COMMISSIONER OF INCOME-TAX VS SATYANARAYANA SIKARIA
2001 P T D 357
[238 I T R 855]
[Gauhati High Court (India)]
Before Brijesh Kunzar, C.J. and D. N. Chowdhury, J COMMISSIONER OF INCOME‑TAX
versus
SATYANARAYANA SIKARIA
Income‑tax Reference No. 11 of 1996, decided on 26/05/1999.
(a) Income‑tax‑‑‑
‑‑‑‑Income from house property‑‑Deductions‑‑‑Partition creating only life interest for Karta‑‑During subsistence of his life interest, Karta to pay annual charge to .his sons and wife‑‑‑Amounts so paid by Karta held not allowable as deduction as creation of charge was voluntary‑‑Indian Income Tax Act, 1961, S.24(l)(iv).
In view of the amendment made to section 24(1)(iv) of the Income Tax Act, 1961, with effect from April 1, 1969, an annual charge created by an assessee voluntarily will not qualify for allowance under the said provision of law. Under the arrangement as detailed in Chapter IV of the Act, an annual charge is to be understood as an annual payment payable by the owner to a third person, that is secured by creation of a charge on the property under assessment. An annual charge in the context signifies something more than yearly payment. It connotes a liability to pay and a charge on the house property with the view to off‑load that liability. The term "liability" here is to be understood as debts and obligations, either absolute, contingent, express or implied, which one is bound in law and justice to perform.
The allowance envisaged in clause (iv) of subsection (1) of section 24 is admissible on fulfilment of the allowing conditions: (a) the property is subject to an annual charge on the house property that is providing income; (b) the said charge is not created by the assessee voluntarily; and (c) it is not a capital charge.
The factum of partition of the Hindu undivided family under section 171 of the Act will not turn the transaction as an act not being voluntary. Recording a finding as to whether there bad been a total or partial partition of the joint family property as such, has no direct bearing, as to the entitlement for allowance as provided under section 24(l)(iv) of the Act.
The statute is not to be interpreted to blunt the edge of the legislative device. An interpretation which makes the law workable and enforceable is to be preferred instead of reducing it to become a dead letter.
There was a total partition of the Hindu undivided family on June 30, 1986, creating a life interest in favour of the Karta, The memorandum of confirmation of family arrangement, dated July 1, 1986, stipulated that on the death of S, the property shall be shared and owned equally by the other parties and during the subsistence of his life interest, S shall pay a sum of Rs.30,000 each as annual charges to his six sons' and wife. S. would take over all the assets and liabilities existing on the date of partition. The assessee, S. in his return filed as an individual for the assessment year 1988‑89, showed income from house property and claimed a deduction under section 241(1)(iv) of the Act for annual charges amounting to Rs.2,10,000. The Income‑tax Officer disallowed the deduction under section 24(1)(iv) of the Act on the ground that the annual charge was created voluntarily by the act of the parties with a view to reduce the tax liability through artificial and sham devices. The Commissioner of Income‑tax (Appeals) upheld the decision. The Tribunal, however, held that, on the facts and circumstances of the case, the deduction was admissible under section 24(1)(iv) of the Act. On a reference:
Held, (i) that though a finding of fact recorded by the Tribunal is binding on the High Court, it must however, appear that the Tribunal genuinely addressed its mind and considered the evidence covering all the essentials before arriving at its conclusions, and the decision of the Tribunal must be based on some evidence to support the finding. In a reference under section 256 of the Act the High Court can look/examine as to whether the conclusion reached by the Tribunal was such that a reasonable person properly instructed in law could have arrived at.
(ii) That the finding was based on the family partition that took place according to the settlement deed. This finding of fact reached by the Tribunal was conclusive. The finding as to whether the settlement was voluntary or involuntary will depend on the interpretation and inference to be drawn from the deed of settlement‑which would be a finding relating to, law and not fact.
(iii) That the Tribunal was not justified in allowing the claim of annual charge of Rs.2,10,000 under section 24(1)(iv).
(b) Interpretation of statutes‑‑
‑‑‑‑ Interpretation which makes law workable and enforceable to be preferred.
(c) Income‑tax‑‑‑
‑‑‑‑Finding of fact or law‑‑‑Interpretation and inference to be drawn from deed of settlement‑‑‑Is a finding relating to law and not fact.
G.K. Joshi for the Commissioner.
Dr. A.K. Saraf, K.K. Gupta and R.K. Agarwalla for the Assessee.
