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Pratap Chandra and ors. Vs. Income-tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberSpecial Appeal No. 75 of 1962
Judge
Reported in[1975]100ITR551(All)
ActsIncome Tax Act, 1922 - Sections 25A, 25A(1), 28, 41 and 41(1); Consitution of India - Article 226
AppellantPratap Chandra and ors.
Respondentincome-tax Officer and ors.
Appellant AdvocateG.N. Kunzru and ;A.N. Kaul, Advs.
Respondent AdvocateGopal Behari, ;Deokinandan and ;B.C. Dey, Advs.
Excerpt:
.....popularly known as the jhusi or naini family, was assessed to income-tax in the status of a hindu undivided family in the firm name of kishorilal makundilal. ..in the like manner and to the same amount as it would beleviable and recoverable from the person on whose behalf such income, profits or gains are receivable, and all the provisions of this act shall apply accordingly '(emphasis* supplied). 20. the word 'person 'was sought to be interpreted on behalf of the assessee in that case as relating to the several individual parties who made up the joint hindu family. ..clearly then they were not acting on behalf ofeach individual member of the divided family but on behalf of what may be called the family estate. section 41(1) in express terms directs that the tax shall be levied on..........popularly known as the jhusi or naini family, was assessed to income-tax in the status of a hindu undivided family in the firm name of kishorilal makundilal. 2. in 1926 pratap chandra, one of the members of the family, instituted a suit for partition in the court of the civil judge, allahabad. in due course a preliminary decree was passed in 1931 partitioning the family into five branches, which were commonly known as the 'plaintiff's branch', ' calcutta branch ', ' naini branch ', ' banaras branch ' and ' baijnath prasad's branch '.3. the civil judge, allahabad, passed a final decree for partition on 13th january, 1939. the family properties and assets were divided into five lots. soon after the civil judge appointed sri kamta prasad kakkar and sri d. n. kapur as joint receivers.....
Judgment:

Satish Chandra, J.

1. A well-known family of Allahabad, popularly known as the Jhusi or Naini family, was assessed to income-tax in the status of a Hindu undivided family in the firm name of Kishorilal Makundilal.

2. In 1926 Pratap Chandra, one of the members of the family, instituted a suit for partition in the court of the civil judge, Allahabad. In due course a preliminary decree was passed in 1931 partitioning the family into five branches, which were commonly known as the 'plaintiff's branch', ' Calcutta branch ', ' Naini branch ', ' Banaras branch ' and ' Baijnath Prasad's branch '.

3. The civil judge, Allahabad, passed a final decree for partition on 13th January, 1939. The family properties and assets were divided into five lots. Soon after the civil judge appointed Sri Kamta Prasad Kakkar and Sri D. N. Kapur as joint receivers for the entire Hindu undivided family estate. The receivers were, however, required to keep accounts of the income of the five branches separately. The receivers took possession of the entire estate of the Hindu undivided family on 10th May, 1939. On 27th December, 1939, the civil judge, Allahabad, directed the receivers to hand over possession of the properties allotted to the plaintiff's branch to the plaintiffs themselves. This appears to have been done on 29th December, 1939. From this date onwards the members of the plaintiff's branch were in direct possession of the properties allotted to them.

4. On 23rd April, 1941, in the appeal filed against the final decree this court appointed Sri Kartar Narain Agarwal, advocate, as the receiver over the properties allotted to the plaintiff's branch. The erstwhile joint receivers were discharged so far as the properties of the plaintiff's branch were concerned.

5. Thus, the two receivers jointly managed the entire Hindu undivided family estate from 10th May, 1939, onwards. But with effect from 29th December, 1939, they ceased to manage the properties allotted to the plaintiff's branch. From 23rd April, 1941, this lot of properties was managed by Sri Kartar Narain Agarwal, receiver.

6. For the assessment years 1941-42 to 1946-47 the income of the properties belonging to the Hindu undivided family was assessed in the hands of Sri Kamta Prasad Kakkar, the receiver. Sri Kakkar appears to to have died and was succeeded by Sri R. N. Basu as the receiver. For the assessment years 1947-48 to 1950-51 the income of the Hindu undivided family was assessed in the hands of Sri R. N. Basu, receiver. These assessments were made under Section 41(1) of the Indian Income-tax Act, 1922, on the footing that the receiver was managing the estate on behalf of the Hindu undivided family.

