Case: Surjit Lal Chhabda Vs. Commissioner Of Income Tax, Bombay

The appellant, Surjit Lal Chhabda, had three sources of income. He had a share in the profits of two partnership firms, he received interest from Bank accounts and he received rent from an immovable property called "Kathoke Lodge". These were his self-acquired properties and until the assessment year 1956-57, he used to be assessed as an individual in respect of the income thereof. On January 26, 1956 he made a sworn declaration before a Presidency Magistrate in Bombay that he had thrown the property Kathoke Lodge into the family hotchpot in order to impress that property with the character of joint family property and that he would be holding that property as the Karta of the joint Hindu family consisting of himself, his wife and one child. That child was an unmarriedthe assessment proceedings for 1957-58, the appellant contended that since he had abandoned all separate claims to Kathoke Lodge, the income which he received from that property should be assessed in the status of a Hindu Undivided Family. The income-tax authorities and the Income-tax Appellate Tribunal rejected that contention for varying reasons. The Income-tax Officer held that in the absence of a nucleus of joint family property, there was nothing with which the appellant could mingle his separate property and secondly, that there could not be a Hindu undivided family without the re being undivided family property. The appellant carried the matter in appeal to the Appellant Assistant Commissioner who differed from the Income-tax Officer on both the points but dismissed the appeal on two other grounds. The A.A.C. held that even after the declaration, the appellant was dealing with the income of Kathoke Lodge in the same way as before which showed that the declaration was not acted upon and secondly, that even assuming that the property was thrown into the common stock and was therefore joint family property, the income from that property could still be taxed in the appellants hands as he was the sole male member of the family. The Tribunal accepted the declaration as genuine and differed from the A.A.C .s finding that it was not acted upon. The appellant, according to the Tribunal, was the Karta of the joint Hindu family and it was irrelevant as to how he dealt with the joint family income. The Tribunal however held that the appellant had invested his separate property with the character of joint family property, he being a sole surviving coparcener continued to have the same absolute and unrestricted interest in the property as before and therefore, in law, the property had to be treat ed as his separate property.The appellant moved the Tribunal for referring five questions to the High Court while the respondent applied for the reference of one other question. The Tribunal referred the following question only for the opinion of the Bombay High Court under section 66(1) of the Income-tax Act, 1922:"Whether, on the facts and in the circumstances of the case, the income from property known as Kathoke Lodge was to be assessed separately as the income of the Hindu undivided family of which the assessee wasthe High Court, it was contended on behalf of the appellant that it is open to a male member of a joint Hindu family to convert his self-acquired property into joint family property by throwing it into the common hotchpot; that for effectuating this purpose it is neither necessary that there should be an ancestral or joint family nucleus nor that there should be more than one male in the joint family; and since Kathoke Lodge was impressed with the character of joint family property, its income belonged to the joint Hindu family of which the appellant was the Karta, the other members being his wife and unmarriedthe other hand, the Department contended that it was contrary to the basic concept of a Hindu Undivided Family that a single male along with females could form a joint Hindu family; that though a joint Hindu family could include a wife and unmarried daughters, a sole male member could not constitute a joint Hindu family along with females; and that it was necessary for the formation of a joint Hindu family that there should be more than one male capable of claiming partition of the joint family property. In the alternative, it was urged by the Department that a single male could form a joint Hindu family along with a coparceners widow who is capable of making an adoption to her deceased husband but not with his own wife and unmarried daughter. The argument that the existence of ancestral or joint family property was an essential pre-requisite to throwing the self-acquired property into the common stock was raised but was not pressed in the High Court.On these contentions, the real controversy before the High Court was whether a single male can form a joint Hindu family with his wife and unmarried daughter; if yes, whether the Karta of such a family can impress his self-acquired property with the character of joint family property by throwing it into the family hotchpot; and, lastly, whether the income of such property can be assessed as the income of the joint family. The High Court did not enter into these questions and made its task simple by saying:"Several authorities were referred to on either side in support of their respective contentions. We do not, however, propose in deciding this reference to go into the larger question as to whether the property of the assessee, which was originally self-acquired property, assumed the character of a Hindu undivided family property, as to what are the incidents of a Hindu undivided family property and under what circumstances can separate property become Hindu undivided family property. Some of these questions have been directly answered in the authorities which were cited before us."The question referred is confined to the income  from Kathoke Lodge. We would, therefore, without going into these larger questions, prefer to rest our decision on the short point whether the income from the property known as Kathoke Lodge after the declaration was t he income of a Hindu undivided family and in this respect whether the principle laid down by the Privy Council in Kalyanjis case was correctlyHigh Court assumed for the purposes of argument that there need not be more than one male member for forming a joint Hindu family as a taxable unit and that a joint Hindu family could lawfully consist of a single male member, his wife and unmarried daughter. On these assumptions the High Court concluded that Kathoke Lodge, from the date of the declaration by which it was thrown into the common stock, was the Property of the Hindu undivided family. It, however, held:"But the assessee has no son and therefore no undivided family. His ownership of the property and its income in fact remains the same as before. The fact of the existence of a wife or of a wife and daughter would make no difference to his ownership of that property... His position as a member of the joint family after the declaration would be the same as that of a sole surviving coparcener, but it is now settled law that a person who for the time being is the sole surviving coparcener is entitled to dispose of the coparcenary property as if it were his separate property......That is the position which the assessee held so far as his property is concerned. So far as the income is concerned, he has the complete power of disposal over the income and, even assuming that he is the karta of a joint Hindu family, there is no one who can question his spending, i.e., whether or not it is for legal necessity or other justifiable purpose. If then, his right to the income remains under his personal law the same as it was before he made the declaration, the question arises whether under the Income-tax Act it must be held to be the income of the karta of the Hindu undivided family. That is precisely the question which the Privy Council answered against the assessee in Kalyanjis case.....In our opinion, therefore, the assessees case would fall squarely within the principle enunciated by their Lord ships of the Privy Council in Kalyanjis case and upon that view the income in the hands of the assessee would be liable to be assessed as his individual income."

