Rajasthan H.C : Whether, on the facts and in the circumstances of the case, the hon’ble Tribunal was right in placing reliance on the decision of the hon’ble Supreme Court in the case of Surjit Lal Chhabda vs. CIT 1976 CTR (SC) 140 : ((1975) 101 ITR 776 (SC)) and in holding that a sum of Rs. 1,60,000 thrown by the assessee into the joint family hotchpot on 31st March, 1976 (it should be 30th March, 1967) was assessable in the hands of the assessee in the individual status and not in the status of an HUF ?

Counsel Appeared

Vineet Kothari, for the Assessee : B. R. Arora, for the Revenue

MILAP CHANDRA, J.:

This reference has been made by the Tribunal (Wealth-tax), Jaipur, under s. 27 of the WT Act, 1957 (hereinafter to be called as “the Act”), on the request of the assessee in respect of the asst. yrs. 1967-68 to 1971-72. The following question of law has been referred, namely:

“Whether, on the facts and in the circumstances of the case, the hon’ble Tribunal was right in placing reliance on the decision of the hon’ble Supreme Court in the case of Surjit Lal Chhabda vs. CIT 1976 CTR (SC) 140 : ((1975) 101 ITR 776 (SC)) and in holding that a sum of Rs. 1,60,000 thrown by the assessee into the joint family hotchpot on 31st March, 1976 (it should be 30th March, 1967) was assessable in the hands of the assessee in the individual status and not in the status of an HUF ?”

The facts of the case giving rise to this reference may be summarised thus. The assessee is an individual. On 30th March, 1967, he made a declaration on stamp papers that he had thrown his self-acquired amount of Rs. 1,60,000 in the common hotchpot of his HUF consisting of himself and his wife. The WTO found the declaration defective and also held that the said amount of Rs. 1,60,000 could not be said to be belonging to the HUF as on 31st March, 1967, or thereafter, relying upon Surjitlal Chhabda vs. CIT (1970) 75 ITR 458 (Bom). Accordingly, he included this amount in the wealth of the assessee in the wealth-tax assessment of all the said years. On appeal, the AAC found the said declaration to be quite in order and further held that the said amount of Rs. 1,60,000 belonged to the HUF of the assessee after it had been thrown into the common hotchpot, relying upon N. V. Natendranath vs. CWT (1969) 74 ITR 190 (SC), and excluded it from the wealth of the assessee. The Department filed appeals against the common order of the learned AAC. They were allowed and the common order of the AAC was set aside by the Tribunal, Thereafter, the assessee moved the Tribunal for making this reference.It has been contended by learned counsel for the assessee that the Tribunal seriously erred in setting aside the common order of the AAC holding that the said amount of Rs. 1,60,000 belonged to the HUF. He contended that Surjit Lal Chhabda vs. CIT (supra) is not applicable in the case as this decision was given in an income-tax matter and the case of N. V. Narendranath vs. CWT (supra) is applicable as it was given in a wealth-tax matter.

In reply, learned counsel for the Department contended that the Tribunal has rightly relied upon Surjit Lal Chhabda’s case (supra) and N. V. Narendranath’s case (supra) has duly been considered in it. Admittedly, before the said declaration, the aforesaid amount of Rs. 1,60,000 was the self-acquired money of the assessee. In other words, he did not acquire it in the partition of an HUF of which he was a member. It is further admitted by him that on the day on which the said money was thrown into the common hotchpot, his family consisted of himself, his wife and one daughter only and subsequently sons were born in the years 1969 and 1971.

