IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO. 138 OF 1988 INCOME TAX REFERENCE NO. 138 OF 1988 INCOME TAX REFERENCE NO. 138 OF 1988 Dr.Prakash B. Sultane, Kolhapur. ...Applicant V/s. The Commissioner of Income-tax, Kolhapur. ...Respondent Mr.V.H. Patil with Ms.Asifa Khan for Applicant-Assessee. Mr.Ashok Kotangle, Sr.Counsel for Respondent-Revenue. CORAM : CORAM : CORAM : V.C. DAGA AND V.C. DAGA AND V.C. DAGA AND A.S. AGUIAR, JJ. A.S. AGUIAR, JJ. A.S. AGUIAR, JJ. DATED : AUGUST 9TH, 2005. DATED : AUGUST 9TH, 2005. DATED : AUGUST 9TH, 2005. ORAL JUDGEMENT (PER A.S. AGUIAR, J.) :- ORAL JUDGEMENT (PER A.S. AGUIAR, J.) :- ORAL JUDGEMENT (PER A.S. AGUIAR, J.) :- . By this reference, the following question of law has been referred for opinion of this Court under Section 256(1) of the Income Tax, 1961, by the Tribunal at the instance of the assessee Dr.Prakash Sultane, in R.A. Nos.614 & 615(PN) of 1986 arising out of ITA Nos.1603 & 1604 (PN) of 1985 for the assessment years 1982-83 and 1981-82. "Whether, on the facts and in the circumstances of the case the Tribunal is justified in law in holding that the income from assets received on - 2 - partition dated 1-1-72 to the extent of Rs.15,381/- for A.Y. 1981-82 and Rs.12,242/- for A.Y. 1982-83 was assessable in the hands of the assessee individual ?" 2. The factual matrix giving rise to the aforesaid question of law is as follows :- . The assessee is a doctor by profession. His income from profession was assessable in his hands as an individual. The assessee was member of a bigger HUF which was partitioned on 1-1-72. At the time of partition and right upto 22nd January, 1980 the assessee was a bachelor. During all these years, the income from assets on partition was assessed in the hands of the assessee as his individual income. When the assessee got married on 22nd January, 1980, the assessee contended that immediately after his marriage, the income from the assets received by him on partition was required to be assessed as HUF income, the HUF consisting of himself and his wife. The ITO rejected the claim. Aggrieved by the said decision, the Assessee filed appeal before the AAC which was also rejected. Against this decision of AAC, the appeal was filed - 3 - before the Tribunal which allowed the appeal and set aside the order of AAC. 3. The assessee being unmarried was assessed by the ITO in the status of individual in respect of both, his professional income from medical practice as also income from the assets received by him on partition from the HUF. After the assessee got married on 22nd January, 1980, the assessee claimed before the ITO that he should now be assessed in the status of individual in respect of his professional income only and as regards, the income from assets received on partition from the HUF, he should be assessed in the status of HUF consisting of himself and his wife. The assessee, accordingly, filed two returns one in the status of individual in respect of his professional income and other in the status of HUF in respect of the income from assets received on partition from the HUF. The assessee before the ITO placed reliance on the judgment of the Allahabad Allahabad Allahabad High Court in the case of Prem Kumar V/s. Commissioner of Prem Kumar V/s. Commissioner of Prem Kumar V/s. Commissioner of Income-Tax, (1980) 121 ITR 347 Income-Tax, (1980) 121 ITR 347 Income-Tax, (1980) 121 ITR 347 wherein the Court held "that the share belonging to the unmarried co-parcener does not lose its character and therefore, on the marriage of the unmarried co-parcener HUF comes into - 4 - existence and the income is assessable in the hands of such HUF." The Assessee also placed reliance on judgment reported in 74 ITR 190 (SC) 74 ITR 190 (SC) 74 ITR 190 (SC), N. V. Narendranath V/s. N. V. Narendranath V/s. N. V. Narendranath V/s. Commissioner of Income-Tax and 101 ITR 776 (SC), Surjit Commissioner of Income-Tax and 101 ITR 776 (SC), Surjit Commissioner of Income-Tax and 101 ITR 776 (SC), Surjit Lal Chhabda V/s. Commissioner of Income-Tax, Bombay Lal Chhabda V/s. Commissioner of Income-Tax, Bombay Lal Chhabda V/s. Commissioner of Income-Tax, Bombay. 4. The ITO observing that the decisions referred to by the Assessee were considered in the Judgment of Madhya Pradesh Madhya Pradesh Madhya Pradesh High Court in the case of Commissioner of Commissioner of Commissioner of Income-Tax, M.P.-I V/s. Vishnukumar Bhaiya, (1983) 142 Income-Tax, M.P.-I V/s. Vishnukumar Bhaiya, (1983) 142 Income-Tax, M.P.