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Petitioner: T. G. SULAKHE VS Respondent: COMMISSIONER OF INCOME-TAX, HYDERABADHonorable Justice Qamar Hassan and Jaganmohan ReddyC. Rangachar and S. Ranganadham,C. Kondaiah
1960 P T D 899
1960 P T D 899
[Andhra Pradesh (India)]
Before Qamar Hassan and Jaganmohan Reddy, JJ
T. G. SULAKHE
Versus
COMMISSIONER OF INCOME-TAX, HYDERABAD AND AN OTHER
Case Referred No. 745-B 5/2 of 1956 and income-tax Petitions Nos. 283 to 286 of 1956, decided on 6th March 1959.
Income-tax Act (XI of 1922)-----Ss. 25-A, 26-A, 33-B, & 63-Hindu undivided family-Order recording partition-Commissioner Revision-Cancellation of order-Notice of revision-Whether should be given to all members-Partition-Unequal partition Effect-Partnership-Registration-Commissioner-Revision-Can cellation of registration-Notice to only one partner.
The assessee who is to be given an opportunity of being heard under section 33-B of the Income-tax Act, 1922 is that person in relation to whom an order has been passed in any proceedings, an examination of which has revealed that it is prejudicial to the interests of revenue.
Before the Commissioner makes an order in revision under section 33-B of the Act reversing an order made by the Income-tax Officer under section 25-A recording a partition of a Hindu undivided family, it is obligatory that each member of the family is given notice. The Commissioner has no jurisdiction to make such an order by giving notice to one only of the members of the family.
Where notice under section 33-B is given only to one member of a Hindu undivided family that the Commissioner intends to reverse an order under section 25-A recording the partition of the family, that member has a right 'to appeal from the order of the Commissioner made under section 33-B, he being aggrieved by the order.
Commissioner of Income-tax v. Swaminathan Chettiar (1947) 15 I T R 430 ; Lakshminarain Bhadani v. Commissioner of Income tax (1951) 20 I T R 594 and Gulabrai Manohar Lall v. Commis sioner of Income-tax (1953) 23 I T R 333 distinguished.
Tuljansa Janardhansa Pawar v. Commissioner of Income-tax (1950) 18 I T R 648 fol.
Notice to only one of the partners of a firm registered under section 26-A of the Income-tax Act, that the Commissioner proposes to cancel the registration in exercise of his powers of revision under section 33-B, is proper service under section 63 and an order cancelling registration after giving such notice is valid.
In deciding whether there has been a partition in a Hindu undivided family the motive for partition is immaterial if the members of the joint family in fact intended to separate ; nor is the fact that the partition is unequal a conclusive consideration. Even where the members of the joint family avow openly that the motive for partition is to escape the incidence of income-tax and to obtain benefit which the law affords them in the case of a partition and with that avowal divide their properties, it cannot, merely because their motive was to get some benefit, be declared that the partition has not taken place or was not intended. To do so would be to deny the assessee the benefits conferred by the provisions of the Act.
Where all the properties of the family are being divided between the members, the fact that the partition is in unequal shares is irrelevant for a consideration whether a partition in fact took place. The fact that some estimate of the capital has been made for the purposes of the partnership, is also equally irrelevant as long as the shares which each member would be entitled to on the partition of the joint family are definite.
Commissioner of Income-tax v. Swaminatha Chettiar (1947) 15 I T R 430 ; Gulabrai Manohar Lall v. Commissioner of Income-tax (1953) 23 I T R 333 ; Lakshminarain Bhadani v. Commissioner of income-tax (1951) 20 I T R 591 ; Meyyappa Chettiar v. Commissioner of income-tax (1950) 18 I T R 586 ; Narayana Chetty v, Income-tax Officer, Nellore (1959) 35 I T R 388 ; Oriental Invest ment Co. Ltd. v. Commissioner of Income-tax (1957) 32 1 T R 664 ; Sir Sundar Singh Majithia v. Commissioner of Income-tax (1942) 10 I T R 457 ; Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax (1957) 31 I T R 28 and Tuljansa Janardhansa Pawar v. Commissioner of Income-tax (1950) 18 I T R 648 ref.
C. Rangachar and S. Ranganadham for the Assessee.
C. Kondaiah for the Commissioner.
JUDGMENT
The Income-tax Appellate Tribunal, Bombay Bench "B," has referred four questions, two arising from the order of Sri Aggrawal and two from that of the Accountant Member, Sri Malhotra. In order to appreciate the questions framed as arising from the orders of each of the members and referred by the Tribunal to the High Court under section 66 (1) of the Indian Income-tax Act (hereinafter called the Act) a few facts are necessary.
