1. Assessment to super-tax under Section 55 of the Income-tax Act — Dispute whether partnership profits are income of individuals or a Hindu undivided family. (Para 1 )
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1936 Supreme(SC) 64
Privy Council At Calcutta
Sir George Rankin, Sir Shadi Lal , Justice Lord Alness, JJ.
Kalyanji Vithaldas and others -Appellant
Versus
Commissioner of Income-tax, Bengal -Resopndent
Appeals Nos. 24-29 of 1936; Bengal Appeals Nos. 4-9 of 1933
Decided On : 30-11-1936
Advocates Appeared:
E.L. Norton, A.M. Dunne, L.P.E. Pugh, L. DeGruyther
E.L. Norton, A.M. Dunne, L.P.E. Pugh, L. DeGruyther
Income from a registered firm is treated as individual income for tax purposes unless thrown into the common stock. The mere existence of a wife or daughter does not transform ancestral or self-acquired property into the income of a Hindu undivided family.
Headnote:(A) Income-tax Act - Section 55 - Super-tax - Assessment of income - Individual vs. Hindu undivided family - Whether income from a registered firm, obtained through self-acquisition or gift, constitutes income of a Hindu undivided family in the absence of the income being thrown into the common stock - The existence of a wife or daughter does not convert ancestral or self-acquired property into joint family property.
(B) Hindu undivided family - Definition and scope - The phrase "Hindu undivided family" in the statute is not limited to a Hindu coparcenary and may include females; however, for income to be treated as "income of the family," it must be regarded as such under the ordinary legal meaning of the applicable school of Hindu law.
(C) Ancestral property - Income from property obtained from a father remains the income of the individual unless a son is born, creating a coparcenary interest, or the property is thrown into the common stock.
Facts of the case:
Several partners of a registered firm were assessed to super-tax as individuals. The partners contended that their shares of the profits should be assessed as income of a Hindu undivided family, which attracts a lower rate of tax. The capital in the firm was either self-acquired or received as gifts. It was found that the partners had not thrown their interests in the firm or the receipts therefrom into the common stock. Some partners had sons, while others had only wives and daughters.
Findings of Court:
The court found that for partners who had sons, while they were members of a Hindu undivided family, the income from the firm was separate and self-acquired property not thrown into the common stock, thus remaining individual income. For partners without sons, the mere existence of a wife or daughter does not make ancestral or self-acquired property joint family property.
Issues: (1) Whether the family of the assesses constitutes a Hindu undivided family within the meaning of the Income-tax Act. (2) Whether the income in question should be treated as income of that family and assessed as such.
Ratio Decidendi: The court held that income is attributed to an individual or a Hindu undivided family based on the ordinary legal meaning under the applicable school of Hindu law. Property obtained from a father does not belong to a Hindu undivided family merely because the owner has a wife and daughters. Unless the income is thrown into the common stock, it remains the income of the individual.
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
Sir George Rankin:-
These six appeals concern the assessment to super-tax for the year 1931-32 of six of the seven partners of a firm known at Moolji Sicka and Co. This firm was for the year in question registered under S. 26-A, Income-tax Act, the instrument of partnership being a Gujrati deed dated 11th September 1930. Its business was that of dealers in Indian tobacco and cigarettes. The assessment to income-tax of the registered firm has been made in due course, and the present controversy is whether six of the partners should each be assessed to super-tax upon his share of the profits as an individual, or whether these six shares should each be assessed as income of a Hindu undivided family. The rates of super-tax imposed by the relevant Finance Act are less in the case of a Hindu undivided family than in the case of an individual. The problem has to be answered by applying to the facts of each case the language of S. 55 of the Act:
In addition to the income-tax charged for any year, there shall be charged, levied and paid for that year in respect of the total income of the previous year of any individual, Hindu undivided family, company, unregistered firm or other association of individuals, not being a registered firm, an additional duty of income-tax (in this Act referred to as super-tax) at the rate or rates laid down for that year by Act of the Indian Legislature:
Provided that, where the profits and gains of an unregistered firm have been assessed to super-tax, super-tax shall not be payable by an individual having a share in the firm in respect of the amount of such profits and gains which is proportionate to his share.
The two questions finally referred in each case by the Commissioner for the opinion of the High Court at Calcutta are as follows:
(1) Whether the family of the assesses, as it now stands, is a Hindu undivided family within the meaning of the Income-tax Act ?
(2) If the first question be answered in the affirmative, whether in the circumstances recorded in this case the income in question should be treated as income of that family and assessed as such ?
The High Court (Lort-Williams and Jack, JJ.) have in each case answered the first question in the negative and held that the second question did not arise. The parties are governed by the Mitakshara and their pedigrees and families may be exhibited as under:
The history of the firm according to the Commissioner is that in or about 1912 the business was begun by Moolji and Purshottam (brothers who had separated) and Kalyanji (who is not related to either), and that in no case were ancestral funds employed for the purpose. That in 1919 Moolji made gifts of capital to each of his sons by his first wife, viz., Kanji and Sewdas. That at least since 1919 Moolji, Kanji and Sewdas have been separate from each other. That in 1919 on the terms of a Gujrati deed dated 1st May, Kanji (son of Moolji) and Chaturbhuj (brother of Kalyanji) were taken into the partnership. That in 1930 Sewdas and Kalyanji's brother Champsi were taken into the firm on the terms of the deed of 11th September 1930 already mentioned. That the interest of Kanji and of Sewdas was a gift from their father Moolji, and that of Chaturbhuj a gift from his brother Kalyanji. That in no case has it been proved that the individual partner has thrown his interest in the firm or his receipts therefrom into the common stock, i. e., treated it as joint family property. Their Lordships are of opinion that the High Court was right in proceeding upon these findings of fact by the Commissioner.
From these facts it clearly appears, so far as Moolji, Purshottam and Kalyanji are concerned, that they are each members of a Hindu undivided family. Each has a son or sons from whom, so far as the evidence goes, he is not divided. But the income from the firm is clearly the separate and self-acquired property of the partner, and as it has not been thrown into the common stock, it cannot be regarded as income of the family. I
