Commissioner of Wealth Tax, Kanpur v. Chander Sen

A father died without a will, leaving one son and his grandsons. The tax authorities treated the son's inheritance as joint family property taxable in the family's hands. The Supreme Court decided whether Section 8 of the Hindu Succession Act, 1956 changed the old Hindu law rule.

Quick Revision

Parties

• Commissioner of Wealth Tax, Kanpur — appellant (the Revenue). It wanted the inherited sums counted as the wealth of the family of Chander Sen.
• Chander Sen — respondent (assessee). He said the sums came to him in his individual capacity, not to his joint family.
• Rangi Lal — father of Chander Sen. He died intestate on 17 July 1965. He is not a party.

Procedural History

1. The Wealth-tax Officer included Rs.1,85,043 (assessment year 1966-67) and Rs.1,82,742 (1967-68) in the net wealth of the assessee-family. The Income-tax Officer disallowed the interest of Rs.23,330 as a payment by Chander Sen to himself.
2. The Appellate Assistant Commissioner of Income-tax accepted the assessee's claim in full. He allowed the interest as a deduction.
3. The Revenue filed three appeals before the Income-tax Appellate Tribunal: two on wealth tax for 1966-67 and 1967-68, and one on income tax for 1967-68. The Tribunal dismissed them.
4. The High Court of Allahabad was asked two questions. One was whether the sums of Rs.1,85,043 and Rs.1,82,742 were assets of the assessee Hindu undivided family. The other was whether the interest of Rs.23,330 was an allowable deduction in the business profits of the joint family.
5. The Allahabad High Court answered both in favour of the assessee, by judgment dated 17 August 1973 (W.T. Reference No. 371 of 1971 and I.T. Reference No. 452 of 1971).
6. The matter reached the Supreme Court by special leave. Appeals Nos. 1668-1669 of 1974 concern wealth tax. Appeal No. 1670 of 1974 concerns income tax. Special Leave Petition No. 5327 of 1978 was heard with them.

Facts

1. Rangi Lal and his son Chander Sen formed a Hindu undivided family (a joint family of related Hindus). It owned immovable property and a business run as Khushi Ram Rangi Lal.
2. On 10 October 1961 there was a partial partition (division of joint property). The business was divided between father and son. A partnership of the two then ran it.
3. The firm was assessed to income-tax as a registered firm. The two partners were separately assessed on their shares of income. The house property of the family stayed joint.
4. On 17 July 1965 Rangi Lal died. His wife and mother had died before him. He left only his son Chander Sen and his grandsons, the sons of Chander Sen.
5. On his death the firm's books showed a credit balance of Rs.1,85,043 in his account.
6. For the assessment year 1966-67 (valuation date 3 October 1965), Chander Sen filed a wealth-tax return with his own sons as a joint family. The return included the family property that passed to him by survivorship (a surviving joint family member takes the share of one who dies). It also included the business assets that devolved on him from his father.
7. The return left out Rs.1,85,043. The assessee said this amount devolved on Chander Sen in his individual capacity and was not the property of the assessee-family.
8. The Wealth-tax Officer rejected that claim and held the sum belonged to the assessee-family.
9. At the close of the previous year ending 22 October 1962, relating to the assessment year 1967-68, Rs.23,330 was credited to Rangi Lal's account as interest on his credit balance.
10. The assessee claimed Rs.23,330 as a deduction in the income-tax assessment for 1967-68. It said the interest was due to Chander Sen individually and was allowable against the family's business income.
11. At the end of the year the credit balance in Rangi Lal's account was Rs.1,82,742. It was transferred to Chander Sen's account.
12. In the 1967-68 wealth-tax assessment the assessee again claimed the balance belonged to Chander Sen individually. The Wealth-tax Officer included Rs.1,82,742 in the family's net wealth.
13. The Income-tax Officer disallowed the interest because it was a payment made by Chander Sen to himself.
14. The Court records that Rs.1,85,043 represented the capital allotted to Rangi Lal on the partial partition plus accumulated profits as his share in the firm.
15. While Rangi Lal lived, the amount belonged to no joint Hindu family. It was his separate property as against Chander Sen and his sons. On his death it passed to Chander Sen by inheritance.
16. In Ram Rakshpal's case (relied on by the High Court), Ram Rakshpal separated from his father Durga Prasad by partition on 11 October 1948. Durga Prasad started his own business and died on 29 March 1958.
17. Durga Prasad's survivors were his widow Jai Devi, his married daughter Vidya Wati, his son Ram Rakshpal and Ram Rakshpal's son Ashok Kumar. The assets went to the first three in equal shares under the Hindu Succession Act, 1956.
18. Vidya Wati took her one-third share. Jai Devi and Ram Rakshpal ran the inherited business in partnership from 1 April 1958 under a deed dated 23 April 1958. The firm was registered for 1958-59, and Ram Rakshpal's share of profit was fixed at Rs.4,210.
19. The family argued before the Income-tax Officer that this profit was Ram Rakshpal's personal income. The officer held that Ram Rakshpal had put ancestral funds into the partnership, so the income was taxable in the family's hands.

