TMI Blog1996 (10) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... sult of which there were two Original Petns. Nos. 3053 and 3118 of 1990 and 1222 and 2851 of 1991 by the Revenue as well as by the assessees, under s. 256(2) of the IT Act, 1961, preferred and by the common judgment therein dt. 4th Sept., 1992, this Court directed the reference of three questions which would be reproduced as may be necessary at an appropriate stage. It appears that although this Court passed the order as far back as on 4th Sept., 1992, directing references, on an earlier date 13th Sept., 1996, the Tribunal, Cochin Bench, was called upon to speed up the process of despatching the necessary references to this Court, so that the question in all these proceedings being common and in view of the position that with regard to the foundational asst. yrs. 1980-81 and 1981-82 the proceedings not having been received by this Court, the references relating to the subsequent assessment years (referred to above) had to be adjourned. As a result of the earlier order of this Court, the Tribunal in pursuance of the directions of this Court in the original petitions as stated above, referred the proceedings to this Court which are IT Ref. Nos. 67 to 70 of 1996 naturally in the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt from the situation that other questions relate to the factual matrix and findings in regard thereto. 4. The factual matrix will have to be spread over as is available in an undisputed position from the material on record. (A) The assessee, Shri P.N. Srinivasa Rao, is the proprietor of Dwaraka Hotel. With regard to the asst. yr. 1980-81, on 30th Aug., 1980, the return was filed showing taxable income of Rs. 1,31,340. This Dwaraka Hotel has three components-(i) Bar section, (ii) Lodging section and (iii) Tourist taxi business. Initially, by an order dt. 30th March, 1983, with regard to the said asst. yr. 1980-81, as stated above, the return was filed which resulted in the total demand of Rs. 79,775 as per the order. For the asst. yr. 1981-82, the assessee, Shri P.N. Srinivasa Rao, filed his return on 29th Aug., 1981, admitting total income of Rs. 2,36,760. This was all in the status of an individual, as in the earlier years in regard to which there is no dispute. For this asst. yr. 1981-82, subsequently nearly after two years, on 23rd July, 1993, a revised return came to be filed reducing the total income to Rs. 25,980. It is at this for the first time the assessee conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -Assets and liabilities : (Rs.) (Rs.) Father P.R. Narayana Kukkillaya, value of assets 13 cents and building . 12,000 Movable assets-Amount due from son, P.N. Ramakrishna Rao . 8,000 ------- 20,000 ------- No liabilities partitioned to the father . .. B. Schedule : P.N. Ramakrishna Rao (son) . . Value of assets 60,380 Liability 40,380 ------- 20,000 C. Schedule : . . P.N. Vasudeva Rao (son) . . Value of assets 26,325 Liability 6,325 ------- 20,000 D. Schedule : . . P.N. Sreenivasa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andra Rao, opened Cochin Café near Rammohan Palace, Ernakulam (present High Court building). The buildings were constructed in the properties belonging to the father and four sons to do joint business. Cochin Café, in the course of time was closed and all the five members-the father and four sons joined Thoppumpady hotel business. A family business was started in the new building constructed with their sources under the trade name "New Woodlands" Boarding and Lodging, Ernakulam. The original Thoppumpady business was treated as a branch of the Ernakulam business. Vicissitudes and adverse circumstances led to the partition, as particularised hereinbefore. (F) The will dt. 15th July, 1960, was restricted to the assets of the father, Shri P.R. Narayana Rao, as is available from the deed of 1954, together with additions and aggregations in the course of the continuance of the business. It would be seen that the property referred to under Sch. II of the will in question is given to the two brothers-Shri Srinivasa Rao and Shri Ramachandra Rao, jointly as per the following necessary particulars of the will: "Schedule II (2) and (3) P.N. Srinivasa Rao and Ramachandra Rao 23 cents o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his transaction show that Rs. 2,75,000 were paid on 16th April, 1972, and with regard to the balance of Rs. 2,25,000 it is specified that Rs. 25,000 to be paid within two months from 16th April, 1972 and balance of Rs. 2,00,000 to be paid within two years from 16th April, 1972. (I) With regard to the assessee, there is yet another relevant factual facet. The assessee was married in 1962 and his first daughter was born in 1963. It took 13 years thereafter for the son, Master P.S. Sheshagiri. 5. On the basis of the above factual matrix, the ITO (annexure A-2) held that the assessee got a net asset of Rs. 65,000 in pursuance of the release dt. 25th Nov., 1970, executed by him in favour of his brother, Shri P.N. Ramachandra Rao, and the Hotel Dwaraka building and business were purchased by the assessee by document dt. 16th April, 1972. The ITO is of the view that this nucleus of Rs. 65,000 is not at all adequate enough to claim that the entire corpus belongs to the HUF and consequently rejected the contention of the assessee. The ITO found from the perusal of the record that the assessee was assessed to income tax in 1956-57, his first assessment having been completed on 22nd Feb. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion even factually requiring the entire discussion upto now has been wound up by the first appellate authority in just two paras Nos. 6 and 7. The first appellate authority observes that the asset is built up by individual enterprises. The assessee could not have built up a business of this magnitude with the amount of Rs. 20,000 obtained on partition with an almost equal amount of liability tagged on to that. There is every reason to hold that the business carried on by the appellant is only his individual business and the income from that business should be properly assessed to tax as his individual income. Thus in para 7, the authority proceeds on the assumption of a family nucleus to observe that w.e.f. 1st Dec., 1976, the business cannot be deemed to have been partitioned and run by the appellant and his minor son as two different individuals so as to assess only a portion of the business income in the hands of the appellant. It is observed that the business is a composite asset and the income therefrom is to be treated as the income of the partners who have jointly exploited it. The appellate authority still proceeds at a tangent to observe that the entire business income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation of the total income. 