1. The dispute in the present appeal relates to the taxability of capital gains arising out of the acquisition of a property situated at 22, Hardinge Avenue (now Tilak Marg), New Delhi.
2. The facts of the case are as stated hereafter. Originally there was a joint Hindu family under the name and style of 'Shital Prasad Kharag Prasad'. The family consisted of Raja Sir Moti Chand, his younger brother Shri Gokul Chand, the sons of the latter and the sons of a predeceased brother, Shri Mangla Prasad. The eldest son of Shri Mangla Prasad was Shri Jyoti Bhushan Gupta (J.B. Gupta). Raja Sir Moti Chand was originally the karta of the family. He died in 1934 leaving no male issue. After his death, Shri Gokul Chand became the karta. He also died in 1958. Thereafter, Shri J.B. Gupta became the karta of the family.
3. The family had income from business, house property and zamindari properties spread over at different places including Varanasi, Delhi and Calcutta. After the death of Raja Sir Moti Chand in 1934, the business of the family virtually came to a close and a separation took place between two branches ; one consisting of Shri Gokul Chand and his sons and the other consisting of Shri J.B. Gupta and his sons. They held equal share in the family assets. Due to certain accounting differences, a suit of partition, being suit No. 49 of 1936 was filed by Shri J.B. Gupta against his uncle Shri Gokul Chand in 1936. A preliminary decree was passed by the trial court of Varanasi in March 1941 confirming undisputed half share of each branch in the family properties. Ultimately, the dispute went in appeal before the Hon'ble Supreme Court being Misc. Civil Appeal No. 1219 of 1967 on various accounting matters including the date of separation disputed to be in 1934 or in 1938. The Supreme Court referred the matter to an arbitrator. The award of the arbitrator given on 28-4-1973 was confirmed by the Supreme Court on 16-7-1973. The effect of this award was that the family was disrupted on the above date. An order under Section 143(3)/171 of Income-tax Act, 1961 ('the Act') was also passed by the ITO on 27-4-1976, regarding the fact of partition on 18-7-1973.
We quote the above order in full as under: The assessee was assessed as HUF up to the assessment year 1973-74 and the only source of income was property and dividends, For the assessment year 1974-75 a return has been filed showing an income of Rs. 8,983 up to 30-6-1973. A complete partition is claimed in the HUF by metes and bounds. The basis of partition is the Supreme Court decree dated 18-7-1973 on the basis of award of the arbitrator dated 28-4-1973. In the award all the properties have been finally divided between the two branches of the HUF. The shares of HUF have been divided.
Necessary formalities under Section 171 have been complied with. In view of the Supreme Court's decree and facts stated above complete partition is accepted with effect from 18-7-1973.
Income shown up to June, 1973 is accepted. Assessment is made on a total income of Rs. 8,980. Issue ND and challan.
4. Property situated at 22, Hardinge Avenue had been let out to Union of India on requisition since 1942. It was acquired by Delhi Administration for the purpose of establishing a women's polytechnic.
The acquisition was done under the Land Acquisition Act, 1894. The Land Acquisition Collector, Delhi, gave his award No. 1919 on 26-10-1966, which was confirmed by the Collector of Delhi on 5-12-1966. Interest on the amount of compensation was also claimed from the Land Acquisition Collector. He, however, did not award any such interest as he found that the possession of the land had not been taken over by 26-10-1966.
Subsequently, appeals were taken against the above award before the Addl. District Judge, Delhi. The Addl. District Judge while passing his order on 18-3-1975, held that the possession of the property in question was formally transferred to the Land Acquisition Collector on 20-12-1963. The Addl. District Judge observed that the property in question was formerly in the occupation of Delhi Administration as tenant, but after acquisition its possession was formally transferred to the Land Acquisition Collector on 20-12-1963.
5. The ITO being of the opinion that the capital gains was assessable in the assessment year 1967-68 with reference to the date of the award of the Land Acquisition Collector being 26-10-1966 took action in that year. He assessed the amount of capital gain, which he computed at Rs. 25,98,450 in the assessment year 1967-68. The order of the ITO was set aside by the Tribunal vide latter's order dated 20-6-1974.