Issues Raised

1. Is the income or asset that a son inherits from his father, from whom he separated by partition, assessable as the income of the Hindu undivided family of the son, or as his individual income?
2. When a son inherits as a Class I heir under Section 8 of the Hindu Succession Act, 1956, does he take in his individual capacity or as karta (manager of the joint family) of his own undivided family?
3. Is the sum of Rs.1,85,043 (and Rs.1,82,742 in the next year) an asset of the assessee Hindu undivided family?
4. Is the interest of Rs.23,330 an allowable deduction in computing the business profits of the joint family?

Arguments Contended

The reported judgment does not set out counsel's submissions. Counsel appeared for both sides. The positions below are the stands the Court records in the facts and in the earlier decisions it discusses.

For the appellant (Revenue)

• The Wealth-tax Officer held that the sum of Rs.1,85,043 belonged to the assessee-family. The same was held for Rs.1,82,742.
• The Income-tax Officer disallowed the interest of Rs.23,330 because it was a payment made by Chander Sen to himself.
• The Gujarat High Court in Babubhai Mansukhbhai, which the Court later overrules, had treated the son's inheritance as joint family property.

For the respondent (Chander Sen)

• The sum devolved on Chander Sen in his individual capacity and was not the property of the assessee-family.
• The interest was due to Chander Sen individually and was an allowable deduction against the family's business income.
• The Appellate Assistant Commissioner, the Tribunal and the Allahabad High Court accepted this position.
• The Allahabad High Court had applied Section 8 as in Ram Rakshpal's case, and the Court records that the High Court found the facts identical.

Court's Reasoning

Sabyasachi Mukharji, J. (for the Court, R.S. Pathak, J. agreeing)

The judgment has no numbered paragraphs. The steps below follow its order. No paragraph numbers are cited.

