1. Krishnappa and his two sons - Thimmayya and Venkatanarsu - constituted aHindu undivided family. They carried on business in mining in the name andstyle of Krishnappa and Sons. The family was disrupted in 1946, and all itsproperties were divided among the members of the family. The business ofKrishnappa and Sons was taken over by a firm which the partners were Krishnappaand his two sons. A private limited Company styled 'Krishnappa Asbestosand Barytes (Private) Ltd.' took over the business of the firm on May 21,1947 for Rs. 2,04,000. Thimmayya obtained employment under the Company as minessuperintendent at a monthly salary of Rs. 400 and Venkatanarsu as GeneralManager at a monthly salary of Rs. 500.
2. Proceedings for assessment of tax due by the Hindu undivided family forthe years 1941-42, 1942-43, 1944-45, 1945-46 and 1946-47 were pending at thetime when the Hindu undivided family was disrupted. On May 20, 1946,Venkatanarsu claimed before the Additional Income-tax Officer, Cuddapah thatthe property of the Hindu undivided family had been partitioned among themembers in definite portions. For reasons which do not appear from the record,this claim was not disposed of till June 30, 1952. In the meanwhile assessmentsfor the five years in question were made by the Income-tax Officer on diversedates between September 30, 1948 and November 30, 1950, resulting in a taxliability of Rs. 65,750 in the aggregate for the five years. Appeals preferredagainst the orders of assessment to the Appellate Assistant Commissioner andthe Income-tax Appellate Tribunal proved unsuccessful. It is common ground thatit was not contended in the appeals that in making the orders of assessment,without disposing of the claim that the family was disrupted in 1946, theIncome-tax Officer had acted illegally.
3. On June 30, 1952 the Income-tax Officer, Special Circle, Madras, made anorder under section 25-A recording that the property of the Hindu undividedfamily of Krishnappa and his sons was partitioned on November 2, 1946. As thetax due was not paid the Income-tax Officer made an order under section 46(5)of the Indian Income-tax Act, 1922 on June 25, 1958 calling upon the ManagingDirector to withhold the amount of tax due from the salaries payable to thedefaulters Thimmayya and Venkatanarsu and to show the same to the credit of theGovernment of India.
4. Thimmayya and Venkatanarsu then lodged petitions under Art. 226 of theConstitution in the High Court of Andhra Pradesh at Hyderabad, praying thatwrits of certiorari or other appropriate writs be issued quashing the orderdated June 25, 1958 of the Income-tax Officer under section 46(5). They foundedtheir petitions on two grounds - (i) that after the Income-tax Officer recordedan order on June 30, 1952 under section 25-A(1) that the family has disrupted'with effect from November 2, 1946', steps taken for recovery of theamount of tax assessed without an appropriate order under section 25-A(2) wereinvalid; and (ii) arrears of tax due by the erstwhile Hindu undivided familycould not be recovered from remuneration earned by them as employees of theCompany. The petitions were decided by Seshachelapati J., in favour of the twopetitioners, and the decision was confirmed in appeal by a Division Bench ofthe High Court of Andhra Pradesh. The High Court held that the order on theclaim made under section 25-A(1) on June 30, 1952 was given 'a clearretrospective operation', and the Income-tax Officer was bound 'togive effect to that order recognising the partition and to follow up theconsequences which flowed from the order'. In the view of the High Courtthe petitioners were entitled to insist upon an order for apportionment undersection 25-A(2) and without such an order, proceedings for collection of taxcould not be commenced against them under the proviso to sub-section (2) ofsection 25-A. Against the order of the High Court, with certificate of fitness,these two appeals have been preferred by the Income-tax Officer, Cuddapah.
5. Under the Indian Income-tax Act, 1922, as it originally stood, a Hinduundivided family was regarded by section 3 as a unit of assessment, but nomachinery was set up for levying tax or for enforcing liability to tax on themembers of the family, if before the order of assessment the family wasdivided. Absence of this machinery was more acutely felt because of section14(1), which provided that tax shall not be payable by an assessee in respectof any sum which he received as a member of a Hindu undivided family. Incomereceived by a Hindu undivided family could not therefore be assessed andcollected from the members of the family, if at the time of making theassessment the family was divided. To rectify what was obviously a lacuna, theLegislature incorporated section 25-A for assessment and enforcement ofliability to tax income received by a Hindu undivided family, which was nolonger in existence at the date of assessment. But the new section went verymuch beyond rectifying the defect in the statute which necessitated theamendment. Section 25-A incorporated by the Indian Income-tax Amendment Act 3of 1928 at the material time read as follows :
'(1) Where, at the time ofmaking an assessment under section 23, it is claimed by or on behalf of anymember of a Hindu family hitherto assessed as undivided that a partition hastaken place among the members of such family, the Income-tax Officer shall makesuch inquiry thereinto as he may think fit, and, if he is satisfied that thejoint family property has been partitioned among various members or groups ofmembers in definite portions he shall record an order to that effect.