6. Subsequently, the ITO became conscious of the fact that the capital gains was not taxable with reference to the date of the award, but with reference to the date when the possession of the property was transferred. This is clear from the language of Section 45 of the Act, which subjects any profits or gains to capital gains which arises from the transfer of a capital asset effected in the previous year and such gain is deemed to be the income of the previous year in which the transfer takes place. Since the transfer of the property was held to have taken place on 20-12-1963, the ITO felt that the capital gains was taxable in the assessment year 1964-65. The original assessment for the assessment year 1964-65 was made on 11-2-1969. No such profit or gain was brought to tax in that assessment. This order was subsequently revised on 27-12-1973 under Section 254 of the Act consequent to the order of the Tribunal dated 29-9-1973. Up to this date, the question of taxation of the capital gains did not arise. The ITO, in the circumstances stated above, sought the approval of the CBDT for reopening of the assessment for the assessment year 1964-65.
7. After the receipt of the CBDT's approval, the ITO issued a notice under Section 148 of the Act on 20-8-1976. The notice was addressed as under: It was served on 27-8-1976 on one Shri B.D. Agrawal, who acknowledged the receipt on behalf of Shital Prasad Kharag Prasad. It will be relevant to mention here that in the meantime Shri J.B. Gupta had also died on 13-8-1974. It was not disputed before either of the lower authorities or even before us that Shri B.D. Agrawal had been looking after the affairs of the family from time to time. He had a written authority in his favour from Shri B.D. Gupta, but it was submitted such an authority came to an end with his death in 1974. After the death of Shri B.D. Gupta, the next senior member of the family was Shri Raj Kumar. Shri Raj Kumar wrote to the ITO on 1-10-1976 acknowledging the service of the notice under Section 148 on 27-8-1976 and sought extension of time for submitting the return. Subsequently, another notice under Section 142(1) of the Act was also issued in the name of the family, which too was served on Shri B.D. Agrawal. This notice was also acknowledged by him on behalf of the family. Shri Raj Kumar again sought time for compliance vide his letter dated 8-11-1976.
Subsequently, a return was also filed by him on 7-1-1977. The ITO finally made the assessment on 24-7-1981. In this assessment, he included the capital gains of Rs. 29,62,980, besides interest of Rs. 15,612, from 20-12-1963, i.e., the date of the transfer of the property to 31-3-1964 being the last date of the accounting year relevant for the assessment year 1964-65.
8. In the course of the assessment proceedings, the ITO also sought instructions of the I AC under Section 144B of the Act. In the course of the hearing by the IAC as well as before the ITO, a number of objections were raised against the proposed assessment. There were three main objections. The first was that a partial partition had taken place in the family on 8-12-1962, i.e., long before it was disrupted as per the order of the Supreme Court. It was submitted that the property in question had been taken out from the family assets and had become a joint property of the various members of the family. It was, however, submitted that the claim of partial partition under Section 171 was made before the ITO for the first time on 12-2-1980. The second objection before the IAC was that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year 1964-65, and, therefore, it could not be said that the income chargeable to tax had escaped assessment for the above reasons. It was contended that in the circumstances the ITO did not have jurisdiction to initiate action under Section 147(a) of the Act as was supposed to be done. It was further submitted that the assessee did not know the date of the transfer, which was only known when the Addl. District Judge had passed his order on 18-3-1975. On the other hand, it was submitted that the fact of possession was within the knowledge of the ITO as the latter had been following proceedings before the arbitrator as well as before the Supreme Court throughout the period with a view to safeguard the interests of the revenue. It was, therefore, submitted that the ITO could not assume jurisdiction for reopening the assessment under Section 147(a). The third submission before the IAC was that the notice under Section 148 had neither been validly issued nor it had been validly served in terms of Section 283(1) of the Act. Section 283(1) prescribes the mode of service of a notice after a finding of total partition has been recorded by the ITO, under Section 171 in respect of a Hindu family. We will have occasion to refer to this section a little later in our this order. Suffice it to say that all these submissions were rejected by the IAC and consequently by the ITO also.