A Hindu joint family consisted of T. G. Sulakhe, K. G. Sulakhe and B. G. Sulakhe. All the three brothers were being assessed under that status for 1950-51 for which period the accounting year ended on September 21, 1949. This family, besides owning immovable properties, carried on the following businesses : (a) General Stone Supplying Co., (b) contract work of the Godavary Project, (c) a ready-made clothes business in the name of Mahendra Bros., Poona, in which one Khelikar is the working partner, and (d) a 1/3rd share in the profits and losses of the Hyderabad Sand Syndicate, Kachuguda. In the course of the assessment proceedings for 1950-51, the members of the family claimed that there was a division in status between them and that the joint family properties were divided among the three members of the family on October 22, 1949. In support of this assertion a deed of partition engrossed on a one-rupee stamp paper dated October 22, 1949, was produced before the Income-tax Officer, who accepted the division in status and the partition and passed an order under section 25-A to the effect that there was a separa tion in the family on October 22, 1949. The businesses of the family were divided as follows : (a) the profits and losses of the Poona business ever since its inception and the share of the Hindu undivided family in the Hyderabad Sand Syndicate was to belong to K. G. Sulakhe, and (b) the capital of she previous Hindu undivided family invested in the other two businesses, via. the General Stone Supplying, Co., and the Godavary Project contract, were divided among the three brothers in equal shares and credited to their personal accounts in the businesses. It was also claimed that after such partition, the three brothers carried on the businesses in partnership under a deed of partnership of the same date as the partition deed. The Income-tax Officer on an applica tion being made by the assessee firm and having regard to the recognition by him of the division in status and partition in the family on October 22, 1949, by his order dated March 31, 1952, recognised the partnership with effect from that date and registered the firm under section 26-A of the Act. As we have already stated, as the accounting year for the assessment of 1950-51 ended on September 21, 1949, the separation in status find partition of the joint family did not affect the assessment for that year which was made on the basis of the assessee being a Hindu undivided family. This was also the view which the Tribunal expressed, namely, that the effect of the Commissioner's order for the year 1950-51 is practically nil. It is only with respect to the assessment years 1951-52 and 1952-53 that the three brothers claimed to have formed themselves into a partnership each holding an equal share therein from October 22, 1949.
The assessment for the year 1951-52 was completed. For the year 1952-53 the registration of the firm was renewed by the order of the Income-tax Officer dated June 12, 1953, but the assessment was not completed. The Commissioner issued a notice under section 33-B on T. G. Sulakhe for the cancellation of the orders made by the Income-tax Officer, (a) under section 25 _A dated March 22, 1952, (6) under section 26-A dated March 31, 1952, and June 12, 1953, in respect of 1951-52 and 1952-53 assessments and (c) the order of assessment made on the firm for the year 1951-52. The assessee's advocate filed objections against the proposed action challenging the powers of the Com missioner to set aside those orders already granting registration. Several adjournments were asked for and given, and the Commis sioner after hearing the party cancelled the orders recognising division in status of the joint family and the registration of the firm for the assessment years in question on the ground that there was unequal distribution of property, that the overdraft account in the Hyderabad State Bank in respect of the General Stone Supplying Company was still being operated as heretofore and that the bank had not been informed about the alleged change in the ownership of the business interests ; that the Executive Engineer was not informed of the change in the ownership relating to the Godavary Project contract work ; that the capital contributed by each of the partners varied and was so rigged up as to show that there was actual partition and separation in the family, by making minute calculations of rupees and annas. It was further stated that there was nothing mentioned about what the family did with the four lorries and that even after the partition all the three brothers stayed under the same roof which has the effect of negativing partition.
An appeal against the order of the Commissioner to the Income-tax Appellate Tribunal was unsuccessful. Before the Tribunal an alternate plea was also raised, namely, that even if there was no total and complete partition entitling the assessee to an order under section 25-A, the Tribunal should hold that there was a partial partition and that these business assets properly became the assets of the partnership. This contention was also negatived by the Judicial Member who said that in fact no partition either partial or complete took place on 22nd October, 1949, and that when originally an application for complete partition under section 25-A was made, it was not the claim of the Hindu undivided family that, in case it is held that a complete partition has not been effected, it be in the alternative held that there is at least a partition of the business run by the Hindu undivided family. The Accountant Member, while agreeing with this view, made the following observations ;
" The order passed by the Commissioner of Income-tax under section 33-B is only prejudicial to the Hindu undivided family and no one else. The firm or its partners should feel happy as the Commissioner of Income-tax has extinguished their liability in such a capacity. It is the Hindu undivided family therefore which has a right to be served with a notice and the right to file an appeal. It is true that the notice issued to T. G. Sulakhe does not show on the face of it that it was issued to the kartha of the Hindu undivided family. The records of the case however, show that notices to the Hindu undivided family used to be issued in a similar manner. The Commissioner of Income-tax knew that he was issuing notice to the Hindu undivided family and T. G. Sulakhe knew that it was for the Hindu undivided family. The appeal before us is filed by T. G. Sulakhe. He has no right to file an appeal in his individual capacity or as partner of a firm. It is only in the capacity of the kartha of the Hindu undivided family that an appeal can be filed in the present case."
