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M/S. GAURI SHANKAR, CHANDRABHAN

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C.I.T., U.P., LUCKNOW

May 3, 1976

[A. C. GUPTA AND JASWANT SINGH, JJ.J

AsseJ.rn1ent jurisdiction of Income Tax Officerurisdiction to continue to assess u undivided, despite partition under personal law. a HindU family whicll

has hitherto been assessed in that status-Interpretation and scope of s. 25A(3) r<ad 1>ith s. 25A(I) of the Income Tax Act-Penalty imposed under s. 28(l)(c) of the Act for concealment of income by the Hindu Undivided Family prior to the actual date of recording of an order accepting the disruption of the Hindu

Vfldivided Family is proper.

In response to a show cause notice dated March 15, 1957, under s. 28(l)(c) of the Income Tax Act, before imposing a penalty for deliberate concealment of its income, the appellant, through ; ts authorised representni.:e, voluntarily agreed to a sum of Rs. 15,000/- being treated as income of I-Iindu Un<li, iJed Family. The Income Tax Officer, by his order dated March 20, 1958, added a sum of Rs. 68,550/ ... to the income of the appellant and imposed on it a penalty of R.. 26,000/- which on appeal was reduced to Rs. 15,000/-. Mean while, on March 19, 19157, the appellant filed an application under s. 25A of

.iie Act for an order recording partition of joint family property in definite D portions from June 22, 1956, claimin~ that date to be the date of partition. The Income Tax Officer, after due enquiries., accepted the disruption of the Hindu Un&vided Family as claimed by his order dated March 26, 1962. This led the appellaat to contend that, in view or the orders dated March 26, 1962, of the Incooie Tax Officer, the imposition of the penalty by him on March 20, 1958, was bad in law and could not be sustained.

T1le Tribunal upheld the contentions of the appellant resulting jn a reference under s. 66( 1) of the Act to the Hi~ Court of Allahabad (Lucknow Bench), which reversed the decision of the Tribnna1.

Ho"WCver, the High Court granted a certificat~ of Atne"s for E J appeal to this Court.

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Dismissing the appeals the Court,

HELD: Sub--section (3) of s. 25A of the Income Tax Act en1bodies a legal fiction according to which a Hindu family which has been previously assessed as ''undivided" is to be continued to be treated as "undivided'' till the passing of the order under sub-s. (I) of s. 25A. So long as no order under s. 2S(A)(l) of the Act is recorded, the jurisdiction of .the Income Tax Officer to continue to

asess as undivided desplte a partition under personal law, a Hindu family which has hitherto been asses.sed in that status, remain unaffected.

[5080-H]

Additional lnconte Tax Officer, Quddapah v. A. Thim1nayya & Anr. SS I.T.R. 666; /dint Family of Udayan Chinubhai etc. v. Co1nmissioner of Income Tax, Gujarat (1967) 63 I.T.R. 416, applied.

CommiMioner of Income Tax v. Sl>l11char Snh Bhim Salt (1957) 27 I.T.R.

G 307; S. A. Raiu Chattiar & Ors. v. Collector of Madras & Anr. (1956) 29 I.T.R. 241; Mahankali Subba Rao Mahankllli Naeeswara.i Rao & Anr. v. Commissioner of Income Tax., Hyderabad (1957) 31 I.T.R. 867 and Comn1issioner of Incom~ Tax, Punjab v. Mathu Ram Prem Chand (1967) 66 I.T.R. 638, not applicable.

HELD FURTIIER: In the instant case, there was not a whisper of the application under s. 25A (I) of the Act by the appellant on March 15, 1957, when H the penalty proceedings ""re initiated against it.

EV<n on March 20, 1958, when the penalty was imposed, there was no order under s. 25A(l) of the Act. It was on1y on March 26, 1962, that the partition was recognised and order

506 SUPREME COURT REPORTS (1976] SUPI'LliMENTARY

A under s. 27A(l) of the Act was passed.

There was, thus, no bar to lhe imposiw tion of the impugned penalty. [509Ef'J

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 886 of 197.1.

(From the judgment and order dated the 18.9.1969 of the Allahabad High Court in L T. R. Misc. Case No. 836 of 1963.)

G. C. Sharma, V. N. Ganpule, D. K. Jain, Anup Shanna and P. C.

Kapur, for the appellant.

B. Sen and S. P. Nayar, for the respondent

The Judgment of the Court was delivered by

JASWA)IT SINGH, J. This is an appeal by certificate of fitness granted by the High Court of Judicature at Allahabad under section 66- A(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the Act') from its judgment dated September 18, 1969 in I.T.R. Misc.

Case No. 836 of 1963.

The facts giving rise to this appeal are : The appellant, a Hindu undivided family consisted of Gauri Shankar, the father, and his three sons viz. Chandrabhan, Bengali Lal ai,1d Brij Kishan.

