TMI Blog1964 (10) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment years, the Hindu undivided family consisted of the said Surendra, his second wife, Pratimaben, three sons and three daughters. Over and above the properties belonging to the Hindu undivided family, the deceased Surendra also held self-acquired and separate properties. It was found that from the income of his said separate property, he spent gross amounts of ₹ 3,34,259 in 1957 and ₹ 3,16,499 in 1958. The Expenditure-tax Officer computed the taxable portion of this expenditure at ₹ 28,683 and ₹ 19,285. The first wife of the said Surendra died in 1947, leaving the said Darshan and two daughters, Ranna and Rajeshri, all the three of them being then minors. The family of Surendra Mangaldas had received in all 4,587 shares of the Jubilee Mills Co. Ltd. on a partial partition of the parent Hindu undivided family of Mangaldas Girdhardas. On receipt of these shares, they were allotted as follows: Surendra Mangaldas 587 shares; Darshan 1,000 shares; Ranna 1,000 shares; Rameshchandrika (the first wife of Surendra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n all ₹ 18,249. The three children also spent a further sum of ₹ 10,072 from the income derived from their own property. The Expenditure-tax Officer computed the taxable portion of expenditure at ₹ 10,321 for the account year 1957 and ₹ 7,951 for the account year 1958. While computing the taxable expenditure of the Hindu undivided family for the account year 1957, the Expenditure-tax Officer included the said two sums of ₹ 28,683 and ₹ 10,321 relying upon section 4 (i) and (ii) as it stood at that time. Section 4 was subsequently amended by the Finance Act, 1958, and the amended section came into operation as from April 1, 1959. The amount of ₹ 28,683 was the personal expenditure incurred by the said Surendra from out of the income of his separate properties and the other sum of ₹ 10,321 consisted of the amounts expended by the children partly from income derived from the trust properties and partly from income derived by them from properties belonging to them. As regards the first item of ₹ 28,683, the Expenditure-tax Officer relied on section 4(i) read with the definition of dependant under section 2(g)( ii)(b) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, observed that the details of these expenses by the said Surendra and the expenses incurred by the three children were not available to the Tribunal. The department contended that they were not on record, but on behalf of the assessee-family it was stated that they were furnished by the family to the Expenditure-tax Officer. In spite of these rival contentions, the Tribunal does not appear to have gone into the record or made any enquiry, nor was any finding given on the question whether, as claimed by the assessee, the expenditure was incurred by Surendra on himself. On behalf of the assessee, however, a specific question was raised before the Tribunal, namely, that even though the expenditure incurred by the said Surendra can be said to be an expenditure incurred for personal requirement, the second condition in clause (i) of the unamended section 4, namely, that the expenditure was such which, but for the expenditure having been incurred by that other person, would have been incurred by the assessee-family, was not established by the department and that, therefore, for that reason the aforesaid amount of ₹ 28,683 could not be included in the taxable expenditure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) was a tax on expenditure and subject to the other provisions of the Act, no question would arise about the nature of the source or sources of moneys from which the expenditure in question was incurred. He also observed that the assessee, under the Act, may be a Hindu undivided family which was capable of holding property as a separate entity. The family as a unit can be possessed of property which can be distinguished from the property of which the owner is an individual, though that individual may happen to be a member of such family. According to him, however, these considerations would apply only to the question of holding of the property and possession of the income, but the question of expenditure has to be considered independently of the source of income for the purposes of the Expenditure-tax Act and, therefore, the only question that could arise would be about the meaning of the expenditure incurred by a Hindu undivided family and the expenditure of the family must mean the total of the expenditure incurred by each and every member of the family. According to the President, section 4 provides for the inclusion of certain amounts in computing the expenditure of an assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, is entitled to maintenance, from the joint family property. Clause (h) of section 2 defines expenditure to mean any sum in money or money's worth, spent or disbursed or for the spending or disbursing of which a liability has been incurred by an assessee, and includes any amount which under the provisions of this Act is required to be included in the taxable expenditure. Lastly, taxable expenditure as defined by clause (o) means the total expenditure of an assessee liable to tax under this Act. Clause (g) was amended by the Finance