Case: N. V. Narendranath Vs. Commissioner Of Wealth Tax, Andhra Pradesh,Hyderabad

2. N. V. Rangarao, the father of the appellant, was the holder of an impartible estate called the Munogala Estate in the Krishna District in the State of Andhra Pradesh. This estate was abolished under the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948, and compensation under Section 45 of the Act was paid severally to the appellant, his father and his brothers. Other properties belonging to the joint family of the appellant, his father and brothers were also partitioned between them from time to time. The assets forming the subject of reference to the High Court consisted of investments made from the compensation amount received by appellant in securities, shares, etc. and also other assets such as deposits in Banks. The appellant filed returns for the assessment years 1957-58, 1958-59 and 1959-60 in the status of a Hindu Undivided family. The appellants family during the material time consisted of himself his wife and his two minor daughters and there was no other male member. The appellant claimed to be assessed in the status of a Hindu Undivided Family inasmuch as the wealth returned consisted of ancestral property received or deemed to have been received by him on partition with his father and brothers. The Wealth Tax Officer did not accept the contention of the appellant and assessed him as an individual for the assessment years 1957-58, 1958-59 and 1959-60. On appeal to the Appellate Assistant Commissioner of Wealth Tax the finding that he must be assessed as an individual was confirmed. The Income Tax Appellate Tribunal however on appeal by the appellant held that he should be assessed in the status of a Hindu Undivided Family. Thereupon, the Commissioner of Wealth Tax applied to the Tribunal to state a case to the High Court under Section 27 (1) of the Wealth Tax Act (Act No. 27 of 1957) (hereinafter called the Act). The Tribunal accordingly referred the following question of law for the opinion of the High Court :-Whether the status of the assessee was rightly determined as Hindu Undivided Family ?The High Court disagreed with the view of the Appellate Tribunal and held that as the appellants family did not have any other male coparcener all the assets forming the subject-matter of the returns filed by the appellant belonged to him as an individual and not a Hindu Undivided Family. The High Court answered the question against the appellant and in favour of the Commissioner of Wealth Tax.

Court's reasoning:
4. Under Section 3 of the Wealth Tax Act not a Hindu coparcenery but a Hindu Undivided Family is one of the assessable legal entities. A Hindu joint family consists of all persons lineally descended from a common ancestor, and includes their wives and unmarried daughters. A Hindu coparcenery is a much narrower body than the Hindu joint family;it includes only those persons who acquire by birth an interest in the joint or coparcenery property, these being the sons, grandsons and great-grandsons of the holder of the joint property for the time beingThe first question involved in this case is whether the status of the appellant was that of a Hindu Undivided family consisting of himself, his wife and his daughtersIn this connection, a distinction must be drawn between two classes of cases where an assessee is sought to be assessed in respect of ancestral property held by him; (1) where property not originally joint is received by the assessee and the question has to be asked whether it has acquired the character of a joint family property in the hands of the assessee, and (2) where the property already impressed with the character of joint family property comes into the hands of the assessee as a single coparcener and the question required to be considered is whether it has retained the character of joint family property in the hands of the assessee or is converted into absolute property of the assessee6. Different considerations would be applicable, where property already impressed with the character of joint family property comes into the hands of a single coparcener. The question to be asked in such a case in whether the property retains the character of joint family property or whether it sheds the character of joint family property and becomes the absolute property of the single coparcener. In Commissioner of Income Tax v. Gomdalli Lakshminarayan, 1935-3 ITR 367   = (AIR 1935 Bom 412  ), the property was ancestral in the hands of the father and the son had acquired an interest in it by birth. There was a subsisting Hindu Undivided Family during the life-time of the father and that family did not come to an end on his death. On these facts, the Bombay High Court held that the income received from the property was liable to super-tax as the income of the Hindu Undivided Family in the hands of the son who was the sole surviving male member of the Hindu Undivided Family in the year of assessment. The reasoning was that the property from which income accrued originally belonged to a Hindu Undivided Family and on the death of the father it did not cease to be property of that Hindu Undivided Family but continued to belong to that Hindu Undivided Family and its income in the hands of the son was, therefore, assessable as income of the Hindu Undivided Family. There was a vital distinction between the facts of this case and the facts in Kalyanjis case, 1937-5 ITR 90 = (AIR 1937 PC 36  ) (supra). This distinction was not noticed by the Judicial Committee in Kalyanjis case, 1937-5 ITR 90 = (AIR 1937 PC 36  ) (supra) when it observed that the Bombay High Court arrived too readily at the conclusion that the income was the income of the family. When Gomadallis case, 1935-3 ITR 367   = (AIR 1935 Bom 412  ) (supra) was carried on appeal the Judicial Committee once again failed to notice the distinction and wrongly reversed the decision of the Bombay High Court holding that the facts of the case were not materially different from the facts in Kalyanjis case, 1937-5 ITR 90 = (AIR 1937 PC 36  ) (supra) [See the decision of the Judicial Committee in Commissioner of Income Tax, Bombay v. A. P. Swamy Gomedalli, 1937-5 ITR 416 = (AIR 1937 PC 239)]6. Different considerations would be applicable, where property already impressed with the character of joint family property comes into the hands of a single coparcener. The question to be asked in such a case in whether the property retains the character of joint family property or whether it sheds the character of joint family property and becomes the absolute property of the single coparcener. In Commissioner of Income Tax v. Gomdalli Lakshminarayan, 1935-3 ITR 367   = (AIR 1935 Bom 412  ), the property was ancestral in the hands of the father and the son had acquired an interest in it by birth. There was a subsisting Hindu Undivided Family during the life-time of the father and that family did not come to an end on his death. On these facts, the Bombay High Court held that the income received from the property was liable to super-tax as the income of the Hindu Undivided Family in the hands of the son who was the sole surviving male member of the Hindu Undivided Family in the year of assessment. The reasoning was that the property from which income accrued originally belonged to a Hindu Undivided Family and on the death of the father it did not cease to be property of that Hindu Undivided Family but continued to belong to that Hindu Undivided Family and its income in the hands of the son was, therefore, assessable as income of the Hindu Undivided Family. There was a vital distinction between the facts of this case and the facts in Kalyanjis case, 1937-5 ITR 90 = (AIR 1937 PC 36  ) (supra). This distinction was not noticed by the Judicial Committee in Kalyanjis case, 1937-5 ITR 90 = (AIR 1937 PC 36  ) (supra) when it observed that the Bombay High Court arrived too readily at the conclusion that the income was the income of the family. When Gomadallis case, 1935-3 ITR 367   = (AIR 1935 Bom 412  ) (supra) was carried on appeal the Judicial Committee once again failed to notice the distinction and wrongly reversed the decision of the Bombay High Court holding that the facts of the case were not materially different from the facts in Kalyanjis case, 1937-5 ITR 90 = (AIR 1937 PC 36  ) (supra) [See the decision of the Judicial Committee in Commissioner of Income Tax, Bombay v. A. P. Swamy Gomedalli, 1937-5 ITR 416 = (AIR 1937 PC