1. Noted: The answer to both questions depends on one point. Did Chander Sen inherit the amount in his individual capacity or as karta of the joint family of himself and his sons?
2. Noted: The amount was Rangi Lal's separate property while he lived. It passed to Chander Sen by inheritance.
3. Noted: The High Court said that under Hindu law a son who inherits his father's separate, self-acquired property takes it as joint family property as against his own family. The High Court found that Section 8 of the Hindu Succession Act, 1956 modified this principle.
4. Noted: Section 8 provides that the property of a male Hindu dying intestate (without a will) devolves under that Chapter, first on the relatives in Class I of the Schedule. The Court said it need not deal with the other clauses or heirs. Chander Sen was the only heir, so the property passed to him alone.
5. Noted: The High Court relied on its earlier bench decision in Ram Rakshpal. By mistake it named Khudi Ram Laha v. Commissioner of Income-tax, U.P., 67 I.T.R. 364. That case dealt with an entirely different problem.
6. Noted: In Ram Rakshpal the Allahabad High Court held that income from assets a son inherited from a father, from whom he had separated by partition, could not be assessed as the income of the son's Hindu undivided family. It relied on Mulla's Hindu Law, 13th Edition, page 248.
7. Noted: That court also referred to Dr. Derrett's "Introduction to Modern Hindu Law" (paragraph 411, page 252), to observations of this Court and the Privy Council, and to Mayne's Hindu Law.
8. Noted: That court said that under Hindu law a partition ends the coparcenary (a joint family group of male relatives with birth rights in property) as against the other coparceners. The property a coparcener obtains on partition still remains coparcenary property for him and his unseparated issue.
9. Noted: Ram Rakshpal held that the business assets left by the father in the son's hands were governed by Section 8, and the son took in his individual capacity. It said there was no scope for wide, general reasoning about a statute's objects when the words of the enactment are clear.
10. Noted: The Allahabad High Court found the facts of the present case identical with Ram Rakshpal. It therefore answered the wealth-tax question and the income-tax question for the assessee.
11. Noted: The Court framed the short question. When a son, as a Class I heir, inherits, does he take individually or as karta of his own undivided family? The question is the effect of Section 8, because under Hindu law as it was the son would take as karta.
12. Noted: Class I of the Schedule names the son, daughter, widow, mother and the son of a pre-deceased son, among others. It does not name the grandson who is the son of a living son.
13. Noted: Section 4 gives the Act overriding effect. Any text, rule or interpretation of Hindu law, and any custom or usage, in force before the Act ceases to have effect on any matter the Act provides for. Other inconsistent laws cease to apply to Hindus.
14. Noted: Section 6 deals with devolution of an interest in Mitakshara coparcenary property. It passes by survivorship to surviving coparceners. The proviso (a qualifying clause) says it passes under the Act if the deceased left a Class I female relative, or a male relative claiming through her.
15. Noted: Section 19 says that two or more heirs succeeding together take per capita (by heads) and not per stripes (by branches). They take as tenants-in-common (each holds a distinct share) and not as joint tenants.
16. Noted: Section 30 lets a Hindu dispose of by will any property that can be so disposed of under the Indian Succession Act, 1925.
17. Noted: Under Hindu law a son gets a share in his father's property from the moment of birth and becomes a coparcener. His right arises by birth, not by inheritance. Whatever property the father gets from any source would normally be joint family property with his son and grandson.
18. Noted: The question is whether Section 8 changes this. The basic argument is that Class I includes the son but not the grandson. It does include the son of a pre-deceased son.
19. Noted: That argument led the Allahabad High Court to hold that income from assets a son inherits from his separated father is assessable as his individual income. The Gujarat High Court took the contrary view.
20. Noted: In Babubhai Mansukhbhai, 108 I.T.R. 417, the Gujarat High Court held that under Mitakshara law a son who inherits his father's self-acquired property takes it as joint family property of himself and his son. It said the son should be assessed as representing his Hindu undivided family. It did not accept the Allahabad view, and it considered Section 6 and Mulla's Commentary.
21. Noted: In P.L. Karuppan Chettiar, 114 I.T.R. 523 (Full Bench), P was separated by a partition on 22 March 1954. The partition was accepted under section 25A of the Indian Income-tax Act, 1922. P died on 9 September 1963, leaving his widow and divided son K as heirs under Section 8. K was karta of his own family.
22. Noted: The Madras Full Bench held that under Hindu law the property of a male Hindu on his death went to sons and grandsons, as grandsons also had an interest. By Section 8 the son's son is excluded and the son alone inherits.
23. Noted: That Bench held that Section 8 directly derogates from the established Hindu law. The statute prevails because Section 4(1) expresses an unequivocal intention that the Act's provisions override the texts of Hindu law.
24. Noted: The Madras Bench said K took the property alone and excluded his son, whether or not it was ancestral in K's hands. An after-born son of K would also take no interest. It is not possible to visualise any Hindu undivided family in respect of such property.
25. Noted: The Madras Bench held the properties were K's separate and individual properties. The income was not assessable in the hands of the Hindu undivided family. The Court said this view is in line with the Allahabad view.
26. Noted: In Shrivallabhdas Modani, 138 I.T.R. 673, the Madhya Pradesh High Court held that no coparcenary subsisted between the Hindu and his sons when his father died. Property he received on that death could not be blended with the property allotted to his sons on an earlier partition.
27. Noted: That court relied on Section 4. It said Section 8 is a self-contained scheme of succession to a Hindu dying intestate. Class I heirs take together, and a son's son is not named in Class I. So he gets no right in his grandfather's property under Section 8.
28. Noted: That court said the son's son's right by birth, which existed during his father's life under the old Hindu law, was not expressly saved by the Act. The earlier interpretation therefore "ceased to have effect".
29. Noted: The Madhya Pradesh court also said that in construing a Codification Act, the earlier law should be ignored and the construction confined to the new Act's language. Property devolving on a Hindu from his father after the Act is not HUF property of his own branch with his sons. It followed the Madras Full Bench and the Allahabad decisions.
30. Noted: In Mukundgirji, 144 I.T.R. 18, the Andhra Pradesh High Court said Parliament wanted a clean break from old Hindu law in certain respects, in line with modern and egalitarian ideas. Section 4(1)(a) was inserted to remove doubts.
31. Noted: The Andhra Pradesh court said it would not fit the spirit and object of the Act to strain its provisions to match older notions of Hindu law. The inclusion of females in Class I makes this clear.
32. Noted: That court said that treating Section 8 property as HUF property in the male heir's hands, as against his sons, would create two classes among Class I heirs. Male heirs would hold it as joint family property. Female heirs would not, since the concept cannot apply to them.
33. Noted: That court said Section 19 also shows an intention to depart from old law. Under the earlier Hindu law, two or more sons succeeding to a father's property took as joint tenants. The Act provides that they take as tenants-in-common.
34. Noted: The Andhra Pradesh court concluded that property devolving on Class I heirs under Section 8 is their absolute property, and their sons have no right by birth in it. The decision was under appeal to this Court by certificate. This Court found its reasoning, at pages 23 to 26 of Justice Reddy's view, convincing.
35. Noted: The Court recorded the divergent views. The Allahabad, Madras (Full Bench), Madhya Pradesh and Andhra Pradesh High Courts were on one side and the Gujarat High Court on the other.
36. Noted: The Court said it must bear in mind the Preamble. The Preamble describes the Act as one to amend and codify the law of intestate succession among Hindus.
37. Held: In view of the Preamble, it is not possible to say that a son who inherits under Section 8 takes as karta of his own undivided family. The Schedule includes the son and the son of a pre-deceased son, but not the son's son.
38. Held: The Gujarat view would let the son's son get a right by birth under old Hindu law. That would be contrary to the scheme of Section 8. The son of a pre-deceased son inherits, while the son of a living son is meant to be excluded.
39. Noted: The Court agreed with the Andhra Pradesh court that Section 4 makes the Act the guide in case of doubt, not the pre-existing Hindu law.
40. Held: It would be difficult to hold today that property devolving under Section 8 is HUF property in the heir's hands as against his own son. That would create two classes among Class I heirs: male heirs, for whom it is joint family property as against their sons, and female heirs, for whom no such concept applies.
41. Noted: Class I heirs under Section 8 include the widow, mother and daughter of a pre-deceased son. The Court noted the observations in Mulla's Commentary on Hindu Law, 15th Edition, on Section 6 (pages 924-26), and in Mayne's Hindu Law, 12th Edition (pages 918-919).
42. Held: The express words of Section 8 "cannot be ingorned and must prevail". The Preamble says the Act is, among other things, to "amend" the law. In that background the language that excludes the son's son but includes the son of a pre-deceased son cannot be ignored.
43. Held: The views of the Allahabad, Madras, Madhya Pradesh and Andhra Pradesh High Courts are correct. The Court was unable to agree with the Gujarat High Court.