The Tribunal has now under section 66 (1) of the Act referred two questions arising on the order of the Judicial Member and two questions arising out of the order of the Accountant Member. It would have been, in our view, more appropriate for both the members to have sent us agreed questions for a better appreciation of the actual points involved in the reference for determination. The following are the four questions the first two formulated by the Judicial Member and the other two by the Accountant Member:
(1) Whether on the facts and in the circumstances of the. case the proceedings taken under section 33-B of the Indian Income tax Act are invalid ?
(2) If the answer to the first question is in the affirmative, whether the order passed under section 33-B cancelling the orders passed by the Income-tax Officer under sections 25-A, 26-A and 23 (3) dated 22nd March, 1952, 31st March, 1952, l2tb June 1953 and 31st March, 1952, is bad in law ?
(3) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the order passed by the Commissioner of Income-tax under section 33-B is only prejudicial to the Hindu undivided family and no one else ?
(4) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that T. G. Sulakhe had no right to file an appeal in his individual capacity or as a partner of a firm and that an appeal on his behalf was only com petent if filed in the capacity of the kartha of the Hindu undivided family ?
Apart from these questions the assessee has raised a further question, viz.
" Whether the finding of the Tribunal that there was in fact no intention to partition nor actual partition of the assets of the Hindu undivided family is vitiated by the circumstances that it is based on mere inferences and conjectures, and unsupported by any evidence on record ?"
This question was not referred by the Tribunal. On refusal to refer this question and the other questions relating to the validity of the finding that there was no partition, partial or complete, the assessee has filed Applications Nos. 283 to 286 of 1956 relating to the assessments for the years 1951-52 and 1952-53 involving the cancellation of the orders passed under section 25-A and the cancellation of registration of the partnership for 1951-52 and the renewal of the registration for 1952-53 and the order of assessment for the year 1951-52 passed by the Income-tax Officer treating the assessee as a registered firm. With respect to these petitions the learned advocate for the assessee submits that these petitions do not arise, if the questions referred by the Tribunal are answered in favour of the assessee. If not, it will have to be determined whether on the facts and in the circumstances any question of law arises to allow these petitions under section 66 (2) calling for a statement of case, on such of these questions as would arise for consideration. In our view, the question sought to be referred in the petitions is covered by question No. 2, because the determination as to the validity of the order of the Commissioner would also include the justification or otherwise for cancelling that order.
Now coming to the questions referred by the Tribunal, we frankly admit that we are unable to understand the significance of question No. 3 nor has the learned advocate for the Department been able to throw much light or elucidate the exact scope and content which that question is designed to cover. If we under stand him right, his contention based on that question is that the person who is going to be affected by the order of the Commis sioner or the Tribunal is the Hindu undivided family and the appeal by T. G. Sulakhe is maintainable only it considered as one filed by him as kartha and not otherwise. If, therefore, he is considered to be representing the Hindu undivided family, then the notice served on him is valid. The question, considered in the light of the submissions of the learned advocate for the Department, would in effect deal with the validity of the notice on T. G. Sulakhe. If so, that question is otiose, as question No. 1 itself deals with validity of the proceedings taken by the Com missioner under section 33-B of the Act, whether on the ground of non-service of notice on the other two members of the family or for some other reasons. We will, therefore, consider first question No. 1, the answer to which would facilitate the answer to other questions, viz. questions Nos. 2 and 4.
The contention of the learned advocate for the assessee with respect to this question is that at the time of making the order under section 25-A the Income-tax Officer has to give notice to each member of the family and it is only after that an order can be made, so that when an order is made cancelling the previous order, it cannot be made without giving notice to each of them who is affected thereby. The answer to this contention by the learned advocate for the Department is that it is sufficient if notice is given to the kartha of the Hindu undivided family because when re-opening the assessment, that family is deemed to be in existense. It would be profitable to examine the language of sections 25-A and 33-B which are as follows:
" 25-A. (1) Where, at the time of making an assessment under section 23, it is claimed by or on behalf of any member of a Hindu family hitherto assessed as undivided that a partition has taken place among the members of such family, the Income tax Officer shall make such inquiry there into as he may think fit, and, if he is satisfied that the joint family property has beep partitioned among the various members or groups of members in definite portions he shall record an order to that effect.
Provided that no such order shall be recorded until notices of the inquiry have been served on all the members of the family.
