Full Judgment Text & Judicial Ruling

1964 P T D 514

1964 P T D 514

[Mysore (India)]

Before K. S. Hegde and Ahmed Ali Khan, JJ

COMMISSIONER OF WEALTH‑TAX, MYSORE

Versus

LT. COL. D. C. BASAPPA

Tax Referred Case No. 1 of 196 1, decided on 31st July 1963.

Wealth‑tax‑Computation of net wealth‑Deductions‑Provision for payment of income‑tax‑‑Meanings of "debt", "debt owed", and "net wealth"‑Wealth‑tax Act, 1957, S. 2 (m)‑Hindu undivided family‑Family consisting of single male member and female mem bers‑Whether assessable as Hindu undivided family or individual.

The liability to pay income‑tax arises not later than the close of the previous year, though the quantification of the amount pay able is postponed. A provision for payment of agricultural income‑tax in respect of an accounting year which has expired on or before the "valuation date" is therefore a "debt owed" by the assessee on the valuation date within the definition of "net wealth" contained in section 2 (m) of the Wealth‑tax Act and is allowable in computing the net wealth of the assessee for purposes of levy of wealth‑tax under the Act.

[The meaning of "debt" discussed]

Dictum.‑--If in computing the "net wealth" we have to take into consideration "assets" of every description, it is reasonable to assume that the Legislature would have provided for the deduc tion of all outgoings whether the same were quantified or not. If the contention of the revenue that liability to pay income‑tax does not become a "debt" until it is quantified is accepted as correct, then injustice is likely to be caused to the assessee if there is delay in quantifying the tax that may be payable. The interpretation that has commended itself to us, we think, while providing against tax evasion, would at the same time ensure a fair deal to the assessee.

Where a male member of a Hindu undivided family has receiv ed on partition a portion of the joint family property for his share, tie must be assessed in respect of the property which lie has receiv ed on partition as the karta of a Hindu undivided family and not as an individual, even though his family does not include any other male member but consists only of himself and his wife and daughter.

[Cases referred to.]

D. M. Chandrasekhar (Assistant Advocate‑General) for the Commissioner.

Ramani for the Assessee.

JUDGMENT

K. S. HEGDE, J.‑---The learned Judge set out the statement of case which ran as follows :‑

By this, the Commissioner of Wealth‑tax, Mysore, Banglore, requires the Appellate Tribunal to refer to the High Court certain questions of law, which are said to arise out of the Tribunal's consolidated order dated 5th February 1962, in W. T. A. Nos. 32,7 of 1960‑61, 856 of 1959‑60, 1199 of 1960‑61 and 509 of 1961‑62. Inasmuch as, in our opinion, questions of law do arise out of the aforesaid order (in W.T.A. No. 509 of 1961‑62), we hereby draw up an agreed statement of the case and refer it to the High Court of Mysore at Bangalore under section .27 (1) of the Wealth‑tax Act.

The assessee is a planter and owner of coffee estates. He is one of three brothers between whom there was a partition on the 10th of May 1938, by which the ancestral property was divided equally amongst them after due provision had been made for the female members. His family consists of his wife and two daughters. The assessee was assessed in the status of an indivi dual, but then he claims his status was that of a Hindu undivided family. The Wealth‑tax Officer wrote:

"On verification, it is seen that in the past the assessment has been made in the status of an individual only. No informa tion has been adduced to show the status as that of the Hindu undivided family. The assessee has got absolute right over the properties as an individual and there is no other male member who could claim right over the properties and partition of the same. Hence the status is held as that of an individual as in the past."

The assessee also contended before the Wealth‑tax Officer that a sum of Rs. 85,000 provided as a liability for taxation should be allowed. The Wealth‑tax Officer wrote:

"On examination of the claim, it is seen that it only represents it provision for taxation and is not an item of tax due as per any demand. A mere provision for taxation is not a liability to be deducted as on the valuation date."

The assessee appealed to the Appellate Assistant Commissioner and contended, first, that he must be assessed as a Hindu undivid ed family and, secondly, that the tax liability was a debt due and a statutory liability and so constituted a debt owing on the valua tion date. The Appellate Assistant Commissioner rejected boil the contentions.

