JUDGMENT C.S.P. Singh, J.
1. The assessee was, in the relevant assessment year 1948-49, a Hindu undivided family. Its assessment for that year was made by including in the returned income amounts of certain credits appearing in the books of the assessee as being income from undisclosed source. In view of the additions made in its income, the Income-tax Officer issued a notice under Section 28(3) of the Indian Income-tax Act, 1922, on February 27, 1958. Penalty proceedings dragged on and eventually terminated by an order, dated August 22, 1963, by which the Income-tax Officer imposed a penalty on the assessee for concealing its income. The assessee had while the penalty proceedings were pending claimed a partition of the joint Hindu undivided family as from the 6th May, 1958. The Income-tax Officer had not accepted the partition but the assessee went up in appeal against that order and the appeal was eventually allowed on the 12th December, 1963, by an order recognising the partition as from 6th May, 1958.
2. Against the order of penalty, the assessee filed an appeal by W.T.R. No. 344 of 1969 (Lala Narendra Lal, Shamli v. Commissioner of Income-tax). Rajendra Lal and Narendra Lal are two brothers. The family of Rajendra Lal consists of himself and his wife, Shrimati Shusheela Devi, while that of Narendra Lal consists of himself, his wife, Shrimati Kamla Devi, a major daughter, Manjula Rani, and a minor daughter, Roopa Rani. The family was joint and a partial partition took place on August 7, 1959. In that partition, 2,200 shares of Upper Doab Sugar Mills, Shamli, were divided as under :
(1) Rajendra Lal--100 shares of the value of Rs. 10,000, (2) Smt. Shusheela Devi--1,000 shares of the value of Rs. 1,00,000.
(3) Narendra Lal--100 shares of the value of Rs. 10,000.
(4) Smt, Kamla Devi--100 shares of Rs. 10,000.
(5) Manjula Rani (major daughter)--450 shares of the Value of Rs. 45,000.
(6) Roopa Rani (minor daughter)--450 shares of the value of Rs. 45,000.
3. It will be seen that the two branches, i.e., Rajendra Lal and Narendra Lal, got equal shares. For the assessment year 1962-63, the Income-tax Officer included the value of the shares allotted to the wife and daughters of Narendra Lal in the total wealth of the assessee, Narendra Lal, under Section 4(1)(a)(i) and 4(1)(a)(ii) of the Wealth-tax Act. He also repelled the other contention made by the assessee that dividends which had been declared in respect of each share but had not been actually paid to him should not be included in his net value. The assessee, thereafter, filed appeals before the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, but was unsuccessful. Thereafter, they applied far and obtained consolidated reference in respect of both the years under Section 27(1) of the Wealth-tax Act. The Tribunal referred the following two questions for answer to this court:
"(1) Whether, on the facts and circumstances of the case, the provisions of Section 4(1)(a)(i) and 4(1)(a)(ii) of the Wealth-tax Act, 1957, were rightly applied; and (2) Whether the dividends of Rs. 53,809 and Rs. 12,500, respectively, declared by the company but not actually paid to the assessee prior to the valuation dates could be assessed to wealth-tax for the assessment years 1962-63 and 1963-64 ?"
4. When the matter came up before a Division Bench of this court, it was urged on behalf of the revenue that inclusion of the value of shares allotted to the wife and his daughters was justified and reliance for this proposition was placed on a decision of this court in Rajendra Lal v. Commissioner of Income-tax, [1970] 78 I.T.R. 803 (All.). The Division Bench, however, doubted the correctness of the view expressed in Rajendra Lal's case in view of the decision of the Supreme Court in N. V. Narendra Nath v. Commissioner of Wealth-tax, [1969] 74 I.T.R. 190; [1969] 3 S.C.R. 882 (S.C). It referred the matter to a larger Bench and that is how the case has now come up before us.
