A KANNAN CHETTY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred for the decision of this court is :

(2.) THE assessee is Kannan Chetty. He was assessed as an individual in respect of the properties covered by the assessment till 1950-51. In the assessment year 1951-52, he made a return describing his status as the karta of a Hindu undivided family. This family consisted of himself, his son, Namberumal Chetty and the sons of Namberumal Chetty. THE family owned house properties in the city besides a business in hardware and money-lending. On December 31, 1950, the business assets referred to were divided between Kannan Chetty and his son, Namberumal. This was followed by the execution of a deed of partnership as between them, these divided assets of the business being brought in as the assets of the partnership. This partnership was recognised by the taxing department and that firm was also granted registration. On and after the year 1951-52, in respect of the other properties, Kannan Chetty was assessed as the karta of a Hindu undivided family. It may be mentioned that those other properties were not divided by metes and bounds.

(3.) THE Income-tax Officer took the view that the conveyance of family properties to trusts when the family has minor coparceners is in contravention of the principles of Hindu law and that the karta could not alienate the property unless it was for legal necessity. He held that the family continues to exist and as a matter of fact all the members of the family live together. THEre being also no actual partition of the family properties, notwithstanding that the joint family status was put an end to by the partition of the year 1951. Section 25A(3) permitted the assessment being made as on a Hindu undivided family. On appeal, the Appellate Assistant Commissioner accepted the validity of the first and second of these trusts, principally on the ground that the members having become divided in status participated in the benefits of the trusts not as members of a Hindu joint family but as beneficiaries of the trust. He therefore held that the income from the properties covered by these two trusts should be excluded from the total income of the Hindu undivided family. In the case of the third trust, in the absence of evidence that the funds which went into the creation of the trust formed the separate property of Kannan Chetty, the income therefrom was held assessable as the income of the Hindu undivided family, but to the extent to which any portion of the property covered by this trust was settled upon a stranger to the family, that settlement was held to be void as opposed to Hindu law. He also declined to accept the contention that two items of properties did not form part of the joint family properties having been inherited by Kannan Chetty from his divided brother, the late Ethirajulu Chetty. He held that the income from these properties could be assessed as joint family income.It is not necessary to refer in detail at this stage to the approach to the question made by the Tribunal in the appeal before it. Broadly speaking, the conclusion of the Appellate Assistant Commissioner was differed from, the income from the properties covered by the first trust and the settlement deed - the third trust were held taxable in the hands of the Hindu undivided family. THE same view was taken in respect of the properties settled upon the stranger, though that stranger was a descendant of the foster-son of Kannan Chetty. With regard to certain part of the income, there was a direction that it should be apportioned between the various years of assessment and not brought to tax in this year of assessment 1957-58.