It is correct that N. V. Narendranath’s case (supra) related to wealth-tax. In Surjit Lal Chhabda’s case (supra) and N. V. Narendranath’s case (supra) several other cases have duly been considered by their Lordships of the Supreme Court. It has been observed in Surjit Lal Chhabda’s case (supra), at page 793, para 3, as under : “There are thus two classes of cases, each requiring a different approach. In cases falling within the rule in Gowli Buddanna’s vs. CIT case (1966) 60 ITR 293 (SC), the question to ask is whether property which belonged to a subsisting undivided family ceases to have that character merely because the family is represented by a sole surviving coparcener who possesses rights which an owner of property may possess. For the matter of that, the same question has to be asked in cases where the family, for the time being, consists of widows of deceased coparceners as in CIT vs. Rm. Ar. Ar. Veerappa Chettiar (1970) 76 ITR 467, (SC), so long as the property which was originally of the joint Hindu family remains in the hands of the widows of the members of the family and is not divided amongst them. In cases falling within the rule in Kalyanji’s case (supra), the question to ask is whether property which did not belong to a subsisting undivided family has truly acquired the character of joint family property in the hands of the assessee. In this class of cases, the composition of the family is a matter of great relevance, for, though a joint Hindu family may consist of a man, his wife and daughter, the mere existence of a wife and daughter will not justify the assessment of income from the joint family property in the status of the head as a manager of the joint family. The appellant’s case falls within the rule in Kalyanji’s case (supra), since the property, before it came into his hands, was not impressed with the character of joint family property. It is of great relevance that he has no son and his joint family consists, for the time being, of himself, his wife and daughter. Once it is realised that there are two distinct classes of cases which require a different approach, there would be no difficulty in understanding the implications of the apparently conflicting tests evolved as guides for deciding the two classes of cases.”

It has further been observed at page 795, paras 2 and 3, as under : “Kathoke Lodge was not an asset of a pre- existing joint family of which the appellant was a member. It became an item of joint family property for the first time when the appellant threw what was his separate property into the family hotchpot. The appellant has no son. His wife and unmarried daughter were entitled to be maintained by him from out of the income of Kathoke Lodge while it was his separate property. Their rights in that property are not enlarged for the reason that the property was thrown into the family hotchpot. Not being coparceners of the appellant, they have neither a right by birth in the property nor the right to demand its partition nor indeed the right to restrain the appellant from alienating the property for any purpose whatsoever. Their prior right to be maintained out of the income of Kathoke Lodge remains what it was even after the property was thrown into the family hotchpot: the right of maintenance, neither more nor less. Thus, Kathoke Lodge may be usefully described as the property of the family after it was thrown into the common stock, but it does not follow that in the eye of Hindu law it belongs to the family, as it would have, if the property were to devolve on the appellant as a sole surviving coparcener.

The property which the appellant has put into the common stock may change its legal incidents on the birth of a son but until that event happens, the property, in the eye of Hindu law, is really his. He can deal with it as a full owner, unrestrained by considerations of legal necessity or benefit of the estate. He may sell it, mortgage it or make a gift of it. Even a son born or adopted after the alienation shall have to take the family hotchpot as he finds it. A son born, begotten or adopted after the alienation has no right to challenge the alienation.It is clear from the above-quoted extracts in Surjit Lal Chhabda’s decision (supra), that in a situation where the rule in Kalyanji’s case (supra) applies, the property thrown in the common stock of the HUF continues to retain the characteristics with all legal incidents of exclusive ownership of the individual till a son is born or adopted. It is only on the advent of a son in the HUF as a coparcener that the rights of ownership in such property are shared by him with the person throwing the property into the common stock of the HUF. Thus, the said amount of Rs. 1,60,000 became the property of the HUF soon after the birth of a son. It remained the self-acquired property of the assessee till the valuation date of the year 1968-69, i.e., 31st March, 1969, as the first son was admittedly born only after this date, i.e., 16th May, 1969.

Accordingly, the first part of the question is answered in the affirmative, in favour of the Revenue for all the said assessment years, the second part of the question is also answered in the affirmative so far the asst. yrs. 1967-68 and 1968-69 are concerned and it is answered in the negative, against the Revenue and in favour of the assessee in respect of the asst. yrs. 1969-70, 1970-71 and 1971-72.

[Citation : 173 ITR 400]