The intention of the settlor determines whether a disposition of self-acquired property enures to the benefit of the son or his branch family, and the absence of express provisions in the settlement deed indicates that the properties were taken as co-sharers, not as members of a HUF.

U.L. Bhat, C.J.

1. The following questions have been referred by the Appellate Tribunal at the instance of the Revenue under Section 256(1) of the Income-tax Act, 1961 (for short, "the Act of 1961") :

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that in respect of the properties settled on the assessee by his father, the correct status of the assessee was Hindu undivided family ?

(ii) Whether, on the facts and in the circumstances of the case and in view of the fact that the wife of the assessee was, in any case, the member of the Hindu undivided family, the Tribunal was correct in excluding the income from capital gains from the assessment of the assessee?"

The respondent herein, the assessee, in the returns submitted during the period 1957-58 to 1971-72 declared his status to be individual. He did not file returns for the period 1972-73 to 1974-75. When notices were sent to him under Section 139(2) and Section 148 of the Act of 1961, he submitted returns as an individual but specifically pleaded that his status is a Hindu undivided family and not an individual. The Assessing Officer overruled this contention and also added to the income the capital gains derived on the sale of a plot of land which had been purchased by or in the name of the assessee's wife. The Commissioner in appeal upheld the view taken by the Assessing Officer. The Appellate Tribunal, however, held the status of the assessee to be Hindu undivided family and consequently held that the/capital gains derived by his wife could not be added to the assessee's income under Section 64 of the Act.

2. The assessed is governed by the Mitakshara law. The father of the assessee owned certain immovable properties as well as business of printing and publication of books and business in provisions as his self-acquisitions. He entered into a settlement deed dated April 24, 1954, with his wife, major son, three minor sons and two minor grandnephews. Immovable properties are described in schedule A of the deed and movable properties are described in schedule B. He settled items Nos. 6 and 9 of Schedule A in favour of the assessee. Schedule B contains three items, namely, the printing press machinery, movables of the publication business and all the assets of the commission agency relating to provisions. He settled schedule B items on himself, his wife and four sons in equal shares. In other words, he settled 1/6th share in the business enterprises on his wife and each of his children. The settlement deed recites that each of the parties is entitled to 1/6th share. The settlement deed further states that the two business enterprises should be continued as partnership firm, with the settlor, his wife and major sons as partners and the minor sons being admitted to partnership.

3. Following the decision of the Bombay High Court in Kisansing Mohansing Balwar v. Vishnu Balkrishna Jogalehar, AIR 1951 Bom 4, the Tribunal held that the settlement of the business enterprises was in favour of the Hindu undivided family. The Bombay High Court had taken the view that when the father makes a division of his self-acquired property between his sons, the transaction is really in three parts, namely, creation of separate status between sons, throwing into the hotchpot his self-acquired property and dividing the same amongst the sons and, therefore, the transaction does not amount to a gift requiring registration.

4. The controversy has been settled by the Supreme Court in C.N. Arunachala Mudaliar v. C.A. Muruganatha Mudaliar, AIR 1953 SC 495. The court referred with approval to the observations of the Judicial Committee in Rao Balwant Singh v. Rant Kishori [1898] 25 IA 54, that the father of a joint Hindu family governed by the Mitakshara law has full and uncontrolled power of disposition over his self-acquired property and a male issue could not interfere in these rights in any way. The court further held as follows (at page 49