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C. Chenni Chettiar Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1982)1ITD232(Mad.)
AppellantC. Chenni Chettiar
RespondentWealth-tax Officer
Excerpt:
.....said act by which, if at the date when the liability to pay tax arose, there was in existence a joint family-which is subsequently disrupted, the tax will still be assessed on the joint family.kalwa devadattam v. union of india [1963] 49 itr 165, the supreme court observed that section 25a merely sets up a machinery for avoiding difficulties encountered in levying and collecting tax where, since the income was received, the property of the joint family has been partitioned in definite portions, while at the same time affirming the liability of such members or group of members, jointly and severally, to satisfy the total tax in respect of the income of the family as such. later, in the case of roshan di haiti v. cit [1968] 68 itr 177 (sc), the supreme court observed that in kalwa.....
Judgment:
1. These appeals have been referred to the Special Bench because the question whether Section 20 of the Wealth-tax Act, 1957 ("the Act"), is in pari materia with Section 171 of the Income-tax Act, 1961 was raised and a decision on the point by the Calcutta High Court in the case of Srilal Bagri v. CWT [1970] 77 ITR 901 has been disapproved by the Gujarat High Court in the case of Goswami Brijratanlalji Maharaj v. CWT [1971] 79 ITR 373.

2. The relevant facts which give rise to this question are very few.

There was a HUF, consisting of four coparceners, which had not been assessed to wealth-tax earlier. For the assessment years 1966-67 to 1974-75, notices were issued under Section 17 of the Act and under Section 147 of the Income-tax Act for assessing its wealth and income which had escaped assessment. Notices dated 27-12-1974 under Section 17 and dated 6-3-1975 under Section 14 of the Income-tax Act were served on the karta of the family. He made a claim that there had been a partition on 31-3-1973 even before the notices were issued and, therefore, the proceedings were invalid. In the income-tax proceedings, though the ITO did not accept this claim, the Appellate Tribunal by its orders dated 27-1-1979 in IT Appeal Nos. 2127 and 2133 of 1977-78 and dated 30-1-1979 in IT Appeal Nos. 2128 to 2132 and 2135 of 1977-78 held, following the decision of the Calcutta High Court in the case of Rameshwar Sirkar v. ITO [1973] 88 ITR 374, that the HUF which had not been assessed earlier cannot be assessed after it was disrupted and, hence, the reassessment proceedings under the Income-tax Act could not be initiated against a disrupted family. However, in the wealth-tax proceedings with which we are concerned, the WTO held that there was no partition of the movable properties and, hence, the alleged partition could not be accepted and as far as he was concerned, the family continued to be in existence. He, therefore, proceeded to assess the HUF for the purpose of wealth-tax. On appeal, the AAC found that in fact a partition actually took place on 31-3-1973 but in view of the provisions of Section 20, assessments had to be made on the HUF for the assessment years including 1973-74.

3. In these appeals, the contentions of the assessee are that firstly, Section 20 of the Act is in pari materia with Section 171 of the Income-tax Act and, hence, the HUF which has not been assessed before, cannot for the first time be assessed after it has ceased to exist.

Reliance was placed on the decision of the Calcutta High Court in the case of Rameshwar Sirkar (supra) and in Srilal Bagri (supra). Secondly, it was contended that Section 20 which is a machinery section cannot apply to reassessments made under Section 17 since it refers only to the time of making an assessment which in the context of the section, could refer only to the initial assessment. Thirdly, it was contended that no proceedings under Section 17 could be initiated in respect of a disrupted HUF since it would amount to the initiation of proceedings against a dead person. Reliance was placed on the decision in the case of CIT v. Amarchand N. Shroff [1963] 48 ITR 59 (SC). On the other hand, it was contended on behalf of the revenue that the expression "hitherto assessed" occurring in Section 171 of the Income-tax Act, qualifying the HUF, was not present in Section 20 and, therefore, on a plain reading of Section 20 it should be applied to any HUF, whether it had been assessed earlier or not. Secondly, it was pointed out that under Section 2(ca), "assessment" includes reassessment and, therefore, Section 20 applied equally to reassessments made under Section 17.

Thirdly, it was submitted that until the disruption of the HUF was recognised by the WTO under Section 20, it could not be regarded as having disrupted and, therefore, the issue of notices under Section 17 to the karta of the family was valid. Reliance was placed on the decision of the Gujarat High Court in the case of Goswami Brijratanlalji Maharaj (supra).

