TMI Blog1962 (12) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... Laxmiramana (1953) Venkatalaxmi (daughter) (1956) The family, which was governed by the Mitakshara School of Hindu Law, owned certain house properties in the City of Madras besides a business in hardware and money-lending. Though the assessee was the karta of the family, he was describing his status as that of an individual and income-tax returns were being made by him for several years describing his status as such and assessments were completed on that footing up to and inclusive of the assessment year 1950-51. 3. On December 31, 1950, a memorandum of agreement was entered into between the assessee and his son, Namberumal, and the business assets in hardware including money-lending business were divided between them. Copy of the memorandum of agreement is annexed hereto as annexure A and forms part of the case. By a deed of partnership, dated January 1, 1951 (copy whereof is annexed hereto as annexure B and forms part of the case) entered into between them, the aforesaid business assets including money-lending were brought into as the assets of the partnership. 4. For the first time, in the assessment year 1951-52, the assessee made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, whereas those comprised in the second group were claimed to be the separate properties of Kannan. The properties comprised in the second schedule were inherited by Kannan from his deceased divided brother, Ethirajulu, who died issueless. This claim was, however, refused by the department by saying that though the properties were inherited in the manner aforesaid, they were thrown into the common stock of the Hindu undivided family by Kannan with the intention of abandoning all his separate claims thereto. By this settlement deed Kannan and Alamelumangaithayarammal were constituted trustees to hold and possess the said properties for the benefit of the children of Namberumal then in existence as also of such other children as may be born to him, subject nevertheless to the right of the enjoyment of the income from the said properties by Kannan during his lifetime and after his lifetime by Alamelumangaithayarammal during her lifetime. In other words, by this deed of settlement successive life estates have been conferred on both Kannan and after his death, on Alamelumangaithayarammal, with a vested remainder in favour of the children of Namberumal. There is a provision in this d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) That the Income-tax Officer was wrong in holding that the outstandings due to the family have not been legally made over to the trust and that in any case the outstandings to the tune of ₹ 50,000 transferred to the trust did not represent the outstandings due to the family; that, therefore, the Income-tax Officer ought not to have assessed the sum of ₹ 4,479 representing the interest from outstandings in the hands of the appellant; (iii) That the Income-tax Officer ought to have noticed that property at No. 66, Narayana Mudali Street, as well as No. 86, Nyniappa Naicken Street, were got by inheritance by A. Kannan Chetty as the heir to his divided brother and they never formed part of the joint family property; (iv) That the Income-tax Officer had erred in including the income of the property from No. 8, Waddels Road, which had been conveyed to Sri A.K. Anandakrishna by a conveyance deed dated July 31, 1956; and (v) That the Income-tax Officer was wrong in including the sum of ₹ 17,310 as income from other sources and, in any event, such income could not be included in the assessment of the Hindu undivided family as the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph 224). It is also wellsettled under the Hindu law that the disposition of property which is inherently illegal, as where the estate which is given is not recognised by the Hindu law, cannot be made to take effect by the medium of a trust. That which cannot be done by a gift cannot be done by the intervention of a trust (see Mulla's Hindu Law, 12th edition, paragraph 391, citing, among other cases, Rajender Dutt v. Sham Chund Mitter(1) ). In the last mentioned case, there was an arrangement, the object of which was to settle the family properties in trust for the maintenance of the members of the family born and to be born and the Calcutta High Court held that this cannot be done by a gift and what cannot be done by a gift cannot be done by the intervention of a trust. Again, in an early Bombay case (Kahandas Narrandas, In re(2) ) it has been categorically ruled that a trust which has the effect of altering the course of devolution under the Hindu law of property and succession is void being opposed to the Hindu law. It is well settled that a Hindu father has no right to deal with his sons' interest in the family properties, not even by way of family arrangement, in a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orn or to be born. Similarly, the right of survivorship, which is another valuable right of every coparcener governed by the Mitakshara School of Hindu law, has been defeated by the provisions contained in the deeds. The provisions of these deeds, in so far as they are opposed to the ordinary rules of Hindu law, are void and inoperative. Indeed Sri Sethuraman, learned counsel for the assessee, did not seriously dispute this proposition. Being