COMMISSIONER OF INCOME-TAX Vs. STATE OF MAHARASHTRA

JUDGEMENT

(1.) THIS reference pertains to the assessment year 1975-76. The assessees, Shri and Smt. Vasudeo v. Dempo, are husband and wife, married under the custom of Goa and are governed by the portuguese Civil Code. The Income-tax Officer completed the assessment of the income of the assessees as a body of individuals in respect of their income from other sources such as dividends, interest, etc. , and capital gains. They had no income from house property. The assessees carried the matter in appeal to the Commissioner of Income-tax (Appeals) challenging their assessment in the status of a body of individuals. The Commissioner of Income-tax (Appeals) held that their assessment in the status of body of individuals was wrong in law. He, accordingly, cancelled the said assessment and directed the Income-tax Officer to assess both the members of the communion individually. The Revenue's appeal before the Tribunal was dismissed. The Tribunal observed that the case was covered by the decision of the Bombay High court in the case of Purushotam Gangadhar Bhende [1977] 106 ITR 932. From the decision of the Tribunal, the following question has been referred to us for determination : "whether, on the facts and in the circumstances of the case, incomes under the heads 'income from other sources' and 'income from capital gains' were not assessable in the hands of the body of individuals, but were assessable separately in the hands of the individual spouses ?"

(2.) IT is an accepted position that both the spouses are married under the Goa customary law and are governed by the Portuguese Civil Code. The position relating to the rights of spouses under the Portuguese Civil Code was considered at length by a Division Bench of this court in the case of CIT v. Purushotam Gangadhar Bhende [1977] 106 ITR 932. The court has summarised the relevant provisions of the Portuguese Civil Code as follows : (i) During the subsistence of a marriage celebrated as per the custom of Goa, the ownership and possession of "the common estate", immovable as well as movable, vests in both the husband as well as the wife; (ii)Proposition No. 1 applies to the corpus as well as the income of all communion property, immovable as well as movable; (iii) The husband has only a right of management, but even that right is not an absolute right so as to amount to "ownership" of the income; and (iv) In the corpus as well as the income of communion property, immovable as well as movable, the husband and the wife each have during the subsistence of a marriage celebrated as per the custom of Goa, a fixed and certain half share which can be ascertained on the termination of the communion by divorce, separation or death. What is important in this connection is that it is an admitted position that on the death of one of the spouses, communion property does not devolve by survivorship, but the half share of the deceased spouse goes by succession to his or her own heirs or legatees. Therefore, by virtue of the Portuguese Civil Code both the spouses in the present case have a fixed half share in the income from other sources, namely, income from dividends, interest as well as income arising from capital gains. If this is so, and each of them has a fixed and determined share in such income then the Tribunal was right in holding that the ascertained share of each of the spouses in the said income will have to be assessed in the hands of each spouse as an individual.

(3.) IN this connection, a reference may be made to the judgment in the assessee's own case in income-tax Reference No. 347 of 1975 with Income-tax Reference No. 347a of 1975 being judgment dated October 31, 1985, delivered by Kania, Acting Chief Justice (as he then was) and bharucha J. The Division Bench held that income possessed by the communion of interest of husband and wife under the Portuguese Civil Code was liable for assessment in equal shares in the hands of each of the consorts separately and not in the hands of the "body of individuals".