5. In order to return an answer to the first question, it would be useful to quote Section 4(1)(a)(i) and (ii) of the Wealth-tax Act, 1957:
"4. Net wealth to include certain assets.--(1) In computing the net wealth of an individual, there shall be included, as belonging to him--(a) the value of assets which on the valuation date are held--
(i) by his wife to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live separately, or
(ii) by a minor child not being a married daughter to whom such assets have been transferred by the individual otherwise than for adequate consideration, or... ."
6. It will be noticed that before Section 4 may be brought in aid. two conditions are necessary. Firstly, that the assessment must be in respect of an individual and, secondly, that assets which are sought to be included should have been transferred by that individual either to his wife or to his minor child. In the present case, the assessee is an individual and so the first test is satisfied. The dispute centres round the question as to whether the second condition is satisfied. The assets, i.e., the shares which were allotted to the two coparceners, i.e., Rajendra Lal and Narendra Lal and their respective wives and children, indisputably belonged to a Hindu undivided family and a partial partition took place on the 18th August, 1959, which was effected by an indenture between the two brothers, Rajendra Lal and Narendra Lal, as also Shrimati Shushila Devi, wife of Rajendra Lal, and Shrimati Kamla Devi, wife of Narendra Lal, on her own behalf and as guardian of the minor daughter, Kumari Roopa Rani, and major daughter, Kumari Manjula Rani of Narendra Lal. The shares were allotted by the assessee to his wife and major and minor daughters by this indenture. The question is as to whether it can be said that this transaction had resulted in transfer of shares by Narendra Lal in his individual capacity to his wife and his minor daughter.
7. In order to answer this question, it will be necessary to consider the effect of the partition. Both the brothers, as will be seen, had no male issue, but the property which was received by the branch of the assessee would still be the property of the Hindu undivided family consisting of himself, his wife and his daughters, for, under the Hindu law, it is not necessary that there should be two male members in order to constitute a joint undivided family. This proposition has been put beyond the pale of controversy by the decision of the Supreme Court in N. V. Narendra Nath v. Commissioner of Wealth-tax. The fact that the share received is the property of the Hindu undivided family is clear from the following observations of their Lordships of the Supreme Court on page 197 of the report in N. V. Narendra Nath's case:
"In the present case the property which is sought to be taxed in the hands of the appellant originally belonged to the Hindu undivided family belonging to the appellant, his father and his brothers. There were joint family properties of that Hindu undivided family when the partition took place between the appellant, his father and his brothers and these properties came to the share of the appellant and the question presented for determination is whether they ceased to bear the character of joint family properties and became the absolute properties of the appellant. As pointed out by the Judicial Committee in Arunachalam's case, [1957] A.C. 540; [1958] 34 I.T.R. (E.D.) 42; 3 E.D.C. 825 (P.C.). it is 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 can be determined whether the family property can properly be described as 'joint property of the undivided family'. Applying this test it is clear, though in the absence of male issue the dividing coparcener may be properly described in a sense as the owner of the properties, that upon the adoption of a son or birth of a son to him, it would assume a different quality. It continues to be ancestral property in his hands as regards his male issue for their rights had already attached upon it and the partition only cuts off the claims of the dividing coparceners. The father and his male issue still remain joint. The same rule would apply even when a partition had been made before the birth of the male issue or before a son is adopted, for the share which is taken at a partition by one of the coparceners is taken by him as representing his branch. Again, the ownership of the dividing coparcener is such ' that female members of the family may have a right to maintenance out of it and in some circumstances, to a charge for maintenance upon it': see Arunachalam's case, [1957] A.C. 540 ; (1958) 34 I.T.R. (E.D.) 42 , 3 E.D C. 825 (P.C.). It is evident that these are the incidents which arise because the properties have been and have not ceased to be joint family properties. It is no doubt true that there was a. partition between the assessee, his wife and minor daughters on the one hand and his father and brothers on the other hand. But the effect of partition did not affect the character of these properties which did not cease to be joint family properties in the hands of the appellant. Our conclusion is that when a coparcener having a wife and two minor daughters and no son receives his share of the joint family properties on partition, such property In the hands of the coparcener belongs to the Hindu undivided family of himself, his wife and minor daughters and cannot- be assessed as his individual property. It is clear that the present case falls within the ratio of the decision of this court in Gowli Buddanna's [1966] 60 I.T.R. 293 ; [1966] , 3 S.C.R. 224 (S.C) case and the Appellate Tribunal was right in holding that the status of the respondent was that of a Hindu undivided family and not that of an individual,"
