Hindu Law

Commissioner of Wealth-Tax v. Chander Sen AIR 1986 SC 1753

This is a landmark case under Section 8 of the Section 8 of the Hindu Succession Act, 1956.

Rangi Lal and his son Chander Sen constituted a Hindu undivided family (HUF) with immovable property and a business.
On 10^th October 1961, there was a partial partition between Rangi Lal and Chander Sen, dividing the business between them as a partnership.
Rangi Lal died on 17^th July 1965, leaving behind a credit balance of Rs. 1,85,043 in the partnership firm's books.
For the assessment year 1966-67, Chander Sen (who constituted a new HUF with his sons) did not include the Rs. 1,85,043 in his net wealth, claiming it was his individual property.
The Wealth-tax officer included the Rs. 1,85,043 in the net wealth of Chander Sen's HUF.
For the assessment year 1967-68, interest of Rs. 23,330 was credited to Rangi Lal's account. Chander Sen claimed it as a deduction, arguing it was his individual income. The Income-tax officer disallowed this claim.
On appeal, the Appellate Assistant Commissioner accepted Chander Sen's claims for both wealth-tax and income-tax assessments.
The revenue appeals were dismissed by the Income-tax Appellate Tribunal.
In the wealth-tax references, the High Court held that under Section 8 of the Hindu Succession Act, 1956, the amounts did not constitute assets of Chander Sen's HUF.
Similarly, in the income-tax reference, the High Court held that the interest was allowable as a deduction.
Hence, the appellant approached Supreme Court.

Whether the sum of Rs. 1,85,043 and Rs. 1,82,742 (after accounting for interest) constituted assets of Chander Sen's HUF or his individual property?
Whether the interest of Rs. 23,330 was allowable as a deduction in computing the business profits of Chander Sen's HUF?

The Supreme Court noted that under the Hindu law, when a son is born, he gets a share in the father's property and becomes part of the coparcenary. However, the position may be affected by Section 8 of the Hindu Succession Act, 1956.
- Section 8 indicates the heirs in respect of certain property, and Class I of the heirs includes the son but not the grandson. It includes the son of a predeceased son.
The Supreme Court stated that when the son as an heir under Class I of the Schedule inherits the property in the situation contemplated by Section 8, he cannot be said to take it as the Karta of his own undivided family.
Accepting the Gujarat High Court's view would mean that the son's son, who is intended to be excluded under Section 8, would still get a right by birth contrary to the scheme outlined in Section 8.