Appeal No 2315 of 1966
Appeal from the judgment and order dated August 25 1965 of the Madras High Court in Tax Case No 216 of 1962 Reference No 121 of 1962
Sukumar Mitra and R N Sachthey for the appellant
T A Ramachandran for the respondent
The Judgment of the Court was delivered by Shah J
Arunachallam Chettiar whom will hereinafter be called A Senior had three wives Valami Achi Lakshmi Achi and Nachiar Achi
By Valami Achi he had a son who was also called Arunachallam We will call him A Junior
A Junior married Umayal Achi
A Senior A Junior and the wives of the two members formed a joint Hindu family possessing a large estate in Ceylon
A Junior died on July 9 1934
A Senior died on February 1 23 1938 leaving heirs running his two wives Lakshmi Achi and Nachiar Achi and his son s widow Umayal Achi
The Revenue authorities in Ceylon levied Rs 221743 as estate duty in respect of the estate of A Junior and Rs 63360176 in respect of the estate of A Senior
The levy was challenged by the three widows and the dispute was carried to the Judicial Committee of the Privy Council
The Board set aside the entire levy
In 1957 the Government of Ceylon deposited in Court the duty which was levied together with Rs 797072 as interest due from the date on which the estate duty was collected
After the death of A Senior there were disputes between the three widows Lakshman Achi Nachiar Achi and Uniayal Achi and each widow adopted a son to her deceased husband
A suit for partition of the joint family property was then filed in the Civil Court at Deokotai
Under a settlement reached on February 17 1949 between the three widows and the adopted son of A Junior whom we will hereinafter call the assessee was held entitled to 524th share in the estate
This appeal relates to the liability to income tax on the share of the assessee in the amount of interest paid on the estate duty which was refunded by the Ceylon Government after the Judicial Committee set aside the order levying the estate duty
The Income Tax officer karaikudi brought to tax the assessees share of the amount interest received from the Ceylon Government on the estate duty
The Income tax Officer rejected the contention of the assessee that the receipt was of a capital nature and that in any case it was a casual receipt and on that account 309 exempt from tax under section 43 vii of the Income tax Act 1922The order was confirmed by the Appellate Assistant Commissioner
The Income tax Appellate Tribunal however reversed the order holding that the amount of interest received by the assessee was of a capital nature and was on that account not liable to tax
The Tribunal referred the following question to the High Court of Madras under section 661 of the Income tax Act 1922 Whether the sum of Rs 120830 or Any part thereof is assessable to tax  The High Court was of the opinion that the assessee s share in the interest attributable to the period ending February 17 1947 was not taxable but the share attributable to the period between that date and the date of payment by the Ceylon Government was taxable
Against that decision with certificate granted by the High Court the Commissioner of Income tax has appealed to this Court
The assessee has not appealed against the opinion insofar as it was held that the receipt to the extent to which it related to a period subsequent to February 17 1947 is taxable
In the view of
the High Court the amounts paid as estate duty must be deemed in law to have come from the joint family estate and on severance of the joint family statusin February 1947 each adopted son received his share in the estate then existing as capital
Counsel for the Revenue countended that the High Court erred in holding that the assessee s share in the amount of interest received from the Ceylon Government Was of the nature of capital
Counsel submitted that the character of the receipt which was revenue when received by the joint family could not be altered when it was divided between the members of the family
Counsel also contended that this Court has held that the share in the amount of interest on estate duty received by the son adopted by Nachiar Achi was liable to be taxed as income RM
Ramanathan Chettiar vs Commissioner of Income tax Madras  
But that case has no relevance here
for the only argument advanced before the Tribunal and the High Court in that case was
that the receipt was of a casualand non recurring nature and was on that account exempt from tax under section 43 vii of the Income tax Act
This Court negatived the contention
The Court declined to consider the argument advanced at the Bar that the share allotted to the adopted son of Nachiar Achi being a share in the estate of A Senior was of the nature of capital because the question did not arise out of the order made by the Income tax Appellate Tribunal and was not made the subject matter of lie reference
In RM
Ramanathan 1 L7Sup
CINP70 5 310 Chettiar s case1 the question argued before the High Court in this case was not raised before the income tax Appellate Tribunal and was not decided
After the death of A Senior the property was held by the three widows as members of the Hindu Undevided family
Under the Hindu Law it is not predicted of a Hindu Joint family that there must be a male member in existence
Even after the death of the sole male member 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 among them the joint family continues
Payment of the estate duty was doubtless made out of the joint family fund and the interest which accrued due also acquired the character of joint family property when received
The joint family status came to an end only on February 17 1947
On the severance of the joint status the assessee became entitled to a share in the family estate
The amount of interest on the estate duty accrued as income to the joint family but it was income of the joint family and not of the individual members
But when a share out of the estate which included the interest on estate duty was received by the assessee it had not the character of income
Once the
income was received by the joint family the amount lost its character of income it became merged in the joint family assets and became the capital Of the family
The share received by the assessee was therefore a share in the capital of the family
The share in the joint family property which included interest on the estate duty which accrued prior to February 17 1947 was rightly held by the High Court to be not of the nature of revenue and accordingly not taxable
We express no opinion on the correctness of the finding of the High Court that the interest accrued due after February 17 1947 must be regarded as income to the extent of the share of each of the members of the family
The appeal fails and is dismissed with costs
RKPS Appeal dismissed


Summary:
The revenue authorities in Ceylon levied estate duty in respect of the estate of A and his son in the hands of their three widows
The Judicial Committee of the Privy Council set aside the levy and in 1957 the Government of Ceylon deposited in Court the duty which was levied with interest
On February 17 1947 the joint family estate was parti tioned among the three widows and their adopted sons
The Income tax Officer brought to tax one of the adopted son s share of the interest received from the Ceylon Government on the estate duty
The Tribunal reversed the assessment order holding that the amount of interest received by the assessee was of a capital nature and was on that account not liable  to tax
on a reference the High Court was of the opinion that the assessee s share in the interest attributable to the period ending February 17 1947 was not taxable but the share attributable to the period between that date and the date of payment by the Ceylon Government was taxable
In the view of the High Court the amounts paid as estate duty had to be deemed in law to have come from the joint family estate and on severance of the joint family status in February 1947 each adopted son received his share in the estate then existing as capital
The Commissioner appealed to this Court
It was contended that the character of the receipt which was revenue when received by the joint family could not be altered when it was divided between the members of the joint family
Dismissing the appeal HELD  On the severance of the joint status the assessee became entitled to a share in the family estate
The amount of interest on the state duty accrued as income to the joint family but it was income of the joint family and not of the individual members
But when a share out of the estate which included the interest on estate duty was received by the assessee it had not the character of income
Once the income was received by the joint family the amount lost its character of income  it became merged in the joint family estate and became the capital of the amity
The share received by the assessee was therefore a share in the capital of the family
Therefore the share in the joint family property which included interest on the estate duty which accrued prior to February 17 1947 was rightly held by the High Court to be not of the nature of revenue and accordingly not taxable
310 C E RM
Ramananthan Chettiar vs Commissioner of Incometax Madras  distinguished
The Court did not express any opinion on the correctness of the finding of the High Court that the interest accrued due after February 17 1947 must be regarded as income to the extent of the share of each of the members of the family