COMMISSIONER OF WEALTH TAX v. CHANDER SEN AIR 1986 SC 1753

FACTS OF THE CASE 

R and C shared a Father –Son relationship with each other and had constituted a Hindu Undivided Family. Due to partial partition in the HUF the business was being carried on the basis of partnership between the two, while the house property remained joined.

The firm was assessed under the Income Tax and both the partners ( Father and Son ) were assessed individually for their wealth.

On July 17^th the father passed away, leaving behind his son C and his grandsons. C constituted a HUF business with his sons.

After the death of the father the assessment for the year 1666-1667 revealed that there stood a credit balance in the accounts of the father of the amount of Rs.1,85,043 in the firms record.

When C filed for the return of his income, he had mentioned about the property of the family which he received after the death of his father along with the assets of the partnership business acquired by him after his father’s death.

C did not include the amount standing in the credit of his father’s account of Rs.1,85,043 as he stated that this amount was acquired by him in his individual capacity upon the death of his father and not as a property of the family. The Wealth tax officer was not satisfied with such contention of the son.

When the assessment was conducted for the period of 1967-1968, a particular sum of Rs. 2,330.was credited to the account of the late father on the pretext of interest accrued on the previous credit amount in the father’s account. 

At the end of the year the amount that stood in the credit of the late father’s account was 1,82,742, which was transferred to the son’s account.

Later the income tax officer rejected the claim on the interest on the grounds that it was transferred by son to himself, along with in the wealth tax assessment, the officer had included the amount of Rs.1,82,742 as the wealth of the son’s family.

Appeal was made to the appellate assistant commissioner of income tax, which was accepted in the favor of the son.

The revenue then filed three appeals against the two assessment of wealth tax for the year 1966-1967 and 1967-1968 and one appeal for the income tax assessment. The appeal was dismissed by tribunal.

ISSUE RAISED

1. Whether the income inherited by the son from his father by partition will be termed as the income of son in his individual capacity or as the income of the Hindu undivided family?
2. What is the effect of section 8 of Hindu Succession act 1956?

ARGUMENTS 

The son argued that the money that he had received after the death of his father was the money he had earned in his individual capacity and not as an income or wealth gained by his family. Further for the income tax assessment the amount of accrued income in the father’s account was the income earned by the son in his individual capacity and not as a income of his family

When the father was alive the credit amount in his account did not belonged to anyone except him neither his sons nor the income of the Hindu undivided family, but after his death the income or the asset would be taken over by his son by inheritance but according to section 8 of Hindu Succession Act of 1956, which stated that the property of dying Hindu father will devolve upon the heirs, specifically specified in class 1 of schedule.

JUDGEMENT

The judgement was given by Justice Sabyasachi Mukherji, as he cited a few precedents, which included the decision of CIT v. Ram Rakshapal where there existed a hindu undivided family between Ram Rakshapal and his father Durga Prasad, who had parted afterwards and had started their own business individually and separately. Later when Durga Prasad passed away leaving behind his widow, his married daughter and Ram Rakshapal and his sons, according to the Hindu Succession Act of 1956 the assets of the late father were to be divided among the three members equally. The daughter took her share and the remaining started to continue the business which they had inherited. When the income tax assessment was conducted the family of Ram Rakshapal contended that the amount which was the part of Ram Rakshapal received by him from his family business, was his income earned in his individual capacity and it should not be considered a part of the income of the Hindu Undivided Family income of Ram Rakshapal. The court relied on section 8 of the Hindu Succession Act of 1956, that assets left by Durga Prasad shall be governed by this section.

In another case of CIT v. Babubhai Mansukhbhai, where the Gujarat High court did not consider the judgement of Allahabad High Court in the above case, the case was that a son when inherited the property of his father, he did not claim it as his individual property and continued it to remain as property of Hindu Undivided Family, the court relied on the section 6 of the act and some of Mulla’s comments on the matter.

In another citation about Andhra Pradesh High Court, which threw light on the preamble of the said act that it stated to modify the old prevailing Hindu Law, for instance the addition of females in the list of class1 of schedules. It was decided in the case of CWT v .Mukundgirji.

The court had considered the views expressed by the following courts and also the contrary decision made by Gujarat High Court.

The court further stated that the preamble should be kept in mind which stated that law was to codify and amend the laws relating to the matter.

They also relied on the commentaries made by Mullah.

It ensured that section 8 of the said act should not be ignored and must be considered.

The income of the son inherited from his father should be considered as an income earned in his individual capacity and not as an income of Hindu Undivided Family, and interest to be allowed as deduction from the income of the family.   

This case analysis is written by Bhumika Kathuria of Vivekananda Institute of Professional
Studies, Intern at Legal Vidhiya.

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