4. On a careful consideration of the rival submissions, we are of the opinion that there are no merits in the appeal of the assessee. The undisputed facts are that there was a total partition of the HUF on 31-3-1973 and notices under Section 17 have been issued on 27-12-1974 in respect of the assessment of wealth of the family on the valuation dates relevant to the assessment years 1966-67 to 1974-75 which are earlier to the date of partition. Similar initiation of proceedings in the analogous provisions of the Income-tax Act have been held to be invalid by the Tribunal following the decision of the Calcutta High Court in the case of Rameshwar Sirkar (supra). In that case, it was pointed out by the Calcutta High Court that a HUF is a taxable entity and a juristic person and could be proceeded against only in the manner provided in the Act or in general principles of Hindu Law. Earlier it had been pointed out by the Supreme Court in the case of Lakhmichand Baijnath v. CIT [1959] 35 ITR 416 that under the provisions of the Indian Income-tax Act, 1922, as they stood prior to the amendment in 1928, no assessment could be made on an undivided family if at the time of assessment it had become divided, because at that point of time, there was no undivided family existing which could be taxed, though when the income was received in the year of account, the family was joint. Nor could the individual members of the family be taxed in respect of such income as it was exempt under Section 14(1) of the said Act. It was to remove this defect that an amendment was made by introducing Section 25A to the said Act by which, if at the date when the liability to pay tax arose, there was in existence a joint family-which is subsequently disrupted, the tax will still be assessed on the joint family.Kalwa Devadattam v. Union of India [1963] 49 ITR 165, the Supreme Court observed that Section 25A merely sets up a machinery for avoiding difficulties encountered in levying and collecting tax where, since the income was received, the property of the joint family has been partitioned in definite portions, while at the same time affirming the liability of such members or group of members, jointly and severally, to satisfy the total tax in respect of the income of the family as such. Later, in the case of Roshan Di Haiti v. CIT [1968] 68 ITR 177 (SC), the Supreme Court observed that in Kalwa Devadattam s case (supra), the Court was not called upon to interpret the expression "hitherto assessed as undivided" in Sub-sections (1) and (3) of Section 25A of the said Act. That question, however, came to be decided by the Calcutta High Court in the case of Rameshwar Sirkar (supra). After noticing that Section 171 provided a machinery for assessing a HUF after the disruption, it was found that its scope was limited and applied only to a HUF which has been "hitherto assessed". Therefore, it was held that reassessment proceedings cannot be initiated against HUF which is disrupted, when the family was never assessed as such. It appears, therefore, that there is a lacuna in the machinery provided in the Income-tax Act for initiating assessment under Section 147 of that Act after the disruption of the HUF which had not been assessed before.

When we look at Section 20, the qualifying words "hitherto assessed" are not to be found. Apparently, the limitation present in the analogous provision of Section 171 of the Income-tax Act, is absent in the Wealth-tax Act and, therefore, there is no reason why the machinery available for assessing a joint family after its disruption, should be confined to those joint families which have been assessed before. The assessee relied on the decision of the Calcutta High Court in the case of Srilal Bagri (supra) in which it was held that where the family which has never been assessed as a HUF and a preliminary decree was passed before the valuation date, Section 20 does not authorise the assessment of the members of the family as a HUF after the preliminary decree. In that case it was found that the preliminary decree for partition was passed long prior to the relevant valuation date and, therefore, the only question was whether the family could be deemed to continue as a joint family on the relevant valuation date for the purpose of assessing it as a joint family. The Court answered the question in the negative and in favour of the assessee because there was no question of the family being continued to be liable to be assessed under Section 20(2) when it had not been assessed as a HUF before. Moreover, once the partition of the family had been accepted, there was no question of assessing it as a family in respect of the wealth on valuation date subsequent to the partition. The facts of the present case are quite different inasmuch as we are concerned with the machinery for assessing a joint family in respect of wealth on the valuation dates prior to the partition. In that case itself, it was noted that the power or authority has been given to the WTO to make the assessment on the HUF as such, including the year relevant to the previous year in which the partition has taken place. Moreover, that was a case in which Section 20(2) was sought to be applied, unlike the present case, in which the assessments are made under Section 20(1).

According to Section 20(2), if the WTO is not satisfied that a partition has taken place, he can declare that the family be deemed to continue as HUF so as to make assessments as if it was still a joint family. An argument advanced by the assessee is that the word "continue" presupposes the existence of assessments on the HUF and, therefore, even Section 20(1) could apply only to HUF's hitherto assessed. We are unable to see any such necessary implication. Even Section 20(2) enables assessments to be made for the period after the alleged partition only by deeming the HUF to continue. Therefore, for such action the existence of assessments on the HUF is not a prerequisite because it is enough if a HUF existed. But there is no need for any such fiction for assessing a HUF for the period before the partition. All that is required is that there is a person who can properly represent the disrupted HUF. Besides, the two Sub-sections (1) and (2) of Section 20 operate in different fields and Sub-section (2) cannot qualify Sub-section (1). Therefore, there is nothing explicit in Section 20 nor is there any necessary implication which can be read into it on the authority of the decision, cited on behalf of the assessee, that it applies only to a joint family which has been hitherto assessed as in the case of the Income-tax Act.