-I V/s. Vishnukumar Bhaiya, (1983) 142 ITR 357 ITR 357 ITR 357 and relying upon the said judgment rejected the application of the assessee and continued to assess his income from the HUF property in his individual capacity. In the above case also, the assessee had obtained the share on partition before his marriage and on his marriage, had claimed the status of HUF. His claim was rejected on the ground that "until a son is born the status of the assessee would continue to be that of an individual." The ITO assessed the income of the assessee from assets received by him on partition as his individual income and continued to assess the same as the assessee’s individual income for the assessment years 1982-83 also. - 5 - 5. In appeal, the AAC was of the view that the Madhya Pradesh Madhya Pradesh Madhya Pradesh High Court did not correctly lay down the position of law in the case reported in (1983) 142 ITR (1983) 142 ITR (1983) 142 ITR 357 (supra) 357 (supra) 357 (supra) upon which the ITO placed reliance and observed that the character of HUF property did not change in the hands of the assessee just because he is the sole surviving member and it cannot, therefore, be given the same treatment as would be given to the self acquired property of an individual. The AAC further noted the Madhya Pradesh High Court judgment is in direct conflict with the decision of the Supreme Court in C. Krishnaprasad C. Krishnaprasad C. Krishnaprasad’s case reported in 97 ITR 493 97 ITR 493 97 ITR 493 and its earlier Full Bench decision in Commissioner of Commissioner of Commissioner of Income-Tax, M.P.-I V/s. Krishna Kumar (1983) 143 ITR Income-Tax, M.P.-I V/s. Krishna Kumar (1983) 143 ITR Income-Tax, M.P.-I V/s. Krishna Kumar (1983) 143 ITR 462 462 462 wherein the Court held that more than one male member is not necessary to constitute a HUF. The AAC also referred to the judgment of the Supreme Court in the case of Surjit Lal Chhabda V/s. Commissioner of Surjit Lal Chhabda V/s. Commissioner of Surjit Lal Chhabda V/s. Commissioner of Income-Tax, Bombay (1975) 101 ITR 776 (SC) Income-Tax, Bombay (1975) 101 ITR 776 (SC) Income-Tax, Bombay (1975) 101 ITR 776 (SC) wherein a clear distinction is made between property which is already joint family property and property which is the self-acquired property of an individual. The AAC Court observed that the assessee received the joint family property on partition and just because he received it as - 6 - a single coparcener, it would not become his separate individual property. Reliance is also placed upon the case of Prem Chand, Sardarilal Changanlal V/s. Prem Chand, Sardarilal Changanlal V/s. Prem Chand, Sardarilal Changanlal V/s. Commissioner of Income-Tax, A.P. Hyderabad, (1984) 148 Commissioner of Income-Tax, A.P. Hyderabad, (1984) 148 Commissioner of Income-Tax, A.P. Hyderabad, (1984) 148 ITR 440 ITR 440 ITR 440 wherein the Andhra Pradesh Andhra Pradesh Andhra Pradesh High Court held that where HUF property was held by six coparceners and there was a partition the property received by the husband would be taxable in his hands as HUF property along with his wife, even though a portion was given tohis wife. The AAC, accordingly, held that the income from property received by the assessee on partition should be taxed as HUF property during the period after he was married. 6. In appeal, the Tribunal set aside the AAC’s finding holding that the decision of the Madhya Pradesh High Court in the case of CIT V/s. Vishnukumar Bhaiya CIT V/s. Vishnukumar Bhaiya CIT V/s. Vishnukumar Bhaiya (1987) 142 ITR 357 (1987) 142 ITR 357 (1987) 142 ITR 357, relied upon by the ITO, represented the correct position of law. The learned Tribunal has referred to the following observations of the Apex Court in the Case of Surjit Lal Chhabda (SC) Surjit Lal Chhabda (SC) Surjit Lal Chhabda (SC) dated 6.10.1975, as of substantial relevance to the case at hand :- (1) "The wife and unmarried daughter are his family. He is not, by agreement, making them - 7 - so, And as a Hindu he himself can be the stock of fresh descent so as to be able to constitute an undivided family with his wife and daughter." (2) "As wife, and married daughter were entitled to be maintained by him.....Their rights in the property are not enlarged for the reason that the property was thrown into family hotchpot". 