The Income-tax Appellate Tribunal, Bombay Bench 'B', has referred four question, two arising from the order of Sri Aggarwal and two from that of the Accountant Member, Sri Malhotra. In order to appreciate the questions framed as arising from the order 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 business : (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 member 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 25A to the effect that there was a separation in the family on October 22, 1949. The business 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 the previous Hindu undivided family invested in the other two business, viz., the General Stone Supplying Co., and the Godavary Project contract, were divided among the three brothers in equal share and credited to their personal accounts in the business. It was also claimed that after such partition, the three brothers carried on the business in partnership under a deed of partnership of the same date as the partition deed. The Income-tax Officer on an application being made by the assessee firm and having regard to the recognition by 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 26A 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 and 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 Commissioners 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 33B on T. G. Sulakhe for the cancellation of the order made by the Income-tax Officer, (a) under section 25A dated March 22, 1952, (b) under section 26A 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 assessees advocate filed objections against the proposed action challenging the powers of the Commissioner to set aside those order already granting registration. Several adjournments were asked for and given, and the Commissioner after hearing the party canceled the order recognizing 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 interest; 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 calculation 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 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 compete partition entitling the assessee to an order under section 25A, 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 negative by the judicial Member who said that in fact no partition either partial or complete took place on October 22, 1949, and that when originally an application for complete partition under section 25A was made, it was not 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 observation :
'The order passed by the Commissioner of Income-tax under section 33B 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 notice 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 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 referred two questions arising on the order of the Judicial Member and two questions arising out of the order of the Account 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 33B of the Income-tax Act are invalid ?
2. If the answer to the first question is in the affirmative, whether the order passed under section 33B canceling the order passed by the Income-tax Officer under section 25A, 26A and 23(3) dated March 22, 1952, March 31, 1952, June 12, 1953, and March 31, 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 33B 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 competent 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 question relating to the validity of the finding that there was no partition, partial or complete, the assessee has filed Application Nos. 283 to 286 of 1956 relating to the assessment for the year 1951-52 and 1952-53 involving the cancellation of the orders passed under section 25A 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 petition the learned advocate for the assessee submits that these petition do not arise, if the question referred by the Tribunal are answered in favour of the assessee. If not, it will have to be determined on the facts and in the circumstances any question of law arises to allow these petition under section 66(2) calling for a statement of case, on such of these question as would arise for consideration. In our view, the question sought to be referred in the petitions is covered by the question No. 2, because the determination as to the validity of the order of the commissioner would also include the justification or otherwise for canceling that order.
Now coming to question 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 understand him right, his contention based on that question is that the person who is going to be affected by the order of the Commissioner or the Tribunal is the Hindu undivided family and the appeal by T. G. Sulakhe is maintainable only if 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 submission 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 Commissioner under section 33B of the Act, whether on the ground of the non-service 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 the other questions, viz., question 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 25A 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 canceling 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 reopening the assessment, that family is deemed to be in existence. It would be profitable to examine the language of sections 25A and 33B which are as follows :
'25A. (1) Where, at the time of making an assessment under section 23, it is claimed by or on behalf on 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 thereunto as he may think fit, and, if he is satisfied that the joint family property has been partitioned among the various members or group of members in definite portions he shall record an order to that effect.
Provided that on such order shall be recorded until notices of the inquiry have been served on all members of the family.
(2) Where such an order has been passed, or where any person has succeeded to a business, profession or vacation 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 of 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 sub-section (1) of section 14, be liable for 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 group 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.
33B. (1) The Commissioner may call for and examine the record of any proceedings 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 inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment.
(2) No order shall be made under sub-section (1) -
(a) to revise an order of reassessment made under the provisions of section 34; or
(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 Commissioner under sub-section (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 sub-section (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 to having paid the fee Rs. 100 and such appeal shall be dealt with in the same manner as if it were an appeal under sub-section (1) of section 33.'
