DAMODAR KRISHNAJI NIRGUDE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under sub -section (1) of section 66 of the Indian Income -tax Act (hereinafter referred to as the Act). The assessee is an individual. The year with which we are concerned is the assessment year 1956 -57, the accounting year being S.Y. 2011 (period October 27, 1954, to November 14, 1955). The assessee had been in the prior fifteen to twenty years assessed as an individual in respect of the entire property which was his self -acquired property. The property consists of both moveables and immoveables including shares in certain partnership firms. By the deed dated 29th of November, 1954, the assessee declared that he had thrown all his self -acquired properties in to the common hotchpot of a Hindu undivided family consisting of himself, his wife and a minor son. The deed further effected a partition between the assessee, his wife and his minor son, allotting certain property out of the aforesaid properties thrown into the hotchpot to their separated shares. The deed also recited that it took effect from the 27th of October, 1954. On the basis of this deed the assessee filed returns only of the income of the property that had been allotted to his share on partition for the assessment year 1955 -56 and also for the assessment year 1956 -57 and claimed that he should be assessed only in respect of the income arising from the property that had been allotted to his share on partition, under the said deed of 29th of November, 1954. The Income -tax Officer rejected the claim observing : 'I, therefore, consider that being a collusive and a sham transaction, the amounts and property transferred to the minor child and wife still continue to be that of the husband and within his control. Mere passing of entries in the books and making a partition on the stamp paper could not and did not pass the interest which he had in the assets...'

(2.) IN this view of the matter, the Income -tax Officer included in both the years income of the entire property in the income of the assessee and brought it to tax in his hands. The assessee filed appeals before the Appellate Assistant Commissioner against the assessment orders for both these years. The Appellate Assistant Commissioner accepted the assessee's contention and held that the assessee had, by the deed of 29th of November, 1954, thrown his self -acquired property into the Hindu undivided family hotchpot and had effected a partition thereof between himself, his wife and his minor son. He, however, held that this had occurred on 27th October, 1954, which was after the close of the assessment year 1955 -56. In this view of the matter, the Appellate Assistant Commissioner allowed the assessee's appeal for the assessment year 1956 -57 but rejected it in respect of the assessment year 1955 -56. The assessee as well as the department appealed against the order of the Appellate Assistant Commissioner. The contention of the assessee was that his claim in respect of the assessment year 1955 -56 also should have been allowed and the claim of the department was that the assessee's appeal had been wrongly allowed in respect of the assessment year 1956 -57. The Tribunal allowed the appeal of the department in respect of the assessment year 1956 -57 and dismissed the assessee's appeal in respect of the assessment year 1955 -56. The view taken by the Tribunal is in the following terms : 'No doubt it is open to a member of a joint family to throw into the hotchpot his self -acquisitions. It is clear that this intention was only a transfer of the properties indirectly by this method to his wife and minor child. The transaction by itself may be valid but still in computing the total income of the assessee for the purposes of the assessment the income of the wife and the minor child, arising out of this indirect transfer, should also be included in that of the assessee in accordance with the provisions of section 16(3) of the Act. Even if the assessee satisfied a condition laid down in section 25A we think that the share income of the wife and the minor child will have to be included in the income of the assessee as stated.'

(3.) IN our opinion the question has not been happily framed and does not bring out the controversy between the parties and the real question of law that arises out of the order of the Tribunal. The question assumes that by the instrument of 29th of November, 1954, certain properties have been transferred to the wife and the minor son of the assessee. If that be the position, then the answer is self -evident and the answer will have to be in favour of the department. The real dispute between the parties is, according to the department, that it is a transfer and, therefore, the income of those properties is liable to be taxed in the hands of the assessee under section 16(3) of the Act; while, according to the assessee, it is not a transfer but allotment of properties to the shares of his wife and minor child in a partition, which does not constitute a transfer. To bring out this controversy and the real question of law arising out of the order of the Tribunal, the question will have to be reframed and we reframe it in the following terms : 'Whether, on the facts and in the circumstances of the case, the income of the properties allotted to the shares of the wife and minor child of the assessee under the deed of 29th of November, 1954, is liable to be included in the assessee's income under section 16(3) of the Act in the assessee's assessment for the assessment year 1956 -57 ?'