9. The assessee appealed to the Commissioner (Appeals). The submissions, which were placed before the ITO/IAC were repeated before the latter. The first contention of the learned counsel for the assessee before the Commissioner (Appeals) was that it was the case of a mere change of opinion on the part of the ITO and, in any case, there was no omission or failure on the part of the assessee to disclose the primary facts relating to its assessment. In support of this contention, the counsel for the assessee drew the attention of the Commissioner (Appeals) to the fact that the ITO was keeping a close track of the appeal against the order of the Land Acquisition Collector in the Court of the Addl. District Judge. In support of this submission, attention of the Commissioner (Appeals) was drawn to a number of letters and documents. The above submission was not accepted by the Commissioner (Appeals). He held that the concerned ITO did not come to know that the formal transfer of the property had taken place from the assessee to Delhi Administration, even though occupation had been transferred from CPWD to Delhi Administration. According to him, in view of the specific finding given by the Land Acquisition Collector that the possession of the land had not been handed over, the ITO naturally believed that only occupation had been transferred and not the ownership. On the other hand, he held that it could not be said that the assessee did not know, that the ownership of the property had been transferred on 20-12-1963.
10. The Commissioner (Appeals) also did not accept that there was any partial partition in the family on 8-12-1962 with regard to the property in question as the ITO had not passed any order under Section 171. He rejected the claim of the assessee that no formal order was necessary in this regard in view of the decision of the Supreme Court in the case of Kalloomal Tapeswari Prasad (HUF) v. CIT  133 1TR 690. It was held in this case that an order under Section 171 is necessary even in the case of partial partition.
11. The Commissioner (Appeals), however, agreed with the contention of the assessee that the service of the notice on Shri B.D. Agrawal was not in accordance with the ''procedure laid down in Section 283(1).
Section 283(1) reads as under: (1) After a finding of total partition has been recorded by the Income-tax Officer under Section 171 in respect of any Hindu family, notices under this Act in respect of the income of the Hindu family shall be served on the person who was the last manager of the Hindu family, or, if such person is dead, then on all adults who were members of the Hindu family immediately before the partition." There was no dispute before the Commissioner (Appeals) that a finding of total partition had been recorded by the ITO under Section 171 in respect of the assessee on 27-4-1976. We have already quoted this order of the ITO in full above. There was also no dispute before him that the karta of the family Shri J.B. Gupta had died on 13-8-1974. This fact is supported by the death certificate appearing at page 46 of the paper book submitted by the assessee. According to the Commissioner (Appeals), therefore, notices under the Act in respect of the income of the assessee were compulsorily to be served on all adults who were members of the family immediately before the partition, i.e., on 18-7-1973. Since no such notices have been issued or served by the ITO, he held that the notice under Section 148 had not been properly served in law and, therefore, the subsequent proceedings and the assessment were invalid. He rejected the finding of the IAC under Section 144B that Shri Raj Kumar had become the karta of the HUF after the death of Shri J.B. Gupta. In his opinion, such a plea could not be taken after the family had been disrupted on 18-7-1973 when the karta was Shri J.B.Gupta. Shri Raj Kumar, according to him, could not become the karta after the family had ceased to exist. The Commissioner (Appeals) then dealt with a number of other objections and gave his decisions.
12. Against the above findings of the Commissioner (Appeals), the department has filed present appeal. The main contention in the appeal is that the Commissioner (Appeals) had erred in law and on fact in appreciating that the notice under Section 148 had been served on a person who had been receiving the notices before the alleged partition and also after the partition and the validity of service on him had never been disputed in the past. It was contended by the learned departmental representative that no such objection regarding the validity of the service of the notice was taken before the ITO and that such an objection was taken for the first time only before the IAC in the course of proceedings under Section 144B. Referring to the decision of the Madhya Pradesh High Court in Balchand Malaiya v. CIT, he submitted that notice to each member of the family was not necessary and that the service of notice only to the erstwhile karta was sufficient. In this connection, he also referred to a decision of the Calcutta High Court in Lakshmi Chand Swaikav . ITO  112 ITR 212.