The assessee came on appeal to the Tribunal and contended that the reliance placed by the Department upon the decisions of the Privy Council in Kalyanji Vithaldas v. Commissioner of Income- tax ((1937) 5 I T R 90 (P C)) for holding that the assessee was the only male coparcener and there was no other male members in the family and so he held all the properties as an individual was wrong. On the other hand, it was urged that the decision of the Privy Council in Attorney‑General of Ceylon v. A. R. Arunachalam Chettiar ((1957) A C 513) should have been relied upon.

As regards the other point, it was contended that the deduc tion of tax liability was proper and must be allowed. The Tribu nal preferred to rely upon a decision of the President on a difference of opinion between two Members of the Tribunal in the case of Pierce Leslie & Co. ((1963) 48 I T R 1005) to another decision of a Bench in May 1961, in the case of a batch of appeals by the Gowcoody Estates Ltd. v. Lingapur Estates Ltd. and Wartyhully? Estates Ltd. and held that the provision for agricultural income‑tax was a liability which required to be provided for and so should be allowed in the computation of the net wealth of the assessee as a debt owed on the valuation date.

On the other ground, for reasons stated in their order, in paragraphs Nos. 11, 12, 13 and 14, excepts from which form Annexure "A" and form part of the case, held that the assessee was the karta of the Hindu undivided family after considering the decisions placed before them.

On these facts, the questions of law that arise are:

"(1) Whether the provision fur payment of agricultural income‑tax constitutes a liability for allowance in the compu tation of net wealth of the assessee as a debt owed on the valua tion date.

(2) Whether the assessment should not have been made on the karta of a Hindu undivided family, but on an indivi dual,?"

[After setting out the statement of the case as above K. S. Hegde, J. continued:] Taking first the second question, namely, whether. the assessee should be assessed as the karta of his Hindu undivided family or whether he should be assessed as air individual, it is necessary to bear in mind that the wealth. which is the subject‑matter of assessment, was derived from the family of the assessee. The coffee estates in question admittedly till 1938 belonged to the joint family of the assessee and his two brothers. On May 10, 1958, there was a partition in the family of the assessee, as a result of which the estate with which we are concerned in the case fell to the share of the assessee. The assessee is the only male member in his family as present, the other members of the family being his wife and two daughters. Therefore, the question has arisen, whether the properties held by the assessee should be still considered as the properties of his undivided Hindu family or as the properties of an individual. A similar question arose for decision in Income‑tax‑Referred Case No. 15/61 Goveli Buddanna v. Commissioner of Income‑tax (Since reported in (1963) 50 I T R 467) on the file of this Court. I delivered the judgment of the Court. This is what I observed therein:

"According to Sri Srinivasan, Buddanna being the sole surviving coparcener in his family and he having become the absolute owner of the quondam family properties, he should have been assessed as an individual and not as the karta of a Hindu undivided family. In other words, the contention of Sri Srinivasan is that unless the family consists of more than one coparcener, there cannot be an assessment on a Hindu undivided family. This view appears to have com mended itself to the Calcutta High Court in In re Moolji Sicka ((1935) 3 I T R 123). Speaking for the Bench Lort‑Williams, J. observed thus at page 136:

The necessity for making Hindu undivided families liable as such for income‑tax was, that the income and property of Hindu undivided family is undivided. The members have no separate income or property and cannot, therefore, be taxed as individuals. According to Mitakshara, until parti tion it cannot be said of any member that he has any definite share in the joint property. But an Income‑tax Act obviously is concerned only with income available for taxation and the owners of such income, and if there is no property or no income, an Income‑tax Act has no application. It follows that the Act has no application to a Hindu undivided family in the wider sense to which I have referred. Its provisions are attracted only where there exists property or income, that is to say, where there is joint family property or joint family income or, in other words, where there exists a Hindu coparcenary.