Provided that no such order shallbe recorded until notices of the inquiry have been served on all the members ofthe family.
(2) Where such an order has beenpassed, or where any person had succeeded to a business, profession or vocationformerly carried on by a Hindu undivided family whose joint family property hasbeen 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 thetotal income received by or on behalf of the joint family as such, as if nopartition had taken place, and each member or group of members shall, inaddition to any income-tax for which he or it may be separately liable andnotwithstanding anything contained in sub-section (1) of section 15, be liablefor a share of the tax on the income so assessed according to the portion ofthe joint family property allotted to him or it; and the Income-tax Officershall make assessments accordingly on the various members and groups of membersin accordance with the provisions of section 23 :
Provided that all the members andgroups of members whose joint family property has been partitioned shall beliable jointly and severally for the tax assessed on the total income receivedby or on behalf of the joint family as such.
(3) Where such an order has notbeen passed in respect of a Hindu family hitherto assessed as undivided, suchfamily shall be deemed, for the purposes of this Act, to continue to be a Hinduundivided family.'
6. The Section makes two substantive provisions - (i) that a Hindu undividedfamily which has been assessed to tax shall be deemed for the purposes of theAct, to continue to be treated as undivided and therefore liable to be taxed inthat status unless an order is passed in respect of that family recordingpartition of its property as contemplated by sub-section (1); and (ii) if atthe time of making an assessment it is claimed by or on behalf of the membersof the family that the property of the joint family has been partitioned amongthe members or groups of members in definite portions, i.e. a completepartition of the entire estate is made, resulting in such physical division ofthe estate as it is capable of being made, the Income-tax Officer shall hold aninquiry, and if he is satisfied that the partition had taken place, he shallrecord an order to that effect. Where an order has been passed, the Income-taxOfficer must still make an assessment of the total income received by or onbehalf of the undivided family as if no partition had taken place, and shallthereafter apportion the income-tax assessed on the total income received bythe family and assess each member or group of members in accordance with theprovisions of section 23 by adding to the income-tax for which such member orgroup of members may be separately liable, tax proportionate to the portion ofthe undivided family property allotted to him or to the group. Thisapportionment and fresh assessment operate notwithstanding anything containedin sub-section (1) of section 14. The proviso to sub-section (2) makes adeparture of a vital character. Whereas in the case of an assessment of theincome of the joint family, the tax liability is charged upon the assets of thefamily, when upon a partition an order under sub-section (1) has been recordedall members and groups of members are expressly declared by the proviso to bejointly and severally liable for the tax assessed on the total income receivedby or on behalf of the joint family. Liability which so long as an order wasnot recorded under section 25-A(1) was restricted to the assets of the Hinduundivided family is by virtue of the proviso to sub-section (2) transformedwhen the order is recorded, into personal liability of the members for theamount of tax due by the family.
7. An order under sub-section (1) can only be made if certain conditionsco-exist - the family in question has been made hitherto assessed as undividedand a claim is made at the time of making an assessment that partition of thefamily property has been made between the members or groups in definiteportions. Sub-section (2) of section 25-A becomes effective only if an orderunder section 25-A(1) is made and not otherwise. In terms the sub-sectionenacts that the Income-tax Officer shall assess the total income received by oron behalf of the joint family and apportion it in the manner provided bysub-section (2) where an order is passed under sub-section (1).
8. The scheme of section 25-A is therefore clear : a Hindu undivided familyhitherto assessed in respect of its income will continue to be assessed in thatstatus notwithstanding partition of the property among its members. If a claimis raised at the time of making an assessment that a partition has beeneffected, the Income-tax Officer must make an inquiry after notice to all themembers of the family and make an order that the family property has been partitionedin definite portions, if he is satisfied in that behalf. The Income-tax Officeris by law required still to make the assessment of the income of the Hinduundivided family, as if no partition has taken place and then to apportion thetotal tax liability and to add to the separate income of the members or groupsof members the tax proportionate to the portion of the joint family propertyallotted to such members or groups of members and to make under section 23assessment on the members accordingly. If no claim for recording partition ismade, or if a claim is made and it is disallowed or the claim is not consideredby the Income-tax Officer, the assessment of the Hindu undivided family whichhas hitherto been assessed as undivided will continue to be made as if theHindu undivided family has received the income and is liable to be assessed.