The necessary requisites for an order being made under sub-section (I) of section 25A 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 inquiry 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 severance 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 a legal effect of a partition by metes and bounds and declaration under section 25A by the Income-tax Officer would constitute the members of the disrupted joint family into assessable entities. In the circumstances, is the Commissioner authorised under section 33B 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 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 33B Section 33B has been added along with section 33A 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 proceedings 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 33B 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 the revenue. On the facts 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 25A 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 26A 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 25A 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 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 33B 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 registration, but also the renewal of registration, of the firm. In so far as the notice of cancellation of the order pertaining to the partition of the joint family was concerned, he submits that K. G. Sulakhe did appear at that time of the hearing before the Commissioner and consequently he had an opportunity of being heard. In any case if specific notice was necessary, he can be considered to have waived his objection. The facts of this case, however, established that no notice was served on K. G. Sulakhe or B. G. Sulakhe and whatever might have been the conduct of K. G. Sulakhe, B. G. Sulakhe was not present and cannot be deemed to have knowledge of the proceedings. In this context, Sri Kondaiah submits that as T. G. Sulakhe had notice and was heard, he at any rate cannot be allowed to complain that the order is bad. In our view, this contention ignores the preliminary question argued in this reference which pertains to the jurisdiction of the Commissioner to revise the order of the Income-tax Officer. If the issue of notices to all the three members giving them an opportunity of being heard is a condition precedent to the cancellation of the order under section 25A, then the Commissioner, not having fulfilled the requirements of that provision, has no jurisdiction to exercise the powers specified in section 33B. The several cases that have been cited for the proposition that service of notice upon the kartha of the joint family when that family existed was held sufficient were under section 34 of the Act, dealing with the reopening of assessment made on the Hindu undivided family as such. In such circumstances, it has been held that a subsequent partition and its recognition under section 25A do not make the notice served on the kartha of the erstwhile family invalid. This is what has been decided in the case of the Commissioner of Income-tax v. Swaminathan Chettiarand Lakshminarain Bhadani v. Commissioner of Income-tax. In the first of these cases, it was held that section 25A was applicable to the assessment under section 34 in respect of the income received by the joint Hindu family in 1938-39 even though the family had disrupted by the partition of the January 21, 1940, and the notice of the July 6, 1942, issued to the assessee without indicating in what capacity he was to be assessed under section 34, could be regarded in the circumstances of the case as a valid notice to the family under the section. In the case, the person on whom the notice was served was the kartha of the undivided family and it is the income of the undivided family which was being assessed as escaped income under section 34. The Privy Council had in the case of Sir Sundar Singh Majithia v. Commissioner of Income-tax pointed out that section 25A was designed to meet the difficulty when an undivided family has received the income in the year of account, but is no longer in existence as such at the time of assessment, by providing that if the family property had been partitioned among the members, the assessment should be made notwithstanding section 14(I) on the individual or group in respect of his or its share of the income received by the family as if no partition had been made, though all the members are to be jointly or severally liable for the whole tax. Except where there has been a physical division by metes and bounds, the family is deemed to continue and this makes no difference even where there has been a division in status. This decision also recognised partial partition on the basis that property has been allotted to individual members who can treat it as their own, even though the joint family may continue. Until such time as there is a declaration under section 25A and even where such declaration has been made, in certain circumstances, the Hindu undivided family is treated as existing in the year of account and the assessment is made accordingly. In Swaminathan Chettiars case Patanjali Sastri, J., as he then was, speaking for the court, posed the question as to what the position would be when several years after the family had come to an end, any portion of its income is found to have escaped assessment and such income is sought to be assessed under the special provisions of section 34. Two contentions were put forward : one on behalf of the assessee was that section 25A could have no application to such a case, as it contemplated only cases where at the time of making an assessment under section 23, a claim is put forward that a partition has taken place among the members of such family, whereas not only was the assessment in question made under section 34, but when the family was originally assessed under section 23 on the November 30, 1939, no claim was made or indeed could be made that a partition has taken place, as the partition in the family was only in January, 1940. The Department, on the other hand, contended, that since the Appellate Assistant Commissioner accepted the partition only on the August 17, 1942, the family which had been till then assessed as undivided must be deemed to have continued to be undivided on the July 6, 1942, when the notice under section 34 was issued to the assessee, which was in order. Both these contentions were rejected. The Commissioners contention was negatived on the basis that sub-section (3) was complementary to sub-section to (2) and both deal with cases falling under sub-section (I) of section 25A. Where, therefore, an order is made accepting the partition alleged by the assessee, the family must be regarded as having become disrupted on the date of partition as put forward by the assessee notwithstanding the fact that acceptance of that position was at a later date. The assessees contention was stated to be incorrect, having regard to the concluding words of sub-section (I) of the section 34, that 'the provisions of this Act shall, so far as may be, apply, accordingly as if the notice were a notice issued under that section'. These words attract the provisions of section 25A to the assessments made under section 34. The assessment in that case was sustained by the Appellate Assistant Commissioner under sub-section (2) of section 25A read with section 34 on the footing that the family was disrupted on January 21, 1940. This position was held to be correct. Sub-section (2) of section 25A clearly envisages a contingency of that nature. Even where the family is held to be disrupted, the income can be assessed as the income of the joint family and the tax payable thereupon is apportioned among the members separately. Though the income-tax officer did not make an assessment in accordance with this provision, the Appellate Assistant commissioner sustained it without remanding the case. Patanjali Sastri, J., observed at page 440-441 :
'When such a claim was put forward for the first time in the appeal, the Appellate Assistant Commissioner sustained the assessment under sub-section (2) of section 25A without remanding the case to the income-tax Officer for making a fresh assessment because presumably, it would make no difference in practice in the peculiar circumstances of this case whether the assessment was made on the family as an entity through its kartha or whether it was made on the individual members or groups on the footing of its previous disruption; for even an assessment on the latter footing has to be made as if no partition had taken place and although sub-section (3) provides that the assessment should be made on the various members or groups of members it holds all the members jointly and severally liable for the whole tax so that any one of them could be served with a notice under section 34 as such notice is required to be served on the person liable to pay the tax.'