7. On the basis of the aforesaid observations of the Supreme Court in the said case, the Tribunal gave its own findings as follows :- "Thus there is no doubt that the character of the property originating from HUF funds does not acquire different colours depending on the number of births and deaths in the family. At the same time, the effect of marriage, which merely entitled the wife to maintenance, does not bring about any real change. The right of the wife is not enlarged for the reason that she was married to the assessee. Not being a coparcener the wife has no right by birth in the property nor the right to demand its partition - 8 - nor indeed the right to restrain the assessee from alienating the property for any purpose whatsoever. . The Tribunal concluded as follows :- "Thus, the event of marriage on 22.1.1980 has not made any difference as far as Dr.Sultane is concerned." 8. The Tribunal has also with approval referred to the distinction made by the departmental representative in cases in which at the time of getting share on partition, the assessee was already married and in cases where the marriage takes place after receipt of share on partition as in the present case. Reliance has been placed on the Judgment of the Patna Patna Patna High Court in the case of Hanumangal periwal vs. CWT (1968) 67 ITR 320, Hanumangal periwal vs. CWT (1968) 67 ITR 320, Hanumangal periwal vs. CWT (1968) 67 ITR 320, wherein it was observed that - "There is a difference between a sole surviving coparcener in possession of ancestral property and a coparcener getting a moiety of ancestral property on partition. The difference lies in - 9 - the character of the property. In the former case it is unbroken ancestral property of the joint family and the coparcenery unit is reduced to a single individual. In the latter case the property is a part of the ancestral property and the coparcenery is broken." 9. The Tribunal, thus, observed that once coparcenery is broken as in the present case, no additional interest gets created by virtue of marriage or birth of a daughter. 10. In support, the learned Tribunal has also relied on the following passage from Mulla’s commentary Mulla’s commentary Mulla’s commentary on Hindu Law, Article 223 (4) page 294 15th edition : "The share which a coparcener obtains on partition of ancestral property is ancestral property as regards his male issue. They take an interest in it by birth, whether they are in existence at the time of partition or are born subsequently.... As regards other relations, it is separate property." - 10 - 11. The Tribunal concluded by upholding that the event of marriage of the assessee on 22.1.1980 did not bring about any change in the property which remained absolutely vested in the assessee. The share obtained on partition on 1.1.1972 underwent a metamorphosis at the time of partition breaking the co-parcenery tie and making the property of the assessee absolutely as individual property and there could be no second metamorphosis at the time of marriage on 22.1.1980. The Tribunal further observed that such an occasion may arise on the birth of a son but till then the property will continue to be that of the same individual. The Tribunal claims to be fortified in its conclusion by the latest decision of the Supreme Court reported in (1986) (1986) (1986) 161 ITR 370 in Commissioner of Wealth-Tax, Kanpur V/s. 161 ITR 370 in Commissioner of Wealth-Tax, Kanpur V/s. 161 ITR 370 in Commissioner of Wealth-Tax, Kanpur V/s. Chander Sen. Chander Sen. Chander Sen. 12. We have heard learned Counsel for the Revenue and learned Advocate Mr.Patil for the Assessee. Before us, learned Advocate for the assessee placed reliance on the Judgment of Gujarat Gujarat Gujarat High Court in the case of Commissioner of Income-Tax V/s. Parshottamdas K. Commissioner of Income-Tax V/s. Parshottamdas K. Commissioner of Income-Tax V/s. Parshottamdas K. Panchal reported in (2002) 257 ITR 96. Panchal reported in (2002) 257 ITR 96. Panchal reported in (2002) 257 ITR 96. From the observations in the aforesaid case, the following ratio - 11 - has been culled :- "An individual who receives ancestral property at a partition and who subsequently acquires family, but has no male issue, would hold that property only as the property of the family. Under the Hindu law the wife of the co-parcener is certainly a member of the family. Whatever be the school of Hindu law by which a person is governed, the basic concept of a Hindu undivided family in the sense of who can be its members is just the same. Thus, in order to constitute a joint family, it is not always necessary that there must be two male members" 13. In the said case, the the assessee had received a share at a partition of a Hindu undivided family which was included in the hands of his father as he was a minor at that time. After he attained majority, he disclosed the share income in his return in the status of individual. When the assessee got married he filed the return and claimed the status of a smaller Hindu undivided family in respect of the share income obtained at the partition. The authorities below rejected the - 12 - claim on the ground that in order to constitute a joint family it is necessary that there should be two male coparceners but the Tribunal accepted the assessee’s claim that his share income was not assessable in his individual assessment and directed the Income-tax Officer to modify the assessment. 