COMMISSIONER OF INCOME TAX Vs. KHANNA M M

JUDGEMENT

(1.) THIS is a reference under s. 66(1) of the Indian IT Act 1922, at the instance of the CIT and relates to an item of Rs. 927, which has been deleted from the assessment of the assessee as an individual on the ground that the said amount was not the income of the assessee as an individual but of the HUF.

(2.) THE assessee was a member of an HUF consisting of his father, his younger brothers and the children of himself and his brothers and other female members of the family. THE assessee, however, has his own independent income arising from salary, interest on Government securities, interest on bank current accounts and dividend income in respect of which he was assessed in the status of an individual. On 27th Aug., 1955, the assessee made a declaration whereby he impressed the separate and self-acquired property which he then possessed with the character of the joint family property of the joint family consisting of himself, his wife, son and two daughters. THE declaration was to the effect that he had on that date thrown all his separate and self- acquired property into the family hotchpotch and the same would thereafter be held by him as the Karta of the HUF consisting of himself, his wife, son and daughters. It may be noted that before making the said declaration, he had not declared his intention to separate from the main joint family consisting of his father and his other brothers and their children. He and his branch, therefore, continued to remain in the main joint family as members thereof. THE income derived from the assets, which were the subject-matter of the declaration made by the assessee, was Rs. 927 in the asst. yr. 1956-57 for which the relevant account year was the financial year ending with 31st March, 1956. During the asst. yr. 1956-57 the assessee submitted two returns, one in the status of an individual and the other in the status of an HUF. THE amount of Rs. 927 was included in the return submitted in the status of an HUF and the other return filed in the status of an individual included the income derived from his self- acquired property. THE ITO took the view that although the declaration made by the assessee was a genuine and bona fide declaration, the income derived by the assessee from the assets, which were the subjects-matter of the said declaration, still remained the assessee's income as an individual because the assessee could not in law create an HUF a separate assessable unit in the circumstances of the case. According to the ITO, it was not possible to regard any joint Hindu family as being composed of a number of sub- families, which are stranded together for certain other purposes and have an independent existence for certain other purposes. Since the assessee was already a member of the HUF consisting of his father and other brothers from which he has not separated, it was not possible for him to constitute a joint Hindu family of himself, his wife son and daughters as a distinct and separate assessable unit apart from the main joint Hindu family to which he still continued to belong. In the view that he took the ITO included the amount of Rs. 927 in the individual assessment of the assessee. THE assessee took the matter in appeal to the AAC. According to the AAC the ITO was to correct in taking the view that it was not possible to regard a joint Hindu family as being composed of a number of sub-families which were stranded together for certain purposes and had an independent existence for certain other purposes. It was possible, according to him, that while the main joint Hindu family family remained intact, the branch families of the main family may have separate existence as assessable units as Hindu undivided families under the Indian IT Act. THE AAC was also of the opinion that it was possible for a member of the branch family to impress his self-acquired property with the character of the joint family property of the branch family so as to make the income from that property the income of the branch family as an HUF under the Indian IT Act. On the merits of the case, in view of the several steps, which the assessee had taken to give his self-acquired property the character of the joint family property of the branch family of which he was the Karta there could be no doubt whatsoever that he had clearly and unequivocally thrown the said property into common stock of his branch family and abandoned all intentions to hold it as a separate property thereafter. According to the AAC the item of Rs. 927 was the income of the HUF and had, therefore, to be deleted from the individual assessment of the assessee. He accordingly allowed the assessee's appeal in this respect and directed the ITO to revise the assessment accordingly. THE view taken by the AAC was confirmed by the Tribunal in the appeal which the Department took to it. THEreafter at the instance of the Department, the Tribunal drew up a statement of case and referred to this Court the following question as arising out of its order :

(3.) IN our opinion there is no substance in any of the contentions raised by the learned counsel for the Revenue. It is true that a HUF, which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters, and the Hindu coparcenary, which is a narrower body within the joint family consisting of persons, who acquire by birth an interest in the joint or coparcenary property, are creatures of law and cannot be created by act of parties save in so far that by adoption a stranger may be introduced as a member thereof. It must, however, he remembered that a joint Hindu family springs from a Hindu male and every Hindu male can be the stock of a fresh descent constituting a joint Hindu family or a Hindu coparcenary. Where from a Hindu male a joint Hindu family springs into existence, this family goes on having its different branches and sub-branches. Each branch starts with the male descendant of the common ancestor and each sub-branch with the male descendant of the head of the branch. While the entire group proceeding from the common ancestor with its several branches and sub-branches in the normal undivided state is a Hindu joint family, each of the branches of each of the sub-branches again is a Hindu joint family according to the concept of a joint family under the Hindu law. It is, therefore, possible for a main HUF to be composed of a large number of branch families, each of the branches itself being a Hindu joint family and so also the sub-branches of those branches. As to the property possessed by the Hindu family, property may be possessed by the entire family in which members of the family have interest by birth. INdividual members of the family again may possess property, which belongs to them separately as distinct from the joint family of which they are members. Where a Hindu joint family consists of branch families it may also be that each of the branch families may possess property which constitutes the joint family property of that branch alone and in which the other branches or the main Hindu family as such have no right or interest. That such is the position under the Hindu law is clearly pointed out in Sudarsanam Maistri vs. Narasimhulu Maistri (1901) ILR 25 (Mad) 149. Bhashyam Ayyangar, J. dealing with the principles of Hindu law bearing on the conception of the Hindu joint family observed as follows :