Introduction

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

Facts of the Case

• 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.

Issues Involved

• 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?

Observation

• 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.

Conclusion

• The Supreme Court disagreed with the Gujarat High Court's view.