C.I.T. Bihar & Orissa, Patna v. Maharaj Kumar Kaml Singh

522 C.I.T. BIHAR & ORISSA, PATNA _v._ MAHARAJ KUMAR KAML SINGH _February_ 13, 1973 [K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. KHANNA, JJ.] _Indian Income-Tax_ _Act,_ 1922, _ss._ 16(3)(a) (a)(iii), _9(4)(a)-Hol4er_ _of impartible estate, transferring properties_ _of_ _estate_ _to_ _his_ _wife-fnc()me_ _from_ _properties whether liable to be included_ _in_ _i11come_ _of_ _assessee-_ _Fiction created_ _by_ _s._ 9 ( 4 )(a) _re11ders_ _assessee_ _liable under_ _s._ 16( 3) (a)(iii). The assessee-respondent is the bolder of an impartible estate. By an iodonture dated 23rd November, 1963, he granted to his wife two premises fer life by way of supplementary maintenance grant. If was a direct transfer which was admittedly not effected for any consideration or in connec. ticiQ with the agreement to live apart. During the assessment yean 1957-58 to 196G-61, the income from these house properties was included in the total income of the assessee under section 16(3) (a) (iii) o'f the Act At the instance of the assessee the matter was referred to the High Court. Two questions fell for consideration before the High Court, namely, (i) whether the Tribunal was justified in holding that the provisions of s. 16(3) (1) (iii) applied to the income arising from the property; and (ii) ·whether the Tribunal was right in holding that the income under the said provisions was to be included in the total income for the purpose oi computing the net annual value of the residential house. under the first proviso of s. 9(2). The High Court answered the first of the two questions in favour of the assessee and. therefore, did nc;t think it necessary to go into the other question.. On appeal by certificate to this Court, the material question was whether thl! income from the house properties transferred by the assessee was liable to be included the income of the assessee. HELD : (i) The incident of impartible estate have been well settled by the decisions of the Courts i11 this country as well. as by the decisions of the judicial committee. The holder of an impartible estate has uncontrolled power of enjoyment and disposal of the impartible estate as well as the income arising therefrom; yet the estate belongs to the Hindu joint family of which the holuer is a member. Subject to any custom to the contrary, on the death of the holder of an impartible estate, the estate devolves by survivorship. [524G-H] _Baijnath Prasad Singh_ _and_ _Ors._ v. _Tej Bali,_ L.R. 48 I.A. 195, _Shiba_ _Prcsad Singh_ v. _Rani_ _Prayad Kumari Devi_ _&_ _Ors.,_ L.R. 59 I. A. 331 and _Commissioner_ _of /ncome-ll/Jc, Punjab. North-West Frontier_ and _Delhi Pro-_ _vinces, Lahore_ v. _Dewan Bahadur Dewan Krishna Kishore,_ _Rrds,_ _Lahore._ 68 I.A. 155, referred to. Cii) After s. 9 was amended by incorporating s. 9( 4). the income of house property owned by the ho [1] der of an impartible estate has to be considered as his individual income. From this it follows that had the assessee not transferred the ?remises in question in favour of his wife, the income from those premises would have been considered as his individual income under section 9. The contention that s. 9(4) (a)' raises a legal fiction which is limited for the purpose of s. 9 is fallacious. Section ~deals with onlv one head of income. Section 9(4)(a) speaks for th~ purpose of this Secticn'' whkh really mea:ns for the purpose of deter A B ### c D E F G H C.I.T. _v._ M. K. K. SINGH _(Hegde,_ }.) 523 n (' D F mining tho! taxable income of the assessee. An assessee is not ~epara1el_y taxed under each Jlead of income. Hence when a source of lDCOmc 11 transferred from assessee to his wife excepting for the two purposes men• tioned in s. 16(3) (a) (ii), income from that purpose has to be considered as the income of the assessee because of asset of the assessee stand~ trans· Jerred to his wife. Such. a conclusion docs not amount to cxtendmg the fiction cr.:ated under s. _9_ beyond the purpose for which it is created. It merely gives etl"ect tc that fiction. It is true that a legal fiction may not he extended beyond the purpose for which it is created but that does not mean that the Court should