Act, 1958, but no change was made in that part of the definition of the word dependant vis-a-vis a Hindu undivided family. Section 4, as it stood prior to the amendment, provided as follows: 4. Unless otherwise provided in section 5, the following amounts shall be included in computing the expenditure of an assessee liable to tax under this Act, namely: (i)any expenditure incurred, whether directly or indirectly by any person other than the assessee in respect of any obligation or personal requirement of the assessee or any of his dependants which, but for the expenditure having been incurred by that other person, would have been i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily holds family properties, a member of such family, while continuing to be joint with the other members, can also hold independently of the others his own self-acquired and separate properties and would be assessed under the Income-tax Act as a separate entity from his Hindu undivided family in respect of the income derived by him from his self-acquired and separate properties. The expenditure-tax recognises this position, for section 3, which is the charging section in the Act, provides that expenditure-tax shall be charged at the rates specified in the schedule to the Act in respect of expenditure incurred by an individual or a Hindu undivided family. Therefore, the Act recognises two assessable entities, an individual and a Hindu undivided family. It is common ground that apart from section 4, there is no other provision in the Act under which the amounts in question could be brought to tax. It is also an undisputed fact that the joint family possessed properties of considerable value and the karta was also possessed of self-acquired and separate properties of considerable value from the income out of which he spent large amounts. Taking the item of ₹ 28,683 incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de a karta of a Hindu undivided family amongst the dependants of such a family. Thus, in section 6, which provides for certain deductions, clause (c) of sub-section (1) provides for deduction in case of an expenditure incurred by an assessce (1) if he is an individual, in respect of his marriage or the marriage of any of his dependants, and (2) if the assessee is a Hindu undivided family, in respect of the marriage of the karta or any other member of the family. It will be noticed that clause (2) here does not use the word dependant , for the legislature wanted to grant deduction in respect of marriage expenses of all the members of a Hindu undivided family, whether they are coparceners or not, and, therefore, the legislature, wishing to grant deduction for marriage expenses of all the members of the Hindu undivided family, refrains from using the word dependant . The expenses of marriage of the karta also had to be expressly provided for, for otherwise he not being a dependant, the family would not be entitled to a deduction. A similar provision is made in clause (f) of section 6(1) for the karta not being a dependant, expenditure made for him by the family had to be expressly p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a dependant while the other coparceners not having such powers would, though jointly owning family properties, have to look to the karta for the family expenses. The second reason is that the legislature could not have intended to include the karta as a dependant in (b) along with the other members of the family, for if it intended to regard the karta as a dependant, it would not have obviously excluded him as a dependant under (a) and there would have been no necessity of dividing the constituents of the family into coparceners and other members. It would have been sufficient in that case to have said that all the members of the Hindu undivided family are dependants of the family. The learned Advocate-General then argued that clause (i) of section 4 includes expenditure incurred by a person other than an assessee, in the present case, the Hindu undivided family, for the personal requirement of the family or any of its dependants. The contention was that since the expenditure for the personal requirement of the other coparceners is made includible, there was no reason why the expenditure incurred for the personal requirement of the karta should have been excluded, and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o expenditures by the legislature for its own reasons and it cannot, for that reason, be said that an anomaly results from such a distinction. But apart from that, it would seem that if a conveyance is intended for the use of a karta, a karta being the head of the family and in management of the family affairs, an expenditure incurred for such conveyance is possibly regarded as an expenditure for the personal requirement of the family and is, therefore, not excluded from deduction. But clause (c) of section 6(1) clearly brings out that the legislature applied the definition of a dependant as provided in section 2(g) to this section also. Clause (c) grants a deduction of marriage expenses and expressly provides that in the case of a Hindu undivided family, deduction is applicable to expenditure incurred in the marriage of the karta and every member of the family, whether such member is a coparcener or not. If the learned