Case: The Income Tax Officer, Gorakhpur Vs. Ram Prasad &amp; Others

2. The first respondent Ram Prasad was the Karta of a Hindu undivided family which carried on business in the name and style of "Ram Nath Ram Prasad". Assessments were made on the family for income-tax for the assessment years 1944-45 to 1947-48 and for excess profits tax for the corresponding chargeable accounting periods respectively ending on October 28, 1943, October 16, 1944, November 4, 1945 and March 31, 1946. The income-tax assessments for the assessment year 1944-45 and the excess profits tax assessment for the corresponding chargeable accounting period ending on October 28, 1943 were set aside by the Income-tax Appellate Tribunal with the direction that fresh orders of assessment be made in accordance with the directions given by the Tribunal. On September 25, 1951, under a scheme for voluntary disclosure, the first respondent disclosed by means of an application a sum of Rs.2,08,450/- and offered the same for taxation. On October 1, 1951, the Hindu undivided family disrupted and there was a complete partition, which was accepted by the department as of that date. Thereafter fresh assessments to income-tax were made for the assessment year 1944-45 to 1947-48 taking into consideration the disclosures made by the first respondent. There is no dispute about those assessments. Subsequently notices were issued under Section 13 (1) of the Excess Profits Tax Act, 1940 (to be hereinafter referred to as the Act) on February 14, 1957 for all the four chargeable accounting periods ending on October 25, 1943, October 16, 1944, November 4, 1945 and March 31, 1946 in the name of the first respondent. Immediately thereafter the first respondent filed two writ petitions before the Allahabad High Court challenging the validity of the notices issued. After the institution of those writ petitions on April 8, 1958, the appellants issued three notices to the respondent under Section 15 of the Act in respect of the chargeable accounting periods ending on October 14, 1944, November 4, 1945 and March 31, 1946. Thereafter the writ petitions filed by the first respondent were amended and the validity of those notices was also challenged. The learned Single Judge who heard the writ petitions allowed the same holding that the appellant was not competent to take proceedings under the provisions of the Act in respect of Hindu undivided family which had been divided. Aggrieved by that decision, the appellant took up the matter in appeal to the Division Bench of the Allahabad High Court. The Division Bench upheld the decision of the learned Single Judge. Hence these appeals.

Court's reasoning:
7. We are in agreement with these observations. Consequently we are unable to uphold the contention that so long as the business continues, the change of the person who carries on the business is immaterial8. Next Mr. B. Sen, learned Counsel for the appellant sought to seek assistance from Section 44 of the Indian Income-tax Act, 1922 which section is one of the sections mentioned in Section 21 of the Act Section 44 of the Indian Income-tax Act, 1922 reads thus:"Where any business, profession or vocation carried on by a firm or association of persons has been discontinued or where an association of persons is dissolved, every person who was at the time of such discontinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income, profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment."9. This provision applies only to firms and associations of persons. Hindu undivided family is neither a firm nor an association of persons. It is a separate entity by itself. That is made clear by Section 3 of the Indian Income-tax Act, 1922 which classifies the assessees under the heads "individuals", "Hindu undivided families", "companies"; "local authorities", "firms" and "other associations of persons"...If Hindu undivided family is to be considered as an association of persons, there was no point in making separate provision for the assessment of Hindu undivided family. This conclusion is strengthened by Section 25-A of the Indian Income-tax Act, 1922 which provides for the assessment of Hindu undivided family after its partition.