receipt of such income but receives it on his own account.
Result: Appeal allowed; High Court's order varied.
Legal Category Hierarchy
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tax law
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income tax
- assessment status
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income tax
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hindu law
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joint family property
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impartible estates
- primogeniture
- maintenance
- survivorship
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impartible estates
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joint family property
Judgement
Appeal (No. 44 of 1940) from a judgment of a Full Bench of the High Court (April 18, 1939) delivered on a reference made under s. 66, sub-s. I, of the Indian Income-tax Act, 1922, by the Commissioner of Income-tax, Punjab, North-West Frontier and Delhi Provinces, Lahore.
The questions to be determined in this appeal, and framed by the Commissioner of Income-tax, were (1.) Whether the income of the impartible estate, to which the assessee has succeeded by rule of primogeniture prevailing in his family governed by the Mitakshara, is chargeable in his hands in the status of " individual " the assessee being the head of the family consisting of himself and his sons ? (2.) If the answer to the first question is in the affirmative, whether the income derived by the assessee other than that from the "impartible estate " and assumed as " personal " is to be clubbed together for a combined assessment ?
The assessee, the respondent Dewan Bahadur Dewan Krishna Kishore, was the holder of an impartible estate to which he had succeeded under the rule of primogeniture prevailing in his family. He had four sons, and with them formed a Hindu undivided family. The income of the impartible estate comprised mainly rent from property and interest. The assessee also derived income from dividends and directors fees which he treated as his personal income.
The facts and the relevant statutory provisions appear from the judgment of the Judicial Committee.
The High Court (Young C.J., Dalip Singh and Blacker JJ.), in a judgment delivered by Dalip Singh J., in the result answered both questions in the negative. The judgment is reported at ( 1939) I. L. R. 20 Lah. 520.
1941. May 19, 20, 21. J. M. Tucker K.C. and Wallach for the appellant. Upon the question of principle at issue there has been a conflict of opinion in India, the High Court at Lahore in Krishna Kishore v. Commissioner of Income-tax (( 1932) I. L. R. 14 Lah. 255.), and in the present case, differing from the High Courts at Madras { Commissioner of Income-tax v. Raja of Bobbili (I. L. R. [ 1937] M. 797.)) and Patna ( Raja Shiva Prasad Singh v. The Crown (( 1924) I. L. R. 4 Pat. 73.), and Commissioner of Income-tax v. Rajendra Narayan Bhanjadeo Kanika (A. I. R. ( 1938) Pat. 611.)), has held that
Law. Rep. 68 Ind. App. 155 ( 1940- 1941) Commissioner of Income-Tax, v. Dewan Bahadur Dewan
52
income of the nature in question in the present case is not to be assessed as that of an individual, but as the income of the Hindu undivided family. The matter is only important from the point of view of super-tax, because if the Hindu undivided family is to be assessed, the amount of income which is free of super-tax is greater than in the case of an individual. The income of an individual member of a Hindu undivided family is not taxed at all s. 14, sub-s. 1, of the Income-tax Act ; it is the family which is assessed for income-tax and super-tax. There are two kinds of income in this case, (a) interest from securities, and (b) rents from property, and the questions are, first, whether the income is that of the respondent, the holder of the impartible estate for the time being, or that of the family, and, secondly, if the income from property is held to be that of the individual holder, nevertheless can he say that the family is " the owner " of the property, and that therefore it, and not he, must be assessed under s. 9 of the Act.
The propositions to be derived from judgments of this Board in which previous decisions were explained are that the holder for the time being of an impartible estate is the owner of the income absolutely, and the owner of the corpus to the extent that he can give it away, sell it, or leave it by will to whom he pleases, unless there is a custom to the contrary. There is no evidence or suggestion of such a custom in the present case. Baijnath Prashad Singh v. Tej Bali Singh (( 1921) L. R. 48 I. A. 195, 207, 211.) decided that in the case of an impartible estate only o
