Case: Inspecting Assistant Commissioner Agricultural Income Tax Vs. Poomuilli Manakkal Parameswaran Namboodripad

2. This case has a long history which by no means is complimentary to the Department. The common respondent in both these appeals moved the High Court of Kerala under Article 226 of the Constitution praying that the appellant herein may be prohibited from taking further proceedings for assessing him as the Karta of Poomulli Mana to agricultural income-tax for the assessment year 1961-62.      3. The respondent was the karta of a Namboodri family known as Poomulli Mana till March 30, 1958. The Namboodri in the Malabar District of the Kerala State were previously governed by the Madras Nambudri Act, 1932. Now they are governed by the Kerala Nambudri Act, 1958. The respondents family owned large tracts of lands both in Malabar District which was a part of the Madras State till November 1, 1956 as well as in the erstwhile Travancore and Cochin State. Under the States Reorganization Act, 1954, the new State of Kerala was formed consisting of the former Malabar District of the State of Madras as well as the former Travancore-Cochin State. The new State of Kerala came into being on November 1, 1956. Thereafter the Travancore-Cochin Agricultural Income-tax Act, 1950 was extended to the former Malabar District with effect from April 1, 1957 by Kerala Act 8 of 1957. In the assessment year 1957-58, the assessing authorities assessed Poomulli Mana as an undivided family. That order was quashed by the High Court. On March 30, 1958, the members of the family entered into a registered partition deed under which the family became divided. Thereafter the respondent ceased to be the karta of the family. Nevertheless the authorities under the Act issued notices to the respondent under Section 17 (2) and Section 39 of the Act proposing to assess him as the manager of his H. U. F. for the assessment years 1957-58 and 1958-59. The respondent challenged the validity of those notices before the High court of Kerala.      When the case came up for hearing before a Division Bench of that High Court, the learned Counsel appearing for the Department informed the Court that the Department was going to assess the respondent only as an "individual" and not as the karta of his family. On the basis of that representation, the Court passed the following order:The learned Government Pleader submits, quite categorically that the assessment proposed is of the petitioner as an individual, and not in any other capacity.      In view of the submission we do not consider it necessary to proceed further with the petition. We record the fact that the Department does not propose to assess the petitioner except as an individual and leave him to seek his remedies under the Act or the Constitution in case he feels himself aggrieved by any subsequent action of the Department."4. Despite this assurance, the Department issued a notice under Section 35 of the Act on February 9, 1960 proposing to assess the respondent as the karta of his H. U. F. for the assessment year 1959-60. The respondent again moved the High Court to quash that notice. The said notice was quashed by a learned single judge of the High Court on January 3, 1961 on the ground that it is against the undertaking given by the Government in the earlier proceedings. That decision was affirmed in appeal. Yet another notice dated November 8, 1961 was issued by the Department under Section 35 to the respondent to show cause why he should not be taxed as the karta of his H. U. F. for the assessment year 1958-59. This notice was again quashed by the High Court by its judgment dated December 17, 1963.

Reasoning:
13. Before proceeding to examine the scope of Section 29, let us recapitulate the events that had taken place.-(i) As long back as March 30, 1958, there was a partition in the family of the respondent; that partition is evidenced by a registered deed. The genuineness as well as the validity of the deed is not in dispute. (ii) On January 18, 1960 on behalf of the Agricultural Income-tax Officer, it was conceded before the High Court that the respondent was liable to be taxed only as an "individual". The implication of this concession was that the respondents family was a divided family, (iii) Various attempts made by the Department to assess the respondent as karta of his family even after the decision of the High Court on January 18, 1960 were frustrated by the orders of the High Court referred to earlier and (iv) The respondent and the other members of his quondam family were assessed as "individuals" from 1958-1964. Those assessments had become final and tax levied on them had been paid17. Under the Act what is brought to tax in an assessment year is the income of the assessee in the previous year. The scheme of taxation under the Act is similar to that under the Indian Income-tax Act, 1922. The liability to pay tax under the Act in respect of any income is incurred as and when the income is earned and the total income on which the tax is payable in any particular previous year gets settled at the end of the previous year. Section 29 is only a machinery section. This Court has held that Section 25-A of the Indian Income-tax Act, 1922 is only a machinery section. The same must be the position in regard to Section 29 of the Act18. Section 29 is attracted to an assessment proceedings only if one of the two conditions prescribed in Section 29 (1) is established. Either the family in question was being assessed as an undivided family in the previous assessment year or that family is being assessed for the first time. If neither of these conditions exist, Section 29 has no application whatsoever. The deeming provision contained in Section 29 (3) can have application only in cases where one or the other condition prescribed in S. 29(1) is satisfied and not otherwise. As seen earlier, every attempt made by the assessing authority to assess the quondam family of the respondent was set aside by the High Court. The High Court has repeatedly held that, that family is a divided family. Again the assessing authority itself in the previous years had proceeded on the basis that the family in question is a divided family. It had not only not assessed that family as an undivided family but had assessed the individual members of that family as divided members of that family. Hence the question whether that family was divided or undivided had been gone into in the earlier years and decided. That being so, it cannot be said that the family was "hitherto assessed as a Hindu undivided family." Nor can it be said that the family was "being assessed for the first time as a Hindu undivided family". As seen earlier that family was sought to be assessed as Hindu undivided family earlier but ultimately the assessing authority had to assess the members of that family as members of a divided family. In other words it had held the family to be divided one. Such a family cannot be considered as being "assessed for the first time as a Hindu undivided family". The expression "which (meaning family) is being assessed for the first time as a Hindu undivided family" presupposes the existence of the family. That is a condition precedent. Section 29 (1) does not permit the assessing authority to create a family by rejoining the divided parts or otherwise. If that is not so, families which had been divided years back can be again resurrected by the assessing authorities for the purpose of the Act. The family referred to in Section 29 (1) is a family known to law and not a deemed family. The amendment of Section 29 has introduced considerable confusion into that section. At the time of the assessment either there is a family or there is no family. If there is a family its liability has to be judged on the basis of the Act. If the family has ceased to exist even before the assessment proceedings started then there can be no family which is being assessed to tax for the first time. Possibly the intention of the legislature was to bring in the cases of undivided families not taxed in the previous years which were in existence during the whole or part of the previous year but were divided before the assessment proceedings commenced. It is not necessary for us in this case to decide whether that intention has been expressed with sufficient clarity so as to make it enforceable. Suffice it to say that in this case, the family sought to be taxed was non-existing in the concerned previous years and hence cannot be considered as a Hindu undivided family "being assessed for the first time". That being so there is no room for application of the "deeming" provision in Section 29 (3)8. The amended provision was given retrospective effect with effect from April 1, 1958. Taking advantage of the amendment of Section 29, the Department again issued a notice to the respondent on June 1, 1964 under Section 35 of the Act calling upon him to show cause why he should not be assessed as the karta of his H. U. F. for the period from November 1, 1956 to March 31, 1958. It may be noted thatl that date the respondent and other members of his former family were being assessed as "individuals" and the tax so levied had been paid. In other words for the earlier assessment years, the Department had proceeded on the basis that the family was a divided family.