JUDGMENT
D.N. CHOWDHURY, J.‑‑‑This reference under section 256(2) of the Income Tax Act, 1961, is made at the instance of the Revenue seeking for the opinion of the Court on the following questions of law:
"(1) Whether, on the facts and in the circumstances of the case and in view of the Commissioner of Income‑tax (Appeals)'s order, the Tribunal is justified in directing the Assessing Officer to allow the claim of the annual charge of Rs.2,10,000 under section 24(1)(iv) of the Income Tax Act, 1961?
(2) Whether, op the facts and in the circumstances of the case, the Tribunal is correct in law in following the order passed by the Assessing Officer earlier which is patently wrong as per section 171 read with the Explanation(s) on the ground that to reopen the issue of partition without altering the order under section 171 of the Act is outside the jurisdiction of the Assessing Officer?"
For, the assessment year 1988‑89, the assessee submitted his return of income as an individual. Prior to the partition that took place on Jude 30, 1986, the property belonged to a Hindu undivided family (HUF in short) in which the assessee was the karta. He became the owner of the property on the strength of the said partition. The assessee in his return of income showed income from house property and claimed deduction under section 24(1)(iv) of the Act for annual charges amounting to Rs.2,10,000. The memorandum of confirmation of family arrangement containing total ‑partition of Staynarayan Sikaria and Sons, Guwahati, dated July 1, 1986, embodied, inter alia:
"Shri Satyanarayan Sikaria for preserving the family peace and to keep feelings of amity among them as well as to provide adequate funds for their personal expenses has exercised his inherent power of 'partia potestas' as karta of the said family and has divided the entire properties of the said family in the manner described in the 'schedules'. The memorandum further stipulates that 'the properties of the said family have been allotted to the said parties to Hold and Enjoy the respective shares/lots of the properties and exclusively to the entire exclusion'. At page 4 of the said memorandum further terms and conditions have been laid down that the 'entire properties, allotted in definite shares and lots as mentioned earlier have been allotted to Shri Satyanarayan Sikaria in his individual capacity and his interest in these properties is limited to his life, i.e., life interest, as such during his lifetime he shall not be able to sell/gift/bequeath them in any circumstances but enjoy the income thereof only'."
It further stipulated that on the death of Shri Satyanarayan Sikaria, it shall be shared and owned equally by the other parties and during the subsistence of life interest. Shri Stayanaryan Sikaria, shall pay a sum of Rs.30,000 as annual charges to each of the 7 (seven) members which included his six sons and his wife. The covenant also comprehended that Shri Satyanarayan Sikaria would take over all the assets and liabilities existing as on June 30, 1986.
The Income‑tax Officer disallowed the deduction under section 241(1)(iv) of the Act on the ground that the annual charge was created voluntarily by the act of the parties with a view to reduce the tax liability through artificial and sham devices. The Commissioner of Income‑tax (Appeals), upheld the decision and turned down the appeal that was preferred by the assessee. The assessee thereafter preferred an appeal before the Income‑tax Appellate Tribunal, Guwahati Bench, and the Tribunal took the view that the charge created by the assessee could not be said, to be voluntary to be prescribed by the constructions set out in section 24(1)(iv) of the Act. The Tribunal held that on the facts and circumstances of the case, the deduction was admissible under clause (iv) of subsection (1) of section 24 of the Act. Hence, the reference at the instance of the Revenue.
Before addressing the questions involved in the reference, it would be appropriate to look to the material portion of section 24(1)(iv) of the Act which reads as follows :
"24(1) Income chargeable under the head 'Income from house property' shall, subject to the provisions of subsection (2), be computed after making the following deductions, namely:‑‑‑
(iv) where the property is subject to an annual charge (not being a charge created by the assessee voluntarily or a capital charge), the amount of such charge;"
The liability to tax arises by virtue of the provision of charging tax under section 4 of the Act. The total income of an assessee, subject to the provisions of statutory allowances, is chargeable 'to tax in view of section 4(1) of the Income Tax Act, 1961. The annual value of house property of which the assessee is the owner, other than such property as he may occupy for the purpose of any of his business or profession, the profits of which are. chargeable to income‑tax, are chargeable to tax under the head, "Income from house property". The annual value is taxable subject to deduction or allowances set out in subsection (1) of section 24. The catalogue of deductions is comprehensive. We are here concerned with clause (iv) of subsection (1) as set out earlier. Prior to the amendment of this clause by the Finance Act of 1968, allowance from house property income was admissible for an annual charge on house property without any exception even in cases where the charge was created by the assessee himself voluntarily in favour of another person. Section 24(1)(iv) was amended with effect from April 1, 1969, to exclude the annual ‑charge created by the assessee voluntarily from the allowance mentioned in clause (iv) of subsection (1) of section 24 of the Act, 1961. In view of the amendment of the Act, an annual charge created by an assessee voluntarily will not qualify for the allowance under clause (iv) of subsection (1) of section 24 of the Act. Under the arrangement as detailed in Chapter IV of the Act, an annual charge is to be understood as an annual payment payable by the owner to a third person, that is secured by creation of a charge on the property under assessment. An annual charge in the context signifies something more than yearly payment. It connotes a liability to pay and a charge on the house property with the view to off load that liability. The term "liability" here is to be understood as debts and obligations, either absolute, contingent, express or implied, which one is bound in law and justice to perform. "The state of being bound or obliged in law or justice to do, pay or make good something which may be enforced by action" (Black's Law Dictionary).