This case relates to the service of a notice on a dissolved firm. He also argued that Shri Raj Kumar was the next senior member of the family and that he had also complied with to the notice issued under Section 148 by filing a return. Referring to Shri B.D. Agrawal, he submitted that this gentleman had appeared before the AAC and that Shri Raj Kumar had admitted the service of the notice. He further submitted that if there was any irregularity in the service of the notice, it was only a procedural irregularity, which could be condoned under Section 292B of the Act. He also referred to another decision of the Madhya Pradesh High Court in Dr. H.R. Rai v. CIT  145 ITR 809. It was held in this case that even if there was any procedural irregularity in the service of the notice in that it was not served by the serving officer on the assessee personally or on an agent empowered to receive service, that irregularity lost all significance once the notice was received by the assessee and was acted upon by him before the ITO without raising any objection.
13. In reply, the learned counsel for the assessee submitted that in the first place notice issued on 20-8-1976 was invalid inasmuch as it did not specify the status in which the return was required. To this there was a reply from the learned departmental representative that the notice mentioned the permanent account number of the assessee, which was the number of the assessee-family only and, therefore, there could not be any doubt in the mind of the assessee that the notice pertained to itself. In our opinion, in view of the mention of the permanent account number on the notice itself, the above argument of the counsel loses importance.
14. Proceeding further, the learned counsel for the assessee submitted that not only it is necessary that a valid notice should be issued under Section 148 but it was equally necessary that it should be validly served. He contended that the service of the notice was a pre-condition for assumption of jurisdiction under Section 147(a) and further that it was also mandatory that it should be served in accordance with the procedure laid down in Section 283(1).
15. We have carefully considered the submissions placed before us. The Supreme Court in the case ot CIT v. Kurban Hussain Ibrahimji Mithibor-wala  82 ITR 821 had held that it was well settled that the ITO's jurisdiction to reopen an assessment under Section 34 of the Indian Income-tax Act, 1922 ('the 1922 Act') (corresponding to Section 147 of the 1961 Act) depends upon the issuance of a valid notice. If the notice issued by him is invalid for any reason, the entire proceedings taken by him would become void for want of jurisdiction.
Sufficient case law has developed on this point and it is no more in doubt that the issuance of a valid notice as also its valid service are pre-requisite conditions for the assumption of jurisdiction by the ITO under Section 147(a). The Mysore High Court in C.N. Nataraj v. Fifth ITO  56 ITR 250 had held that a notice prescribed under Section 148 for initiating reassessment proceedings is not a mere procedural requirement ; the service of the prescribed notice on the assessee is a condition precedent to the validity of any reassessment made under Section 147. If no notice issued or if the notice issued is shown to be invalid, then the proceedings taken by the ITO without a notice or in pursuance of an invalid notice would be illegal and void. In this case, notices under Section 148 were issued in the names of the petitioners who were minors and not in the names of their guardian, and were served on a clerk of the petitioners' father, who was neither an agent of the petitioners nor authorised to accept notices on their behalf. It was held that the notices which formed the basis of the proceedings under Section 147 were wholly invalid and the petitioners could not be assessed in pursuance of those notices. Reference may also be made to the decision of the Allahabad High Court in Madan Lal Agarwal v. CIT  144 ITR 745. It was held in this case that it is well settled that the issue of a valid notice to the assessee under Section 148 within the period specified under Section 149 of the Act, is a condition precedent for the validity of any assessment to be made against an assessee under Section 147. Where the notice issued to an assessee is vague. It would not be possible to rely upon it to sustain an assessment made under Section 147. A notice contemplated by Section 148 is a jurisdictional notice for initiating proceedings for making an assessment under Section 147 and any defect in the notice cannot be cured by anything done by the ITO subsequently. A vague notice is an invalid notice and in such a case the vagueness cannot be removed by reference to other documents on the record. Similarly, if a notice itself is otherwise bad in law, the invalidity thereof cannot be cured by any act of the assessee to whom the said notice is issued including the filing of the return itself. We find that in the present case, the notice was addressed to an HUF on 20-8-1976 when the family itself had ceased to exist in 1973. Such a notice was, therefore, clearly invalid in spite of the fact that it bore the permanent account number of the family as on the record of the Income-tax Department.