Their Lordships of the supreme Court in the second case of Lakshminarain Bhadani v. Commissioner of Income-tax, observed that 'It does not appear necessary, when proceedings are initiated under section 34 read with section 22 of the Income-tax Act, to issue notice to every member of the family. The position is as if the Income-tax officer was proceedings to assess the income of the Hindu undivided family as in 1939-40. In our opinion, therefore, that contention must be rejected.' In that case, though the notice under section 34 was served on the Kartha the assessment and the demand notice requiring payment of the full amount of tax was served on all the members of the family. The supreme Court held the demand for the whole of the amount on each of the members of the family not to be in accordance with the provisions of section 25A as it was not apportioned under section 25A(2). In Gulabrai Manohar Lall v. Commissioner of Income-tax, an order under section 25A accepting division of the joint family as on March 31, 1943, was made by the Income-tax Officer, while he rejected the claims relating to succession under section 25(4) and the applicability of section 26(2). The assessee neither filed returns of income nor produced books of account and consequently the Income-tax Officer completed the assessment under section 23(4). Appeals were filed unsuccessfully against the order to the Appellate Assistant Commissioner and to the Appellate Tribunal. Both the appellate authorities held that even though the family was disrupted on the March 31, 1943, for the period between that date and the June 1, 1943, when the assets were transferred to the limited company succeeding the Hindu undivided family, the Hindu undivided family must be assessed under section 25A(2). In these circumstances, it was held to be unnecessary that proceedings for assessment under section 25A should commence by notice to every member of the family and by a process of fiction the Hindu undivided family is deemed to be an existing entity for that purpose even though there had been partition of the members and the Income-tax authorities had passed orders under section 25A(I). In all this case, it may be observed, the order passed by the Income-tax Officer was not set aside, but assessments were being reopened under section 34 or they were being made under section 25A(2) either by itself or read with section 34. Section 25A(2) sets out the procedure in cases where an order has been recorded under sub-section (I). The procedure is to compute the income as if no partition had taken place and as if the tax was payable by one unit. Further, the tax payable must be apportioned between the members, though all of them will be liable jointly and severally for the payment of the tax. Such cases are distinguishable from the cases where the very order is sought to be aside. Under section 34 the assessment of escaped income relates to the period when the joint family was admittedly in existence and therefore the person who was the kartha of the family at that time is deemed to be the kartha even after disruption, for the purposes of reassessment. Even in such cases the order acknowledging disruption has not been set aside and taking that as the basis, the provisions of section 25A have been applied, as in the Supreme Court case, for apportioning the tax payable between the members of the divided family. For these reasons, we think that the order of the Commissioner of Income-tax is bad in so far as it relates to cancellation of the order under section 25A as it is passed without notice to all the members adversely affected.