The above case went up in appeal to the Judicial Committee. We shall presently refer to the judgment of the Judicial Committee on the point in controversy. But before doing so, we would like to refer to a decision of the Bombay High Court in Commissioner of Income‑tax v. Gomedalli Lakshminarayan ((1935) 3 I T R 367). Dealing with the point under consideration, Beaumont, C. J: observed at page 368 thus:

The facts are that there was a joint Hindu family consisting of a father and his wife and a son and his wife, the son being the present assessee. The father died in 1929 before the year of assessment, so the joint Hindu family then consisted of the son, his mother and his wife and the question raised by the Commissioner appears to me to admit the existence of a joint Hindu family. Of such existence, I think there can be no question. It is clear law that you may have a joint Hindu family consisting of one male member and female members who are en titled to maintenance, although that does not mean that every Hindu who possesses a wife and a mother is necessarily a member of a joint Hindu family as Lord William, J. seems to think in the Calcutta case referred to below. The question raised is whether the assessee is to be assessed as an individual or as a member of the joint Hindu family and the importance of the question lies in this, that for the purposes of super tax he will be allowed a large exemption if he is taxed as the manager of a joint Hindu family than if he is taxed as an individual.

A little lower down in the judgment, the learned Judge pro ceeded to observe as follows

The nature of a Hindu undivided family was perfectly well known to the Legislature when the Income‑tax Act was drafted, and it was well known‑ that the expression ` Hindu undivided family ' includes females, and is much wider than the expression ` coparcenary ' which includes only the males in whom the joint family property is vested. It is argued by the Advocate‑General that the Act, dealing as it does with property, when it refers to a Hindu undivided family, really means to denote the coparceners, that is to say, male members of the family in whom the family property is vested. I see no ground for arriving at that conclusion, since the meaning of the two expressions was well known when the Act was drafted, and the Legislature has thought fit to use the wider expression rather than the narrower one. I have no doubt that this was deli berate. The more liberal allowance to a joint family in respect of super‑tax was presumably given because the whole income of the family would not go to one individual. If there were a large number of male members, each member would get only a small portion of the income, and it would be hard to charge the family with super‑tax merely because the joint income was over the limit at which super‑tax commences for an individual. But the same principle would apply, though perhaps to a less extent, to the case of a Hindu joint family consisting of one male member and several female members entitled to maintenance, where maintenance might absorb a large share of the family income.

The view expressed by Beaumont, C. J. was fully shared by Rangnekar, J., the other Judge who constituted the Bench. Both the Judges differed from the decision of the Calcutta High Court referred to above. In our opinion, if we may say so with respect, this decision lays down the law correctly. It accords with the principles of Hindu law.

We had earlier mentioned that the decision of the Calcutta High Court in In re Moolji Sicka had been taken to the Judicial Committee in appeal. The decision of the Judicial Committee is reported as Kalyanji Vithaldas v. Commissioner of Income‑tax (AIR 1937 P C 36). The Judicial Committee disagreed with the view of the Calcutta High Court as regards the meaning to be given to the expression. `Hindu undivided family' found in section 3 of the Indian Income‑tax Act, 1922. Sir George Rankin, speaking for the Judicial Committee, observed:

`The phrase `Hindu undivided family' is used in the statute with reference not to one school only of Hindu law, but to all schools ; and it is a mistake in method to begin by pasting over the wider phrase of the Act the words `Hindu coparcenary'. All the more it is not possible to say on the face of the Act that no female can be a member. Where therefore the income belongs not to the assessee himself but to the assessee, his wife and daughter jointly, the association of such individuals can be described as `Hindu undivided family.'

But unfortunately the Judicial Committee did not stop at that. It proceeded to observe:

It would not be in consonance with ordinary notions or with a correct interpretation of the Law of the Mitakshara to hold that property which a man has obtained from his father belongs to a Hindu undivided family by reason of his having a wife and daughters.'

In the instant case, It is unnecessary for us to find out the effect of these observations. As seen from the statement of facts referred to above, the assessee had not only his wife but also had an adoptive mother. He also had a sister. Hence this case does not fall within the exception pointed out by the Judicial Committee even if it is thought that any exception was really contemplated by the Judicial Committee.