5. The second contention of the assessee that Section 20 cannot be invoked in the case of assessment made under Section 17 is equally untenable. Section 20 provides that where at the time of making an assessment it is brought to the notice of the WTO that a partition has taken place he shall make the assessment of the undivided family as such for the assessment years including the year relevant to the previous year, in which the partition has taken place if the partition has taken place on the last day of the previous year, and each member and group of members shall be liable jointly and severally to the tax assessed on the net wealth of the family, as such. The very opening words "at the time of making an assessment" make no distinction between the assessments made under Section 16 and assessments made under Section 17. Besides, Section 2(ca) defines the word "assessment" to include reassessment and, as in the present case, even under Section 17 original assessments are possible where no assessment has been made before. Hence, it is clear that the machinery provided for the WTO to determine the liability of the family is available at the time of making assessments under Section 17 as well.

6. The real question of importance is whether the WTO could initiate proceedings under Section 17 in respect of a joint family which has already been disrupted. According to the assessee, a joint family which is a taxable entity and a juristic person must be considered to be dead when it is disrupted by a total partition and ceases to exist. The argument goes that there can be no assessment on a dead person. But, there are several reasons why this argument cannot be accepted.

Firstly, though there cannot be an assessment on the wealth of a dead person in respect of the assessment year after the death, there can definitely be an assessment in respect of the assessment years prior to the death as there is machinery provided in the Act for assessing that wealth and collecting the tax from the legal representatives. The case of a HUF which is totally disrupted is no different. Even though the counsel for the assessee may regard it on disruption as a person who is dead, we are concerned only with the wealth held by that family when it was in existence and the question is whether an assessment can be made after its disruption. The answer is found in Section 20 itself which provides that the ITO has to make an assessment in respect of the assessment years prior to the partition and the members shall be liable for the tax assessed. Secondly, mere severance of the status of the family is not recognised as a disruption of the family for the purpose of the Wealth-tax Act. Section 20 requires the WTO to be satisfied that the property has been partitioned in definite portions. Therefore, until the WTO is satisfied that the property of the family has been divided in definite portions, as far as he is concerned, the joint family continues. Therefore, he is entitled to issue a notice to the karta of the joint family to return the particulars of the wealth of the family by initiating proceedings under Section 17. Even if the karta claims that he does not represent the family because there has been a severance of status by partition, as far as the WTO is concerned, he represents the family until the WTO is satisfied that the partition has taken place by division of the properties in definite portions. The WTO can be satisfied only after an enquiry into the claim of the karta, which takes place after he files a return in response to the notice and, therefore, it cannot be said that the notice to the karta who claims that his family has already been partitioned, which proceeds the enquiry into that claim is in any way invalid. Thirdly, under Section 14 every person, if his net wealth or the net wealth of any other person in respect of which he is assessable, exceeds the amount liable to tax shall file a return when required. Even if it can be said that the joint family, as the assessee required to file a return, did not exist when the notices were issued under Section 17 read with Section 14(2), it cannot be gainsaid that the karta to whom the notice was issued is a person liable to be assessed in respect of the net wealth of the other person, namely, the joint family, for the assessment years in which the joint family existed and, therefore, the notices were again valid under the provisions of Section 17 read with Section 14(2).

Moreover, as pointed out by the Gujarat High Court in the case of Goswami Brijratanlalji Maharaj (supra), under Section 17 the WTO must have reasons to believe that by reason of the. failure on the part of the HUF to make a return, net wealth of that family has escaped assessment. It cannot, therefore, be said that the WTO has reason to believe that there was total partition and not merely a severance in status until he is satisfied after an enquiry under Section 20(1) which can necessarily be made only after the notices were issued. The assessee has not been able to place before us any particular reason why the decision of the Gujarat High Court should not be applied to the facts of this case as it was decided on almost identical facts unlike the decision of the Calcutta High Court. The Calcutta High Court decision was primarily with reference to Section 20(2) whereas we are concerned with the application of Section 20(1). It is obvious that Section 20(1) is not in part materia with Section 171(1) of the Income-tax Act and the absence of the words "hitherto assessed" makes a vital difference to the scope of the section. It follows that the decision of the Tribunal in cancelling the assessments under Section 17 can in no way affect our decision in upholding the assessments under Section 20.

7. In the circumstances, we agree with the AAC that the reassessments were validly initiated in respect of the net wealth of the HUF on the valuation dates relevant to the assessment years 1966-67 to 1971-72 prior to the partition on 31-3-1973 and, therefore, we have no hesitation in confirming the assessments. The appeals are dismissed.


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