Advocate-General were to be right in his contention that sub-clause (b) of section 2(g) includes a karta as a dependant, obviously it would not have been necessary to make a separate provision for the expenses of the marriage of a karta. The same thing is to be fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of his dependants. It would, the before, appear that the expenditure incurred by a person other than an assessee, not for the assessee or any of his dependants but for himself, is taxable expenditure of that other person and not that of the assessee. The person who spends is the person other than an assessee but the person for whom he spends is either the assessee or any of his dependants and, therefore, unless the expenditure in question is one incurred for an assessee or any of his dependants, it would not be includible under section 4(i). This position is clear from the fact that under clause (i), all expenditures are not includible. The only expenditure which can be included is the one which is in respect of an obligation or personal requirement of an assessee or any of his dependants. If the department desires to include an expenditure incurred by a person other than an assessee, it is for the department to show that it was incurred by the karta in respect of an obligation of the Hindu undivided family or any personal requirement of any of its dependants. The learned Advocate-General argued that the assumption underlying this construction that the spender and the person in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kes a gift in favour of the coparcener. That coparcener incurs expenditure from income arising from the gift for his son who is a coparcener in his own right in that Hindu undivided family. In such a case, the expenditure would be taxed in the hands of both of the donee who incurs the expenditure as also the Hindu undivided family, the donor, as the expenditure is incurred for the personal requirement of the son who is one of the dependants of the Hindu undivided family under section 2(g). Therefore, he argued, that the mere fact that double taxation might result would not necessarily mean that we should accept the construction of Mr. Palkhivala that the spender must be different from the person for whom he incurs that expenditure. In the illustration given by the learned Advocate-General, the person who incurs the expenditure no doubt is different from the dependant of the Hindu undivided family for whom the expenditure is incurred and, if section 4(i) were to be the only provision in the Act, the result would be double taxation in respect of the same expenditure. But the legislature seems to have realised the consequences which would follow in such a case from the provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1958-1959, the expenditure must be by a dependant of the assessee for the benefit of the assessee or any of his dependants and must be out of any gift, donation or settlement on trust, etc., made or created by the assessee directly or indirectly. It would seem that the reason for including such expenditure in the family's taxable expenditure is that though the assessee has made or created a gift, donation or trust, if the expenditure from out of such gift is incurred by the dependant donee for the benefit of the assessee or any of his dependants, it is the assessee who derives the benefit of such expenditure and it is again but fair that the assessee should bear the burden of the tax. It must also have been appreciated by the legislature that an assessee might desire to reduce his expenditure or the expenditure for his dependants by creating a trust or by making a gift in favour of his dependants and by spending from the income arising from such gift or trust for his benefit or his dependants and thus seek to reduce the incidence of tax upon him. Clause (ii), therefore, seems to have been enacted to prevent such a loophole. Therefore, it is clear that the expenditure contempla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,951 by the three children from out of the income of the trust properties. For this year, it would be the amended section 4 which would apply. In clause (i) of section 4, the only change made was the deletion of the words which, but for the expenditure having been incurred by that other person, would have been incurred by the assessee. But the requirement that it must be in respect of any obligation or personal requirement of an assessee or any one of his dependants is still retained and, therefore, that requirement has to be shown as having been fulfilled. The clause remaining as it was before it was amended except for the deletion of the words above quoted, the reasons which we have given would apply with equal force to this item also, the deletion not affecting those reasons. Clause (ii) of section 4, as amended, also would not apply, firstly, because the expenditure having been incurred by the karta, is not by a dependant, and, secondly, because it is not out of the income or property transferred by the Hindu undivided family to such a dependant of the family. As regards the item of ₹ 7,951, clause (i) in our view would not apply, for the person expending the amount d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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