7. It appears that these receivers defaulted in filing returns of the income of the Hindu undivided family in time. The Income-tax Officer levied penalty for this default in several years, totalling a sum of Rs. 52,300. The total demand of income-tax and penalty remaining unpaid for the ten assessment years 1941-42 to 1950-51 came to Rs. 1,93,367-31.

8. On 9th December, 1957, the Income-tax Officer addressed a letter to Sri Sharda Prasad Agarwal of the Banaras branch proposing to impose penalty under Section 46(1) of the Act in case the demand against the family was not liquidated. He invited the said Sri Sharda Prasad Agarwal to meet him to discuss ways and means for liquidating the tax demand created for the ten aforesaid assessment years. On 26th February, 1958, the Income-tax Officer issued a notice to Suraj Prasad of the plaintiff's branch. In this notice payment of the tax demand of Rs. 1,93,367.31 as also payment of penalty of Rs. 28,245.25 was demanded. It appears that subsequently the imposition of this penalty was cancelled.

9. Three of the branches of the family, including the plaintiff's branch, instituted a writ petition in this court seeking to quash the two aforesaid notices. It was also prayed that the Income-tax Officer, Allahabad, be restrained from recovering the amount of tax or penalty mentioned in the impugned notices. There was no specific prayer for the quashing or setting aside of the assessment orders as such.

10. The learned single judge held that neither Sri Kamta Prasad Kakkar nor Sri R. N. Basu was in possession or management of the propertiesallotted to the plaintiff's branch on or after 29th December, 1939. Since they were not managing this lot of the properties, they could not, as receivers, be assessed to tax on income arising out of those properties. It was held that Article 226 of the Constitution was not retrospective. Accordingly, no relief could be given to the petitioners in respect of assessment orders passed prior to the coming into force of the Constitution. The assessment orders for the years 1941-42 to 1949-50 were thus immune from being challenged in the writ petition. The assessment order for the year 1950-51, having been passed on 18th January, 1952, that is to say, after the coming into force of the Constitution, was amenable to writ petition. For this year a sum of Rs. 15,000 was included as income from properties allotted to the plaintiff's branch. This inclusion was illegal. The learned judge held that the receivers were managing the assets of the Hindu undivided family as such. Simply because they were directed to maintain separate accounts in respect of each one of the five lots of properties made no material difference. Consequently, the assessment of the Hindu undivided family income in the hands of the receiver was valid. On these findings the writ petition was partly allowed, the notice dated 26th February, 1958, was quashed, and it was directed that a sum of Rs. 15,000 would be deleted from the assessment order dated 18th January, 1952, for the year 1950-51 in respect of the income from properties of the plaintiff's branch. The assessment order was directed to be suitably modified.

11. Aggrieved, the petitioners have come up in appeal. The Income-tax department has not filed any cross appeal.

12. Sri Gopinath Kunzru, appearing for the petitioners (appellants), urged that--

(1) on the findings the inclusion of the income of the properties allotted to the plaintiff's branch was without jurisdiction, and hence the impugned notice should have been modified in so far as it included income from the properties allotted to the plaintiff's branch for all the ten assessment years ;

(2) the receiver was managing the properties on behalf of the separate branches, and not on behalf of the Hindu undivided family ; the assessment of the income of the Hindu undivided family in the hands of the receiver was illegal;

(3) the Income-tax Officer had knowledge of the partition suit; so he had no jurisdiction to assess the Hindu undivided family as such;

(4) the receivers had sufficient funds at their disposal; the recovery against the individual members of the family was illegal;

(5) the proceedings for recovery were barred by Section 46(7) of the Indian Income-tax Act, 1922 ;

and

(6) the imposition of penalty upon the receivers was without jurisdiction.

13. Learned counsel for the appellants relied upon Promod Chandra Deb v. State of Orissa, AIR 1962 SC 1288 and Collector of Monghyr v. Keshav Prasad Goenka, AIR 1962 SC 1694 in support of the proposition that the enforcement of an order which was without jurisdiction could be challenged in a writ petition even though it had been passed prior to the coming into force of the Constitution.

14. Sri Gopal Behari, learned counsel for the department, on the other hand, invited our attention to Commissioner of Income-tax v. Bidhu Bhusan Sarkar : [1967]63ITR278(SC) and State of U.P. v. Mohammad Nooh, AIR 1958 SC 86 in support of the proposition that, if an order passed by a statutory authority was for any reason illegal, the only remedy was by way of appeal, etc., provided by the statute. If such an order was passed prior to the coming into force of the Constitution, it could not be set aside in a writ petition.