The Tribunal distinguished the case of Tuljansa Janardhansa Pawar v. Commissioner of Income-tax, on the mere ground that there was no appeal in that case against the order passed by the Income-tax Officer. In that case, one of the members of the joint family made an application to the Income-tax Officer at the time of the assessment that there had been a partition and that an order to that effect be made under section 25A. Notice was served on all the members of the family including the applicant, Tuljansa, after which the Income-tax Officer on enquiry came to the conclusion that the partition was not proved and that the assessment should be proceeded with on the basis that the family was undivided. On appeal by Subhansa the appellate assistant Commissioner, without serving a notice on Tuljansa, took further evidence and held reversing the order of the Income-tax Officer that the family was partitioned and directed that an assessment should be made in the manner laid down under section 25A(2) on the basis that there was a partition. On notice being served on Tuljansa, the applicant, on the ground of his being a divided member, it was held that the order was bad inasmuch as Tuljansa was not served with a notice of appeal. We are unable to appreciate hoe this case can be distinguished because the basis of the judgment was when an authority vested with judicial function has to decide or hear a case or an appeal, he can only do so provided he has heard all parties who are likely to be affected by the order which he is going to make. Chagla, C.J., observed at page 652 thus :
'It is a fundamental principle of a natural justice that no judge or no person upon whom judicial powers are conferred can come to a judicial or a quasi-judicial decision without hearing all parties who are to be affected by his decision and we must always assume that the Legislature who has knowledge of judicial principles and rules of natural justice impliedly, if not expressly, incorporate these rules whenever they confer judicial functions upon a person or an authority. If these rules of natural justice are to be excluded, then we must find in the statue an express provision to that effect.'
With great respect, we agree with this proposition of law.
Further, if the contention of the learned advocate for the Department, for that matter the reasoning of the Tribunal, that the person served with the notice, at any rate, cannot complain, is accepted, it would be tantamount to holding that the Hindu undivided family exists with respect to the members who have notice while remains divided with respect to those who had no notice.
The second question postulates that if the answer to the first question is in the affirmative, viz., that the proceedings taken by the Commissioner under section 33B are invalid, his order, canceling the orders passed by the Income-tax Officer under section 25A, 26A and 23(3) dated March 22, 1952, March 31, 1952, June 12, 1953, and March 31, 1952, is bad in law. In our view, the question probably was intended to refer to the validity of the order only in the circumstances of the proceedings under section 33B being held valid. But even as it its framed, the validity of the order relating to the cancellation of the registration and renewal of registration and the cancellation of the assessment of the firm under section 23(3) may fall for determination, on the ground that the notice was served on one of the partners of the firm. If so, the proceedings under section 33B relative to the cancellation of these orders would be valid. In the view we have taken on the first question, the validity of the commissioners order canceling the order of the income-tax officer under section 25A, in any case, dose not arise, because, if the proceedings for the cancellation of the order treating the Hindu undivided family as partitioned between the members is bad for want of proper notice to all the three members, then the order of the commissioner canceling that order would be invalid. In so far as the cancellation of the order under section 26A registering the firm for the year 1951-52, and the renewal of that registration for the year 1952-53, and the cancellation of the assessment for the year 1951-52, are concerned, the notice under section 33B which clearly mentioned the action proposed to be taken by the commissioner and was served on T. G. Sulakhe, one of the partners of the firm, in our view would be proper service under section 63(2) of the Act. In Narayana Chetty v. Income Tax Officer, Nellore, the Supreme Court also has held that a notice served on one of the partners would be sufficient notice on the firm to satisfy the requirements of section 34(1)(a). While the proceedings under section 33B in relation to these three orders referred to above would be valid, the question is whether the cancellation of these orders is bad in law. It may be stated that a Hindu undivided family and a firm or a limited company cannot co-exist with respect to the same assets and are mutually exclusive. While this is so, after the pronouncement of their Lordship of the Privy Council in Sir Sundar Singhs case, it is possible for some of the members of the joint family to take one of its assets and hold it as a separate asset either in partnership or as a limited company in which case the family, no doubt, which has not become divided in other aspects, will be assessed in respect to the asset taken out, and a separate assessment will be made on the firm or the limited company as the case may be. One of the salient features of a joint Hindu family is that it is a joint tenancy which has as its basis the right of survivorship amongst the members constituting the family while the chief characteristic of a firm is its separateness of interest and absence of survivorship. Therefore without a disruption the conversion of a Hindu undivided family into a firm in its entirety is inconceivable and so long as it remains undivided, the question of succession to it as a whole by another entity, be it a firm or be it a company, cannot arise.