9. This being so, even if it could be said that there had been a transfer of the shares by Narendra Lal to his wife and his minor daughters by the deed of indenture, the transfer, if any, was effected as the karta of the Hindu undivided family, consisting of the assessee, his wife and his two daughters, and not in the assessee's individual capacity. As soon as this conclusion is reached, the case goes out of the purview of Section 4(1)(a)(i) and 4(1)(a)(ii) of the Act, for, before such a transfer could be got, it has to be effected by the assessee in his individual capacity. In Rajendra. Lal's case, one of the main reasons that weighed with the Bench was that Rajendra Lal on partition became the owner of the property, and reliance was sought to be put for this on N.V. Narendranath's case. With respect, we are of the view that the interpretation put by the Bench on N.V. Narendranath's case was not correct. We have already quoted the relevant portion of the Supreme Court decision where this matter has been dealt and we are unable to read in that passage the conclusion that their Lordships of the Supreme Court treated the sole coparcener as the owner of the property. No doubt in the passage which we have extracted, their Lordships have described a single coparcener as "in a sense ..... the owner of the property" but the ultimate conclusion reached is that the property belonged to the Hindu undivided family. It seems that their Lordships of the Supreme Court described the sole coparcener as "in one sense the owner of the properties", because the management of the property in such a case is exclusively of the divided coparcener. This, in our view, is the only possible way of interpreting the decision of the Supreme Court, so as not to bring about an inconsistency in the judgment. For, in case the aforesaid decision is held to be laying down that a divided single coparcener is the owner of the properties, the latter conclusion of their Lordships of the Supreme Court that the property belongs to the Hindu undivided family would become inconsistent with the first part of the decision. In the case of L. Hirdey Narain v. Commissioner of Income-tax, [1965] 57 I.T.R. 363 (All). which has been referred to in Rajendra Lal's case and distinguished, a Bench of this court has taken the view that the provisions of Section 16(3)(a) (iv) of the Income-tax Act, which are in pari materia with Section 4(1)(a) apply only to a case of an individual, and not to that of a Hindu undivided family. The basis for distinguishing this case was that the assessee, Rajendra Lal, became the sole owner of the property after the partition. This view, as we have already held, does not appear to be well-founded as on partition Rajendra Lal became owner as the karta of the joint Hindu family and not in an individual capacity. The interpretation put by the Division Bench in L. Hirdey Narain's case on Section 16(3)(a)(iv) of the Income-tax Act appears to us to be the correct interpretation, and Sections 4(1)(a)(i) and (a)(ii), being in pari materia, have to be interpreted likewise. The language of Section 4(1)(a)(i) and (a)(ii) is unambiguous and does not countenance the argument that it may also be made applicable to cases where the Hindu undivided family effects a transfer in favour of one of its members. The Patna High Court in the case of Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, [1968] 67 I.T.R. 725 (Pat,).
has likewise taken-the view that, where the transfer is effected by the karta of a Hindu undivided family, Section 16(3) of the Income-tax Act is not attracted. We are in respectful agreement with the view expressed in this case. We are thus of the view that the provisions of Section 4(1)(a)(i) and (a)(ii) of the Wealth-tax Act were not applicable to the facts of the present case.
10. Coming now to question No. 2, under the Wealth-tax Act, all assets belonging to an assessee on the valuation date have to be valued and taxed. The dividends had already been declared before the valuation date. That being so, the assessee was entitled to recover the dividends from the company and the mere fact that he had not actually received them prior to the valuation date would be immaterial, for on the declaration of the dividend, they became an asset of the assessee and were liable to be included in his total wealth. The fact that they had not been received by the assessee would not in law entitle him to exclude the amount in question from his total wealth, for the liability to tax is on the assets held by an assessee on the valuation date and assets need not necessarily be property over which the assessee has actual physical possession. All that is required is that the assessee should have an indefeasible right to the asset in question and that condition is fully satisfied in the present case. The inclusion of the dividends in the net wealth of the assessee was, therefore, justified.