14. In the aforesaid case, reliance was placed by learned Counsel for the Revenue on the Full Bench decision of the Patna Court in Commissioner of Income Commissioner of Income Commissioner of Income Tax V. Shankar Lal Budhia, (1987) 165 (ITR) 380 Tax V. Shankar Lal Budhia, (1987) 165 (ITR) 380 Tax V. Shankar Lal Budhia, (1987) 165 (ITR) 380 in which the Patna High Court made reference to the case of Surjit Lal Chhabda Surjit Lal Chhabda Surjit Lal Chhabda wherein the Supreme Court had observed as follows :- "The joint Hindu family, with all its incidents, is thus a creature of law and cannot be created by act of parties, except to the extent to which a stranger may be affiliated to the family by adoption. But, the absence of an antecedent history of jointness between the appellant and his ancestors is no impediment to the appellant, his wife and unmarried daughter, forming a joint Hindu family. The appellant’s wife became his - 13 - sapinda on her marriage with him. The daughter too, on her birth, became a sapinda and until she leaves the family by marriage, the tie of sapindaship will bind her to the family of her birth. As said by Golapchandra Sarkar Sastri in his Hindu law (eight edition page 240), ’those that are called by nature to live together, continue to do so’ and form a joint Hindu family. The appellant is not by contract seeking to introduce in his family strangers not bound to the family by the tie of sapindaship. The wife and unmarried daughter are members of his family. He is not by agreement making them so. And as a Hindu male, he himself can be the stock of a fresh descent so as to be able to constitute an undivided family with his wife and daughter." 15. Placing reliance on the aforesaid observations of the Supreme Court in the case of Surjit Lal Chhabda Surjit Lal Chhabda Surjit Lal Chhabda, the Gujarat High Court in Parshottamdas Panchal’s Parshottamdas Panchal’s Parshottamdas Panchal’s case expressed the opinion that the distinction pointed out by the Supreme Court is very material for deciding as to whether the absence of a second sharer within the Hindu - 14 - undivided family renders what is otherwise joint family property, individual property. The Gujarat High Court observed that - "In cases where the property held by the person who claims it to be his own, had in fact been held by a joint family earlier and if ipso facto capable of being held by other shares as well in future if and when the family comes into existence and a son whether by birth or adoption is added thereto, such property continues to retain the character of joint family property even when the family is reduced to a single male member as in the case of a sole surviving coparcener. Though such a sole surviving coparcener may be assessable as an individual as he cannot be said to have a family, unless there are in fact present female members in the family, the character of the property continues unaltered as joint family property, though for the time being it is not shared with any other member of the family and may or may not be subject to any charge in favour of anyone else for any purpose." - 15 - 16. In the said case of Parshottamdas K. Panchal Parshottamdas K. Panchal Parshottamdas K. Panchal, Gujarat High Court held that reliance placed by the counsel for the Revenue on the Full Bench decision of the Patna High Court in the case of Shankar Lal Budhia is of no avail to the revenue as the Full Bench of the Patna High had no occasion to consider the two Division Bench Judgments of the Gujarat High Court. Furthermore, it is contended that Supreme Court decision in N.V. N.V. N.V. Narendranath Narendranath Narendranath wherein the following observations were made, was also not considered by the Full Bench of the Patna High Court viz:- "An individual who receives ancestral property at a partition and who subsequently acquires family, but has no male issue, would hold that property only as the property of the family. Under the Hindu law the wife of the co-parcener is certainly a