Keeping these principles in view, it is necessary to examine the basis for the cancellation of the aforesaid orders by the Commissioner and the Appellate Tribunal. The Commissioner took the view on a perusal of the records 'that the acceptance of the separation of the joint family and the division of the family properties among the three members thereof was not correct for reasons which will be referred to hereafter and the registration granted to the firm alleged to have been constituted was also not correct.' The Commissioner, therefore, canceled the registration and the renewal of the registration and the assessment under section 23(3) depending upon his finding that the division among the members of the joint family was true. If the order setting aside the order of the Income-tax Officer under section 25A is invalid, then it follows that the subsequent cancellation of registration or the renewal or the assessment of the partnership for 1951-52 would also be without basis. The Tribunal likewise observed, 'so far as the assessment years 1951-52 and 1952-53 are concerned, the claim for registration of the firm has been negative and the assessment made on the firm for the assessment year 1951-52 has been set aside with the result that an assessment had to be made on the Hindu undivided family and not on the firm claimed to be a partnership firm.' Even here, though the Tribunal expressed it in a different way, having regard to the Commissioners order holding that the joint family was not divided, the basis for maintaining the order of cancellation of registration and renewal and setting aside of the assessment for 1951-52 was the existence of the joint family. As we have already stated, since these tax are mutually exclusive and cannot co-exist, the joint family is divided and that would be so as long as the order under section 25A is not set aside and the partnership with respect to the same assets in which the quondam members of the family would have equal shares cannot be declared invalid. The reasons given by the Commissioner and the Appellate Tribunal for setting aside the order recognising the division are that XEIA : (I) though the partition took place on October 22, 1949, while making the return on December 14, 1949, for the year ending October, 1949, the assessee did not mention the fact of separation. The assessees explanation, that, since it dealt with the assessment year 1948 for which the question of division or otherwise did not fall for determination, it was not mentioned, was brushed aside. Though the Tribunal accepted the ground mentioned by the Commissioner, in our view, it impliedly negativated this ground when it categorically stated that 'the effect of the Commissioners order so far as the assessment for 1950-51 is concerned is practically nil, in so far as the assessment had to be made on the Hindu undivided family, the date of alleged partition being after the end of accounting year for that assessment year.' If this is so, certainly there is no necessity to mention the fact of the partition with respect to a period which is not relevant. (2) The family had an overdraft account in the Hyderabad State Bank, the transactions of which were in the name of the General Stone Supplying Company. The credit balance standing in the account was Rs. 45,000. Even after the date of the partition this account was maintained in the same form and the bank was not informed of the separation. The Commissioners order does not show whether the sum of Rs. 45,000 standing to the credit of the family with the bank was taken over by the partnership firm and found an entry in the books of the firm. (3) The Executive Engineer who was responsible for making payments in respect of the contract work of the Godavary Project was also not informed of the partition. The explanation of T. G. Sulakhe that it was not done because of the possible difficulty and the time taken to include the partnership in the list of contractors, was considered to be against the normal practice. (4) Though the properties allotted to each of the parties was valued at Rs. 40,000, in the opinion of the Income-tax Commissioner they varied and the valuation was haphazard and they entered into a deed of separation which the members of the family had no intention of putting into effect. (5) The non-intimation of the change of ownership of the lands and other immovable property to the municipality, though it was admitted that subsequently these were mutated in January, 1954. (6) The allotment to the 3rd brother of the familys share in the business of Mahendra Bros. and the 1/4th share in the Hyderabad Sand Syndicate valued at Rs. 12,000 is also found fault with, because the value of the Hyderabad Sand Syndicate business which only came into existence three months prior to the partition was shown as Rs. 7,500 and after the partition and allotment to K. G. Sulakhe, it was shown in another partnership as only Rs. 6,875. This revealed, according to the Commissioner, the hurry with which the separation deed seems to have been got up for the occasion and the anxiety of the signatories of the deed to give a semblance of an equal division of the family properties. (7) The valuation of the two business which were brought brought into partnership, namely, the one relating to the General Stone Supplying Co., and the Godavary project contract business, and the non-mention of the four lorries which, according to the assessee, were part of the contract business, was also considered to be dubious.