Sri Srinivasan next placed reliance on the decision of the Madras High Court in Commissioner of Income‑tax v. A. V. P. MR. M. Lakshmanan Chettiar. That decision undoubtedly helps him in a way. The learned Judges who decided that case opined that the Judicial Committee in Kalyanji's case had decided that the existence of a step‑mother to a sole surviving coparcener is not sufficient to convert the income of the ancestral property into an income of a Hindu undivided family. We really fail to see how this conclusion follows from the decision of the Judicial Committee in Kalyanji's case. Obvi ously the learned Judges in the Madras case proceeded on the basis that though the family of the assessee in that ease is a Hindu undivided family, the assessee being solely entitled to the income of the family property, lie must be considered to be the sole owner of that income. This view, if accepted ac sound, would amount to accepting the correctness of the view of the Calcutta High Court in Moolji Sicka's case, as regards the meaning of the expression `Hindu undivided family.' Once we come to the conclusion that there is a Hindu undivided family and the assessable income is the income of the properties belonging to that family we must necessarily hold that for the purposes of the Income‑tax Act, the Hindu undivided family is the owner of that income also. Inter se, the rights of the members of the family are governed by Hindu law. In other words, though the female members are entitled to only main tenance from the income of the family, the income as such must be considered to be the income of the family and not of any individual thereof."

Same view of the law was taken by another Bench of this Court in S. Melagiriyappa v. Laithamma (A I R 1961 Mys. 152). It was laid down therein that the fact that the Mitakshara recognises proprietary rights in respect of joint family property only in the males while conferring only such rights or right to maintenance on the females does not mean that a Mitakshara joint family should consist only of men and not of women also; so also the character of the family property does not change by reason of the fact that it may come to be held by a single male copar cener because if and when the male coparcener either begets or adopts a son or the widow of a deceased coparcener makes an adoption the son so born or adopted acquires a right by birth or adoption in that property; thus when joint family property comes to be held by a single coparcener there is; according to the theory of Mitakshara law neither an extinction of the family nor a complete transmutation of the character of the property. The Department has taken a contrary view purporting to follow the decision of the Privy Council in Kalayanji Vithaldas v. Commissioner of Income‑tax ((1937) 5 I T R 90). We have already noticed this decision. The more appropriate decision is that of the Privy Council in Attorney‑General of Ceylon v. A. R. Arunchalam Chettiar (1957 A C 640). the facts of that case were as follows : The father, the sole surviving coparcener of a Hindu undivided family, to which also a number of females belonged, died in 1938, shortly after the Ceylon Estate Duty Ordinance, 1938, came into operation; no other coparcener came into existence during his lifetime (his son had died in 1934), but powers of adoption in his deceased son's widow and in his own widows were in fact exercised after his death ; at all material times the female members of the family had the right of maintenance and other right which belonged to them as such members. Section 73 of the Ceylon Ordinance, 1938, provided that "where a member of a Hindu undivided family dies, no estate duty shall be payable on any property proved to the satisfaction of the Commissioner to be the joint property of that Hindu undivided family." On a claim of estate duty in respect of the father's estate in Ceylon, the Privy Council held that the father was at his death a member of a Hindu undivided family, the same undivided family of which his son, when alive, was a member, and of which the continuity was preserved after the father's death by the adoptions. It was observed in that decision that it was only by analysing the nature of the rights of the members of the undivided family, both those in being and those yet to be born, that it could be determined whether the family property could properly be described as "joint property" of undivided family. While it might be correct to describe the sole surviving coparcener as the "owner" of the family property, that which he "owned" was joint family property. His ownership was such that on the adoption of a son it assumed a different quality; it was such, too, that female members of the family had a right to maintenance from it. The extent to which he could alienate it was an irrelevant consideration, for if he did not alienate it, it remained joint family property. The temporary reduction of the coparcenary unit to a single individual did not convert what was previously joint property of the undivided family into the separate property of the surviving coparcener. Accordingly, while the undivided family persisted the property in the hands of a single coparcener could properly be described as the `Joint property of" that family, and was, therefore, exempt from estate duty on in this case the death of the father, under section 73 of the Ordinance.

