1981 (1) TMI 14 - HC - Income Tax

Summary

Issues Involved:
1. Status of the properties inherited by the deceased under the rule of primogeniture.
2. Whether the properties ceased to be impartible and acquired the character of joint Hindu family properties under the Hindu Succession Act.
3. Whether the properties could be treated as joint Hindu family property by the unilateral action of the assessee.

Detailed Analysis:

1. Status of the Properties Inherited by the Deceased under the Rule of Primogeniture:
The deceased, who was the ruler of the erstwhile State of Patdi, inherited certain properties from his father under the rule of primogeniture. Initially, he filed his returns as an individual from the assessment year 1949-50 to 1964-65. However, for the assessment year 1965-66, he claimed the status of a Hindu Undivided Family (HUF), arguing that the properties should be treated as part of his HUF estate, consisting of himself, his wife, and his seven sons. The Income Tax Officer (ITO) rejected this claim, but the Appellate Assistant Commissioner (AAC) accepted it. The Tribunal reversed the AAC's order, holding that the properties were the absolute properties of the deceased and that the question of impartibility would not assume significance until his death.

2. Whether the Properties Ceased to be Impartible and Acquired the Character of Joint Hindu Family Properties under the Hindu Succession Act:
The Tribunal's earlier decision did not address whether the properties ceased to be impartible. The High Court, in its earlier judgment, directed the Tribunal to examine whether the estate lost its impartible character and from which year, considering the provisions of the Hindu Succession Act, particularly sections 4, 5, and 6. The Tribunal found that the properties were part of the impartible estate inherited under the rule of primogeniture and that the covenants entered into by the rulers of the erstwhile Kathiawar State ensured and guaranteed the rule of primogeniture. The Tribunal concluded that the properties continued to be impartible and the Hindu Succession Act did not change this legal position.

However, the High Court disagreed with the Tribunal's interpretation, stating that the Hindu Succession Act, 1956, abolished impartible estates, except those expressly saved by section 5(ii) of the Act. The Court emphasized that the provisions of the Hindu Succession Act would prevail over any custom or usage. The Court concluded that the properties ceased to be impartible upon the enactment of the Hindu Succession Act and regained all attributes of joint family properties.

3. Whether the Properties Could be Treated as Joint Hindu Family Property by the Unilateral Action of the Assessee:
The assessee argued that even if the properties were considered his separate or individual property, his letter of June 2, 1967, and the partial partitions in October 1972 and January 1973, effectively impressed the properties with the characteristics of joint family property. The Tribunal rejected this contention, stating that no one could impress a character upon a property that it already possessed.

The High Court, however, held that if the properties ceased to be impartible and regained the attributes of joint family properties, the ITO should have accepted the assessee's request to treat the properties as HUF properties. The Court referred to the Supreme Court's decision in State of U.P. v. Raj Kumar Rukmani Raman Brahma, which stated that an estate impartible by custom could not be considered the separate or exclusive property of the holder. The Court concluded that the properties should be treated as joint family properties for all intents and purposes, even during the lifetime of the holder.

Conclusion:
The High Court accepted the reference and answered the first question in the affirmative, holding that the properties ceased to be impartible and acquired the character of joint Hindu family properties under the Hindu Succession Act. Consequently, the second question did not need to be answered. The Court ordered the Commissioner of Income-tax to pay the costs of the reference to the assessee.