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1980 Supreme(Del) 6
High Court Of Delhi
LAL BANSIDHAR AND SONS - Appellant
Versus
COMMISSIONER OF INCOME TAX, DELHI-I - Respondent
I.T.R. 81 of 1976
Decided On : 01/11/1980
ANUP SHARMA, G.C.Sharma, M.L.VARMA, S.MUKHERJEE
Compensation received under a personal accident insurance policy providing for payment on accidental death is not ancestral property and does not become part of the Hindu Undivided Family's assets.
Headnote:
INCOME TAX - Hindu Undivided Family - Compensation received by Karta under personal accident insurance policy on death of father - Whether ancestral property - Dividend and interest earned on compensation - Whether income of Karta or HUF - Purchase of shares by minor son and wife of Karta with loan from HUF - Whether shares became property of HUF.
Fact of the Case:
Lala Murli Dhar, Karta of a Hindu Undivided Family (HUF), took out a personal accident insurance policy. He died in an air crash, and the compensation was paid to his legal representatives, including his son Lala Bansi Dhar. Bansi Dhar invested the money and earned dividend and interest. He also sold some shares to his minor son, Tilak Kumar, and his wife, Smt. Urmila, who allegedly borrowed the money from the HUF and later repaid it. The Income Tax authorities treated the compensation, dividend, and interest as Bansi Dhar's individual income and excluded the shares purchased by Tilak Kumar and Smt. Urmila from the HUF's income.
Finding of the Court:
1. The compensation received by Bansi Dhar under the insurance policy was not ancestral property as it came into existence only after his father's death and was not inherited by him. 2. The dividend and interest earned on the compensation were also Bansi Dhar's individual income. 3. The shares purchased by Tilak Kumar and Smt. Urmila with loans from the HUF became their individual property as the loans created a creditor-debtor relationship, transferring the ownership of the money to them.
Issues: 1. Whether the compensation received by Bansi Dhar under the insurance policy was ancestral property. 2. Whether the dividend and interest earned on the compensation were income of Bansi Dhar or the HUF. 3. Whether the shares purchased by Tilak Kumar and Smt. Urmila with loans from the HUF became the property of the HUF.
Ratio Decidendi: 1. A personal accident insurance policy providing compensation for accidental death creates a contractual right that is not enforceable until the event occurs. Such a right is not property and cannot be inherited. 2. The compensation received by Bansi Dhar under the insurance policy came into existence only after his father's death and was not inherited by him. Therefore, it was not ancestral property. 3. The dividend and interest earned on the compensation were also Bansi Dhar's individual income as the compensation was his individual property. 4. The loans given by the HUF to Tilak Kumar and Smt. Urmila created a creditor-debtor relationship, transferring the ownership of the money to them. Therefore, the shares purchased with those loans became their individual property.
Final Decision: 1. The compensation received by Bansi Dhar under the insurance policy was his individual property and not ancestral property. 2. The dividend and interest earned on the compensation were also Bansi Dhar's individual income. 3. The shares purchased by Tilak Kumar and Smt. Urmila with loans from the HUF became their individual property.
( 1 ) IN this group of references the following three questions have been referred to this court section 256 (1) of the Income-tax Act, 1961 :
"1. Whether on the facts and in the circumstances of the case, the amount of Rs. 2,49,874. 00 received by L. Bansi Dhar from the Insurance Company on account of accident insurance policy covering the risk to the life of his father L. Murli Dhar is correctly treated as the amount of Shri Bansi Dhar in his individual capacity of and not to the H. U. F. of which he is the Karta ? 2. Whether on the facts and in the circumstances of the case the dividend and interest earned in the aforesaid amount of Rs. 2,49,874 is correctly treated as belonging to Shri Bansi Dhar in his individual capacity and not to the Hindu Undivided Family of which he is the Karta ? 3. Whether on the facts and in the circumstances of the case the Tribunal was legally correct in holding that the dividend on 400 shares of M/s. Bharat Ram Charat Ram (P) Ltd. acquired in the name of Sh. Tilak Kumar a minor member of the family on 100 shares acquired in the name of Smt. Urmila Bansi Dhar Karta s wife, could not be included in the income of the assessment Hindu Undivided family?"
( 2 ) THE facts out of which they arise may be summarised as below : The late Lala Murli Dhar was the Karta of a Hindu Undivided Family consisting of his wife and two sons, Lala Bansi Dhar and Lala Sridhar. He took out a personal accident-cum-death policy on the London and Lancashire Insurance Company Ltd. for a period of one year from 1-12-1949 to 30-11-1950. Under the terms of the policy Lala Murli Dhar was the insured, though it is said that the premium for the policy was paid by the Delhi Cloth and General Mills Co. Ltd who was the employer of Lala Murli Dhar under the contract of insurance two different contingencies both uncertain were in contemplation. Firstly, if any bodily injury were to be caused to Lala Murli Dhar by violent, accidental, external and visible means compensation was payable to him for disablement and medical expenses. Secondly, if he was to die as a result of such accident compensation of Rs. 5,00,000. 00 was payable to his legal representatives. Lala Murli Dhar died in an air-crash on 12-12-1949 and the stipulated compensation became payable to his legal representatives. Instead of asking for a succession certificate the insurer paid the compensation on security being furnished by the employer of the deceased. It was paid in equal shares to Lala Bansi Dhar and Lala Sridhar. We are here concerned with the amount of Rs. 2,49,874. 00 received by Lala Bansi Dhar.
( 3 ) THE money was invested by Lala Bansi Dhar in the purchase of some shares and making deposits. The dividend became payable on the shares and interest on the deposits. 400 Shares of M/s. Bharat Ram Charat Ram (P) Ltd. were sold by Lala Bansi Dhar to his minor son, Tilak Kumar acting under the guardianship of his mother, Smt. Urmila, while 100 shares were sold by him to Smt. Urmila. The money for the purchase of the shares paid by Tilak Kumar and Smt. Urmila was alleged to have been borrowed by them from the Hindu Undivided family as loans which were later repaid by them to the Hindu Undivided family. Dividends accrued to them on these shares for the years 1958-59 and 1959-60. Income of Lala Bansi Dhar consisting of dividends and interest for the year 1957-58 came up for assessment. At the end of the assessment proceedings for these years, it was held by the Tribunal that the amount of Rs. 2,49,874. 00 received by Lala Bansi Dhar under the terms of the insurance policy on the death of Lala Murli Dhar was not inherited by him from his deceased father Lala Murli Dhar and was not, therefore, money belonging to the Hindu undivided family of which Lala Bansi Dhar is the Karta. On the other hand, this money was held to belong to Lala Bansi Dhar in his individual capacity as it was not inherited by him from his father, Lala Murli Dhar. Consequently, the
