Case: M.P. Periakaruppan Chettiar &amp; Another Vs. Commissioner of Income Tax, Wealth Tax, Gift Tax, Madras

The appeals preferred by M.P. Peria Karuppan Chettiarout of a reference under1) of the IndianAct, 1922, Section 27Act, 1957, and Section 26(1) of the Gift Tax Act,made at the instance of the Commissioner of Incometax, Wealth Tax, and Gift Tax, Madras, for determination of the followingWhether on the facts and in the circumstances of the case, the status of the assessee was correctly determined as Hindu Undividedfor the Incometax, Wealth Tax and. Whether on the facts and in the circumstances of the case, the sum ofed to the account of Muthukaruppan and Palaniappan (sons of Peria Karuppan Chettiar) in the previous year ending onwas liable to assessment under the Gift Tax Actreference under theAct relates to the assessment yearunder the Wealth Tax Act to the assessment yearthe valuation date being April 12,The appeal by M.. Ramaswami Chettiart of a reference under1) of the Wealth Tax Act at the instance of the Commissioner of Wealth Tax, Madras for a decision on the followingon the facts and circumstances of the case the assessees status is that of a Hindu Undividedfor the assessment year61 ?"The status of the assessee in either group of appeals would depend on a correct construction of two documents executed inby their father Muthukaruppannt facts are briefly asChettiar had business interests and other properties both in Ceylon and India. He had four sons, Narayanan,As. Nos.and 1094 ofPeriakaruppan (appellant in Civil Appeals Nos. 10901092 of 1970) andy two deeds, both executed on April 26, 1932 Muthukaruppanconveyed by way of gift all his businessand properties in Ceylon to his first three sons. It is stated that the fourth son who was a minor at the time wasgiven cash and properties in India equal toof the value of his fathers entire assets. For some time following the execution of the deeds of gift Narayanan, Ramaswami and Periakaruppan carried on the business in Ceylon in partnership.Chettiar died in MayOn December 20, 1950 a deed was executed by the four brothers partitioning the residue of their fathers properties. Till the assessment yearn filed returns in the status of an individual and was assessed as such. For the first time in the assessment yearhe claimed to be assessed in the status of a Hindu Undivided family consisting of himself and his two sons Muthukaruppan andax Officer rejected this claim and the assessment for the aforesaid assessment year became final. Thereafter Periakaruppan transferred to each of his two sons a sum of Rs. 30,000/on May 14, 1957 and January 12, 1958 respectively. In theassessment for the0, the previous year ending on April 13,Periakaruppan again claimed the status of a Hindu. The claim was again rejected by the. Also in thefor the assessment year195758, valuation date being April 12, 1957, Periakaruppan claimed the status of a Hinduax Officer rejected the claim.tax proceedingfor the assessment yearthe previous year ending on April 13,tax Officerbrought under assessment the sums of Rs. 30,000/0/ amounting to Rs. 80,000/which Periakaruppan had transferred to each of his two sons. According to the assessee the aforesaid sums were not transferred to his sons by way of gift but by way of partial partition among the members of the Hinduy consisting of himself and his two sons. Ther did not accept this claim.e Appellate Assistant Commissioneron appeals preferred by the assessee held that he should have been assessed in the status of a Hindu Undivided Family and on this view allowed the assessees claim in the. The Tribunal uphelddecision and dismissed the appeals preferred by the Department from his order.lso was being assessed in the status of an individual for many years even after the deeds of gift were executed. In the assessment yearfor the first time he claimed before theofficer that he should be assessed in the status of a Hindu Undivided family. TheOfficer rejected the claim.In the wealth tax assessment fora similar claim put forward by him was also rejected by theofficer. On appealAppellate Assistant Commissionerheld that the property belonged to the Hindu Undivided family consisting of the assessee and his son and on this view allowed the assessees claim. On appeal preferred by the Department, the Tribunal upheld the order ofOn these facts the questions of law set out above were referred to the High Court for determination. The High Court was unable to agree with the reasoning and conclusion of the Tribunal that theclaim to be assessed as Hindu Undivided Families was justified. Accordingly, in Periakaruppans case the High Court answered the first question in the negative and against the assesseeand the second question in the affirmative and against the assessee. On the same reasoning the question referred in Ramaswamis case was answered in the negative and against the assessee.

