UDAYAN CHINUBHAI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN each of these five matters, identical questions arising from the same set of facts have been referred to us for our opinion by the Income -tax Appellate Tribunal and hence we will dispose of all these matters by this common judgment. At the instance of the assessee in each of these five cases, the following three identical questions have been referred to us for our opinion :

(2.) WE are concerned in these cases with assessment years 1951 -52, 1952 -53 and 1954 -55 to 1961 -62. The facts leading to these five references are as follows : Sir Chinubhai Madhavlal, the second baronet, filed a suit in the High Court of Bombay on its original side in 1948 against his three sons, Udayan Chinubhai, Kirtidev Chinubhai and Achyut Chinubhai, his wife, Lady Tanumati Chinubhai, and his mother dowager, Lady Sulochana Chinubhai, for a declaration for severance of the joint status of the joint family of the plaintiff and the defendants to that suit. The family had considerable movable and immovable properties. Out of these, very substantial properties were held in trust as part of what is known as Baronetcy Trust and the trustees were the Baronetcy Trust Corporation. By the Bombay Act 8 of 1924 called Sir Chinubhai Madhavlal Ranchhodlal Baronetcy Act, 1924, this Baronetcy Trust Corporation was created and certain properties were settled in trust. There were also very substantial debts and liabilities against the Hindu undivided family including debts incurred by Sir Chinubhai Madhavlal, the second baronet, the father and karta of the Hindu undivided family. Certain debts had also been incurred by his son, Udayan Chinubhai, and his wife, Lady Tanumati, for maintenance, support and/or education of the various dependants of the family. A consent decree was passed in the suit on March 8, 1950, by the Bombay High Court declaring that there was disruption and severance of the joint status of the joint and undivided Hindu family with effect from October 15, 1947, and it was also declared that on such disruption, the father, that is, Sir Chinubhai Madhavlal, the second baronet, his three sons, Udayan, Kirtidev and Achyut, and his wife, Lady Tanumati, were each entitled to one -fifth share in the immovable and movable properties belonging to the said joint Hindu undivided family. Under the terms of the consent decree, Shri K. M. Munshi, advocate, was appointed the sole arbitrator and it was director by the court that the defendants were not entitled to challenge to debts and liabilities, claims and demands on the ground that they were illegal and immoral and not binding on the joint family. Under the terms of the consent decree, Shri K. M. Munshi was to ascertain and determine finally the debts, liabilities, claims and demands which were binding on the joint family and also determine whether any of these debts, liabilities, etc., were to be taken over by any defendant but as far as practicable the arbitrator was to allot to the plaintiff and the various defendants, such debts, liabilities, claims and demands as related to the properties and business coming to the respective sharer. In his capacity as the arbitrator appointed by the consent decree, Shri K. M. Munsi gave two awards. He first an award which is referred to on the record as the 'interim award'. The interim award was given on August 23, 1950, and the final award was given by him on February 15, 1951. The final award on the face of it is designated as the 'second interim award'. Under the award, the arbitrator gave certain properties to Sir Chinubhai Madhavlal and certain other properties to Lady Tanumati and her three sons. He also determined that certain debts, liabilities, claims and demands should be taken over by Sir Chinubhai Madhavlal while some other specific debts were to be taken over by Lady Tanumati and her three sons. There was no separate allocation either of the assets or the liabilities amongst Lady Tanumati and her three sons. In connection with this very family, it has been held by the Supreme Court in the case of Joint Family of Udayan Chinubhai v. Commissioner of Income -tax : [1967]63ITR416(SC) , that Lady Tanumati and her three sons did not constitute a Hindu undivided family after the consent decree as the original Hindu undivided family had no existence. Lady Tanumati and her three sons did not succeed to the properties as members of the Hindu undivided family but held the properties allotted to them as tenants -in -common.

(3.) THE matters were taken in appeal by the assessees and the Tribunal held that there was no overriding title or diversion of income in respect of liabilities or interest due on the debts which came to Lady Tanumati and her three sons on partition of the Hindu undivided family. The Tribunal further held that the loss for which the deduction is claimed must be one that springs directly from the carrying on of business and is incidental to it. The Tribunal ultimately held that the assessee's claim for allowance of interest could not be allowed. Thereafter, at the instance of each of these assessees, the three questions set out hereinabove have been referred to us in identical terms in each of these matters.