aware of this formidable difficulty in his way, he argued that the arrangement was beneficial to the children and it should be deemed to be valid until it is set aside by a competent court. We are unable to accept this contention. In the first place, we are of opinion that the arrangement was not beneficial to the minor sons. On the contrary it is detrimental to their interests. As already pointed out above, the sons would have to wait for an indefinite period, i.e., till the attainment of majority of the last of the children, male or female, born or to be born, in order to get his separate share. How are the trustees to judge that no more children will be born to Namberumal? This sort of tying up of the properties for an indefinite period is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust and the settlement deed are taxable only in the hands of the Hindu undivided family. 8. Contention No. (iv):--This contention relates to the income from No. 8, Waddels Road, settled upon the children of Anandakrishna by the second trust. For the reasons already stated, we have no hesitation in upholding the Appellate Assistant Commissioner's decision that the deed is void as being opposed to Hindu law. We are of opinion that the income from this property has been correctly included in the assessment of the Hindu undivided family. 9. Contention No. (v):--This contention relates to the assessment of a sum of ₹ 17,310 mesne profits of No. 86, Nyniappa Naicken Street, which is covered by the settlement deed. Before us, the only contention of the assessee with regard to this sum (see ground No. 5 before the Tribunal) is that, as the amount represented the rent for the period March 16, 1952, to the date of the decree, it was not right to tax the entire amount in the year of appeal. We are of opinion that this contention is well founded. From a perusal of the decree, it is clear that the said sum has been awarded in lieu of rents and profits from the said property as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nan Chetty's wife, Alamelumangaithayarammal. It would be sufficient to state at this stage that by means of these documents the members of the family purported to create trusts in respect of the items of immovable properties owned by the family. One or more of the executants of the documents were themselves the trustees thereunder. On foot of these documents, the claim was put forward in the assessment proceedings of the year 1957-58 that the income from the properties covered by these trust deeds should be excluded from the assessment of the Hindu undivided family. The Income-tax Officer rejected this claim and made the assessment upon Kannan Chetty as the karta of the Hindu undivided family. But, on appeal, the Appellate Assistant Commissioner accepted the contention that the items covered by the trust deeds had ceased to be the property of the joint family and the income therefrom should accordingly be deleted from the assessment of the Hindu undivided family. The other contentions raised by the assessee were negatived. A further appeal was taken to the Tribunal by the department. The Tribunal on an examination of the matter came to the conclusion that the documents executed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers of a Hindu joint family but as beneficiaries of the trust. He therefore held that the income from the properties covered by these two trusts should be excluded from the total income of the Hindu undivided family. In the case of the third trust, in the absence of evidence that the funds which went into the creation of the trust formed the separate property of Kannan Chetty, the income therefrom was held assessable as the income of the Hindu undivided family, but to the extent to which any portion of the property covered by this trust was settled upon a stranger to the family, that settlement was held to be void as opposed to Hindu law. He also declined to accept the contention that two items of properties did not form part of the joint family properties having been inherited by Kannan Chetty from his divided brother, the late Ethirajulu Chetty. He held that the income from these properties could be assessed as joint family income. It is not necessary to refer in detail at this stage to the approach to the question made by the Tribunal in the appeal before it. Broadly speaking, the conclusion of the Appellate Assistant Commissioner was differed from, the income from the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p and maintenance of the children, then alive and to be born in future, and to be divided and distributed in equal shares to such children on the attainment of the age of majority of the youngest child. The other parts of the trust deed are not immediately relevant. The second document also executed on the same day by the same parties dealt with four items of immovable properties. Two items set out in Schedule A thereto were joint family properties, the other two items set out in Schedule B were properties which exclusively belonged to Kannan Chetty having been inherited by him from his divided brother, Ethirajulu Chetty, after a division in status had come into existence between Kannan Chetty and his son, Namberumal Chetty. The provisions of this document were that Kannan Chetty should have a life interest in all the items of properties and that after