not give effect to that fiction. [S26H to 527D] Section 27(ii) of the Income-tax Act, 1961 which has taken place of s. 9(4) of the Act makes explicit that was implicit in the provision, es it originally stood. [527D-E) (iii) lt follows as necessary corollary that the annual value of the The assessee respondent is the holder of an impartible estate. By an indenture dated November 23, 1950, he granted to his wife two premises at Camac Street, Calcutta for life by way of. supplementary Khorposh (maintenance) grant. During the assessment years with which we .are concerned viz. 1957-58 to 1960-61 the as~essee's residential house has to be computed at 10% of the total income of the assessee which i.ncome includes the income from the house prop_erthis transferred to his wife as required by the first proviso to s. 9(2). [527~G] CiVIL APPELLATE JURISDrcnoN : Civil Appeals Nos. 297 to 300 of 1970. Appeal by Certificate from the Judgment and order dated August 9, 1966 of the Pa'tna High Court in Misc. Judicial Cases Nos. 480 to 483 of 1964. _V._ _S._ _Desai, I._ _R._ _Murthy,_ _S._ _P._ _Nayar_ and _R._ _N._ _Sachthey,_ for the appellant. _N. D. Karkhanis, Santokh Singh_ a.nd _U._ _P._ _Singh,_ for the respondent. The Judgment of the Court was delivered by HBGDE, J. These are appeals by certificate. They arise from a common judgment delivered by the High Court of Patna. [527~G] mcot.1e from those house properties was included in the totai inG come of the assessee under s. 16(3) (a) (iii) of the Indian Jncomotax .Act, 1922 (to be hereinafter referred to as the Act). The assessee challenged the validity of that inclusion firstly on the ground that s. 16(3)(a) (iii) of the Act is ultra vires Art. 14 of ## the Constitution and secondly on the ground that the income m q~estion .cannot be cons~de~d a5 his· income for the purpose of the H said section. These objections were ·ove~Ied by the authorities under the Act. ·Thereafter at the instance-'of the asseuee the #### following three questions were referred to the High Court of Pama unde:r s. 661 ) of the Act. - · 18-L796SupCl/73 ##### 5~4 Sul'REME COURT REPORTS [1973] 3 s.c.a. " ( l ) Whether the provisions of s. 16 ( 3) (a) (iii) of the Indian Income-tax Act, 1922 are ultra vires the Constitution of India ? ( 2) Whether in the facts and circumstances of the case the Tribunal was justified iri holding that the provisions of section 16(3)(a)(iii) applied to the income arising from a property transferred by the holder of an impartible estate to his wife for her maintenance ? (3) Whether in the facts and circumstances the Triw bunal was right in holding that the income under section 16(3) (a) (Hi) was to be included in the total income for the purpose of computing the net annual value of the residential house at 10% of the total income under ·the 1st Proviso to section 9 ( _2)_ ?" Before the High Court CoWlSel for the assessee did not press for any answer on the first question .evidently in view of the deci· sion of this Court in _Balaji_ v. _lncomewTax Officer, Speciallnvestiw_ _gat ion Circle,_ _A kola and ors._ (1) The second question was answered in favour of the assessee and _in_ view of the decision of the High Court on that question, the High Court did not think it necess·ary to go into the third question. The answer to the third question ueccs.~arily depends on the answer to the second question. If we come to the conclusion that the second question was not corresctly answered then it follows that the income from the properties in question has to be included in the total income of the assessee and the income frolll! the residential house of the assessee will have to be computed at 10% of his total income under the 1st proviso to s. 9(2) of the Act. Hence the material question to be decided is whether the income from the properties in Calcutta is liable to be included in the income of the assessee. The assessee is assessed as an individual. As mentioned earw iiel', he is the holder of an impartible estate. The incidenis of im~ -partible estate have been well settled by the decisions of courts in this country as well as by the decisions of the Judicial Committee. The holder of an impartible estate has uncontrolled power Of enw joyment and disposal over the impartible estate as well as over the income ·arising theref. '; but, yet the estate belongs to the Hindu joint fami1y of which the lanlder i& a member. Subject to any cusw tom to the contrary, ori _the_ •1 "!