Case Note & Summary
The dispute arose under the Indian Income-tax Act, 1922 concerning the correct assessment status of income received by guardians on behalf of two minor sons after the death of their father and mother. The father, Shri Kishanlal Agarwalla, died intestate in December 1950 leaving his widow and two minor sons, Basanta and Ashok. He was governed by the Mitakshara School of Hindu Law and was assessed as an individual on income from a business carried on under the name of Shri Krishan Rice Mills, Tezpur. The widow died in 1952. Nandlal Agarwalla applied to the District Judge, Gauhati, for appointment as guardian of the person and properties of the two minors. The District Judge temporarily appointed him on June 1, 1953. On December 15, 1953, the Sub-Judge, Nowgong, appointed Dwarka Prasad Agarwalla and Nandlal Agarwalla as guardians of the person and properties of the minors, directing them to render accounts half-yearly. For the assessment year 1954-55, the guardians filed a return in the status of a Joint Hindu Family. The Income Tax Officer assessed the guardians under Section 23(3) read with Section 41 of the Act on October 19, 1957. The guardians appealed to the Appellate Assistant Commissioner, who by order dated May 16, 1956 set aside the assessment and directed separate individual assessments, relying on a later order dated March 25, 1958 by the Sub-Judge allowing the guardians to keep and submit separate accounts for each minor. The Income Tax Officer appealed to the Income Tax Appellate Tribunal, which restored the Income Tax Officer's order with modification that the status of the assessee be described as HUF. The Tribunal rejected the guardians' application under Section 35 contending that their shares were specific and determinate. The High Court of Assam on a reference under Section 66(2) answered the question in the negative, holding that the guardians were liable to pay tax on the separate income of each minor because separate accounts were maintained and the beneficiaries were the two minors separately. The Revenue appealed to the Supreme Court. The Revenue contended that under Section 40, the guardians were liable to pay tax in like manner and to the same amount as would be leviable upon the minors if of full age, and the minors, if of full age, would have been assessed as a Hindu undivided family. The respondents argued that under Section 7 of the Guardians and Wards Act, no guardian could be appointed for the undivided interest of a minor, and therefore the properties must have been divided, and the order of March 25, 1958 showed separate interests. The Supreme Court held that on the death of the father, the minor sons constituted a joint Hindu family and the business was joint family property. Till positive action was taken to partition, it remained joint family property. The order appointing guardians could not be read as effecting a partition; the Guardianship Court had no jurisdiction to partition joint Hindu family property. The order of March 25, 1958 came after the assessment year and after the Income Tax Officer's order, so it had no effect on the relevant accounting year 1953-54. The Court agreed with the view of Chagla, C.J. in Commissioner of Income Tax v. Balvantrai Jethalal Vaidya and held that Section 40 plainly applied. Consequently, the guardians had to be assessed treating the minors as constituting a Hindu undivided family. The appeal was allowed, the question referred to the High Court was answered in the affirmative, and the appellant was awarded costs.
Headnote
A) Income Tax - Assessment of Guardians of Minors - Section 40 of Indian Income-tax Act, 1922 - Applicability to Hindu Undivided Family - The guardians were appointed for two minor sons after death of father and mother; business carried on by father was joint family property under Mitakshara school. The Court held that on father's death, minors constituted joint Hindu family and business remained joint family property until partition. Since Section 40 required guardians to be taxed as if minors were of full age, and minors if full age would be assessed as HUF, the assessment of guardians as HUF was valid. Held that Section 40 applied and appeal allowed. (Paras 615-616) B) Hindu Law - Joint Family Property and Partition - Guardians and Wards Act, 1890, Section 7 and Indian Income-tax Act, 1922, Sections 40, 41 - Order appointing guardians did not effect partition; guardianship court has no jurisdiction to partition joint Hindu family property; subsequent order allowing separate accounts after assessment year had no effect on accounting year in question. Held that business remained joint family property and guardians were assessable as HUF. (Paras 615-616)
Issue of Consideration
Whether the Tribunal was justified in assessing the income of the minors in the hands of the guardians as the income of a Hindu undivided family under Section 40 of the Income-tax Act, 1922.
Final Decision
Appeal allowed; question referred to High Court answered in affirmative; guardians assessed treating minors as constituting Hindu undivided family; appellant entitled to costs.
Law Points
- Section 40 of Income-tax Act applies to guardians of minors
- guardians are liable to pay tax as if minors were of full age
- minors constituting Hindu undivided family are assessable as HUF
- order appointing guardians does not partition joint family property
- separate accounts order after assessment year has no effect
- guardianship court has no jurisdiction to partition joint Hindu family property