15. A persual of these authorities shows that the true principle is that if an order is void ab initio or non est its enforcement could be restrained under Article 226 of the Constitution even if the order as such was passed prior to the coming into force of the Constitution. However, if the order was not without jurisdiction, but was, for some reason, defective or illegal, then it could not be reached under Article 226 of the Constitution if it was passed prior to the commencement of the Constitution.

16. Thus, the appellants can succeed only if they show that the orders for the assessment years 1941-42 to 1949-50 were non est or void ab initio. An answer to this question is dependant upon the result of the next argument, namely, that the receivers were not managing the properties on behalf of the Hindu undivided family.

17. The appellants have not filed a copy of the order made by the court appointing the receivers. It is thus not possible to know the exact terms of their appointment; but from the report made by the receivers (vide annexure ' 3 ' to the writ petition) it appears that the receivers were to manage the entire assets of the Hindu undivided family but they were to maintain separate accounts of the income of each of the five lots.

18. It appears that the final decree passed by the learned civil judge, Allahabad, was taken up in appeal. The appeal was disposed of on 5th December, 1949. After this decision the members of the family made an application under Section 25A(1) of the Indian Income-tax Act, 1922, for the assessment year 1951-52 for the first'time claiming partition of the Hindu undivided family estate into definite portions. The plea was accepted, and since then the various branches of the family have been assessed separately. But till 1949 neither the receivers nor any of the members of the different branches of this family ever made any claim before the Income-tax Officer that the properties of the Hindu undivided family had been partitioned into definite portions. This conduct would also corroborate the position that the Hindu undivided family estate was as such being managed by the receivers appointed by the court.

19. A similar situation arose in C. Arunachala Mudaliar v. Commissioner of Income-tax : [1961]41ITR432(Mad) . In that case in a suit for partition a preliminary decree was passed by the court on 5th October, 1948. Two of the sons of the family were appointed joint receivers, and they were directed to take possession of all the suit properties and manage them as receivers on behalf of the parties. Their Lordships of the Madras High Court observed that under Section 41 of the Act where a receiver is appointed by an order of court and is entitled to receive on behalf of any person any income, profits or gains, ' the tax shall be levied upon and recoverable from such............receiver......in the like manner and to the same amount as it would beleviable and recoverable from the person on whose behalf such income, profits or gains are receivable, and all the provisions of this Act shall apply accordingly ' (emphasis* supplied).

20. The word ' person ' was sought to be interpreted on behalf of the assessee in that case as relating to the several individual parties who made up the joint Hindu family. It was held :

' It is true that Clause 6 of the decree provides that the receivers shall manage the properties on behalf of all the parties. It is quite clear, however, that notwithstanding the use of this expression, the receivers were in fact managing only the undivided family properties on behalf of the members of the disrupted joint family. In fact, not only have they been directed to realise the income from the properties but they had to do all the various things which had to be done, such as meeting the liabilities of the family debts......Clearly then they were not acting on behalf ofeach individual member of the divided family but on behalf of what may be called the family estate. The receivers were accordingly appointed for the purpose of receiving the income, profits and gains of the persons, who for purposes of assessment to income-tax constituted a Hindu undivided family. Despite the disruption in status, the ' person ' within the meaning of that expression in Section 41(1) of the Act whom the receivers represented in this case was that Hindu undivided family. The intervention of the receivers in such circumstances did not result in their representation of persons who were no longer liable to be assessed as a Hindu undivided family but were entitled to be assessed to tax each in his individual status. Section 41(1) in express terms directs that the tax shall be levied on the receivers ' in the like manner and to the same amount as it would beleviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable '. In this case the ' person ' to be assessed, the person whom the receivers represented, was the Hindu undivided family, and that was the only legal basis available in this case for the assessment levied on the receivers.'

21. These observations are apposite and applicable to the facts of the present case on all fours. It has to be remembered that neither the receiver nor any member of the family ever made a claim before the Income-tax Officer that the family properties had been divided in definite portions. No one ever required the Income-tax Officer to record a finding to that effect. Under Section 41 the different branches of a Hindu undivided family can be assessed to tax individually if a finding is recorded that the Hindu undivided family properties have been divided in definite portions. The family members did not even invite the Income-tax Officer to record any such finding with the result that the Hindu undivided family would be deemed to continue as such for purposes of income-tax as provided by Sub-section (3) of Section,25A, namely :

' (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.'

