COMMISSIONER OF INCOME TAX Vs. HIMMATMAL JAWANTRAJ

JUDGEMENT

(1.) THE assessee is an individual deriving income from money -lending business, property, etc. The assessment years in question are 1971 -72 and 1972 -73 and the corresponding accounting years ended on November 9, 1969, and November 9, 1970. The assessee had debited his capital account with a sum of Rs. 50,000 on November 9, 1969, that is the last date of the accounting year relevant to the asst. year 1970 -71. When questioned about the nature of this debit entry the assessee stated that he had thrown this amount into the joint family hotchpot and this amount was rotated in the pawnbroking business by the joint family. The ITO held that the debit entry in the capital account of the assessee was not sufficient evidence to prove the fact of throwing into the joint family hotchpot and that there must have been a declaration by the assessee to this effect. In that view, he assessed the income from this source in the hands of the assessee for the assessment years in question. In doing so, he estimated the rate at 18 per cent on the capital of Rs. 50,000 which worked out to Rs. 9,000 and added back the same to the income of the assessee in each of the years. On appeal, the AAC held that no formal declaration or deed was necessary to prove that the conduct of the assessee was sufficient to impress such property with the character of joint family property and that the entries in the books of account of the assessee were sufficient. In that view, he held that the assessee was not liable to be taxed on the income arising out of the money so transferred. This view was confirmed by the Tribunal. At the instance of the Revenue, the following question has been referred :

(2.) THE true scope of the doctrine of "throwing into the common stock or common hotchpot" has been considered in a number of decided cases both of the High Courts and the Supreme Court. On a consideration of those judgments it was held in the decision in A. N. K. Rajamani Ammal vs. CED (1972) 84 ITR 790 (Mad), to which one of us was a party, that "the two essential requisites for the conversion of the separate property of a co -parcener into joint family property are : (1) the existence of a coparcenary ; and (2) the deliberate intention formed by the coparcener owning separate property to treat the same as joint family property". The assessee who owned separate property in a coparcenary with an interest in coparcenary property is not in dispute. The property does not cease to be the separate property and become the joint family property by any physical act committed by the owner with an intention to surrender his exclusive rights. The intention may manifest itself in any form such as by a statement in a deposition, an affidavit, execution of a document as a declaratory deed or by course of conduct. What transforms the separate property into joint family property is not the outward act or the conduct of the public declaration of the coparcener owning separate property but his intention to so treat it. No formalities are necessary in order to bring about the change in the character. If these principles are applied to the facts of the present case, there can be no doubt that there is a clear intention to throw the said sum of Rs. 50,000 into the hotchpot of the joint family. In addition to the entries made in the capital account of the assessee there was also the statement of the assessee, which had not been disputed, that the amount was utilised in the pawnbroking business by the joint family. The intention is, therefore, made clear and we have no doubt that the entry is enough evidence to show that there was a conversion of the individual's separate property into that of joint family property. Accordingly, the references are answered in the affirmative and in favour of the assessee. The assessee will be entitled to his costs. Counsel's fee Rs. 500 one set.