Gauri Shankar, the karta of the family who was incharge of the affairs of the family during the relevant year which extended from April 13, 1945 to April 12, 1946, the assessment year being 1946-47, died on April 2, 1946.

He was succeeded by his son, Chandrabhan as Karla of the family.

The appellant had, in the first instance, filed a retur,1 showing an income ot Rs. 9,701/-. On scrutiny of the relevant material, the Income Tax Oflicer found a number of discrcpencies in the accounts of the appellant and also noted the existence of cash credits to the appellant's accmmt in the books of another firm viz. M/s. Tilyani Glass Works and a certain sum deposited in an account styled as Abdul Wahid Khan & Suns.

He thereupon issued a notice dated March 15, 1957, calling upon the appellant to explain the discrepencies in the accounts as also in the cash credits and to show cause why a penalty under section 28- ( l ) ( c) of the Act be not imposed upon it. In response to the notice, a representative of the appellant appeared before the Income Tax Officer and volontarily agreed to a sum of Rs. 15,000/- being treated as its income. After hearing the Appellant's representative, the J>,1come Tax Officer felt satisfied that the nppella'.lt had deliberately concealed its income and furnished an inaccurate return. Accordingly, by his order dated March 20, 1958, he added a sum of Rs. 68,550/- to the income of the appellant and imposed on it a penalty of Rs. 26,000/-.

Mea, awhilc, on March 19, 1957; an application under section 25-A of the Act was made to the Income Tax Officer for an order recording partition of joint family property in definite portions, which according to the application had taken place amongst the members of the Hindu undivided family on June 22, 1956. The Income Tax Officer on bei'ng satisfied after making enquiries that a complete partition of the joint family property has taken place, recorded an order under section 25- A ( 1) of the Act on March 26, 1962, accpting the partition with effect

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!rum June 22, 1956, as claimed. Against the pe.ialty of Rs. 26,000/-

imposed by the Income Tax Oflicer by his order dated March 20, 1958, the appellant preferred an appeal to the Appellate Assistant Commissiouer, who reduced the penalty to Rs. 15,000/-. Not satisfied with this reduction, the appellant went up in further appeal to the Inc<;>metax Appellate Tribunal and raised before it a number of connt1cms.

Among.; t other things, it was urged before the Tnbunal that smce the Hindu undivided family hact disrupted on June 22, 1956, as accepted bv the Income Tex Officer in his aforesaid order dated March 26,

1962, passed under section 25-A(l) of the Act, the imposition of the pe"rnlty by the Income-Tax Officer on March 20, 1958, after the disruption of the family was bad in law and could not be sustained. While rejecting the other contentions raised on behalf of the appellant, the Tribunal upheld this contcnti011 by its order dated March 6, 1963.

Thereupon the Commissioner of Income-tax, U.P. made a',1 application before the Income-tax Appellate Tribunal under section 66( 1) of the Act reqaesting that the following question of law arising from its decisi<'l1 be referred to the High Court:-

"Whether in the facts und circumstances of the case the imposition of penalty under sectida 2E (1) ( c) on the Hindu undivided family after it had disrupted within the meaning of section 25-A is bad in law''.

Acceding to the request of the Commissioner of Income Tax, the Tribunal referred the above mentioned question to the High Court which answered the same in the aegative.

The appellant thereupon applied to the High Court and obtained the aforesaid certificate of fitness for appeal to thLs Court. This is how the matter is before us.

Relying on Co1nniissioner of lnconie Tax v. Sanichar Salz Bhi111 Sah('), S. A. Raju Chattiar & Ors. v. Collector of Madras & Anr.(") Malwnkali Subba Rao, Mahankali Nageswara Rao & Anr. v. Comnnssioner of Income-tax, Hyderabad(') and Commissioner of Incometax, Punjab v. Mothu Ram Prem Chand(') counsel for the appellant has reiterated before us that since the Hindu undivided family had dis- F solved on June 22, 1956 as accepted by the Income Tax Officer vide his order dated March 26, 1962 passed under section 25-A of the Act and the Act did not provide any machinery for imposition of the penalty on the Hindu family after its disruption, the imposition of penalty on March 20, 1958 was had in law and could no~ be sustained .

Counsel appearing on behalf of the Revenue has, on the other ha!nd, urged that imposition of impugned penalty cannot be challenge& as in G view of section 25-A(3) of the Act, a Hindu undivided family must be deemed to have continued in existe'nce till the date of the passing of

th~ order under section 25-A( 1) of the Act.

Po: a proper determinatin of the question, it is necessary to refer to secuon 25-A of the Act which at the relevant time stood as under :-

"25-A. ( 1) Where, at the time of making an assessment H under section 23, it is claimed by or on behalf of a'ny member

0). (1957) 27 ( T. -R.J~

(2) (1956) 29 I.T. R. 241.