16. We will now come to the service part of the notice. We have already found above that after a finding of total partition had been recorded by the ITO under Section 171 and after the last manager Shri J.B. Gupta had died in 1974, it was incumbent upon the ITO to serve the notice on all the adults, who were members of the family immediately before the partition.
17. A similar issue came up for the consideration of the Madras High Court in Thangam Textiles v. First ITO  90 ITR 412. It was held in this case that there was no difference between the 1922 Act and the 1961 Act in regard to reassessment proceedings and a valid notice under Section 148 is the foundation for the initiation of reassessment proceedings and a condition precedent for the validity of any reassessment. It was further held in this case that the notice under Section 283(2) had to be issued only to such of those persons who were partners immediately before the dissolution of the firm. The phrase 'immediately before' in Section 283(2) means 'preceding the date of dissolution' and has no reference to the year of assessment. Therefore, where the notice under Section 148 was served on an erstwhile partner who had retired long ago and was not a partner immediately before the dissolution of the firm, the reassessment proceeding would be invalid.
This principle equally applies to the service of the notice under Section 283(1). Here the service was required to be made on all the adults who were members of the family immediately before its partition.
It was also held in the above case that Section 282 of the Act provided for the mode of service and Section 283(2) was a special provision relating to the mode of service in cases of dissolved firms. Unless the notice was served in the prescribed manner, the service was insufficient. In view of this principle, unless the service is made in the case of a family under Section 283(1), it will have to be treated as insufficient. In the definition of the word 'adult members' will also have to be included the female members of the family, who have come to age of discretion.
18. We also do not think that the department can seek shelter behind Section 292B. That section condones the invalidity which arises merely by reason of any mistake, defect or omission in a notice, if in substance and effect it is in conformity with or according to the intent and purpose of the Act. We do not think that the non-service of the notice on all the adult members of the family in terms of Section 283(1) in the manner stated above could be called only a mistake, defect or omission and that too being in substance and effect in conformity with or according to the intent and purpose of the Act.
19. We, therefore, upheld the finding of the Commissioner (Appeals) on the ground that neither a valid notice has been issued to the assessee nor it has been validly served. Service on Shri B.D. Agrawal was of no consequence. Admittedly, there was no family in existence. He could not, therefore, represent the family as he purported to do. He was only authorised by Shri J.B. Gupta. That authority also came to an end with his death in 1974. Even if it may be assumed that Shri B.D. Agrawal had been representing the family before the income-tax and other authorities from time to time, that would not give him authority to receive the notices on behalf of the family, which had ceased to exist.
Admittedly, no notices have been issued to any adult members of the family. In other words, there was complete non-compliance of Section 148 in the present case. That being the position, the Commissioner (Appeals) was aptly justified in cancelling the reassessment made by the ITO on 24-7-1981. In the view, we are taking it is not necessary for us to go into the other grounds raised on behalf of the department.
20. The assessee has also similarly taken a number of cross-objections.
One of these cross-objections is that the ITO could not assume jurisdiction under Section 147(a) as there was neither any omission nor any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year 1964-65. Same arguments were adversed by the learned counsel for the assessee on this issue. Similarly, he advanced his arguments on other contentions raised in the cross-objections also. However, in view of the fact that we have upheld the cancellation of the reassessment by the Commissioner (Appeals) on another ground, we do not think it necessary to deal with any of these objections in our this order.
However, the parties will be at liberty to place these objections in case the matter is restored for fresh consideration by the Tribunal by any higher authority.
21. In the result, while the appeal by the department is dismissed, the cross-objections by the assessee are treated as infructuous and are also rejected.