Authorities

• Commissioner of Income-tax, U.P. v. Ram Rakshpal, Ashok Kumar, 67 I.T.R. 164 (Allahabad High Court) — approved. The Court agreed that a son inherits individually under Section 8.
• Additional Commissioner of Income-tax, Madras v. P.L. Karuppan Chettiar, 114 I.T.R. 523 (Madras Full Bench) — approved. It held the inherited property to be the son's separate property.
• Shrivallabhdas Modani v. Commissioner of Income-Tax, M.P.-I, 138 I.T.R. 673 (Madhya Pradesh High Court) — approved. It said Section 8 is self-contained.
• Commissioner of Wealth-Tax, A.P.-II v. Mukundgirji, 144 I.T.R. 18 (Andhra Pradesh High Court) — approved. Its reasoning on Sections 4 and 19 was found convincing.
• Commissioner of Income-tax, Gujarat-I v. Dr. Babubhai Mansukhbhai (Deceased), 108 I.T.R. 417 (Gujarat High Court) — overruled. It held that a son takes his father's self-acquired property as joint family property.
• Khudi Ram Laha v. Commissioner of Income-tax, U.P., 67 I.T.R. 364 — named by mistake in the High Court's judgment. It concerns an entirely different problem.
• Mulla's Hindu Law, 13th Edition, page 248, and 15th Edition, pages 924-26 — noted. Dr. Derrett's "Introduction to Modern Hindu Law", paragraph 411, page 252, and Mayne's Hindu Law, 12th Edition, pages 918-919 — noted.

