JUDGMENT

M. H. BEG J. - This reference made to us u/s 66(1) of the Indian Income Tax Act arises in the following circumstances : One Durga Prasad and his son, Ram Rakshpal, and his grandson, Ashok Kumar, constituted a Hindu undivided family until the 11th of October, 1948, when there was a partition in the family so that Durga Prasad separated. After that, Durga Prasad carried on his own business in the name of Messrs. Murli Dhar Mathura Prasad until his death on 29th of March, 1958, and Ram Rakshpal and his son, Ashok Kumar, carried on their own separate business under the name and style of Messrs. Ram Rakshpal and Ashok Kumar, the assessee before us. Durga Prasad also left behind a widow, Jai Devi, and a daughter, Vidyawati. Upon his death, Vidyawati took her 1/3rd share of the property left by Durga Prasad, but his widow, Jai Devi, and his son, Ram Rakshpal, entered into a partnership with 2/3rd of the assets of the business known as Murlidhar Mathura Prasad which was, as already indicated, the separate business of Durga Prasad. A partnership was entered into between Jai Devi and Ram Rakshpal and its terms were incorporated in a deed which was duly registered on 23rd April, 1958. In the assessment year 1959-60, immediately following the death of Durga Prasad, the question arose whether the income from the one-third share which had come to Ram Rakshpal from Durga Prasad should be assessed as part of the income of the Hindu undivided family of Ram Rakshpal Ashok Kumar, the assessee before us, or as the separate property of Ram Rakshpal. The Income Tax Officer assessed it as the income of the Hindu undivided family applying the well recognized principle of Hindu law that the property left by the grandfather in the hands of the father is ancestral property in which the grandson has a right by birth. On an appeal, the Appellate Assistant Commissioner maintained the decision of the Income Tax Officer, but, on a second appeal, the Appellate Tribunal allowed the appeal with regard to the income from the share inherited by Ram Rakshpal from Durga Prasad on the ground that it was the separate property of Ram Rakshpal which had devolved upon him by succession u/s 8 of the Hindu Succession Act. It was held that, until Ram Rakshpal himself decided to merge it with the property of the Hindu undivided family, of which he was the karta, it would continue to be his separate property. Hence, the question which has been referred to us is framed as follows :

"Whether the 1/2 share held by Ram Rakshpal in the partnership firm of Messrs. Murli Dhar Mathura Prasad is held by him as a karta of the assessee Hindu undivided family or in his individual capacity ?"

It has been contended, on behalf of the department, that the Hindu Succession Act (hereinafter referred to as the Act) does not modify the rule thus stated in Mullas Hindu Law (13th edition, page 248, paragraph 223) : "All property inherited by a male Hindu from his father, fathers father, or fathers fathers father, is ancestral property. The essential feature of ancestral property according to the Mitakshara law is that the sons, grandsons, and great-grandsons of the person who inherits it, acquire an interest in it by birth. Their rights attach to it at the moment of their birth. Thus, if A inherits property, whether movable or immovable, from his father or fathers father, or fathers fathers father, it is ancestral property as regards his male issue. If A has no son, sons son, in existence at the time when he inherits the property, he holds the property as absolute owner thereof, and he can deal with it as he pleases. But, if he has sons, sons sons, or sons sons sons in existence at the time, or if a son, sons son or sons sons son is born to him subsequently, they become entitled to an interest in it by the mere fact of their birth in the family, and A cannot claim to hold the property as absolute owner nor can he deal with the property as he likes."

In the above-mentioned statement of the la