STATE OF TAMIL NADU Vs. A SADHANANDAM

JUDGEMENT

(1.) THESE tax revision cases have been filed by the State of Tamil Nadu Agricultural Income-tax Appellate Tribunal, dated June 28, 1973. The four petitions relate to four partners of two firms, namely, Messrs. Waverly Estates and Caladonia Estates. There are two other partners in the said firm. The income from these firms was being assessed for agricultural income-tax in the hands of the four respondents as individuals. On the April 1, 1970, each one of them made a declaration before an advocate. Taking the case of Vimalan as typical of the four cases, it is stated in the declaration that he was the karta of the Hindu undivided family comprising of his wife, his minor son, his minor daughter and that he was a partner in the aforementioned firms holding one-sixth share. He stated in the declaration :"On April 1, 1970, I had voluntarily relinquished and waived all my individual rights in the abovesaid 1/6th shares held by me in the two firms referred to above in favour of the Hindu undivided family.......... and the said share and the income derived from April 1, 1970, belongs only to the Hindu undivided family and is being received by me only as the karta of the Hindu undivided family.To remove all doubts, I hereby declare that 1/6th shares held by me in the two firms, Messrs. Waverly Estates and Messrs. Caladonia Estates, belong to the Hindu undivided family from April 1, 1970." *The other documents and declarations in respect of other respondents are not before us. In the case of the respondent in T.C. No. 459 of 1974, it is clear from the assessment order that he has neither a son nor a daughter and that the family consists of himself and his wife.On the basis of the said declaration, the respondents sought exclusion, from their respective individual returns, of their share income from the two firms. During the relevant year, there was only a net loss in the two concerns.

(2.) THE Agricultural Income-tax Officer, while making the respective assessments, held that since the arrangement was not genuine and bona fide and was not enforced, but was made with a view to split up the income and evade tax, the claim was liable to be rejected. He, therefore, assessed the loss as in the earlier years in the hands of the individuals. On appeal, the Appellate Assistant Commissioner considered that the claim of the assessee was rightly rejected as the assessee was all along being assessed as an individual and that the case fell within the scope of section 9(2) of the Tamil nadu Agriculture Income-tax Act. It may be seen that if a case were to fall within the scope of the section 9(2) of the Act, so as to be a transfer in favour of minors, then the transaction has to be a real transaction. THEre is implicit in the order of the Appellate Assistant Commissioner the finding that the transaction was genuine. THE matter thereafter was taken on appeal to the Agricultural Income-tax Appellate Tribunal. THE Tribunal held that the declarations had to be taken at their face value and that the respective assessees had thrown their interests in the two estates into the hotchpots of their respective joint families. THEreafter, the Tribunal examined the question as to whether the provisions of section 9 applied to this case. After referring to the decisions cited before it, the Tribunal came to the conclusion that the throwing of the individual property into the common hotchpot could not be considered as transfer coming within the mischief of section 9(2)(a)(iii) of the Act and that there was no transfer involved in the process. It was, therefore, held that there was no justification for the inclusion of the losses in the hands of the respective respondents.

(3.) THE question before the Supreme Court was whether the income received by the assessee in that case, after the said document of 1956, should be assessed to income-tax in the status of a Hindu undivided family. It was held that "since until the birth of a son the personal law of the assessee, namely, the Hindu law, regarded the assessee as owner of the said immovable property and the income therefrom as his income even after the property was thrown into the family hotchpot, the income was chargeable to income-tax in the assessee's hands as his individual income and not as the income of the family." *We do not consider that the said case has any application to the facts of the case before us. It may be seen that in the said case, the assessee had only a wife and an unmarried daughter. THEre was no coparcenary. In the case before us, there is minor son with whom the respondents form a coparcenary. THE principle applicable to the sole surviving coparcener could not be applied to a coparcenary having another male member. We have, therefore, to examine the position in the light of the other decisions brought to our notice by Mr. Jayaraman.In Commissioner of Income-tax v. Kalu Babu Lal Chand the karta of a Hindu undivided family by name Rohatgi was one of the promoters of a company. He took over a business, which was later transferred to the company as a going concern and carried on the business on behalf of the company until its incorporation in December, 1930. Under the articles of association, he was to be the first managing director with specified remuneration, and there was an agreement between him and the company with reference to the said managing directorship. It was found by the Appellate Tribunal that the shares held by the said karta and his brother were acquired with funds belonging to the joint family and the family was in enjoyment of the dividends paid on the said shares. In the course of the assessment for the relevant year, it was claimed by the assessee that the whole of the managing director's remuneration constituted the personal earnings and should not be added to the income of the family. It was held that the managing director's remuneration received by Rohatgi was, as between him and the Hindu undivided family, the income of the family and should be assessed in his hands. At page 127-128, Das C.J., speaking for the court, stated that :"It is now well settled that a Hindu undivided family cannot as such enter into a contract f partnership with another person or persons.