9. We have, elaborately spread over the factual matrix emphasizing the manner in which the parties looked at each other. The father, Narayana Rao, at the initial stages really had the walking stick support of the eldest son, Ramakrishna Rao. However, Shri Narayana Rao engaged himself in the hotel activity and there are enough particulars in regard thereto. Initially, there was a hotel near the building which is now the building of this institution itself. That was changed. Shri Narayana Rao called his other sons also who were employees in the hotels at Madras. An employee in the hotel at Madras prior to 1954 could be appreciated in the light of the efforts of Narayana Rao to bring them together. The particulars of the conduct of the dramatis personae show that there was an element of togetherness and efforts in regard thereto. This togetherness will have to be understood as synonymous with jointness. They continue, and the partition deed was the be all end all of the situation in the final retirement of the father. The father kept with him the stated property which is the undisputed property on which the New Woodlands, Boarding and Lodging House sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, 1960, is the property which is now known as New Woodlands Boarding and Lodging. The process of undisputed positions show manifestations of further continuation. The father expired in 1964 and the two brothers-Shri Srinivasa Rao, the present assessee, and his younger brother, Shri Ramachandra Rao, continued together. They continued together well nigh for a period of seven years and it is thereafter there was a release deed dt. 25th Nov., 1970, releasing Shri Srinivasa Rao, the assessee, on receipt of Rs. 65,000 as total consideration. If the two brothers were joined and continued, to be so from 1964 at least up to 1970 and that too in connection with the business, the assessee must have gathered for himself during the period in question. 12. More important and vital is the aspect that what was Srinivasa Rao, the assessee, was he an individual ? Could he be understood to be an individual in law, when he was married in 1962 ? A father of a daughter in 1963 and even thereafter the father of the male heir, Master Sheshagiri, in 1975. 13. Apart from the running golden thread of jointness which is available in the neatly spread over factual matrix, a Hindu is never born as an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r way an HUF may also consist of a male Hindu and the widow of his deceased brother. It may also consist of a male Hindu and his wife only. All that is required is that there are two members. Another feature of an HUF is that its composition may alter in the process of passage of time. In other words, in the context of the situation Narayana Rao and his four sons who continued to be joint would be the members along with the female members of the HUF. The position may get distributed and this may be one of the features of their pattern of behaviour. Still their jointness is writ large on the material before us. What Narayana Rao possessed has become the subject-matter of a will dt. 15th July, 1960, and this has been given and it is so precisely stated that it is so given jointly to the two brothers, Shri Srinivasa Rao and Shri Ramachandra Rao. With regard to the property in question, Shri Srinivasa Rao and Ramachandra Rao would have to be understood to continue as HUF thereafter, after the death of Narayana Rao in 1964. At the other end Shri Srinivasa Rao who was an individual up to the year 1962, on marriage with Smt. Padma would have to be understood with reference to the Hindu jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Generally speaking, the normal state of every Hindu family is joint. Such joint Hindu family is joint in food, worship and estate and in the absence of proof of division and not by way of an arrangement, until the contrary is proved the family will have to be understood as joint. Such a presumption is stronger in the case of brothers than in the case of cousins and so on, making the presumption weaker and weaker in the context. The brothers are for the most part to be understood to be undivided and cousins and second cousins are generally separated. This is with regard to the person concerned with the joint Hindu family. At the other end with regard to the Hindu coparcenary property this is not the situation. The situation is not of a presumption. 15. The above discussion relating to the position of law relevant to the factual matrix would show that the assessee, Shri Srinivasa Rao, his wife, Smt. Padma, and the daughter born in 1963 would have to be understood as a joint family. Srinivasa Rao in his turn joint with his brother, Ramachandra Rao, up to the date of the release deed dt. 24th Nov., 1970. The assessee, Srinivasa Rao, as a result of the release deed taking an amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n HUF is not a creature of contract. It is further observed in the context that the Act by which the coparcener throws his separate property into the common stock is an unilateral act and in regard to it there is no question of either the family rejecting it or accepting it. He makes no gift under Chapter VII of the Transfer of Property Act. We are afraid that the decision cited would be helpful in the context of the factual matrix that deals with the further flow of the situation in the context of the passage of time discussed by us hereinbefore. In fact, the document of 17th Aug., 1954, would show that nature of jointness and this is in a situation that existence of the ancestral property is not a must in the situation. The apex Court in the case of Mallesappa Bandeppa Desai vs. Desai Mallappa Alies Mallesappa (supra) deals with the member of joint Hindu family blending his self-acquired property with the property of a joint family either by bringing his self-acquired property into a joint family account, or by bringing joint family property into a separate account. The apex Court placing reliance on the earlier decision of the Privy Council in Rajanikanta Pal vs. Jagamohan Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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