In so far as the cause leading to the division is concerned, the explanation of the assessee, that because of the difference between the women members of the family on account of the loss that was being incurred in respect of the Godavary Project contract, (sic.) was not accepted, as the Commissioner found that all the members were staying in the same house without paying any rent. The Tribunal agreed with the reasons given by the Commissioner and stated that they are 'particularly impressed with the circumstance that even though the Hindu undivided family filed a return of its income for the year 1949-50 on December 14, 1949, that is about two months after the alleged separation of the family, no claim for such a partition was at all made. If it were a fact that partition had taken place on that particular date, it stands reason that such a claim would have been made at the time of filing the return or in any case the factum of the partition would have been brought to the notice of the Income-tax Officer dealing with the assessment of that year.' We have already stated the invalidity of the assumption which was itself negatived by the Tribunal in the earlier portion of its orders If this is the particular fact which impressed the Tribunal, it shows on what thin ground the partition was sought to be set aside. We recognise that on a reference under the Income-tax Act, the High Court is not entitled to review a finding of fact and come to a different conclusion. While this is so, it is equally well-established that the finding can be reviewed on the ground that there is no evidence to support it or that it is perverse, or where an ultimate finding on an issue is an inference to be drawn from the facts found, on the application of any principles of law, that being a mixed question of fact and law, the inference is a question of law and the High Court is entitled to review it. Even a finding of fact based on relevant and irrelevant matters is not unassailable. Vide Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, Oriental Investment Co. Ltd. v. Commissioner of Income-tax.
The application of the principles of Hindu law in determining what facts are necessary to constitute a partition would be relevant in dealing with the circumstances which influenced the Commissioner and the tribunal in their respective orders. Firstly, the motive for partition is immaterial if the members of the joint family in fact intended to separate; nor the fact that the partition is unequal is 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 that 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 is not intended. To do so would be to deny the assessee the benefits conferred by the provisions of the Act. A Bench of the Madras High Court in the case of Meyyappa Chettiar v. Commissioner of Income-tax, held that under the Mitakshara law in a joint Hindu family consisting of a father and his minor sons the father has the power to effect a partition between himself and his sons, whether they are majors or minors, without their consent. Satyanarayana Rao, J., dealing with unequal nature of the partition, observed at page 596 as follows :
'If the partition is unequal and unfair it is open to the sons, if they are majors, to repudiate the partition; but if they are minors, it is open to them to avoid that partition by appropriate proceedings after they attain majority. The partition therefore will be good until it is set aside. It is not void and is not without effect. This right of avoidance based on the inequality of the shares is a personal right of the minors and cannot be exercised by others. The power is not a conditional power in the sense that, if the condition of the partition being fair and equal is not satisfied, the power ceases to have operative force. The partition will be valid in such circumstances until it is avoided by the minors, and until it is repudiated by the majors sons... It has never been held and no decision has been brought to out notice taking the view that in such circumstances the partition is wholly void and is of no legal effect... The view therefore of the Appellate Tribunal that the partition is void and is of no legal effect so far as the businesses are concerned on the ground that it is an unequal division cannot be accepted as applying the law correctly.'
From the statement of the case it is clear that all the immovable properties were divided between the three members, though according to the Income-tax authorities in unequal shares, which as we have already shown in irrelevant for a consideration whether a partition in fact took place. The two main business have been formed into a partnership in which the three members of the erstwhile Hindu undivided family have equal shares. 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. It is not denied that each of the three members had a 1/3rd share and it is this 1/3rd they have in the partnership firm. In our view, therefore, both the Commissioner as well as the Appellate Tribunal have wrongly applied the law in determining whether the joint family has been divided or not and have been influenced by irrelevant considerations. There was, therefore, no material or proper basis upon which the partnership can be held to be invalid and in this view the orders of the Commissioner canceling the orders of the income-tax Officer were not justified.
Now, there remains the question whether T. G. Sulakhe had a right of appeal to the Tribunal. If as we have held the notice to T. G. Sulakhe as a partner of the firm is valid, certainly he has got every right to file an appeal on behalf of the firm and in so far as his right to file an appeal with respect to the cancellation of the order under section 25A is concerned, he being aggrieved by that order, in the sense that he is deemed to be a member of the Hindu undivided family when he is contending that he is separated member, he has a right to appeal.
In the result, our answer to the first two questions is in the affirmative, namely, that the proceedings under section 33B, in so far as they relate to the orders under section 25A of the Act canceling the orders passed by the Income-tax Officer dated March 22, 1952, March 31, 1952, June 12, 1953 and March 31, 1952, are bad in law. Our answer to the fourth question is that T. G. Sulakhe has a right to file an appeal and it is not necessary that he should file it in the capacity as a Kartha of the family. In the view we have taken the four miscellaneous reference applications do not arise and are, therefore, dismissed.
Let the reference be answered accordingly with costs to the assessee. Advocates fee Rs. 250.
Reference answered accordingly.