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TMI Blog1987 (8) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Mr. T. N. Dasikan 20,000 4. Mr. T. N. Kishore 20,000 5. Mr. T. N. Kothandapani 20,000 6. Mr. T. N. Sridharan 20,000 7. Mr. T. N. Soundararajan 20,000 8. Mr. T. N. Kumar 20,000 -------- 2,00,000 &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. The Supreme Court has recognised that the provisions of section 16(3) of the 1922 Act were intended to prevent evasion of tax so that a husband or a father could not normally transfer his property to the wife or minor children so that the tax burden might be lightened by dividing his own income among a number of people and the income derived by the individual might fall below the limits of taxable income. In other words, this section was intended to defeat the device which enabled an assessee to secure the entire income by reason of his having legal control over that income as a spouse and also as a guardian of the children, but at the same time to evade income-tax which he would have otherwise been liable to pay. See Balaji v. ITO [1961] 43 ITR 393 (SC). However, courts held that these provisions which enable the ITO to add back an income arising from assets transferred by an individual to his spouse or children could not be applied in a case where a coparcener throws his separate property into the common stock of the family and thereby converts it into a joint family property or where such property is subsequently partitioned among the family members including the coparcen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sub-clause (b) now referred to income derived from converted property as the deemed income of the individual and not the family. 8. Now sub-clause (b) of clause (2) deems the income derived from the converted property to arise to the individual and not to the family thus avoiding the transfer of the property by the individual to the family either directly or indirectly by way of conversion. Sub-clause (c) deems the income received by the spouse or minor child on partition to arise to the individual. A reading of these two sub-clauses makes it clear that sub-clauses (b) can have application only as long as converted property is held by the family because once the family is partitioned sub-clause (c) would come into operation and sub-clause (b) will cease to apply. Under sub-clause (c) also the question of adding any income will arise only if in the partition property has been received by the.spouse or minor child and not otherwise. 9. These provisions create a fiction. The Supreme Court has held that this section should be strictly construed. See CIT v. Manilal Dhanji [1962] 44 ITR 876. The reason for excluding the conversion of individual property into joint family property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adding back of the income arising to the spouse and the children and since sub-section (2) only enables the application of the provisions of sub-section (1) to a case of a conversion of an individual property to a joint family property these provisions can only apply to the conversion of the individual property into the property of a family of which the individual himself is the karta and cannot apply to a larger family of which he is only a coparcener. In this connection it is interesting to note that the Choksi Committee also examined these provisions in great detail and considered one of the suggestions that a nucleus family consisting of the husband, wife and the minor children should be taken as a taxable unit. But it was noticed that such a concept would be detrimental to the interests of a large number of families and particularly to working women and would distort the law in regard to the HUF as a taxable unit where the law has evolved and is now reasonably well settled by several judicial pronouncements. 12. the Supreme Court has held in the case of CWT v. Chandra Sen [1986] 161 ITR 370 that the effect of the condification of the Hindu Law and particularly the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the joint family property to the spouse or children unless at a portion some part is allotted for their benefit. This is a reason why a deeming provision has been made in clause (b). But that deeming provision cannot apply to the HUF created by the partition since it applies only to the joint family to which the individual had transmitted the property by conversion. Since the deeming provisions have to be strictly construed, we cannot extend it to cover the joint family other than that to which the property was transmitted by conversion though it ultimately happens to hold part of the converted property upon partition. Therefore, the income arising to the smaller joint family of each of the coparceners cannot be added to the total income of the coparcener within the scope of sub-section (2) of section 64. 14. However, the question still remains as to whether the income derived from the share allotted to each of the coparceners would be income arising to the joint family of which the coparcener is the karta or it would be the income of the coparcener in his individual capacity. In the case of T. N. Gopalan, T. N. Desikan, T. N. Kishore, T. N. Kothandapani and T. N. Sridharan, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income was assessable only in the hands of the individual until a son was born. We have to seek the rationale behind this from the decision of the Privy Council in the case of Kalyanji Vithaldas v. CIT [1937] 5 ITR 90. There it was stated that the existence of the wife or daughter does not make income derived from joint family property, the income of the family because they have no right in that income and the individual coparcener has absolute right of disposal over the income until a son is born. In view of this position, which has stood the test of time, we have to hold that in the case of T. N. Iyengar and T. N. Soundararajan the income derived from the assets received on partition must be considered only as the income of the individual and has to be assessed in their hands even though the addition u/s. 64 was not justified. In the circumstances, we uphold the assessment for our own reasons in the cases of T. N. K. Iyengar, T. N. Soundararajan and T. N. Kumar while deleting the addition made u/s. 64 in the cases of T. N. Gopalan, T. N. Desikan, T. N. Kishore, T. N. Kothandapani and T. N. Sridharan. 16. In the result, ITA Nos. 208, 211 and 270/Mds/86 are dismissed and ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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