(2) Where such an order has been passed, or where any person 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 Income-tax Officer shall make an assessment of the 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 anything contained in subsection (1) of section 14, be liable for a share of the tax on the income so assessed according to the portion of the joint family property allotted to him or it ; and the Income-tax Officer shall make assessments accordingly on the various members and groups of members in accordance 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 an order has not been passed in respect of a Hindu family hitherto assessed as undivided, such family shall be deemed, for the purposes of this Act, to continue to be a Hindu undivided family.
33-B. (1) The Commissioner may call for and examine the record of any proceeding under this Act and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
(2) No order shall be made under subsection (1)-
(a) to revise an order of re-assessment made under the provi sions of section 34 ;
(b) after the expiry of two years from the date of the order sought to be revised.
(3) Any assessee objecting to an order passed by the Com missioner under subsection (1) may appeal to the Appellate Tribunal within 60 days of the date on which the order is communicated to him.
(4) An appeal to the Appellate Tribunal under subsection (3) shall be in the prescribed form and shall be verified in the prescribed manner and shall be accompanied by a treasury receipt in support of having paid the fee of Rs. 100 and such appeal shall be dealt with in the same manner as if it were an appeal under subsection (1) of section 33."
The necessary requisites for an order being made under subsection (1) of section 25-A is, firstly, that the family which is seeking to obtain an order that a partition has taken place among the members of its family, should have been hitherto assessed as undivided ; secondly, that at the time of making the assessment under section 23, a claim must have been put forward by or on behalf of any member of the family, and thirdly, that on such claim being put forward, the Income-tax Officer is required to make an inquiry into the matter and, before doing so, is bound to serve a notice of enquiry on all the members of the family. An order, therefore, made under this section would be binding on all the members of the joint family, because once a declaration that a partition has been effected is made, no member of the family can be said to be a member of the Hindu undivided family. The severence of the joint family and a partition between the members, of the assets of the joint family has the effect of vesting each member with an absolute right in the property allotted to him or which has fallen to his share. This is the legal effect of a partition by metes and bounds and declaration under section 25-A by the Income-tax Officer would constitute the members of the disrupted joint family into assessable entities. In the circums tances, is the Commissioner authorised under section 33-B to revise and cancel an order affecting the status and assessable entity or each of the members of the joint family without giving a notice to every member who is affected by that order's In other words, what is the true scope and extent of the words "after giving the assessee an opportunity of being heard" occurring in section 33-B 7 Section 33-B has been added along with section 33-A by the Income-tax and Business Profits Tax (Amendment) Act, 1948, conferring a general revisional power on the Commissioner to revise any order passed by the Income-tax Officer, if he considers it to be erroneous in so far as it is prejudicial to the interests of the revenue, and to cancel an assessment or order directing a fresh assessment to be made or make any other order which is to the detriment of the assessee. Before the Commissioner can exercise jurisdiction under this section, it is one of the conditions precedent that the assessee must be given an opportunity to be heard. The word "assessee" is a comprehensive one and has been defined under section 2 (2) to mean a person by whom income-tax or any other sum of money is payable under this Act, and includes every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the loss sustained by him or of the amount of refund due to him. The assessee who is to be given an opportunity of being heard under section 33-B is that person in relation to whom an order has been passed in any proceedings, an examination of which has revealed that it is prejudicial to the interests of revenue. On the fact and in the circumstances of this case, there are several proceedings which, according to the Commissioner, are prejudicial to the revenue. Firstly, the declaration under section 25-A that the joint family has been divided ; secondly, the order registering the partnership formed by the members of the erstwhile joint family for the year 1951-52 ; thirdly, the order renewing registration of the firm for the year 1952-53 ; and fourthly, the assessment order for 1951-52 on the firm. It is well to remember that though the claim of partition was made during the proceedings for 1950-51 the accounting year for which ended on September 22, 1949, the assessee for the year 1951-52 is a partnership consisting. of three members and not the Hindu undivided family. Before even the registration under section 26-A can be cancelled, the order made by the Income-tax Officer declaring the partners to be divided members of an erstwhile Hindu undivided family has to be set aside and, if so, each one being affected must be given notice. It is an elementary principle of jurisprudence accepted in this country that an order made without hearing the party affected is contrary to the principles of natural justice and is bad. If section 25-A makes it obligatory that each member of the joint family is to be given a notice before a declaration that there is a partition in the family, an order reversing that order should equally be made after due notice to all the members. In so far as the cancellation of the registration of the partnership for 1951-52 and the renewal of that registration for 1952-53 was concerned, a notice under section 33-B was not addressed to the firm, nor were there any separate notices. The only notice was addressed to T. G. Sulakhe. Sri Kondaiah for the Department submits that T. G. Sulakhe was given the appropriate notice and must be deemed to know what the notice was about, namely, that it, was intended to cancel not only the…
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