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

HBGDE, J. These are appeals by certificate. They arise from a common judgment delivered by the High Court of Patna.

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. supple-mentary Khorposh (maintenance) grant. During the assessment years with which we .are concerned viz. 1957-58 to 1960-61 the mcot.1e from those house properties was included in the totai in-come of the assessee under s. 16(3) (a) (iii) of the Indian Jncomo-tax .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 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 Sul'REME COURT REPORTS [1973] 3 s.c.a. 5~4

" ( 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. 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 consider-ed 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 judg-ment, 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 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) X X X (ii) X X. X (iii) from assets transferred directly or indirectly to

the wife by the husband otherwise than for adt:~ quate consideration or in connection with dll 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 concern-ed is a direct transfer. Further it is ~dmitted that the transfer in question was not effected for any consideration adequate or other-wise, 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. ¥t Counsel for the assesse:e urged that the fiction incorporated 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.

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 what-ever 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 house 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 f11at the total mcome of the assessee for the purpose of assess-tatnlt 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 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-clusion 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 con-tended 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, 1t 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).

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 1 ~ 0 ;n 11h1e 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 " . s.n.w .. -- ·. _.,_.....-:: .. - :'