22. For the purposes of the Income-tax Act a Hindu undivided family shall be deemed to continue as such notwithstanding that in proceedings in the civil court it may have, in fact, been disrupted. Such disruption could not be recognised in any proceedings under the Income-tax Act so long as an order to that effect has not been passed under Section 25A(1) of the Act.

23. Proceedings for assessment to tax under Section 41 in the hands of the receivers are proceedings under the Income-tax Act. For purposes of those proceedings also the mandatory provision of Section 25A(3) that a Hindu undivided family shall be deemed to continue to be a Hindu undivided family will prevail, with the result that if the receiver is managing properties which belonged to the Hindu undivided family, he will be deemed to be managing them for and on behalf of the Hindu undivided family as such. In law, the receiver was receiving the income, profits and gains of such properties on behalf of the Hindu undivided family. The assessment of such income in the hands of the receiver as representing the Hindu undivided family was valid. The assessment orders could not be characterised as totally without jurisdiction or non est.

24. It is true that since neither Sri Kakkar nor Sri R. N. Basu was managing the properties allotted to the plaintiff's branch, the Income-tax Officer committed an error in assessing such income in the hands of those receivers. But this was an illegality in the course of determining the assessable income.

25. This will not make the proceedings or the entire order non est. The enforcement of the pre-Constitution orders hence could not be validly restrained in the present writ petition.

26. In this view of the matter the enforcement of pre-Constitution assessment orders could not be interfered with under Article 226 of the Constitution. The learned single judge was, in our opinion, justified in modifying the assessment order for the year 1950-51 only because that order was passed after the commencement of the Constitution.

27. On behalf of the appellants it was urged that from the assessment orders themselves it is apparent that the Income-tax Officer had knowledge of the partition proceedings. In our opinion there is nothing in those orders which betrays any such knowledge. Moreover, mere knowledge on the part of the Income-tax Officer is neither material nor relevant. Section 25A(1) provided that 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 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 definite portions, he shall record an order to that effect. It is evident that the Income-tax Officer is called upon to make an enquiry and record an order only when and if a claim to that effect is made by or on behalf of any member of such family. Where no such claim has been made there was no question of an order being passed simply because the Income-tax Officer had knowledge of the pendency of the partition suit. In the absence of an order under Section 25A(1), the Hindu family is by force of subsection (3) to be statutorily deemed to continue to be a Hindu undivided family. There is no substance in this plea.

28. Similarly, the submission that the receivers had sufficient funds at their disposal and they should have paid the income-tax dues is equally without substance. Assuming that the receivers had sufficient funds, the income-tax authorities were not bound to follow those funds. Under Section 41 the person on whose behalf the receiver earns the income is equally liable and the tax is recoverable from such person as well. The recovery proceedings against the family members cannot hence be characterised as illegal.

29. It was then submitted that under Section 46(7) no proceedings for the recovery of any sum payable under the Act shall be commenced after the expiry of one year from the last day of the financial year in which any demand is made. Learned counsel urged that the recovery proceedings had been commenced after the expiry of such one year and so they were now illegal. No such plea was taken either in the writ petition or in thememorandum of appeal. The plea is a mixed one. In the absence of any factual allegations that recovery proceedings had been commenced after the expiration of one year aforesaid, this fact cannot be assumed. Learned counsel for the department was justified in pleading that he had been taken by surprise. If the point had been taken in the writ petition, he would have furnished facts to show that recovery proceedings were commenced within time. In these circumstances, we are unable to entertain this fresh point.

30. In the end it was urged that even if the receivers had committed default in filing the returns of income within the prescribed time, the Income-tax Officer had no jurisdiction to impose penalty upon the receivers because Section 41 only authorises levy of income-tax upon the receiver. Sub-section (1) of Section 41 not only provides that ' the tax shall be levied upon and recoverable from such receiver in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable ', but it also provides that ' all the provisions of this Act shall apply accordingly '. This clause brings in the various other provisions of the Act, including Section 28, which provides for imposition of penalty in the circumstances mentioned in it. If the receiver fails to furnish the return of the total income within time, he incurs liability to imposition of penalty under Clause (a) of Section 28(1). The Income-tax Officer was within his powers in imposing such penalty. The imposition of penalty was not without jurisdiction.

31. It was also argued that the various branches of the family could, after the partition, be assessed only under Section 9(3) of the Act. As held by the Madras High Court in the case of C. Arunachala Mudaliar, referred to above, Section 9(3) has no application to a case of a Hindu undivided family or to its members. The assessment under Section 41 was valid and legal.

32. The various points urged in support of the appeal having failed, the same is dismissed with costs.


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