Bench:
- Justice Beaumont, C.J.
Facts:
The case involved a reference under Section 66(2) of the Income-Tax Act, 1922, concerning the taxation of income received by the sole surviving male member of a Hindu Undivided Family (HUF).
The assessee was a Hindu male, who was the only surviving male member of a joint Hindu family consisting of himself, his mother, and his wife. After the death of his father, the question arose whether the income received by the assessee should be taxed as his individual income or as the income of a Hindu Undivided Family (HUF) for the purposes of super-tax assessment under Section 55 of the Income-Tax Act, 1922.
The Commissioner of Income-Tax contended that since the assessee was the only male member, the income should be assessed as his individual income rather than that of a joint family. The assessee argued that a Hindu Undivided Family can exist even with one male member and female members who are entitled to maintenance, and therefore, the income should be assessed as that of a HUF.
Issues:
- Whether the income received by the sole surviving male member of a Hindu Undivided Family should be taxed as his individual income or as income of the Hindu Undivided Family.
- Whether a Hindu Undivided Family can exist with only one male member and other female members.
Arguments:
Commissioner of Income-Tax (Appellant)
- The Hindu Undivided Family ceases to exist when there is only one male member left.
- Since the assessee was the only male member, the joint family status ended, and the income should be assessed as his individual income.
- The super-tax exemption available to a Hindu Undivided Family should not apply to the assessee, as he is being assessed as an individual.
Assessee (Gomedalli Lakshminarayan – Respondent)
- A Hindu Undivided Family does not necessarily require more than one male member to continue as a joint family.
- Even after the death of his father, the assessee remained part of a Hindu Undivided Family consisting of himself, his mother, and his wife, as female members are entitled to maintenance and have rights under the HUF system.
- Since the joint family had not been disrupted, the income should be taxed as HUF income, allowing the super-tax exemption applicable to HUFs.
Ratio Decidendi (Legal Principle Applied):
- The Court held that a Hindu Undivided Family can continue to exist even when there is only one surviving male member, as long as there are female members entitled to maintenance.
- The definition of a Hindu Undivided Family under tax laws is broader than a coparcenary, which includes only male members with an interest in joint family property.
- For tax purposes, a Hindu Undivided Family is treated as a unit, and individual members are not taxed separately for their share of joint income.
Observations:
- The Court noted that the Income-Tax Act recognizes a Hindu Undivided Family as a distinct taxable entity, and its existence does not depend solely on the presence of multiple male members.
- The legislature deliberately used the broader term “Hindu Undivided Family” instead of “coparcenary” in the Income-Tax Act, indicating that even families with only one male member can continue as HUFs.
- The super-tax exemption was designed to benefit joint families, where income is shared among multiple members, and this principle applies even when the family consists of only one male member and dependent females.
Decision:
- The Court ruled in favor of the assessee, holding that the income should be assessed as the income of a Hindu Undivided Family, not as his individual income.
- It was decided that a Hindu Undivided Family can continue even with a sole surviving male member, provided there are female members entitled to maintenance.
- The Court rejected the Commissioner’s argument and granted the super-tax exemption to the assessee.
Important Terms:
- Hindu Undivided Family (HUF) – A legal and tax-recognized family unit under Hindu law, consisting of lineal male descendants and their wives/unmarried daughters, continuing even when only one male member remains.
- Coparcenary – A narrower concept than HUF, referring only to male members who have a birthright in the joint family property. Female members, while part of the HUF, are not coparceners (before the 2005 amendment to the Hindu Succession Act).
- Section 66(2) of the Income-Tax Act, 1922 – Provides for reference to the High Court on questions of law related to tax assessments.
- Super-Tax under Section 55 of the Income-Tax Act, 1922 – A higher tax rate applied to individuals earning beyond a threshold, but HUFs were granted exemptions to ease the tax burden on family-run businesses.