Court's reasoning:
The appellant is governed by the Mitakshara school of Hindu law but that is not of any particular consequence for the purposes of thisis true that the appellant cannot constitute a coparcenary with his wife and unmarried daughter but under the Income-tax Act a Hindu undivided family, not a coparcenary, is a taxable unit. A Hindu coparcenary is a much narrower body than the joint family. It includes only those persons who acquire by birth an interest in the joint or coparcenary property and these are the sons, grandsons and great-grandsons of the holder of the joint property for the time being, that is to say, the three generations next to the holder in unbroken male descent. Since under the Mitakshara Law, the right to joint family property by birth is vested i n the male issue only, females who come in only as heirs to obstructed heritage (sapratibandha days), cannot bethe contention of the Department that in the absence of a pre-existing joint family the appellant cannot constitute a Hindu undivided family with his wife and unmarried daughter must fail. The view of the High Court that the appellant h as "no son and therefore no undivided family" is plainly unsound and must also be rejected. Accordingly, the question whether the income of the Kathoke Lodge can be assessed in the hands of the appellant as a Karta or manager of the joint family must be decided on the basis that the appellant, his wife and unmarried daughter are members of a Hindu undividedapart from the merits of the point we ruled that the contention was not open to the Department. The statement of case framed by the Tribunal shows that such a contention was not raised before thewas not a concession on a question of law in the sense as to what the true legal position was. What the Departments counsel stated in the High Court was that he did not want to press the particular point. In our opinion, it is not open to the Department to take before us a contention which in the first place does not arise out of the reference and which the Departments counsel in the High Court raised but did not press.Having examined the true nature of an undivided family under the Hindu law and in view of the findings of the Tribunal and the High Court on the second aspect, two points emerge clear: Firstly that the appellant constituted a Hindu undivided family with his wife and unmarried daughter and secondly that Kathoke Lodge which was the appellants separate property was thrown by him in the familycontrasted with the cases of these four partners, Kathoke Lodge which was once the separate property of the appellant was thrown by him in the common stock, which raises the question whether that circumstance is sufficient to justify the assessment of the income from that property in the appellants status as the manager of the joint family. On this point the cases of Kanji and Sewdas furnish a near parallel. They did not have to throw their interest in the firm in the common stock because that interest was, on assumption, their ancestral property. But even though the property was ancestral, the income which they received from it was treated as their separate property as neither of them had a son who could take interest in the ancestral property by birth. Applying that analogy, even if Kathoke Lodge were to be an ancestral ass et, its income would still have to be treated as the appellants separate property as he has no son who could take interest in that property by birth. On this reasoning, the effect of the appellant throwing Kathoke Lodge into the family hotchpot could not be more telling than if that property was his ancestrale appellants counsel is thus right in his submission that the observations made by the Privy Council in Kalyanjis case as regards the correctness of the Bombay view in Lakshminarayans case is not good law. I n fact, the decision of the Privy Council in appeal from the judgment of the Bombay High Court in Lakshminarayans case has itself been disapproved by this Court. But that does not affect the correctness of the Privy Council decision in Kalyanjis case itself as regards the nature of the income received by the six partners from the firm. That part of the judgment in Kalyanjis case has never been doubted and is open to no exception. For the matter of that, the error of the Privy Councils decision in Lakshminarayans case consisted in overlooking the factual distinction between that case and Kalyanjis case, as a result of which the ratio of Kalyanjis case came to be wrongly applied to Lakshminarayansratio of Kalyanjis case would therefore apply to the instant case, the parallel being furnished by the cases of Kanji anddecision of the Privy Council in Attorney General of Ceylon v. A. R. Arunachalam Chettiar and Others(1), the decisions of this Court in the cases of Gowli Buddanna and Narendranath and the decision of the Bombay High Court in Lakshminarayans case fall within that class and are not to be confused with cases like the one on hand, which fall within the rule in Kalyanjisthis 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 appellants case falls within the rule in Kalyanjis case 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 andit 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 ofLodge 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 h as 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 w as 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 a ny 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 so le 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 thethe personal law of the appellant regards him as the owner of Kathoke Lodge and the income there from as his income even after the property was thrown into the family hotchpot, the income would be chargeable to income-tax as his individual income and not that of the family.