him his wife, Alamelumangaithayarammal, should likewise enjoy a life interest therein. The properties were to be under trust and to be preserved for the benefit of Namberumal Chetty's children in the same manner as in the earlier document. The document contained certain other directions with regard to the allotment of the vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng department to do in the absence of an actual division of the properties among the members of the family is to treat the family as continuing to exist for the purposes of assessment and levy of income-tax. It places no prohibition upon the capacity of the joint family or the members of the joint family to deal with their properties in accordance with the principles of Hindu law as may be applicable thereto. For instance, if the karta of a family effects an alienation or even makes a gift, in so far as the taxing department is concerned it is the income of the members of the Hindu undivided family that can be assessed, and if by reason of an alienation, whether it is binding upon the members of the joint family or not, an item of property ceases to be in the hands of the joint family, it would not be open to the department to say that they would ignore such an alienation, notwithstanding that the possession of the properties and its income may pass into the hands of a stranger. It may be different in cases where the joint family deals with one or more items of property or converts it into a different estate retaining both possession and income in its own hands. That may properly b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1946] 14 I.T.R. 116: The Board held that it was open to the members of a joint Hindu family to separate one of its assets, so as to make it not to belong to the joint family and in respect of which they can enter into an agreement of partnership. If that asset was a business, the income derived from carrying on such a business thereafter would not form part of the joint family income and section 25A would not come in the way of such an arrangement.......It must be remembered that section 25A is a machinery section. It is not a charging section. Much less it can be construed as altering the Hindu law as such. Again in Sulakhe v. Commissioner of Income-tax [1960] 39 I.T.R. 394, it was observed that the legal effect of a partition by metes and bounds and the declaration under section 25A by the Income-tax Officer was only to constitute the members of the disrupted joint family into assessable entities. It would follow from this that but for this order of the Income-tax Officer, the previously existent assessable entity, viz., the Hindu undivided family, would continue to exist. The decision of the Privy Council was quoted as establishing that it was open in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case, Kannan Chetty was a divided member of the family, but the properties had not been divided by metes and bounds. The right of a divided member to alienate his ascertained share in the family properties can hardly be questioned. It may no doubt be that an alienee from such a divided member can only sue for actual division by metes and bounds of the share of his alienor in the family properties and may not be in a position to obtain joint possession of the properties with other members of the family. But if the other members of the family consent to separate the portion that would fall to that member on partition and give possession thereof to the alienee and honour the commitment entered into by the member of the family, there is nothing in law which prevents such a course being adopted, and solely for the reason that there was not an actual division before the member alienated the property, the taxing department cannot say that it would continue to assess the income from the alienated properties as still belonging to the joint family. It is true that in so far as the order under section 25A is intended to operate, the joint Hindu family, notwithstanding that a division ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o far as these properties are concerned is not only voidable but void ab initio. The position then would be that to the extent of the properties which are allocable to the share of Namberumal Chetty, it continues to be property of the joint Hindu family of which Kannan Chetty is the karta and which, in the absence of an order under section 25A, is deemed to continue in existence, and an assessment can very properly be made in respect of the income from those properties in the hands of the karta, Kannan Chetty. What we have said above is sufficient to establish that by the creation of a trust in respect of Kannan Chetty's own half share, the half share of the joint family properties and of his separate properties, they have ceased to be property belonging to the joint Hindu family, the creation of the trust by Kannan Chetty being a perfectly valid transaction. It would follow that the income from those properties will have to be assessed not in the hands of the deemed Hindu undivided family but in the hands of the trustees of the trust. The question is accordingly answered partly in favour of the assessee and partly in favour of the department. There will be no order as to co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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