COMMISSIONER OF INCOME TAX/ WEALTH-TAX/ GIFT-TAX MADRAS Vs. M.P.R. PERIAK ARUPPAN CHETTIAR COMMISSIONER OF WEALTH-TAX, MADRAS V.M.RM. RAMASWAMI CHETTIAR

JUDGEMENT

(1.) At the instance of Commissioner of Income Tax and under Sec. 66(1) of the Indian Income Tax Act, 1922, Sec. 27(1) of the Wealth -tax Act, 1957, and Sec. 26(1) of the Gift -tax Act, 1958, the following questions have been referred to us by the Income Tax Appellate Tribunal for us render out answer thereto : 1. Whether, on the facts and in the circumstances of the case, the status of the assessee was correctly determined as Hindu undivided family for the Income Tax, wealth -tax and gift -tax assessments of 1959 -60, 1957 -58 and 1958 -59 respectively ?

(2.) The reference under the Income Tax Act relates to the assessment year 1959 -60, under the Wealth -tax Act to the assessment year 1957 -58, the valuation date being April 12, 1957, and under the Gift -tax Act to the assessment year 1958 -59. The assessee is one M. P. R. Perikaruppan Chattiar. The facts leading to the reference being common, the reference maybe dealt with together, One Muthukaruppan Chettiar, who had business in Ceylon and India, had four sons, Narayanan Chettiar, Ramaswami Chettiar, Periakaruppan Chettiar and Palaniappan. By two instruments dated April 26, 1932, marked as exhibits A and A -1, Muthukaruppan Chettiar, in consideration of natural love and affection towards his first three sons above named, gifted, granted and conveyed to them and their respective heirs, executors, administrators and assigns, all his Ceylon assets. To his last son, who was then a minor, he is said to have given cash and certain properties in India, as it is reported that this fourth son could not be a party to the deeds of gift as above, in accordance with the law as administered in Ceylon. It appears that the three sons who secured the Ceylon properties carried on business in Ceylon in partnership. Later, on December 20, 1950, and after the death of their father, the three brothers effected a partition, amongst themselves of the then available properties of the family. The permeable to this deed, inter alia, mentions that the Ceylon properties, movable and immovable, which were held in common by them were divided even during the lifetime of their father and the fourth sons was provided in lieu thereof with cash and that, therefore, no mentioned is being about those properties in the present partition deed. Thereafter, on September 12, 1954, Narayanan Chettiar and his sons effected a partition as between themselves as per exhibit B. The significant recital in the preamble to this indenture reads that the father of Narayanan Chettiar gave away the Ceylon properties to his three sons.

(3.) The assessee, who secured the Ceylon properties as above, filed returned in the status of an individual till the assessment year 1957 -58. The sources of income were house properties and share income from various partnership firms. In the assessments year 1958 -59 the assessee claimed the status of a Hindu undivided family, which by then consisted of himself and his two sons. This was rejected by the Income Tax Officer. Again in the assessment year 1959 -60, the assessee renewed his claimed to be recognised as a Hindu undivided family. Again the claims was not accepted in the first instance. Even so, similar claimed of the assessee under the Wealth -tax Act for the assessment year 1957 -58 was not countenanced. During the assessment year 1958 -59, and in particular on May 14, 1957, and January 12, 1955, the assessee made entries in his accounts so as to effectively transfer a sum of Rs. 80,000 to each of his two sons and claimed that, as the source of the funds so transferred is ancestral assets and the benefit conferred on his sons was in the course of a partial partition in the family, no gift was involved. Here to his convention was not accepted was not accepted by the Income Tax Officer. But the assessees claim as to the status of the Hindu undivided family found favour with the Appellate Assistant Commissioner as well as the Tribunal. The Commissioner of Income Tax, aggrieved against the order of the Tribunal has, caused the above two questions to be referred to this court for being answered.