Commissioner of Wealth Tax v. Chander Sen (1986)
In simple English: Are assets inherited by a son after HSA 1956 HUF property or his own? The Supreme Court said: his own, unless clearly made HUF.
Quick Summary
Main point: When a father dies after the Hindu Succession Act, 1956, and a son inherits his assets, the son takes them as his individual property—not as HUF property—unless the law or document clearly makes it HUF.
- Supreme Court
- 1986
- AIR 1986 SC 1753
Issues
- Do the sums standing to the late father’s credit in the firm, and inherited by the son, belong to the son’s HUF or to him as an individual for tax/wealth-tax assessment?
- Is the interest/finance cost claimed deductible in computing business income of the alleged HUF?
Rules
HSA 1956 principle: If a person dies after 1956 and there was no existing HUF in relation to the property at that time, the heir (e.g., the son) inherits in his individual capacity. The property does not become HUF property merely because it came from the father.
Facts (Timeline)
Arguments
Revenue
- Post-HSA 1956 succession gives the son individual title unless a HUF exists in relation to that property.
- Hence, amounts should be assessed in individual status, not as HUF assets; interest claim as HUF should fail.
Assessee
- Contended that amounts devolved with ancestral character and belonged to his HUF.
- Sought deduction of finance cost/interest in computing business income of the HUF.
Judgment
The Supreme Court held that the inherited amount belonged to the son as an individual, not as HUF property. Therefore, assessments had to proceed in the individual status. Any interest deduction claimed as HUF business expense could not be allowed on this footing.
Ratio Decidendi
Succession after HSA 1956 breaks the old automatic assumption: property coming from father to son is not HUF by default. Unless a HUF existed with respect to that property or the law/instrument clearly creates HUF rights, the son takes it as separate/individual property.
Why It Matters
- Clarifies assessment status (Individual vs HUF) for Wealth Tax/Income Tax.
- Guides families and advisors on inheritance planning after HSA 1956.
- Frequently tested in Hindu law & tax exams.
Key Takeaways
- Post-1956 succession → son takes as individual by default.
- HUF status needs a clear legal basis or a clear instrument.
- Tax treatment follows property character at succession, not later bookkeeping.
Mnemonic + 3-Step Hook
Mnemonic: “S-I-T” — Son inherits • Individual by default • needs Text/legal basis to make HUF.
- See when succession happened (after 1956?).
- Identify any existing HUF or clear instrument.
- Treat as individual property unless clearly HUF.
IRAC Outline
| Issue | Whether inherited sums after the father’s death belong to the son’s HUF or to him as an individual; and whether related interest is deductible as HUF expense. |
|---|---|
| Rule | After HSA 1956, a son inherits as individual unless an existing HUF or a clear instrument/legal provision makes the asset HUF. |
| Application | Credit balance devolved on the son; no clear basis showing HUF character. Hence, assessable in individual status; HUF interest deduction fails. |
| Conclusion | Appeal outcome: individual property, not HUF; corresponding HUF interest claim not allowable. |
Glossary
- HUF (Hindu Undivided Family)
- A family unit recognized in tax law; property may belong to the HUF rather than an individual member.
- Individual Status
- Assessment made in the person’s own name, not in HUF capacity.
- Credit Balance
- Amount standing to someone’s credit in books of account (e.g., in a firm).
FAQs
Related Cases
- C.N. Arunachala Mudaliar v. C.A. Muruganatha Mudaliar — intention and character of property on gift/will.
- Yudhishter v. Ashok Kumar — ancestral property and post-1956 position.
- Kalyani v. Narayanan — self-acquired vs joint family property distinctions.
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