(1) (1957) 3t l.T R. 867.

(4) (1967) 66 l.T. R. GJR.

SUPREME COURT REPORTS [J976j SUPPLE!>!E1'iT"1lY

d a llindu family hitherto usscssed as undivided that a partition l1as taken place among the members of such family, the Income-tax Officer shall make such inquiry thereinto as he may think fit, and, if he is satisfied that the joint family property has been partitioned among the various members or groups of members in defr.1ite portions, he shall record an llrdcr to that effect :

Provided that no such. order shall be recorded until notices of the inqu'ry have been served on all the members of

the fa111iJy.

(2) Where such an order has been passcd 1 or where any per.sun has succeeded to a business: profession or vocation formerly carried on by a Hindu undivided family, whose joint family property has been partitioned on or after the last day on which it carried on such business, profession or vocation, the Incomctax Officer shall make an assessment of

i!ic total income received by or on behalf of the joint family as such, as if no partition had taken place, and each member or group of members shall, in addition to any income-tax for which he or it may be separately liable and notwithstanding <1ny!hing contained in sub-section (I) of section 14, be liable for a share of tile tax on the income so assessed according to the portion of the joint family property allotted to !1im or it; "ml the Income-tax Officer shall make assessments accordi1wly with the provisions of section 23.

Provided that all the members and groups of members whose joint family property has been partitioned shall be liable jointly and severally for the tax assessed on the total income received by or on behalf of the joint family as such.

(3) Where such a.n order has not been passed in respect of a Hindu family hitherto assessed as u'adividcd, such family shall be deemed, for the purposes of this Act, to continue to be a Hindu undivided family."

It will be noticed that sub-section (3) of the above quoted section embodies a legal fiction according to which a Hindu family which has been previously assessed as 'undivided' is to be continued to be treated as 'undivided' till the passing of the order under sub-scctida (I) of the section. This view gains strength from two decisions of this Court in Additional Income-tax Officer, Quddapah v. A. Thimmayya & Anr(') and Joillt Family of Udayan Chinubhai etc. v.

Commissioner of Income-tax, Gujarat(') where it was held that so long as 110 order under section 25-A (I) of the Act is recorded, the jurisdiction of the Income Tax Officer to continue to assess as undivided despite partition under personal law a Hindu family which has hitherto been asseesed in that status remains unaffected. It will be profitable in this co,1nection

(I) (1955) 55 I T. R. 666.

12) (1957) 6J I. T. R. 4!6.

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to rckr to the following observation made in A. Thimmavya's case A

(supra) :-· • .• .

"The section makes two substantive provisions (i) that a Hiudu undivided family which has been assessed to tax shall

b~ deemed, for the pmposes of the Act, to continue to be treated as undivided and therefore liable to be taxed in that

statu> unless an order is passed in respect of that family recording partition of its property as contemplated by subsection (I); •and (ii) if at the time of mak:i.1g an assessment it is claimed by or on behalf of the members of the family that the property of the joint family has been partitioned

among: the members or groups of members in definite portions, i.e. a complete partition of the entire estate is made resulting in such physical division cf the estate as it is capabk of being made, the In, cmne-tax Officer shall hold an inquiry, and if he is satisfied that the partition had taken place .

he shall record an order to that effect. . . . . . . The Incometax Oftlccr may assess the income of the Hindu family hitherto asoesscd as undivided notwithsta,1ding partition, if no claim in that behalf has been made to him or if he is not satisfied about the truth of tho claim that 'the joint family property has been partitioned in definite portions, or if on account of some error or inadvertence he fails to dispose of the claim. In all these cases his jurisdiction to assess the income of the family hitherto assessed as undivided rem11in unaffected, for the pro- L'Cdtirc for n1aking asscssn1cnt of tax is statutory."

In face or the aforesaid decisions of this Court, it is not necessary

• to hurden the record hy discussing the decisions cited by counsel for the uppL'liant.

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Jn the present case, there was not a whisper of the application under section 25-A(l) of the Act by the appellant ci.:t March 15, 1957 whei; the penalty proceedings were initiated against it. Even on March F 2v, 1958, when the penalty was imposed, there was no order under section 25-A(l) of the Act. It was only on March 26, 1962, that the partition was recog; aised and order under section 25-A ( 1) of the Act was passed. There was thus no bar to the imposition of the impugned penalty. Accordingly, we find no force in the contention of counsel for the appellant and are of the opinion that the question was rightly a.1swercd in the negative by the High Court.

The appeal, therefore, fails and is dismissed but in the circumst1nccs of the case without any order as to costs.

S.R Appeal dismissed.