For the reasons mentioned above, our answer to the second question is that the assessment should have been made on the assessee as the karta of, his undivided family and not as an individual.

This takes us to the first question, which, undoubtedly, is a highly controversial question. Judicial opinion is sharply divided on the question whether the provisions for payment of income‑tax or agricultural income‑tax constitutes a "debt owed" and, therefore, a liability to be deducted in ascertaining the tax able wealth.

Under the Wealth‑tax Act (to be hereinafter referred to as the "Act"), while determining the "net wealth", the revenue has to deduct the "debts owed". Section 2 (m) of the Act says:

Net wealth' means the. amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets, required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than,‑

(i) debts which under section 6 are not to be taken into account;

(ii) debts which are secured on, or which have been incurred in relation to, any asset in respect of which wealth‑tax is not payable under this Act."

The controversy is as regards the true meaning of the ex pression "debts owed" found in section 2(m) of the Act. This expression is not defined in the Act. In the instant case we have to decide whether the agricultural income‑tax to be paid for the assessment year 1959‑60 is a "debt owed". Admit tedly, the tax payable had not been quantified. The valuation date for the purpose of the wealth‑tax was March 31, 1959, i.e., the last day of the accounting year, relevant to the assessment year 1959‑60. In the absence of any definition in the Act of the expression "debts owed", we are compelled to seek assistance from other sources in determining the meaning of that expression.

It was urged on behalf of the assessee that the liability to pay agricultural income‑tax for the accounting year ended March 31, 1959, had already been incurred ; such a liability is a "debt owed" and therefore the same is liable to be deducted in com puting the "net wealth". On the other hand, it was urged on behalf of the revenue that the "debt" contemplated in the "Act" is a liquidated debt" or an "ascertained debt", the liability to pay the agricultural income‑tax payable not having been quantified on March 31, 1959, the same cannot be considered as a debt "owed" for the purposes of computing the "net wealth". If the Legislature intended to give deduction only to "debt due" or to "ascertained sums", in that event the tax liability having not been ascertained on the date of the valuation, i.e., on March 31, 1959, the same cannot be deducted. If, on the other hand, the word "debt" found in section 2 (m) means an existing obligation on the date of valuation to pay either in praesenti or in future, a some of money ascertained or unascertainable, then the liability in question is a "debt" within the meaning of section 2 (m). What is meant by "debts due"?

Mulla in his Transfer of Property Act, 4th edition, at page 735, observed that "a debt is an obligation to pay a liquidated or certain sum of money . . . A debt may be present or future, if it is present, it is existent or now due or owing. If it is future, it is existent but accruing or payable in the future. The distinction between present and future debts is made in the case of Subramanian v. Arunachalam ((1902) I L R 25 Mad. 603) where the phrase 'now due, owing or payable' was held to exclude debts accruing after the date of the deed. Both present and future debts are existing debts and can be attached, and are actionable claims. In order to be an accruing debt there must be a present debt, although it may be payable in the future."

Earl Jowitt in his Dictionary of English Law, defines "debt" as follows:

"A sum of money due from one person to another. A debt exists when a certain sum of money is owing from one person to another . . . `Debt' denotes not only the obligation of the debtor to pay, but also the right of the creditor to receive and enforce payment . . . "

Wharton in his Law Lexicon, 14th edition, defines "debt" as follows:

"A sum of money due from one person to another . . ."

Stroud in his Judicial Dictionary, 3rd edition, defines "debt" thus:

"A `debt' is a sum payable in respect of a liquidated money demand recoverable by action."

In support of his contention that a "debt" means a liquidated liability, the learned counsel for the revenue invited our attention to various decisions.

In Sabju Sahib v. Noordin Sahib ((1898) I L R 22 Mad. 139) the Madras High Court, in a suit brought by a Muhammadan as a legal representative of his deceased father who was a member of a…

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