Also cited in footnotes: none. The judgment has no footnotes.

Sections and provisions

• Section 4, Hindu Succession Act, 1956 — the Act overrides earlier Hindu law texts, rules, interpretations, customs and usages on matters it provides for.
• Section 6 — an interest in Mitakshara coparcenary property passes by survivorship. The proviso sends it under the Act if the deceased left a Class I female relative or a male relative claiming through her.
• Section 8 — a male Hindu's property devolves first on the Class I heirs of the Schedule.
• Section 19 — heirs succeeding together take per capita and as tenants-in-common.
• Section 30 — a Hindu may dispose of property by will under the Indian Succession Act, 1925.
• Wealth Tax Act, 1957, sections 3 and 4 — the headnote lists them for the question whether inherited property is HUF or individual property.
• Income Tax Act, 1961 and Income Tax Act, 1922 — the income-tax question concerned income from inherited assets. Section 25A of the 1922 Act was the basis on which the Madras partition was accepted.

Judgement

1. The Allahabad High Court judgment under appeal is affirmed.
2. Appeals Nos. 1668-1669 of 1974 (wealth tax) are dismissed with costs.
3. The Court records that the sums standing to the credit of Rangi Lal belong to Chander Sen in his individual capacity and not to the joint Hindu family.
4. It follows that the interest of Rs.23,330 was an allowable deduction in respect of the income of the family from the business. Appeal No. 1670 of 1974 (income tax) fails and is dismissed with costs.
5. Special Leave Petition No. 5327 of 1978 also fails and is dismissed. There is no order as to costs of this petition.

Legal Principle / Ratio

Under Section 8 of the Hindu Succession Act, 1956, property of a father who dies intestate devolves on his son in his individual capacity. The son does not take it as karta of his own family, and his sons have no right by birth in it.

Key holding: "The express words of section 8 of The Hindu Succession Act, 1956 cannot be ingorned and must prevail."

Critical Analysis

Analysis based on the judgment text.

• The judgment has no numbered paragraphs. It relies mainly on four High Court decisions and quotes only the Class I list and the text of Sections 4 and 19 in summary.
• The Court did not decide how Section 8 interacts with property held in a subsisting coparcenary. Section 6 is described but not applied.
• The Court said it need not deal with the other Class I heirs, since Chander Sen was the only heir.
• The Court noted that the Andhra Pradesh decision was under appeal to it by certificate, yet it still approved its reasoning.

Significance

• The judgment settled a split among High Courts. The Gujarat view was overruled.
• It is a key case on the character of property a son inherits from his father under Section 8.
• It is usually read with Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum (1978), which deals with how much a Class I heir takes.

Exam-Important Points

• Rule: property inherited by a son under Section 8 is his individual property. His sons get no birth right in it.
• Trap: do not apply the old Mitakshara rule that inherited property becomes joint family property in the son's hands. Section 4 overrides it.
• Reason: Class I of the Schedule names the son of a pre-deceased son but not the son of a living son.
• Reason: treating the property as HUF property would create two classes among Class I heirs, male and female.
• Section 19: heirs take as tenants-in-common, which departs from the old joint tenancy of sons.
• Overruled: Commissioner of Income-tax, Gujarat-I v. Dr. Babubhai Mansukhbhai, 108 I.T.R. 417.
• Tax result: the sums of Rs.1,85,043 and Rs.1,82,742 were not the family's wealth. The interest of Rs.23,330 was an allowable deduction.

Prepared from the full text of the judgment. The judgment has no numbered paragraphs. The citation is as printed in the judgment text, which does not state the appeal-number list beyond the appeals named above.