-ath of the holder of an impartible estate, the estate devolves by survivorshi~ee _Baljnath_ _Pra.rhad_ _Singh_ _and_ _ors._ v. _Tej_ _Bali_ _Sinh(2)_ ailCS: _Shlba_ _Prasad_ _Singh_ v. (1) 43, I.T.R. 393. (2) L.R.. 48 I A. _195._ A B ### c D E F G . H A B ### c D E F G H C.l.!. _V._ M. K. K. SINGH _(Hcglie,_ _J.)_ 525 _Rani_ _Prayad Kumari Debi_ apd _ors._ ( '). _In_ _Commissioner_ _of_ _Income-tax, Punjab, North-West Frontier and Delhi Provinces,_ _Lahore_ v. _Dewan Bahadur Dewan Krishna Kishore, Rais,_ _Lahore_ ( ~), the Judicial Committee held that the income of a ~ouse propeny which is a part ot an impartible estate cannot be considered as the individual income of an ru.sessee under s. 9 of the Act as it stood then. Therein the Judicial Committee observed : "Since the decision of the Board in Baijnath Prashad Singh v. Tej Bali Singh (supra), it has been settled law that property, though impartible, may be t~ ancestral property of a joint family, and that in such cases the successor falls to be de,signated according to the ordinary rule of Mitakshra. The concluding words of the judgment, delivered on behalf of the Board by Lord Dunedin, in Baijnath's case (supra) are to that effect, and in that case, as welt as ~n Shiba Prasad Singh v. Prayag Kumari Devi (supra) which followed _jt,_ "the keynote of the whole position" is-not that property which is not joint property devolves by virtue of custom as though it had been joint-but that the gep.erallaw regulates all beyond the custom, that the custom of impartibility does not touch the succession since the right of survivorship is not inconsistent with the custom; hence the estate retains the character of join family property and devolves by the general law upon that person who, being in fact and in law joint in respect of the estate, is also the senior mem ber in the senior line." On tlie basis of the above reasoning their Lordships held "for the purpose of sect.ion 9 of the Act" the income in question is not the individual income of the holder of the estate. After that deci~ sion was ~endered s. 9 of the Act was amended by incorporating 5• _9_ ( 4) whtch reads : "For the purpose of this section ( a) the holder of at1 impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate. (b) X X X". Hence, it is clear that after s. 9 was amended, the income of house property owned by a holder of an impartible estable has to be constdered as his individual income. From this it follows that had _the _assessee not transferred the premises· in question in favour of hts wrfe, the income from those premises would have been consi dered as his individual income under s. 9. Now we have to see· ·whethe~ because of the transfer of the premises in favour of hii • 01 L.R. _591_ .A~n·---(21 liS I.A. p. 155. 19-L796sup.c. 1.173 5~6 SUPREME COURT REPORTS ['1973] 3 s.c.R. wife, the said income cannot be considered as the income of the assessee under s. 16(3)(a)(iii). Section 16(3)(a)(iii) reads: "In computing the total income of any individual for the purpose of assessment, there shaH be included( a) so much of the income of a wife or minor child of such individual as arises directly or indirectly (i) _(ii)_ (iii) X X. X from assets transferred directly or indirectly to the wife by the husband otherwise than for adt:~ quate consideration or in connection with dll X X X agreement to live apart; or - (iv) x X X (b) X X X There is no dispute that the transfe-r with which we are concerned is a direct transfer. Further it is ~dmitted that the transfer in question was not effected for any consideration adequate or otherwise, nor was it effected in connection with an agreement to live apart. But th_e assessee's contention was, which l:Ontention was accepted by the High Court that s. 9 ( 4) (a) on! y deems the income of a house property included in an impartible estate as the indivi,d\ml income of the holder and that only for the purpose of s. 9 and not for any other purpose. In other wprds; it