member of the family. Whatever be the school of Hindu law by which a person is governed, the basic concept of a Hindu undivided family in the sense of who can be its members is just the same. Thus, in order to constitute a joint family, it is not always necessary that - 16 - there must be two male members" . The Gujarat High Court further observed in Parshottamdas Panchal’s Parshottamdas Panchal’s Parshottamdas Panchal’s case as follows :- "What is emphasised by the court in the case of Surjit Lal Chhabda v. CIT (1975) 101 ITR 776 Surjit Lal Chhabda v. CIT (1975) 101 ITR 776 Surjit Lal Chhabda v. CIT (1975) 101 ITR 776 (SC), is that two factors must coalesce : (1) there must exist a plurality of persons constituting a Hindu undivided family and (2) that the property which is to be treated as property belonging to the Hindu undivided family must be property which had been held earlier by a coparcenery in which a member of that family was one of the coparceners." 17. However, as noted earlier, the Tribunal has given its findings on the basis of the judgment of the Supreme Court in the case of Chander Sen (SC) Chander Sen (SC) Chander Sen (SC), delivered on 16th July, 1986 much after to the decision of the Supreme Court in the case of Surjit Lal V/s. CIT Surjit Lal V/s. CIT Surjit Lal V/s. CIT which was delivered on 6th October, 1975 and upon which reliance has been placed by the Patna High Court in the case of Shankarlal Budhia. Shankarlal Budhia. Shankarlal Budhia. Since the case of Chander Chander Chander - 17 - Sen Sen Sen is also the latest decision of the Supreme Court referred to in these proceedings, it is necessary for us to go into the facts and law laid down in the said case of Chander Sen Chander Sen Chander Sen. Before that it is necessary to point out that the Judgment of the Gujarat High Court in the case of CIT V/s. Parshottamdas K. Panchal CIT V/s. Parshottamdas K. Panchal CIT V/s. Parshottamdas K. Panchal upon which the assessee is relying was delivered on 23rd January, 2001. The Gujarat High Court in the said case has placed reliance on (1) Commissioner of Income-Tax V/s. Commissioner of Income-Tax V/s. Commissioner of Income-Tax V/s. Arun Kumar Jhunjhunwalla and Sons, (1997) 223 ITR 45 Arun Kumar Jhunjhunwalla and Sons, (1997) 223 ITR 45 Arun Kumar Jhunjhunwalla and Sons, (1997) 223 ITR 45, (a decision of Gauhati High Court Gauhati High Court Gauhati High Court), (2) Balkrishna Goyal Balkrishna Goyal Balkrishna Goyal Vs. Commissioner of Wealth-Tax, (1996), 218 ITR 617 Vs. Commissioner of Wealth-Tax, (1996), 218 ITR 617 Vs. Commissioner of Wealth-Tax, (1996), 218 ITR 617 Madhya Pradesh High Court (Indore Bench) and Madhya Pradesh High Court (Indore Bench) and Madhya Pradesh High Court (Indore Bench) and (3) Surjit Surjit Surjit Lal Chhabda V/s. CIT, (1975) 101 ITR 776 (SC). Lal Chhabda V/s. CIT, (1975) 101 ITR 776 (SC). Lal Chhabda V/s. CIT, (1975) 101 ITR 776 (SC). Gujarat High Court while deferring from the decision of the Patna High Court Full Bench Judgment in the case of Shankar Lal Budhia Shankar Lal Budhia Shankar Lal Budhia, held "that a coparcener who receives ancestral property at a partition and who subsequently acquires a family, but has no male issue, would hold the property only as the property of a Hindu undivided family." 18. The Assessee has also placed reliance on the Judgment of Madras High Court in the case of W.P.A.R. W.P.A.R. W.P.A.R. - 18 - Rajagopalan V/s. Commissioner of Wealth-Tax, (2000) 241 Rajagopalan V/s. Commissioner of Wealth-Tax, (2000) 241 Rajagopalan V/s. Commissioner of Wealth-Tax, (2000) 241 ITR 344 ITR 344 ITR 344, wherein the ratio of the judgment of the Supreme Court in Narendranath (N.V.) V. CWT (Supra) Narendranath (N.V.) V. CWT (Supra) Narendranath (N.V.) V. CWT (Supra) (1969) 74 (1969) 74 (1969) 74 has been followed and the case of Shankar Lal Shankar Lal Shankar Lal Budhia Budhia Budhia (Patna Full Bench) and Vishnu Kumar Vishnu Kumar Vishnu Kumar (M.P.) have been dissented from. The case of Surjit Lal Chhabda Surjit Lal Chhabda Surjit Lal Chhabda (SC) has been explained. It is pointed out that in the case of Narendranath Narendranath Narendranath, the Apex Court held that the ancestral property allotted to a member whose family consisted of himself, his wife and his daughter was the property belonging to the Hindu Undivided family and required to be assessed a such, notwithstanding the absence of a son who alone could claim partition. In that case, the two factors referred to earlier coalesced-there existed a family and the property was ancestral. The Supreme