COMMISSIONER OF WEALTH TAX, KANPUR ETC. ETC. vs. CHANDER SEN ETC.

CIVIL APPEAL No. 1668/1974Supreme Court[1986] 3 S.C.R. 25416 July 1986Bench: 2 JudgesAuthor: R.S. PATHAK, SABYASACHI MUKHERJI15 pages
AI SummaryDismissed

What were the facts?

Rangi Lal and his son Chander Sen constituted a Hindu Undivided Family (HUF) with joint immovable property and a family business. A partial partition occurred, dividing the business, which was then carried on as a partnership between Rangi Lal and Chander Sen. Rangi Lal died intestate, leaving behind his son Chander Sen and grandsons. At the time of his death, Rangi Lal had a credit balance of Rs. 1,85,043 in the firm's books. For the assessment year 1966-67, Chander Sen, who formed a joint family with his own sons, included property inherited by survivorship and business assets devolved from his father in his wealth tax return. However, the credit balance of Rs. 1,85,043 was not included, as it was contended to be individual property. A similar exclusion was made for Rs. 1,82,742 in the assessment year 1967-68. The Wealth-tax Officer disagreed, considering these sums as HUF property. Additionally, Rs. 23,330 credited as interest on Rangi Lal's balance was disallowed as a deduction by the Income-tax Officer for AY 1967-68, who viewed it as a payment by Chander Sen to himself.

What did the Supreme Court hold?

The Tribunal held that the sums standing to the credit of Rangi Lal belonged to Chander Sen in his individual capacity, not to the Joint Hindu Family (HUF). Consequently, the interest of Rs. 23,330 was an allowable deduction in respect of the family's business income. The reasoning was based on the interpretation of Section 8 of the Hindu Succession Act, 1956, which governs the devolution of property of a Hindu dying intestate. The Court emphasized that Section 8, read with Section 4(1) and Section 19 of the Act, clearly indicates a departure from pre-existing Hindu law. Property devolving under Section 8 is to be taken as absolute property by the heirs, and sons do not acquire a right by birth in such properties, unlike under the old Hindu law. The Act mandates looking to its provisions in case of doubt, overriding prior Hindu law. The intention was to create a modern, egalitarian succession law, and holding inherited property as HUF property in the hands of a son would create artificial classifications among Class I heirs. The judgment affirmed the views of the Allahabad, Madras, Madhya Pradesh, and Andhra Pradesh High Courts, while disagreeing with the Gujarat High Court.

What were the issues?

1. Whether property inherited by a son from his father who dies intestate devolves on the son in his individual capacity or as the Karta of his HUF, particularly in light of the Hindu Succession Act, 1956 (Sections 4, 8, and 19)? 2. Whether sums standing to the credit of the deceased father (Rangi Lal) in the firm's books, and interest accrued thereon, constitute HUF property or individual property of the son (Chander Sen) for wealth tax and income tax assessments? Assessee's Contentions: The sums standing to the credit of Rangi Lal devolved on Chander Sen in his individual capacity and were not part of the assessee-family's wealth. The interest of Rs. 23,330 was an allowable deduction. Revenue's Contentions: The sums standing to the credit of Rangi Lal and the interest accrued thereon belonged to the assessee-family, and therefore, should be included in the net wealth. The claim for deduction of interest was disallowed as it was a payment by Chander Sen to himself.

Which sections of the Income-tax Act were involved?

Section 4,Section 8,Section 19,Section 3

AI-generated summary — verify with the full judgment below

A B c COMMISSIONER OF WEALTH TAX, KANPUR ETC. ETC. v. CHANDER SEN ETC. JULY 16, 1986 IRS. PATHAK AND SABYASACHI MUKHARJI, JJ.] Hindu Succession Act, 1956-ss. 4, 8 and 19-Property of father who dies intestate-Whether devolves on son, who separated by parti- tion from his father, in individual capacity or Kart a of his HUF.

Wealth Tax Act, 1957--ss. 3 and 4-Property inherited under s. 8 .Ji Hindu Succession Act, 1956-Whether HUF or individual property. D Income Tax Act, 1961/Income Tax Act, 1922-Income from as- sets inherited by son from father-Whether assessable as individual income.

Rangi Lal and his son Chander Sen constituted a Hindu undivided family. They had some immovable property and the family business. By a E partial partition the HUF business was divided between the two and thereafter it was carried on by a partnership consisting of the two. The house property of the family continued to remain joint. The firm was assessed to income-tax as a registered firm and the two partners were separately assessed in respect of their share of income. The mother and wife of Rangi Lal having pre-deceased him, when he died he left behind F him his only son Chander

The order continues below.

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