9. Failure to make an order on the claim made does not affect thejurisdiction of the Income-tax Officer to make an assessment of the Hindufamily which had hitherto been assessed as undivided. The Income-tax Officermay assess the income of the Hindu family hitherto assessed as undividednotwithstanding partition, if no claim in that behalf has been made to him orif he is not satisfied about the truth of the claim that the joint familyproperty has been partitioned in definite portions, or if on account of someerror or inadvertence he fails to dispose of the claim. In all these cases hisjurisdiction to assess the income of the family hitherto assessed as undividedremains unaffected, for the procedure for making assessment of tax isstatutory. Any error or irregularity in the assessment may be rectified in themanner provided by the statute alone, and the assessment is not liable to bechallenged collaterally.
10. In the present case claim was undoubtedly made at the time of making anassessment, that the property of the family was partitioned. The claim was notdisposed of before making the assessment, and the Income-tax Officer proceededto assess the income of the family as if the property of the family had notbeen partitioned. It is true that by order date June 30, 1952 the Income-taxOfficer held that the property of the family was partitioned on November 2,1946. But the Act contains no machinery authorising an Income-tax Officer tore-open an assessment of a Hindu undivided family, relying upon an order madeby him under section 25-A(1) after the order of assessment is made. In thepresent case appeals were filed and it is common ground that no objection wasraised as to the regularity or legality of the procedure followed by theIncome-tax Officer. The assessment proceedings were taken to the Income-taxAppellate Tribunal and the orders of assessment were confirmed. Thereafter itwas not open to the Income-tax Officer to re-open the orders of assessment,relying upon the order recording the partition, and to seek to subvert orderswhich had become final under the seal of the Income-tax Appellate Tribunal. TheHigh Court was, in our judgment, in error in holding that an order ofassessment which has become final is liable to be re-opened under section25-A(2) by the Income-tax Officer, when an order under section 25-A(1) ispassed by him subsequent to the order of assessment.
11. But the appeals filed by the Income-tax Officer must still fail. Orderrecording the partition subsequent to the date on which the order of assessmentwas made must for reasons aforementioned be ignored and tax levied as if nosuch order was made. The effect of that step however is that in the absence ofan order under section 25-A(1) and the consequential proceedings undersub-section (2) liability to pay tax must rest upon the property of the Hinduundivided family : it cannot be enforced against the members of the familypersonally. The Income-tax Officer has sought by resorting to section 46(5) toattach the remuneration earned by Thimmayya and Venkatanarsu as employees ofKrishnappa Asbestos & Barytes (Private) Ltd. this he was incompetent to do.So long as the assessment is made of income of the Hindu undivided family,liability to satisfy the tax must be restricted to the estate of the family :after an order of partition is recorded and assessment is made undersub-section (2) of section 25-A but not till then, the proviso to thatsub-section will operate.
12. The Solicitor-General contended that the second paragraph of sub-section(2) which is in the form of a proviso, is in substance a substantive provisionimposing joint and several liability for tax assessed on the total incomereceived by or on behalf of the joint family against all members of the family.The contention is that by the proviso the Legislature intended that in respectof the income of a Hindu undivided family, once partition is effected, whetherthe partition is recorded or not under sub-section (1), all members of thefamily will be jointly and severally liable for the tax assessed on the totalincome received by or on behalf of the family. But howsoever read the provisoyields no such meaning. The scheme of the section is that so long as there isan assessment of the Hindu undivided family, the liability for payment of thetax is on the property of the family and not personally on the members. Wherean order that the property of the family has been partitioned is recorded, theliability of the members has to be apportioned in the manner set out in thesub-section, but one of the incidents of assessment after apportionment of taxliability is that the members of the family stand jointly and severally liablefor the entire amount of tax assessed against the family.
13. In the present case no orders were recorded by the Income-tax Officer atthe time of making assessments in respect of the five years, and therefore nopersonal liability of the members of the family arose under the proviso tosub-section (2). The Income-tax Officer does not seek to reach in the hands ofThimmayya and Venkatanarsu the property which was once the property of theHindu undivided family; he seeks to reach the personal income of the tworespondents. That the Income-tax Officer could do only if by virtue of theproviso to sub-section (2) a personal liability has arisen against them. In theabsence of an order under sub-section (1), however, such a liability does notarise against the members of the Hindu undivided family, even if the family isdisrupted.
14. We are, therefore of the view, but not for the reasons mentioned by theHigh Court, that because there has been before the orders of assessment noorder recording that the property of the family has been partitioned among themembers, the two respondents are not personally liable to satisfy the tax dueby the joint family. The remedy of the income-tax authorities in thecircumstances of the case, was to proceed against the property, if any, of theHindu undivided family. That admittedly they have not done.
15. The order of the High Court must, therefore, be confirmed and theappeals dismissed with costs. There will be one hearing fee.
16. Appeals dismissed.