was urged that section raises a legal fiction and that legal fi'ction is limited for the purpose of s. 9. It was further urged that a legal fiction cannot be extended beyond the purpose for it was created. Counsel for the assesse:e urged that the fiction incorporated ¥t s. 9 ( 4) (a) can be taken .into consideration only for the purpose of s. 9 and not for the purpose of s. 16 ( 3) . This contention appears to us to be fallacious. A B ### c D E F G H Section 6 of the Act sets out the various heads of income, profits and gains chargeable to income-tax. They are (i) salaries; (ii) interest on securities; (iii) Income from property; (iv) Profits and Gains of business, profession or vocation~ (v) Income from othpr sources (vi) Capital gains. _Section_ 3 read with _s._ 4 brings to tax the total income, profits and gains of an assessee from whatever source it might have been received or accrued. The total income is defined in s. 2 ( xv) as meaning total amount of income, profits and gains referred to in sub-s. ( 1 ) of s. 4 computed in the manner laid down in the Act. Section 9 deals with only one head of income. Prior 'l:o the .- transfer by the assessee, he, in law would have be~n. cons_id~red as . ~ th~ owner of those premises for purposes of. ascertammg hts mcome c.I.T. _V._ M. K. K. SINGH _(/legdc,_ _J.)_ 527 111 [hou][se ][proper!Y ] [nn? that ][irycome ][would have been taken into ] .A f~~ount in comp~tmg his total mcomc. In other words, in ascer ~. ·nu the total mcome of the assessee for the purpose of assesstatnlt f11 at income also would have entered into the calculatio »:~ce when s. 9 ( 4 )(a) speaks "for the .P~rpose of this sectio~; it really means for the purpose of determmmg the _ _taxable- income of the assessee. It must be rcmem~ered that an assessee is not B. separately t?xed under each head of mcome. Hence when a source of income Js transferrc.d by t_he assessee to his wife, exceptino for the two purposes men~1oned m s. I?(3)(a)(iii), income from"tbat source has to be considered as the mcome of the assessee because . an asset of the assessee stands transferred to his wife. Such a con####, c [clu][sion ] [docs not amount ] [to ] [extending ] [the ] [fiction ] [created under ] [s~ ] _9_ beyond ~he purp?sc for which it is cre~ted. It merely gives effect to that fict1on. It IS true that a legal fict1011 should not be extended beyond the purpose for which it is created; but that docs not mean that the court should not give effect to t11at fiction. Section 27(ii) of the Income-tax· Act. 1961 which-has taken #### o the place of s. 9 ( 4) of the Act docs not begin by saying "for the purpose of this section". On the other hand, it says that "the holder of an impartible estate shalt be deemed to be the individual owner of all the properties comprised in the estate... It was contended on behalf of the a.-;sessee that this is a change in the Jaw and on that basis we were asked to accept the assessee's construe [ tionofs. 9(4)(a). Weare unable toacccptthiscontention.- We .,· do not think t!:_lat there is any change in the law. Section 27 (ii) of the Income-tax Act, 1961 makes explicit what ·was implicit in the provbion as it originally stood. Jn view of our conclusion that the income of the house property !n question should be in~Judcd in the total income of the assessee, f 1 t follows as a nccessar;' corol!nry that the annual value of the ~ssessce's residential house has to be computeu at 10% of the total ~ncomc to the assessee which income as alreaJv held included.the mcome from the house nroncrtics transfarcd to his wife as reqUired by the 1st proviso to s. 9(2). ### c For the reasons mentioned above, thcs'! ~pFe:t'~ ;r~. allo"e1; _tltc_ answer l!ivcn by the High Court to quest1on No. - .'s vacatt;d and in its nlace we amwcr that qucstilm in the atl1rn;attv.e and [1] .n favour of the Revcnw!. Our an~wcr to the third qul'~~~-:n 1~ .~1 ~0 ;n ~ssessce's residential house has to be computeu at 10% of the total favour of the Revcnw!. Our an~wcr to the third qul'~~~-:n 1~ .~1 ~0 ;n 111 1 he affirmative and in favour o~ the .Revenue. Th~ a~s:>H~:h ~o~ri. 1 c <:o~ts of the Revenue both 1n this Court and 10 t e " . 1~ .~1 # s.n.w .. -- ·. _.,_.....-:: .. - _:'_