We, therefore, answer the first question in the negative and against the department and the second question in the affirmative and in favour of the department. In view of the partial success and failure of the parties, they shall bear their own costs. Counsel's fee is assessed at Rs. 200.
H.N. Seth, J.
11. fter hearing the arguments advanced in this case and having discussed the matter with my learned brothers, Gulati and C. S. P. Singh JJ. I have reconsidered the view which I shared with Hon. Oak C.J. in the case, Rajendra Lal v. Commissioner of Income-tax.
12. Under the Wealth-tax Act, all property belonging to an individual is to be included in computing his net wealth. It was apprehended that in order to reduce the incidence of taxation, an assessee would be tempted to formally transfer his property to his wife and minor children, while for all practical purposes continuing to enjoy its benefits as if it was his own property. Accordingly, the legislature enacted Section 4(1)(a)(i) and (ii) providing that the value of the assets transferred by an individual, directly or indirectly, otherwise than for adequate consideration to his wife or minor child, not being a married daughter, shall in computing the net wealth of the transferor be included in his net wealth. This section was not enacted with the idea that merely because a property is transferred by a person its value should be included in his net wealth although it was not so includible if the same has not been transferred.
13. According to the law, as laid down by the Supreme Court In the case of N.V. Narendranath v. Commissioner of Wealth-tax, if at the time of partition of the family as between Rajendra Lal and Narendra Lal, no allotment of shares to the wife and daughter of Narendra Lal had been made, the value of the shares in question could not have been included in Narendra Lal's net wealth, as before partition these shares would have belonged to the Hindu undivided family of Rajendra Lal and Narendra Lal and, thereafter, to the joint Hindu family consisting of Narendra Lal, his wife and minor children. Accordingly, if at the time of partition in the family, Narendra Lal entered into such a transaction which amounted to transfer of certain shares to his wife and daughter, it does not mean that he transferred to them such property, the value of which but for the transfer would have been included in his net wealth.
14. So far as the value of 100 shares received by Narendra Lal on partition between him and his brother, Rajendra Lal, is concerned, it continued to be ancestral property in his hands. These shares were not the subject matter of a transfer of the nature contemplated by Section 4. According to the decision of the Supreme Court in A.V. Narendranath's case these shares continued to be the property of the joint family consisting of Narendra Lal, his wife and daughter. Their value, therefore, could not be included in computing the net wealth of Narendra Lal as an individual. There is no reason why merely because Narendra Lal entered into a transaction which possibly resulted in transfer of the shares which on partition were to come to his joint family, on a different footing, and to hold him liable even in respect of property which if the transfer had not taken place would, while computing his net wealth, not have been included in the value of his assets.
15. I agree with the interpretation of Section 4(1)(a)(i) and (ii) of the Wealth-tax Act and also with the answers to the two questions proposed by Hon. C. S. P. Singh J.
BY THE COURT
16. This is a reference under Section 27(1) of the Wealth-tax Act, 1957, inviting the opinion of this court on the following two questions:
"1. Whether, on the facts and in the circumstances of the case, the provisions of Sections 4(1)(a)(i) and 4(1)(a)(ii) of the Wealth-tax Act, 1957, were rightly applied ; and
2. Whether the dividends of Rs. 53,809 and Rs. 12,500, respectively, declared by the company but not actually paid to the assessee prior to the valuation dates could be assessed to wealth-tax for the assessment years 1962-63 and 1963-64?"
17. For the reasons set out in the judgments appended hereto, we answer the first question in the negative, against the department and the second question in the affirmative, in favour of the department.
Parties shall bear their own costs. The counsel's fee is assessed at Rs. 200.