The allowance joined in clause (iv) of subsection (1) of section 24 of the Act is admissible on fulfilment of the following conditions:
(a) The property is subject to an annual charge on the house property that is providing income;
(b) The said charge is not created by the assessee voluntarily; and
(c) It is not a capital charge.
A charge created by the assessee voluntarily will not be admissible for such deduction. The term "voluntarily" is an adverb. An act is said to be voluntary (adjective) when it is deliberate, discretionary, effected by choice. It is a free, intended, self‑willed, volitional act of the maker; a wilful, unprompted act done without any compulsion.
From the narration of facts, it is apparent that the annual charge was created by the assessee of his own accord willingly, purposefully and without any compulsion. An annual charge which is created by the assessee of his own volition, will not be entitled for deduction as provided under section 24(1)(iv) of the Act of 1961. The factum of partition of the Hindu undivided family under section 171 of the Income‑tax, will not turn the transaction as an act not being voluntary. Section 171. of the Act is a machinery section which provides that the total income of the Hindu undivided family in respect of property up to the date of partition, should be assessed as if no partition has taken place and the members of the family should be held jointly and severally liable for the tax assessed on the family. Subsection (1) of section 171 of the Act is a deeming provision to the effect that a Hindu family hitherto assessed as undivided, shall be deemed to continue to be a Hindu undivided family for the purpose of the Act except where and in so far as a finding of partition has been recorded under section 171 of the Act‑‑‑the partition may be total or partial. Where no claim is made that a partition, total or partial, had taken place or where a claim is made and disallowed, a Hindu undivided family which is hither to being assessed as such will have to be assessed as a Hindu undivided family despite the fact that a partition had in fact been taken place as per Hindu law. Section 171 of the Act of 1961 in fact speaks of disruption of the Hindu family providing the machinery provision for assessment after partition.
Recording a finding as to whether there had been a total or partial partition of the joint family property as such, has no direct bearing as to the entitlement for allowance as provided under section 24(1)(iv) of the Act. The statutory provision allowing deduction under section 24(1)(iv) clearly and unambiguously insists that the annual charge created is to be involuntary in character. The statute is riot to be interpreted to blunt the edge of the legislative device. An interpretation which makes the law workable and enforceable is to be preferred instead of reducing it to become a dead letter. A construction is to adhere to the maxim "ut res magis vaieat quam pereat" (that the thing may rather have effect than destroy). In these premises, we answer question No. l in the negative, against the assessee and in‑ favour of the Revenue.
In view of our answer to question No. 1, question No. 2 has become academic, the answer to which would have no right or liability on the tax?payer, we are of the view that the answer is unnecessary and will have no bearing on the actual right or liability of the taxpayer. We, therefore, refrain from embarking upon this futile exercise:
Though we have not specifically dealt with the rival contentions of counsel for the parties, in fact our finding is based on the argument of learned counsel for the parties from which we are benefited. We are, however, not impressed with the contentions raised by Dr. A.K. Saraf, learned counsel appearing on behalf of the assessee, that the questions referred are questions relating to pure findings of facts and, therefore; the High Court is not required to go into evaluation of the fact situations. We have deliberated on the matter at length. Though a finding of fact recorded by the Tribunal is binding on the High Court, it must, however, appear that the Tribunal genuinely addressed its mind and considered the evidence covering all the essentials before arriving at its conclusions, and the decision of the Tribunal must be based .on some evidence to support the findings. In a reference under section 256 of the Act of 1961, the High Court can indubitably look/examine as to whether the conclusion reached by the Tribunal was such that a reasonable person properly instructed in law could have arrived at. The finding 'of fact is based on the family partition that took place according to the settlement deed. This finding of fact reached by the Tribunal is conclusive. The finding as to whether the settlement was voluntary or involuntary will depend on the interpretation and inference to be drawn from the deed of settlement which would be a finding relating to law and not fact.
The reference is answered accordingly. In the circumstances of the case, there shall be no order as to costs.
M.B.A./160/FC??????????
Reference answered.