Reasoning: The status of Hindu Undivided family was claimed upto the High Court mainly on the assumption that the Ceylon assets conveyed to his three sons by Muthukaruppan Chettiar in 1932 were ancestral property. It has been found, however, that these assets were Muthukaruppansproperty and notIn this Court Mr. S.T. Desai appearing for the appellant in both sets of appeals contended that on a proper construction of the two deeds executed by Muthukaruppan in 1932 it would appear that the gift was really not to the sons absolutely but to their respective family branches of which they were the heads. There is no dispute that if the sons only were the donees, what they received by the gift would not be ancestral property in their handsin view of the fact that the Ceylon assets were theproperty of the donor. If, however, the donorto confer, as the High Courtit, a "cumulativeon the respective family units of the three sons, the property gifted wouldbe the property of the Hindu Undividedin each case. The question therefore is one of construction of the two deeds and, as held by this Court inSCR 243) insuch a case "thewould have to collect the intention of the donor from the language of the document taken along with the surrounding circumstances in accordance with theThe relevant portions of the two deeds are in identical language; in one of them the donors business interests in Ceylon and in the other his share in "several estates, plantations and premises" wereThe documents state that the donor was desirous"donating" the properties specified in the documents to his three sons Narayanan,n, who were referred to in the documents as donees, in consideration of the natural love and affection which the donor had for them and for "diverse other causes andPrompted by the desire as stated above, the donor transferred the properties "unto the said donees, their respective heirs, executors, administrators, andAccording to Mr.i the words "diverse other causes and considerations" were significant and indicated that the gift was notto the sonsabsolutely. We are afraid we do not quite see the point of this argument. It was not claimed that these words made any difference to the character of the deeds which were accepted by theauthorities, the Tribunal and the High Court as deeds of gift. These "diverse other causes and considerations" together with the donors natural love and affection for his sons prompted him to execute the documents.the reasons were behind the gift they are not relevant on the question as to who were the object of the bounty.Mr. Desai further pointedthat the gift was stated to be in favour of the donees and "their respective heirs, executors, administrators and assignees"according to him, indicated that really the object of the bounty were the sons asof their respective families. We are unable to agree. It is clear from the deeds that the donors desire wasto transfer the properties to the three sons whom he named and described as donees. It was not stated that the donees would take the property as heads of their familye of thewords "heirs, executors, administratorsassignees" in the context in which they appear in our opinion, indicate on the contrary that the gift wasto the sonsabsolutely, the property gifted being both heritable and alienable. There is nothing in the two documents to suggest that the interest transferredto the sonswas limited in any way. The surrounding circumstances also do not support Mr. Desaisstated already, for many years following the gift the appellant in either group of appeals used to file returnsthe status of an individual and was being assessed asall these years no complaint was made that they should have been assessed in the status of a Hindu undivided family. This fact was sought to be explained by appellant Periakaruppanas would appear from the supplementary statement of case submitted by thepursuant to the order of this Court dated April 12, 1973, by stating that "since the income was not below the limitwhich different rates of tax would operate, it was immaterial forpurposes whether thefiled the return in his individual capacity or in his capacity as Karta of theuntil the assessment yearwhen he became conscious of the position having learnt that under theAct the exemption limit was Rupees four lakhs for a Hindu undivided family as against Rupees two lakhs in the case of ando not consider this statement convincing or sufficient to explain why the assessee continued filing returns for so manyin the status of an individual.Mr. Desai further sought to argue that the appellant in either set of appeals threw the property received by gift in the common stock. But there is no evidence on record to support this case ofwhich seems to have been argued for the first time in this Court.